Shyft Group Inc (SHYF) 2011 Q4 法說會逐字稿

Good morning and welcome to the Spartan Motors fourth quarter and full year 2011 conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference. Today's conference call is being recorded at the request of Spartan Motors. If anyone has any objections, you may disconnect at this time.

I would now like to introduced Mr. Greg Salchow,Director of Investor Relations and Treasury for Spartan Motors. Mr. Salchow, you may proceed.

Thank you. Good morning, everyone, and welcome to Spartan Motors' fourth quarter and full year 2011 earnings call. I'm joined on the call by John Sztykiel, President and CEO of Spartan Motors, and Joe Nowicki, our Chief Financial Officer. I assume everyone has seen the Company's earnings release this morning. John and Joe will take a few minutes to discuss the results for the quarter.

However, before we begin I need to inform you that certain statements made today during the conference call, which may include management's current outlook, viewpoint, predictions and projections regarding Spartan Motors and its operations may be considered forward-looking statements under the Securities Laws. As a result I must caution you that as with any prediction or projection there are a number of factors that could cause Spartan's results to differ materially. All known risks our management believes could materially affect results are identified in our Forms 10-K and 10-Q filed with the SEC. However, there may be risks he we face.

With that I'll now turn the call over to John Sztykiel.

Greg, thank you very much, and good morning to all and thank you for joining us today. First I'm just going to cover a quick overview actually of the first half of 2012 slash 2012, then discuss Q4 2011, full year 2011, followed by the operational plan, the growth agenda and the market overview. Joe Nowicki, our CFO, will then provide a more detailed review of the fourth quarter of 2011 and the full year financial results. We will then conclude with an update, our strategic direction, followed by a Q&A session.

Just quickly as I looked at 2012. And the interesting thing is and actually what takes me very comfortable in 2012 where I sit here today is that, when I look at 2012, the backlog is up, our cost base is reduced. We have several strategic initiatives in place from Reach, [horizon], moving forward with several yet to come, and we look forward to 2012 getting off a good way, a good start, and we're excited about this year, much more so than where we were last year at this time.

So I just wanted to give you a quick synopsis, because as we look at 2011, we did a lot of things right from a strategic perspective. We made money, which was very positive. Did a lot of things right from a balance sheet perspective. However, when you look at the operating income, obviously it was a challenging year for us, and we look forward to 2012 being better.

In the fourth quarter Spartan reported revenue of $111 million and net income of $0.02 per share. Our revenue for the quarter was down from $126.9 million in the prior year, while our net income per share in the fourth quarter of 2010 was $0.10 per diluted share.

Most of the decline in revenue year-over-year was due to a large parts order in our defense business that we shipped in the fourth quarter 2010. Due to cut backs in defense spending, this order was not repeated in 2011, and it accounted for $12.5 million of the $15.7 million revenue decline in Q4 of 2011 versus 2010. So as you see, while the defense business is very, very challenged, the defense business was also very, very profitable for us, and this is reflected in our financials.

And I apologize if I sound a bit nasal. Just battling a sinus infection, so I will also be reaching for some water.

The Delivery and Service segment posted higher revenue for the quarter despite encountering a variety of manufacturing issues during the launch of the Reach van and an unrelated delay in the shipping of some current step-in units. Revenue not quarter was up still nearly 7% to $41.9 million due to higher aftermarket parts sales, primarily of the keyless remote products.

During the first half of 2011 we talked about steps we had taken to reduce our cost structure as demanded in some of our business segments had weakened. These steps were reflected in a lower operating expense for the fourth quarter, which was down $1.3 million from the fourth quarter of 2010. We will continue to watch costs closely in all areas of our businesses and remain dedicated to aligning our cost base with our expected revenue stream. Do we expect to reduce our cost base in 2012 versus 2011? The answer is yes, as this is an area under control, but we have some very disciplined plans in place, and we look forward to executing those plans.

We ended the fourth quarter with net income of $0.02 per diluted share, compared to $0.10 per diluted share in 2010. Although no one at Spartan was satisfied with our fourth quarter results, I am pleased with the progress we made during the challenging year, the execution of several strategic initiatives, and as I mentioned earlier, we're excited about the first half of 2012.

As I look at the year, some of our accomplishments for the year include starting the production of Reach. Although we missed our targeted ship date, those vans are now in the hands of customers, and we look forward to 2012. And simply the reason we delayed the start of shipment of the Reach -- and everything has been moved back by one quarter -- was the focus on quality. A large portion of the Reach product will be going through the Isuzu distribution network. That distribution network of 280 dealers for the past 24 years in a row has delivered number one market share in the low-cab-forward business of class two through five.

Our desire over time is for the Reach to be number one in market share in its respective market niche. And when you're number one in market share for 24 years in a row, you do a lot of things right, whether it be in the quality, the performance and the price. And as we took a look at the Reach and the products which are coming off the line -- and this was a joint effort between Isuzu, Spartan, and Utilimaster -- we felt the quality was not where it needed to be, so we made the right decision to delay things by approximately 30 to 45 days so we could deliver high-quality product to FedEx and a number of other customers.

From a balance sheet perspective we increased our cash balance by $17.2 million during the year to nearly $32 million at the end of 2011. We gained market share in emergency response, an important market for Spartan, one of grate growth, and we did this despite a market that was depressed by 20% to 30%. We significantly improved the operating income at Utilimaster.

Our order backlog increased by 1.8% to $137 million at year-end. Especially notable is our backlog in the Delivery and Service segment, which nearly doubled to $47.7 million. Emergency response bodies also showed an increase in backlog by year end, and emergency response orders picked up substantially around the end of the year and as we moved into January as well. All of these are encouraging signs as we look to 2012.

