Shyft Group Inc (SHYF) 2022 Q1 法說會逐字稿

Good morning and welcome to The Shyft Group's first quarter 2022 conference call and webcast. (Operator Instructions) This call is being recorded at the request of The Shyft Group. If anyone has any objections, you may disconnect at this time. I would now like to introduce Jeff Tryka, investor relations for the Shyft Group. Mr. Tryka, you may proceed.

Thank you everyone. And welcome to the Shyft Group's first quarter 2022 earnings call. Joining me on the call today are our Daryl Adams, our president and chief executive officer, and John Douyard, our chief financial officer. For today's call, we've included a presentation deck, which will be filed with the [SCC] and is also available on our website at www.theshiftgroup.com. You may download the deck from the industrial relations section of our website to follow along with our presentation during the call. Before we start today's call, please turn to slide 2 of the presentation for our safe harbor statement. You should be aware that certain statements made during today's conference call, which may include management's current outlook, viewpoint predictions, and projections regarding the Shyft Group and its operations may be considered forward-looking statements under the Private Securities Reform Act of 1995.

I caution you that as with any prediction or projection, there are a number of factors that could cause the Shyft Group’s actual results to differ materially from the projections. All known risks that management believes could materially affect the results are identified in our forms 10 K and 10 Q filed with the [SEC]. However, there may be other risks that we cannot anticipate. On today's call, we will provide a business update, including the ongoing impact of a variety of factors to our operations before moving on to a more detailed review of the results and our outlook for the remainder of 2022. We'll then open the line for question. I would also like to remind everyone that with the divestiture of the emergency response business on February 1, 2020, the revenues and expenses associated with the ER business as well as the assets and liabilities have been reclassified as discontinued operations for all periods presented. With this reclassification of the ER business, the results discussed today will refer to continuing operations unless otherwise noted. At this time, I'm pleased to turn the call over to Daryl for his comments beginning on slide 3.

Thank you, Jeff. Good morning, everyone. And thank you for joining us to discuss our first quarter 2022 results. As we previously communicated, conditions were challenging in the first quarter as we faced ongoing supply chain disruptions affecting the entire industry vehicle — vehicle industry, my apologies, including a deterioration of chassis supply in March. Our team remained resilient, and while our [FDS] business started the year slowly, the value of our investments we made and our specialty vehicles business was clear as the team delivered a solid quarter.

Turning to slide 4, the need for our products continues to be unquestioned. As we remain confident in the long-term outlook for the company. Our strategy to focus on higher-growth markets resulted in record order intake of $500 million in the quarter, which also increased our backlog to a record $1.3 billion up over 90% versus prior year. We achieved revenue of $206.9 million in the quarter with the results of pricing actions more than offsetting the decline in unit volume, due to intermittent chassis supply. Profitability was consistent with our previously communicated expectations as variability, and chassis supply, and OEM plant shutdowns created inefficiency these in our operations. We continue to focus on what is in our control as evidenced by the strong performance in our specialty vehicles business. We remain diligent in managing our operations and controlling costs in this time of uncertainty as are well positioned to execute when the supply chain recovers.

Please turn to slide 5 where I'll provide a business update. Let me start by addressing the considerable supply chain uncertainties that have affected our entire industry. It has been well over a year since we started to talk about semiconductor chip shortage that has affected the vehicle industry in particular. That shortage lingers today. And we expect these conditions to may throughout 2022, directly impacting our production as a chassis supply that is critical to our products. During March, we saw an unexpected production disruption from a key chassis supplier that affected our ability to produce vehicles. As we look back at the month, we received approximately 10% of the chassis that had been scheduled for delivery just 4 weeks earlier. Overall, this chassis deficiency contributed to a slower pace of revenue growth in the quarter and will persist into the second quarter. As I mentioned earlier, the strength of our strategy and product offerings resulted in record order intake of $500 million in the first quarter, leading to a record backlog of $1.3 billion.