The diversification of our revenue continued to move in the right direction with our focus on business to business and business to consumer sales. They now compromise 53.4% of our revenue, and 46.6% is government dependent in the fourth quarter of 2011, compared to 54% and 45% respectively for all of 2011. And, again, that's dramatic shift versus 2008, where in 2008 approximately 80% of our business was government dependent.

So it's interesting -- not only am I proud of the fact that we made money again in 2011, but when I look at how we have continued to diversify the business, transform the business, strengthen the balance sheet, more than double the backlog of an acquisition which we integrated less than two years ago, we have done a lot of things right moving the ball in the right direction, which is why we're very focused on delivering greater income results in 2012.

Let's talk a few minutes about the Utilimaster Bristol consolidation, of which there is a separate release on that today, and extremely exciting event. In earlier calls and while Joe and I have had visits with each one of you, and at times you have all complimented us on outside on the improvement of Utilimaster, we have all said there is still much more improvement yet to be had, as there is tremendous opportunity. Earlier today we announced the third step in our strategic plan to meet these goals.

The first step was to improve operations and profitability in the existing Wakarusa facility, a task that we have accomplished. And Joe's going to get into some of that detail. The second step was to bring the Reach van product to market. That was accomplished. The third step was to look or develop the right facility operational map, and that is now in Bristol, Indiana.

To give you some idea not scope of the product and what it means, we signed a lease with [Fruit Hills] Investment today on the Bristol facility that will allow us to move from a sprawling 16 building campus, which is over 700,000 square feet, into a more modern and efficient one building, under one roof, that is about 13 years old and has about 425,000 square feet. What's interesting is in Wakarusa most of the buildings are more than 40 years old, with the newest being 30 years old.

And to give you just a little bit of perspective if you ever went there and you had just washed your car and you drove around the facility visiting the different buildings -- and, again, 16 buildings. So when you think about the added indirect cost -- the overhead, the operating expense, the inefficiencies et cetera -- one, you would really dirty car. And then you would walk away and say, now this is absolute madness trying to build products within 16 buildings where the average age is 30 to 40 years old.

As the release noted -- and please take time to look at the release -- we will be reducing the none value-added process and material handling by over 80%. When you take a look at the length of line for a walk-in van to travel, it will be going from 2.5 miles to less than half a mile. Huge simplification in the assembly process. Also the ability to deliver a higher quality product.

Third, the assembly lines in the new Bristol facility will be much more flexible. They will allow changes in the layout and equipment rather easily. It's our expectation that the new plant will not have any permanent fixtures in place that dictate how the assembly lines must be laid out. What's interesting about the facility is when I first went in there you didn't see very many columns, and whoever built the building was extremely intelligent 13 years ago because they have very few columns, very, very high ceilings, very strong support. So from a facilities perspective, it is ideal from a manufacturing point of view.

And when I spoke about where we came from to where we're going, we're going from a 106 acres to 26 acres. And the reality is facilities operations is no different than your house. If you have a large house with a lot of closets or a big garage, over time you're just going to buy a lot of stuff, you're probably not going it use it, and you're going accumulate it. You're not going to manage your personal balance sheet and cash very, very well. The same is true in a business. You go from 106 acres to 26 acres, I have no doubt our inventory turns will go up, our inventory will come down, and we will see significant cash balance sheet improvement in the new Bristol facility. Why? Because you just have less space.

So as we look forward, we're extremely excited [toward] the work in process from one plant to another, and as mentioned in the release these changes should result in annual cost saving reductions of $4 million a year at a minimum. So when you look at Utilimaster -- and you have heard Joe and I talk over the last 12 months while you've complimented on us on the rate of improvement, et cetera -- this is the third step of the plan. And we have several steps yet to execute, but in 2012 we will be very focused on bringing horizon online to ensure that we see the operational benefits late in the second half and throughout all of 2013.

From an RV perspective, one of the benefits of Bristol as well is we've talked about moving the RV business down to Bristol, Indiana, or I should say down to Northern Indiana. And so all the RV chassis will be built in the Bristol facility, so we will now be within minutes of the RV marketplace, thus improving our competitive position in a substantial way. At the same time too -- again, just to reiterate -- when that happens, we will be moving the Reach van production from Indiana up to the Charlotte campus, so from an Isuzu partnership perspective, everything with and around Isuzu will be located in Charlotte, Michigan.

And what's interesting, just a quick update on Isuzu, the initial plan in 2011 was to be build -- or assembling 14 units of the N-Series product per day, with approximately 50 people in a 35,000 square foot building. Today we're a seeming approximately 21 units per day with 49 people in a 50,000 square foot building. Another great strategic and operational accomplishment for us in 2011.

We do expect to incur an asset impairment charge on the value of the Wakarusa campus, which will be offered up for sale. At present we estimate that asset impairment charge to be in the range of $4 million to $6 million. Bristol is an important part of improving our operations, driving income in the right direction, and positioning Utilimaster for the next step of growth as they move into the future from a delivery and service perspective.

Let me give you a couple other updates on the Delivery and Service business, just quickly. As we talked about, we continued to make progress on the front in that approximately 54% of all of our revenue in 2011 is coming from businesses that sell to consumers or businesses. On the Delivery and Service side we posted a revenue gain of nearly 7% for Q4 and up 47% for the year, and what's nice as we go into 2012, the backlog for Delivery and Service has more than doubled than where it was a year ago.

As we also mentioned earlier, keyless or aftermarket parts and assemblies has been a key part, driving both sales and income growth. We look forward to taking advantage of the 125,000 plus Utilimaster units that are in the field. And so how do we add value on those units as the year moves on.