We remain confident in these orders and the underlying demand for our products. Looking at our business segments: in fleet vehicle and services, our team managed through significant challenges in the quarter due to intermittent chassis supply that negatively affected our production. While capacity utilization decreased, we operated in our plants in a strategic manner by flexing production to maintain our quality workforce while trying to minimize inefficiencies. This section while negative to the quarter — sorry, this decision, while negative to the quarter was an investment in our stability of our workforce to support our growth over the long term. We have maintained a similar approach in April, knowing that team will be ready to ramp up quickly once the chassis supply improves. In the first quarter, we continued to execute on the velocity growth strategy, beginning production of the Velocity M3, built on a Mercedes sprinter chassis at our Charlotte facility.

We also formally introduced the Velocity R2 2 walk-in van built on a Ram ProMaster chassis at the NTEA Work Truck Week in early March, which was very well received. We expect to begin production of the Velocity R2 in the second quarter. We also commenced production at our Landisville, Pennsylvania truck body plant in the last week of February, marking the culmination of the strategic transition to a larger, more efficient facility that will support our growth. After 2 months in operation, we are already exceeding daily output in our new plant compared to the previous facility. We are excited by the opportunity this represents, and we look to expand the business and penetrate new markets as the consumer leasing and rental business.

Turning to our specialty vehicle segment, the business performed extremely well as we continue to execute on our growth strategy. We saw a strong growth and market share improvement in our motor home business as well as a solid growth in our service body business despite chassis supply trains. The team's efforts generated significant growth in sales and adjusted EBIDA to start the year. We continued to gain share in the motor home market, which increased to 33.7%, continuing a string of sequential quarterly growth. Overall, our target segments of the RV market remains healthy, with motor home dealer inventory at historic lows, which gives us confidence at the remainder of the year. Across our service body business, we increase share as we continue to execute on our strategy of growing our position as a national service body player. We saw solid volume running through our GM ship-through location, and in the light duty pickup truck market, we saw improvement in chassis availability as the quarter progressed, which we expect to continue in the second quarter. As it relates to innovation, our DuraMag go-to-market brand recently introduced the S series aluminum service body at NTEA, with a single sheet of aluminum on the outside panel to provide a smooth OEM look combined with (inaudible) mounted doors and internal hinges for best in quality fit and finish.

Please turn to slide 6, where I'll provide an update on our electric vehicle initiative. Over the past 9 months, we have talked about supporting our customers’ transition into electric vehicles, by leveraging our half century of experience and building purpose built custom chassis and bodies. At NTEA in early March, we introduced the Blue Arc EV Solutions Go to Market Brand, creating a new EV ecosystem encompassing 3 new products: an industry first commercial grade purpose-built EV chassis, a fully reimagined all electric class-3 delivery walk-in van, and a portable remote-control charging station, which we call the power queue.

We also introduced that north America — sorry North Carolina base Randy Marion Dealer Group will be the first dealer in the US to sell our new all electric class 3 delivery vehicle. We saw a surge in interest during and after the show from potential customers for BlueArc products, ranging from last-mile delivery fleet operators and long lasting customers to other emerging industries. Customers were particularly impressed with the intelligent design, simplicity, and engineering. This extended to their impression on the specifications, equipment, performance, and flexibility of the chassis and body. They view the vehicle design as one that adds value and improves operator safety and efficiency. These new products offer a variety of innovations that will mark a great advance in the commercial EV space. The new chassis includes a modular design that will accommodate multiple weight ratings. This chassis will be highly adaptable and can accommodate last-mile delivery, work-truck, mass transit, recreational vehicles, and other emerging EV markets.

The BlueArc delivery van is a 100% battery powered class-3 electric commercial delivery vehicle designed for high frequency, last-mile delivery fleets and features expansive cargo space, lightweight design, and an integrated solar roof package. Lastly, the BlueArc power cube will provide a portable remote charging solution for a variety of commercial vehicle needs. We believe this solution will address the lack of EV infrastructure that has been a roadblock to more widespread adoption among commercial fleet operators. March was a busy month for our EV efforts, and we are very excited for what the future holds in this area. With that, I'll turn the call over to John to discuss Shyft’s financial results for the first quarter in more detail beginning on slide 7 as well as provide an update on our 2022 outlook.