I mentioned a little bit early about the Reach. I talked about the reach as a market changing product. We're now moving forward with the market development of that product with the mega-fleets such as UPS, FedEx, Cintas, et cetera, very very focused on working with the Isuzu dealer and distribution network to go after the commercial parts of the marketplace, extremely excited about the Reach, but we will be very, very focused on quality. Because people look at this product, and visually it is a very different product. It has excellent fuel economy. It has an Isuzu chassis and drive train. But they also expect the performance to be better than what they have ever received from Utilimaster or any other step van or delivery and service manufacturer in the industry, and we are very, very focused on that.

As we look to 2012, we expect continued growth in the Delivery and Service business, so we're excited about it. I mentioned earlier about the backlog, and what's interesting is the backlog grew despite the expiration at the end of 2011 of a tax provision allowing full depreciation for new vehicles placed into service during the year. And what that tells you -- what that indicates to you is that the delivery and service of small things continues to go up.

Looking at potential long-term growth drivers in this segment, you may have seen some articles in the media about how consumers are turning to online shopping, especially during the holidays. A New York Times article from January 4 reported that online sales in November and December rose 15% to $35 billion. E-commerce retailers helped spur that growth with 92% offering free shipping between Thanksgiving and Christmas. The interesting points are, as society becomes more customer-centric, the delivery of small things and services continues to grow, and that's where Utilimaster comes in.

Now, let's switch markets. And this market is a bit challenged and it is our RV, recreational and specialty chassis segment. Sales were down approximately 30% for the year to $77.9 million. As we progressed through 2011, sales in this segment improved relative to 2010, especially in the RV market, but in the fourth quarter RV chassis sales were down 8% to $17.5 million compared to $19.2 million a year ago. And while the RV market is stabilizing, the reality is there has been a market shift from large class A's to smaller class A's and smaller class Cs.

On a positive side we introduced some product concepts in December at the RV show which were in line with the market shift. We're now having discussions with a number of new customers, OEMs, et cetera, and we look forward to some positive impact, but that impact will not take place until the second half of the year, because it's approximately a six to nine month cycle to go through the evaluation, the prototype design, the validation, and then you bring the product to market.

So we're still excited about the RV business, but we have a lot of work to do, not just on the market development side, but honestly on reducing our operational cost base. Because as the market shifts, our products not only have to be attractive, but we have to ensure that we can deliver the right operating income per segment, and we're not at that point yet. We're diligent, we have a plan, we're focused on getting there.

Let's move over to emergency response. And that segment, which is nice, showed signs of recovery in Q4 and as we looked at 2012. For the year sales fell nearly 25% to $106 million, but in the fourth quarter sales were down only 4.1% to $30 million, and this compares favorably to an industry-wide decline of at least 20% in Q4. Although our backlog at year-end was $45.6 million, it was still below the backlog at the end of 2010 -- the pace of orders in Q4 was stronger than what it was in the previous three quarters, and what's interesting is January was the best month for new orders since November of 2009.

And people have asked, or if you're wondering, why are we doing what we're doing in emergency response, why are we gaining share relative to the marketplace. One is we're bringing competitive product that's very innovative to the marketplace. Part of this, we have realigned our cost structure to make our products more attractive from a price perspective.

Second, there is some market uptick. As the economy has improved as a whole and there's been -- and there is now a little bit of pent-up demand in the marketplace, because you have had a number of cities and municipalities have taken themselves out of the marketplace for the last two or three years, that they are now in the market to buy trucks.

Third is the data a point today. Over 60% of all your fire trucks in the marketplace are over 15 years old. They don't have certain standards which we expect today in a passenger car, like anti-lock brakes. And it gets to the point where just your maintenance costs become very, very high, that there's a number of cities and municipalities are saying, okay, I've got a 20 to 30 year old truck. I just can't physically get the parts any more, it's unsafe or it's too expensive to maintain. We're going to figure out how to generate the funds to buy one.

So as we look forward to 2012; we're gaining share; the economy is moving in the right direction a little bit; plus you've got some pent-up demand, not just from people taking the last two to three years, but the fact you've got a large number of trucks over 15 years old.

On the emergency response body side, the business ended the year with a higher backlog. Again, a higher backlog in a market that was down 20% to 30%. A great statement to Crimson Fire, where their backlog ended the up at $28.4 million versus $26 million. Sales for the quarter were down, however, at $19.4 million, versus $21.9 million. Sales in the fourth quarter of 2011 also included the $1.9 million acquisition of Classic Fire.

Our sales and profitability in the fourth quarter of 2011 were adversely impacted by the sales of some older stock units that were sold at lower prices. In addition, our revenue mix in the fourth quarter of 2010 was unusually favorable in 2010 versus 2011. Also hurting the fourth quarter of 2011 results were a number of trucks -- a small number that were shipped early in the first quarter of 2012 due to some delays from an inspection perspective just prior to the holidays. But as we look at emergency response, it's a great marketplace, one of growing demand, where there is a calling for help every 0.73 seconds. The backlogs moving in the right direction. As we look at 2012 we're focused on growth in sales and in income, and we expect both of those to happen.

Let's switch over to aftermarket parts and assemblies. And that group had a great 2010 due to some very large defense orders. Unfortunately, those orders did not happen in 2011, and the revenue and in income dropped substantially. APA revenue fell to $7.6 million in Q4 of 2011 from $23 million in 2010. As we look to the future the defense business will be very challenging from an aftermarket parts and assemblies perspective. However, when we look at the success of Utilimaster, the opportunity in motorhomes, and the opportunity in emergency response, there is still significant growth in aftermarket parts and assemblies.

Now, Joe, I'll turn it over to you.

Thanks, John. Good morning, everyone, and thank you for joining us on the call.

The fourth quarter of 2011 proved to be a challenging end to a tough year. The main issue we faced in the fourth quarter was from a revenue standpoint, the non-recurrence of the defense orders in our aftermarket parts and assemblies that John mentioned. The absence of those orders in 2011 caused our fourth quarter revenue to decline by $12.5 million, which accounted for most of the $15.7 million revenue drop during the quarter.

Despite this challenge, Spartan posted a small profit during the fourth quarter of $700,000 or $0.02 per share, compared to $0.10 per chair in the 2012 -- in the year-ago fourth quarter. Spartan net profit for the year was $800,000, or $0.02 a share,versus $4.1 million or $0.13 per diluted share in 2010.

Our efforts to reduce costs throughout the organization earlier in the year paid offer in the fourth quarter. Operating expense declined $1.3 million from the fourth quarter of 2010. We continuously monitor our cost structure and are always looking for ways to operate more efficiently and at a lower cost while providing the best products and services to our customers.

Taking a deeper look at our income statement for the fourth quarter of 2011, sales totaled $11.2 million, a decline of $15.7 million from the fourth quarter of 2010. Again, most of that decline was due to the defense parts sales in 2010 that were non-recurring. APA sales tend to be also some of our most profitable, so a sizeable drop in this segment did have an impact on our operating results for the quarter as well.

Sales of motorhome and bus chassis recovered somewhat in the fourth quarter of 2011, with revenue of $17.5 million, down just 8.8% from the $19.2 million in the same quarter of 2010. We view this as a partial recovery, since sales were off to a lesser extent than they had been for the rest of the year.

Emergency response chassis sales declined 4.1% in the quarter to $17.5 million. Sales of emergency response bodies were also down for the quarter to $19.4 million from $21.9 million. The sales decline reflects the general trends in the emergency response industry, and also a mixed shift to lower price, lower margin units in the fourth quarter of 2011 versus a mover favorable mix that we saw in 2010. In addition to this shift we sold some older stock units at some lower. These sales have impact not only on revenue but also on gross margin.

John mentioned the bright side. Delivery and Service revenue was up nearly 7% in the fourth quarter of 2011 due to the growth of the aftermarket parts sales from $7.5 million from $4.3 million a year ago. Growth in the aftermarket sales more than offset a small decline in vehicle sales to $34.4 million from $34.9 million in the fourth quarter of 2010.

Gross margin for the quarter was 13.1%of sales versus 15.3% in the fourth quarter of 2010. In addition to the decline in APA sales I just mentioned, other contributing factors were shift to lower price, lower margin emergency response products; lower volume in all segments except Delivery and Service; and the effects of the delayed shipment of the walk-in and Reach vans.

Our cost control efforts were reflected in the decline of operating expense to $13.5 million from $14.8 million in the fourth quarter of 2010, a reduction of $1.3 million. Due to lower revenue levels, the operating expense as a percent of sales was slightly higher in the fourth quarter at 12.1% of sales compared to 11.7 in the same quarter of 2010.

And income for the fourth quarter was $700,000, compared to $3.4 million a year ago. The 2010 number is net of a loss from continued operations of $200,000. On a per share basis Spartan earned $0.02 per diluted share in the fourth quarter of 2011, compared to $0.10 per diluted share in 2010. And the 2010 figure is reported after a loss of $0.01 per diluted from the discontinued operations as well.

Now switching over to our balance sheet to take a look there. There are really two stories to tell. First, we increased our cash balance to $31.7 million at the end of 2011, an increase of $1.2 million during the quarter.

The second part is that we entered into an amended five year credit agreement with Wells Fargo and JPMorgan Chase as of December 16, 2011. We have a revolving credit facility up to $70 million. At our request, and subject to certain terms and conditions, we may also increase that by another $35 million, which is up from the $15 million that our previous credit facility allowed. In addition to our expanded credit facility, we retained $40 million in availability on our private placement notes, plus over $30 million in cash, and our debt balance remains at only $5 million.

This availability of funds is important to Spartan's future growth initiatives. As we have mentioned in the past, we operate under a blended growth strategy of organic growth, acquisitions and alliances. We believe our combined cash and borrowing capability provides us with the resource necessary to support our growth strategy. We continue to evaluate opportunities as they arise and are committed to growing our business in a responsible, thoughtful, strategic fashion.

Finally, looking at our backlog at year end 2011, our total backlog at the end of the fourth quarter of 2011 was $137 million, up 1.8% from the end of 2010. As John mentioned, the Delivery and Service segment saw the largest increase in backlog, nearly doubling to $47.7 million from $23.9 million at the end of 2010. The emergency response bodies segment also posted an increase of backlog to $28.4 million at the end of the 2011, versus $26.7 million a year ago.

In closing, my remarks about the quarter . Spartan posted modest profit in the fourth quarter of 2011 in environment that we characterize as challenging. Most of the markets are undergoing contraction due to either governmental budget pressures or economic conditions in general. Given these pressures that resulted in lower revenue base for the quarter, we're pleased that our efforts still ended up with a modest profit, but we would not say that we're satisfied with Spartan's results for the quarter or for 2011 as a whole. We'll continue to focus on expanding our revenue base and products offering while we work to minimize costs.

In some of our segments we believe the tide is turning in our favor due to improving economic conditions and new and enhanced products. Although we are in the early days of 2012, we anticipate our revenue to increase in the low to mid-single digits this year compared to 2011.

At this point I would turn the call over once again to John Sztykiel for his comments about 2012.

All right. Joseph. Thank you very much.