Thank you, Daryl. And Good morning, everyone. Please turn to slide 8, and I'll provide an overview of our financial results for the first quarter. As Daryl indicated, the Shyft Group had a slow start to the year, given the chassis supply issues, achieving mid-single digit revenue growth and near break-even profitability. These results remained in line with our expectations when we announced the fourth quarter, despite an unanticipated acceleration of chassis supply issues near the end of the quarter. Revenue for the first quarter was $206.9 million, up 4.5% percent from the year ago quarter. Loss from continuing operations was minus $3.9 million compared to income from continuing operations of $11.5 million a year ago. Adjusted net loss was $2.1 million compared to compared with adjusted net income of 12.8 million in the prior year. Diluted earnings per share from continuing operations was a loss of $0.11 cents per share, compared to a profit of $0.32 cents per share in the first quarter of 2021. Adjusted [EPS] from continuing operations decreased to a loss of $0.06 cents per share from a profit of $0.36 cents per share a year ago. First quarter adjusted EBITDA fell to a loss of $600,000 from a profit of $19.2 million, while as a percent of sales declined to minus 0.3% compared to 9.7% of sales in the same period last year. These results include EV investment of $4.4 million.

Let me now take you through the results by operating segment beginning with fleet vehicles and services on slide 9. As we discussed on our prior call, we expected [FDS] to have a slow start to the year, driven by OEM shutdowns impacting chassis supply as well as our Landisville plant startup. While Landisville is ramped in line with our plans, chassis supply issues accelerated in March, impacting our revenue and profitability further than previously expected. The business delivered revenue of $112.7 million compared to $138 million a year ago. The decline was primarily due to reduce production volume as a result of lower chassis supply, partially offset by higher pricing. [SES] suggested EBITDA was a loss of $900,000 versus a profit of $17.9 million a year ago. The decrease was primarily driven by lower volume and productivity inefficiencies as a result of intermittent chassis supply, material and labor cost inflation partially offset by pricing actions and mix. With record orders in the period, FES ended the quarter with a backlog of $1.1 billion, a new high. FES backlog was up 34% sequentially and nearly double last year at this time.

Please turn to slide ten for the specialty vehicle segment overview. The momentum that specialty vehicles experienced to end 2021 continued to start this year, which helped offset some of the FDS headwinds. Sales were $94.2 million, increase of $20.1 million, or 27%, with strong performance in luxury, motor home chassis, and service truck body driven by both higher volumes and the favorable impact of higher pricing. Adjusted EBIDA with $10.1 million, or 10.7% of sales, compared to $7.4 million, or 9.9% of sales, in the same period last year, primarily driven by higher sales volume, pricing actions, and improved product mix, partially offset by material and labor cost inflation. SV backlog was up 52% to $124 million, which included 43% growth in motor home chassis backlogs and a 63% increase in our service body backlog.

Please turn to the liquidity and outlook update on slide eleven. Overall, our balance sheet remains strong, and our liquidity is robust. While we typically see a seasonal cash outflow in the first quarter, this was further enhanced in the quarter by chassis delays. Cash flow from operating activities increased to an outflow of $27.8 million from an outflow of $1.3 million in the first 3 months of last year. CapEx for the quarter was approximately $5.5 million. At the end of Q1, we had total liquidity of $276 million, which includes $3.7 million of cash on hand. Our current leverage ratio stands at just 0.5 times adjusted EBIDA, which provides us with ample liquidity to fund our operations and to continue to invest in our growth strategy. We returned $28.7 million to our shareholders in the quarter in the form of our regular dividend and the repurchase of approximately 600,000 shares.

Turning to our guidance. While first quarter results were soft as we anticipated, chassis delays and other supply chain issues accelerated in March adversely impacting our performance for the month. We expect that these industry-wide challenges will continue in the near term, requiring us to adjust our 2022 guidance. The change in our guidance is primarily isolated to walk-in van and velocity chassis supply shortages in our FDS business. The midpoint of our updated guidance represents a chassis reduction of approximately 25% versus our prior full-year estimate, weighted more heavily towards the second quarter, based on the OEM shutdowns we recently experienced in March and April. Our assumptions include sequential improvement in the second half, which is partially informed by our visibility to a significant number of OEM produced (inaudible) unreleased chassis that are currently awaiting components. We continue to monitor and support the effort required to release these chassis and are poised to produce when they arrive. Based on these chassis assumptions, our revised guidance is as follows: revenue to be in the range of $900 million to $1.1 billion. Adjusted EBIDA of $50 to $80 million, including $30 million of EV development expenses. Adjusted earnings per share of $0.75 cents to a $1.41 a share.