As Joe just said, we are determined to improve Spartan's profitability in 2012, and this should start in the first half of the year. We expect to see recovery in growth in the markets in which we operate in, and we will continue to focus on improving our operating performance. Over the past few years we have taken several steps to diversify our revenue stream, to become less dependent on the government -- federal, state and municipal money. As mentioned earlier, in 2008 government funding purchasers accounted for more than 80% of our business. Today it's approximately 46%, or 54% was derived from the private sector.

Our blended growth strategy, a strategy of growth through acquisitions, alliances and organic, has paid great dividends. And what's exciting, in 2012 there will be more. And this will start in April, the third week, at FDIC, the largest emergency response show in North America. And you will see a little bit of all three.

So as we look to 2012 and while we're excited about what we have accomplished over the past couple of years, we expect even greater opportunity or greater execution on the blended growth side of the business model position, if not just for growth in 2012 but 2013 and 2014 as well. As we have pointed out during past conference calls, we are guided by a four point operational plan; develop compelling products, growth in profitable market share. The good news is we're taking market share in the delivery and service segments and in the emergency response segments. And as I mentioned earlier, we've got work to do in the RV business, we've got a plan both from an organic perspective and alliance perspective in reducing our cost base, but it will take some time to execute that plan.

The other two tenants of the plan are to reduce our cost structure and balance our -- manage our balance sheet. And we have made great progress, but in 2012 there will be greater progress, as our gross margins must improve. Our operating expense, both from a dollars perspective and a percentage of sales, must and will come down.

And in closing, each day we basically have two choices. We can either do things differently than our competitors, or we can do the same things in a different way. And as with we do that and execute, we will be known for differentiated leadership, and we will have a greater opportunity to control our destiny. And as I look at 2011, the plan we have laid out over the last couple of years continues to move us in the right direction, and as I look at 2012 I expect our team to deliver better results across the entire Company, growth in sales, growth in income. We are simply driven to deliver.

Now we're ready for questions. Thank you very much.

(Operator Instructions). Our first question comes from Walt Liptak from Barrington Research. Please go ahead with your question.

Hi, thanks. Good morning, guys.

Morning, Walt.

Let me start with you, Joe, and just ask a couple of top down questions. You give us a little bit of guidance on 2012 with a three to five -- or the low to mid-single digit revenue growth. What do you think about on the EPS line? Given the mix changing and some of those incremental costs this year for some relocations, can the EPS be up 3% to 5%?

We really don't give specific guidance going down to the bottom line, Walt. As you know, we keep it pretty much as a top line perspective from an income point of view. As we have said, we're continuing down the path that we set out last year. We're not wavering at all from our direction around 17%, 11% and 6%; 17% gross margins, 11% operating expenses and 6% operating income. That mission kind of hasn't changed. We made progress on it, and we're going to continue to in the current year as well too.

Okay, but you're not saying that you're going to get there this year?

Correct. I think we never did.

Okay. I'm sorry, the 2012 tax rate?

Yes, estimate probably in that 37% range.

Okay. And in thinking about EPS and the mix of business, just looking at the revenue of -- in your other products, which is APA, it looks like revenue is going to be down in that, which is high margin, and up in other things. Is there going to be a continued pressure on your gross margin?

Joe, let me give you -- maybe what might help is if I talk a little bit about 2012 from the various kind of segments or markets that we operate in and give you a little bit of more direction in that regards. Maybe that will help with some of your questions.

So as we look at the emergency response marketplace, we see that as kind of a slight growth, so we don't see a significant bounce back in emergency response. But I think most of the industry [trends] there talk about -- again, probably consistent to what we said in total -- a low to mid-single digit growth rate in the emergency response business. If you look at the defense business, including our defense and also the defense parts business that's in our APA, certainly those will continue to be constrained, so you will see those decline next year. That's for certain. So you are correct there.

We think the motorhome marketplace has stabilized, so we don't think we will see a decline next year, but we think it will be pretty much stable year-over-year. We will we're continuing to have great growth in some of our specialty vehicles, so the work that we do with Isuzu that we began, that will continue to grow pretty if significantly year over year, as that volume just started last year in 2011, so in 2012 we will see great growth.

In the DSV business as you know, as John described. While we think that marketplace still has a lot of growth in it, we think next year will be probably also in that low to mid-single digit perspective. We think that market will have another solid year again in 2012. I hope that helps provide a little bit more guidance for you.

Yes, that's great. I appreciate that. And then maybe if we could just focus a little bit on some of the relocation, and I guess the first question I have is you talked about $4 million of overhead savings? Is that the same as where you mentioned none value-add efforts reduced by 80%? Is that the same number?

Yes, it is, and it's -- you said overhead. It's really a combination of what would be manufacturing overhead costs, but there's also elements of cost there in SG&A as well too. So both of those two will see some improvement which is where we get to the, as John had described, a minimum of $4 million in operating savings.

Okay. But then you get this new plan up and running there should be better gross margin -- better efficiency and better returns, I guess, out of the new plan is that right?

Absolutely.

Absolutely. That -- again, while we've got certain metrics inside, we don't have that encapsulated -- Walt, this is John Sztykiel -- into that $4 million, which is why we use the term minimum. So -- and I think you've been to that facility, or some of your team has, and just envision there -- and if you get a chance, I would encourage you to take the two hour drive to the new facility, even though you see a clean footprint, or in Q3 of this year you will see something not only from an operational perspective that will improve the gross margin, but also will help the top line. Because one of the things Utilimaster has been struggling with is while their sales growth has been fantastic, their backlog, I should say, or their deliver time. You get an order from when you deliver the product has stretched out some.

And so one of the things -- what's interesting is if you take a look at the last page of our earnings release, one of the things you should note is you see how the delivery time or the order to build cycle has come down substantially at Spartan Chassis, okay?That's one of the things, if we accomplish that at Utilimaster, I have no doubt in 2013 we'll see above double-digit -- or I should say you'll see greater than single-digit sales growth in 2013, because we will gain market share because we will be able to deliver product faster.

Okay. And presumably you would get to your target gross margin in 2013, too, with a new operation launch?

Clearly that's going to help us get there. Absolutely.

Absolutely. And that's one of the reasons when we looked at purchasing Utilimaster in 2009 we knew the operational footprint had to be changed, but we also knew that there was tremendous operating income, but also top line growth from a facility that could deliver a higher quality product at a lower cost base, both from a gross margin perspective and from an operating expense perspective, but also top line growth as we would shorten up substantially the delivery cycle from when we took an order to when we delivered it.

Okay. That's great I understand. What about any move costs in the next couple of quarters? Are you planning on putting any relocation costs as a one time charge, or are you going to put those through the income statement? And if they go through the income statement, do we get loss EPS numbers for a couple of quarters?

Yes. This is Joe. Walt, there obviously definitely will be some. We will calm them out separately on the P&L, so you will all have visibility what that number is. In regards to the specifics right now, they'll start occurring in the second quarter, with most of them being in the third and the fourth quarter. That's when the bulk of the move is going to occur.

I don't have the detailed numbers for you at this point, so I will be pulling the rest of that information together, and as we go through the current quarter we will have that information all set to give you a sense of what it means there. It will not have an impact on the first quarter. There will be some little impact on the second quarter, but most will occur in the third and fourth. We will call them out separate [for you].

Okay, and when you mean call them out, you mean you will have a separate line item in the income statement?

Yes, we will probably list them --

It will be a special charge?

We will probably list them on a separate charge or restructure line or something to that extent. And certainly in all the details of the press release and the conference calls we will make you aware of them.

Okay. Thanks. Just a couple more real quick ones. Just 2012 [D&A]and CapEx?

Yes, shouldn't be a big change in the D&A numbers or the CapEx. The only big CapEx increase this year will be related to this Bristol facility. So there will be some additional capital as we move into that facility. Again, I will have all the details -- the numbers, what it is, how much -- there are some facility improvements we need to do to the new leased environment. I will have all that stuff kind of rolled out for you as we get through first quarter here.

Okay. Thank you.

Next question from Rob Kosowsky from Sidoti. Please go ahead with your question.

Hi, good morning, guys. How are you doing?

Good morning, Rob.

I was just wondering if you could go back over the delay that you saw for the walk-in vans, and kind of what the regulatory change was, and kind of what the financial impact was as well from lost revenue or kind of higher costs?

Sure. I'll talk about the lost revenue piece, and then I will let John get into some of the specific issues about the vehicles at the time.

So from a revenue perspective, really it's a delay. There were two delays. One of them from walk-in, and the second one from the Reach product delayed. So in the fourth quarter on the walk-in vans there was somewhere between the $2 million to $3 million delay in shipments from walk-in vans that we didn't ship out during the quarter, and there was probably about another $2 million delay in the Reach product that we didn't ship out during the quarter as well too.

So you had somewhere between $4 million to $5 million of delayed revenue shipments at Utilimaster that didn't occur in Q4, but both of those two items were resolved, and they did ship out -- actually already this year in January , so you will see them in the first quarter.

How much --

[It's a] financial impact.

How much -- do you have any idea what the gross profit impact was then? And maybe just some of the other costs you needed to do to kind of retrofit or make those vehicles ready to go?

There's two elements to it. So if we were to talk about the lost -- that revenue drove lost gross margin, right? I think as with we have described -- we don't -- I won't get into the specifics by product, but as we described in our Utilimaster business, our gross margins tend to be in that lower than our average margins, right? I think he have described our Utilimaster margins as being less than our average gross margins. So that will give you a sense of margin loss, which is one element of the financial impact.

The other element that I think John described is we had some operating efficiencies during -- inefficiencies at Utilimaster during the quarter as well too. This was due to some parts shortages and some of the issues that John described around taking the products out of the line for these delay and putting them aside. Those operating inefficiencies probably cost us an upwards of about $1 million in a combination of overtime and fixed overhead that we didn't absorb as a result of it. So that gives you a since of the second part. I hope that helps.

Yes, that's very helpful. And any thoughts on like the nature of the product and kind of how the supply chain is looking right now and everything?

All right. Rob, this is John Sztykiel. As you take a look at the Reach, as I mentioned earlier on the call, as we were building the units in November and December, one of the things as both Isuzu, Spartan and Utilimaster spent time together, we simply were not satisfied with where the quality was going. Because this product, a key product of its success is our sales through the Isuzu distribution network. Never before in the history of Utilimaster or Spartan have we sold product through a distribution network, and Isuzu has approximately 280 dealers nationwide. So as Joe mentioned, one we've shifted everything back about a quarter, but it -- and it was simply a focus on quality.

We've got a -- we're working with a partner that's been the market leader for the last 24 years straight. We understand their standards of excellence. We agree with those standards of excellence. So basically we aligned our business processes, et cetera, and with the supply base to focus on delivering the best delivery and service vehicle out there today.

Now, what's that done from a forecast perspective as we look at 2012? Previously you have heard us talk about 1,000 to 2,000 units for the Reach in 2012. Now that range has shifted back of about 750 to 1,500 units. And I know that's a large swing, but the reality is for the Reach product line, when you look at some of the customers we do business with, you can get an order for 300 to 400 to 500 units. And, again, they will want delivery of those units within three to four months, but as we look at 2012, and we look at our financial plan, which took us down like to the mid-single digits when we talked about top line growth, parts of that is realigning the Reach business model to 750 to 1,500 units next year.