Overall, the long term outlook for the company remains positive, driven by strong underlying market trends and robust demand. And we will continue to look for opportunities to leverage our strong balance sheet and invest in our future. Now, I'll turn the call back to Daryl for closing remarks.

Thank you, John. Please turn to slide twelve. Our results for the quarter demonstrate the value of nimbleness in our approach toward operations and the tremendous efforts by the entire Shyft team. Despite the industry-wide challenges that impacted our operations, we remain committed to innovation and meeting the evolving needs of our customers as demonstrated by our new BlueArc EV solution. We will continue to invest in these growth initiatives as we remain confident in the long term future of the Shyft Group. In summary, while the first quarter was soft, we met our expectations, even with some unexpected disruptions and key supply chain areas, and we remain well positioned to quickly respond with increasing production as the supply chain returns to more normal condition. With that, operator, we're not ready for the Q&A portion of the call.

(Operator Instructions) Our first question is from Matt Koranda of ROTH capital.

So just wanted to start off with the guidance for the year, and John it sounded like you said just a moment ago that the cut to guidance is related to chassis supply being cut by 25%. Is that relative to your prior expectations or year over year? And then could you just talk about sort of how that fits into the 13% cut to the revenue guide at the midpoint? It sounds like maybe some price offsets (inaudible), but if you could speak to that. And then the other component of chassis I wanted to cover was just what's changed over the last 30 to 60 days? It sounded like you guys were reasonably confident that you had visibility into chassis supply. Could you just put a finer point on sort of where you're seeing the excess sort of stress and in the system in terms of chassis supply and what eroded over last 30 days to 60 days?

Sure. And on the first part of the question, the 25% is in relation to our prior guidance. And as I mentioned in the prepared remarks, it's really isolated to our walk-in van in velocity business, where, we saw, basically you from March 1 on, through the middle of April, essentially no deliveries. Daryl highlighted 10% of what we expected to receive at the beginning of the month. And so, there's a number of issues and challenges that we continue to work with EOEMs on to release those chassis. But that's really the biggest driver here, particularly in the second quarter. We do see production back up here in the second half of April. And so we are starting to see a flow with chassis, but it is at reduced production rates, which is where we have taken down the second half from our previous expectations as well, albeit second half will be better than the first half of the year. I think, as we talked about, when we look at what's out there right now, there’s approximately 2,000 chassis that are just on the ground, waiting for either components or waiting for delivery that are just caught up in the system. And so we continue to work to try to accelerate that and get them in our production lines. And unfortunately there's pieces of the out that are out of our control and are delaying some production and the reason for the reduction guidance.

Okay. And it sounds like you were telegraphing the prepared remarks that the majority of the cut to the guide should be impacting the second quarter — but just any color on the cadence, I know it's tough to get visibility obviously, in this environment — but just to kind of level set folks in terms of expectations for the second quarter versus the second half of the year and we'll be ramping. But just how much would we be taken out of the second quarter versus the second half?

And as we look at the second quarter, we'll see sequential improvement from a couple items that were (inaudible) for in the first quarter, which we'll have Upfit back online (inaudible) we’ll have our truck body facility that Daryl talked about back — or online in April, executing at a high level. And so, we've got some tailwinds from that. But as we look at the year, the second quarter's probably 20% of profitability for the year, with the ramp into the second half. I think when you look at that second half and the ramp that's assumed, it's not anything that's necessarily heroic versus what we've been able to do historically. I think, you take the remaining average over those 2 quarters, and we've done that level of activity or more than that level of activity, in 4 out of the last 6 quarters. And so, I think our expectations are based on the visibility that we have the chassis supply today. And we do see the impact predominantly here in the second quarter.

Okay, great, very helpful. And then, just the last one from me, just on the bookings front, maybe for Daryl — I mean, still very exceptional demand when we kind of look at it on a quarter by quarter basis across both segments. But at this point, (inaudible) backlogs looking a little bit stretched relative to kind of what production levels will be for the remainder of the year. And so just curious if you're hearing from customers in terms of sort of cancellations, any churn expected in the back log in the near term — obviously people need chassis and probably can't get it many other places. So, just curious your thoughts on sort of the length of the backlog and if and when that may start to impact sort of incremental demand.