On the normal current walk-in van business, production is now at an accelerated rate. The demand for that product is extremely good. The current delivery sequence for that product is five months or less, and that is simply too long. Again, if you look at the last page of our release, something I want to bring up -- and this relates to delivery and service. On the last page of the release we note the backlogs of emergency response chassis, bodies, motorhome, delivery and service, et cetera. And while the backlog went down 15% for emergency response classis, the through-put improved 28%.

If you look a look at the Q3 release, it would have said delivery for emergency response chassis, seven months. Now it says five months. This facility we're going to be moving into in Bristol, Indiana, will enable us to reduce that lead time from five months to four months to three months, bring it down substantially, so then we can also accelerate the growth in sales and income on just the current walk-in van product.

Okay, that's helpful. And then how do you look at the cost cuts that I guess -- what do you have, maybe $2 million of cost cuts that are supposed to hit this year from the legacy program? And then the $4 million that's going to hit, that's basically going to be maybe fourth quarter into 2012 -- or 2013, I mean? Is that kind of the right way of the looking at the cadence.

Correct on the first part. We did roughly around $4 million of annualized kind of SG&A savings that we did in the middle part of the year, so half of that you will see still going through this year, correct. The second part on the move to the Bristol facility, really -- you will see some of that in fourth quarter, but it's going to take us third and fourth quarter working really hard to get all those things moved in there. You are going to see the bulk of those improvements really start to occur in 2013. So I would gear that more towards first quarter of 2013 when we will start to see that $4 million annualized savings from the move to the Bristol facility.

Okay. And then just commentary on what the best way to model, I guess, the parts and -- parts side of the business on both -- within specialty vehicles and also the service and delivery? It's just kind of -- it's so volatile, and I know it's probably inherent in the business, but I am I gist kind of looking at like an average of this year. Is that kind of a good proxy for going forward on a quarterly, basis recognizing that there could be some volatility? Is that kind of a good way of looking at it or -- any kind of help on that?

Sure thing, Rob. That's a good question, because there is a lot of volatility to it, and as you know, it has a big impact on our income as well too, because it -- we usually do quite well there. So let's -- maybe the best way to do is break it into pieces.

So if you look at our aftermarket parts and assembly business on the specialty vehicle side, that $28 million -- $28.3 million that we did in 2011, that breaks down to pretty much almost 60/40, where 40% of that is the motorhome and fire truck business, and 60% of that is the defense parts that we do. The motorhome and fire truck business, that one we've seen great growth last year on, and we're going to see great growth next year on as well too. So that will be the high single to low double-digit kind of growth on that part of it. That we continue to see as demand on some of the new vehicles has waned and you have aging products, the demand on parts like this has increased. So we've been doing a great job there.

The defense piece of that business, the 60%, that's the one that continues to decline. So we'll see that one have a continued decline kind of next year as we go through it as well too. So that's all correlated to the [MRF] sales and the product that's now kind of older and we're no longer really servicing as much, and other folks are doing some of that service as well too. But that one you'll see decline, so you'll see the APA business on the specialty vehicle business come down year-over-year.

On the delivery and service part, so that $46.7 million that they did last year. They had a great year, a couple of great programs that they ran through it, but we've got a lot of those good programs in place for this year as well too, but on a year-over-year basis on the delivery and service parts I don't think you will see a significant change. They have really tried it align the business model around driving more of that type of work through, where they're adding extra value to the end customer, be it the products like keyless or extra shelving units or all kinds of things that enhance the value besides the additional truck. That's been a strategic shift that I think you will see continue.

Okay. So I guess $46 million, I mean for lack of anything more sophisticated, I guess kind of divide by the four, and kind of that's a good proxy understanding that might kind of jump around a little bit?

Reasonable certainly.

I think one of the things -- and just again, if you saw that change, on the upside, there is a lot of defense quoting of parts going on, and that continues to happen. The reality is, until the budget gets determined and the defense really understands as a department how much they're going to get from a dollars perspective, the quoting is actually very, very good. Hopefully some decisions will be made in 2012 relative to [MRAP], refurbishment, parts, et cetera, where in 2011 a lot of it was just basically put on hold.

Okay. That's helpful. Then just one last question. I was wondering if you can kind of talk about just the competitive landscape on the fire side, and just kind of what you see with market outlook? And do you see some stressed competitors right now as pricing pressure kind of heating up but you think you're going to pick up share? Kind of how does that kind of flush out?

Well, first -- one, we see very good growth. Spartan's got one of the strongest brands in the business. In 2012 we are very, very focused on leveraging the global strength of the Spartan brand. There is some stress at the competitive level.

One of the things which I take pride in is when a look at how we adjusted our cost structure two and three years ago and lean last year in emergency response, it put us in a position to move forward and remain profitable, but also improve the efficiencies of the business, okay? So there are competitors that are stressed out there, and I think the reality is one -- their innovation of the marketplace has not been what it should have been over the last couple years, but also they're now going through some of the difficult decisions we went through two and three years ago.

When we look at this year, as I said earlier expect the market to be up maybe 3% to 5%, just because of the some improvements in the economy. You've also got the fact that over 60% of all the fire trucks out there are over 15 years old, so there's some pent-up demand as well from other departments coming into the marketplace. And last, we've got some innovative products which are taking share. And what's interesting is at FDIC, which comes the third week of April, we will be showcasing more innovative products from an emergency response perspective this year at FDIC than what we have ever done in the last five to ten years.

So got a great brand, moving into the right direction from a sales and an income perspective, but also have some great strategic and operational plans, which we'll be rolling out the third week of April.

Thank you very much --

So, [hopefully], honestly, we'll make competition sweat.

Good luck with 2012, guys.

Thanks, Rob.

(Operator Instructions). And our next question comes from Joe Maxa from Dougherty & Company. Please go ahead with your question.

Thank you. John, you talked about -- or you sounded pretty excited about a good start to the first half of 2012. And I'm just wondering if you can give us a little more color what you mean by that? Are you anticipating revenue to be up sequentially from 4Q as well -- I mean, I'm assuming as well as profitability, ex the impairment charge?

Well, actually, Joe, I would love to answer it. I think we're going to move forward from a sales and an income perspective, [but] I like to -- really you're asking financial question, so I would like to defer over to Joe. Because I am positive, but I would like Joe to jump in.

Sure. I'll take a stab at this one. I think has John described, towards the end of the fourth quarter, as we saw in some of the numbers -- you saw our backlogs kind of jump up a bit, which was good. In some of our sectors. And as John described in January, that continued as well too. We talked about some of the strengths that we have seen in the emergency response part, which has been great. Some of the strongest orders, as you described, since 2009, so that's what we're seeing, Joe, which is pretty positive as we start the year out.

And from a year-over-year perspective, yes, I think as we look at our current forecast, we see growth every quarter, kind of quarter-over-quarter what it was in the prior year. So for first quarter of 2012 will we be up over first quarter 2011? Absolutely, it looks like it, and we see that all the way through the year as well too. And we do even -- to answer your question specifically -- [think] the first quarter from a revenue perspective looks like it could exceed where we were from the fourth quarter as well, too.

So, Joe, -- and what Joe just said. a year ago at this time our plan did not reflect the year-over-year growth each quarter from a top line perspective then working to drive the bottom line. So I think he quantified why I'm more upbeat in February of 2012 than where I was in February of 2011.

The other parts that I would add, Joe, is just one around stability. Part of what we're seeing is more stability in all of our markets. If you look back at 2010 versus 2011 results and total by these segments, you saw some pretty major swings. You saw emergency response chassis sales down 25%. You saw motorhome chassis sales down 26%. You saw the defense vehicle segment down 49%. On the other hand, you saw service and delivery vehicles up 46%. So there were no little moves in our. They all took pretty dramatic moves from 2010 till 2011. And what we're seeing this year is more stability that's going through these segment for us, which is good.

I think one of the quick things just to note, Joe, as well -- and there was a simple release done back in early January, where we've got a new individual leading emergency response at Crimson Fire, Dennis Schneider. He was the Ex. Chief Operating Officer of Bobcat a couple years ago, then he spent a couple years in private equity. A very, very talent the individual, tremendous resume and backgrounds, has tremendous experience on the operation side of life, the distribution side of life, but also the global side of life. So when he look at emergency response, while we had a good team, honestly I think we've upgraded the people part of our team from a leadership perspective in huge way with Dennis Schneider coming onboard.

Okay. And I just wanted to just get back on the revenue expectations. If you do expect potentially even Q1 to be flat over Q4 that's, pretty strong year-over-year growth. And if each quarter is going be up, that suggests you might be in the double digits versus your maybe perhaps more conservative mid -- low to mid-single digits year-over-year?

I think in total, Joe, we're still gearing towards being -- in total for the full year in that low to -- that mid-single digits range.

Okay. And on the gross margin front, these low margin emergency response units. Have those worked through the system? Will we see more of those, or should we expect that to basically be gone and gross margin should benefit?

A lot of what we did, Joe, was try to get some things out of inventory, some stock and demo units that we had that had been around for a while. So we -- our push is to continue to clean up that balance sheet. We have made great improvements on receivables and inventory, and some of that inventory was [some] finished goods that we had. So we wanted to get those sold and pushed out. What that did is we took some lower prices to move them out, so certainly we should see that not recurring as we get into 2012.

Okay. And lastly, with the increase in credit line, are you anticipating to be more aggressive on the acquisition front?

We continue -- aggressive would be --

Disciplined.

Yes, I think that's about right.

Disciplined, Joe, and again, I have a been here since 1985. The leadership here made a number of acquisitions. In the 1997s we got into school buses, then we did some things in emergency response. Today I believe we've got a very disciplined approach. We've had two very good acquisitions in Utilimaster, Classic, so we're going to be very disciplined from a strategic perspective, disciplined from a capital perspective, disciplined from an integration perspective and a post-integration perspective. So I don't like the term aggressive. We will be disciplined, because whatever we do, we will do it right and we will execute it well.

I think we have demonstrated that in some of the results so far. If you look at Utilimaster, as John was describing, you look at that segment, we went in -- from 2010 that we saw where that business was, it was around $100 million in revenue, $113 million in revenue. And in 2010, as you guys saw from our numbers, we lost about $1.4 million there. We put a lot of focus on that, in shifting that business and turning it around. We went to revenues this year, 2011, of $165 million, up 46%. And we turned the operating loss into an operating profit of $6.4 million. So we went from $1.4 million loss to $6.4 million of profit. That's the discipline that John is describing that we'll continue to utilize.

All right. Thank you. That's all I have.

Thanks, Joe.

Okay. Operator, I think we need to wrap up the call.

All right. This is John Sztykiel. On behalf of Greg, Joe Nowicki, what I want to say is thanks to all the Spartan associates for their performance, and we look honestly for better performance and improved performance -- especially from an income perspective -- in 2012. We're excited as we look forward to 2012, especially the first half. I think we're in a good position. But also really do appreciate your time as you've got a companies to take a look at, but we appreciate your partnership and the time in which you spend with us. Thank you very much.

And with that, that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.