Sure, Matt. I think if we go back to some of our previous calls we've talked about, even the conferences we've had, the inability of our customers since COVID started to do a number of things due to the chassis constraints, one is they've not been able to fully replace their outdated vehicles, right? So the replacement cycle is a little bit I'll say held up if you will because of the chassis constraint. And if we look at the regular growth that they would've seen over years typically that would drive the replacement cycle, it’s probably increasing because of the demand on last-mile delivery. And then they haven't been able to really get all the vehicles they do needed, due to the surge in e-commerce due to COVID. So, we believe the $500 million that we mentioned in the quarter as a record is leading us to believe that the demand is there.

We continue to see it, into your point, right? If they do get out of line, they go to the back of the line because all these customers already have chassis ordered. So if somebody backs out, they're going give it to the next man up. So it is a little bit of a quandary, but I think as soon as they break loose — as John mentioned, right — we're not stretching the second half, and we still have second shift available at most of our plants, right? That we can catch up fast, that they can get these 2,000 plus chassis — get components on them and get them broken loose, we can make that volume up. It all depends on when they start blowing chassis through. But we — again, Matt, we may see some churn in the backlog, but we haven't seen it yet. And it it's been at record high since COVID started. So we're pretty positive about it.

The next question is from Steve Dyer of Craig-Hallum.

The guidance for the back half of the year sort of implies that these chassis loosen up relatively — I don't want to say quickly, but when the spigot turns on, they're going to flow pretty freely, I guess, given how quickly things have sort of changed and the ongoing disruption. I mean, with sort of your confidence level that you're going to sort of have an unabated flow of chassis in the back half of the year.

I'll start with that, John, and maybe you can jump in. Steve, we're seeing positive, I'll say attitudes, comments and results from the recent shutdowns and how they're starting up. So we're seeing positive (inaudible) there. We’re very close with all the OEMs on helping them and working with them to try to break the supply issue, right? It's mainly component and some quality issues, especially like the 1500, I believe — plus or minus 1500 chassis for walk-in van are stuck in a yard hole, due to a couple components. And working with them, we know what the rework is going to be. We think it's going to have positive results. So we're seeing some of that and then that's cleaning up the yard and then the regular production, we're seeing them ramp up right over the last few weeks with their output. So that's where we have some positive (inaudible), but look, it could change just as fast as it changed for us, right after our earnings call when we couldn't receive any chassis. And we only had the 10% (inaudible). So we're hearing positive things, and we're feeling it, we're seeing the chassis flow again. And we just hope that the supply chain can continue to supply them with the high quality parts that we expect in the industry.

Got it. That's helpful, Daryl, thanks. Just kind of going a different direction — you've had BlueArc sort of out and about a little bit at trade shows. So what are you sort of hearing qualitatively from potential customers there, and then sort of how would you say your solution stacks up in the last year or 2. There's been a bunch of different potential competitors coming to market with, or saying they're coming to market with some sort of EV solution, but sort of — what's the initial feedback you're getting and then how would you say that sort of stacks up and fits in with other competitors?

Sure. Couple things on that, Steve, before I get into this feedback. So remember we're in class 3 only right now. So a lot of the entrance into the EV space, they're in class 2. And that's why we went into class 3 — because we didn't want to compete against our customers like Ford and (inaudible) that were coming out with their EV cargo vans. So I think that's an important note, and we like to keep in minding to people when they talk about EV that we're in class 3, that class 3 is the same as the Velocity, right? So we're the only person in that space. So if you take — and, and I think we also talked about later next year, we'll start working on our class 5 and that should be — do some testing late 23, early 24 on a class 5.

And then the other piece is our customer feedback. So we're not out selling this vehicle with a PowerPoint presentation. We know our customers, we design the vehicle for our last-mile delivery customers, and we want to have our prototypes, which we're are receiving parts today. So proof of concept was at NTEA truck show. We have a number of parts coming in to build up our prototype vehicles, test vehicles that will get into testing. And we want to make sure the vehicle works, Steve, before we take it out for our customers and ask them for orders. Because if there's some changes we have to make, we have to make it because they look at us as we know what their needs are.

So we don't need to give them a vehicle that doesn't function. So if you take the 50 years of us building custom chassis and the 50 years of our last mile delivery knowledge, we're very confident that the vehicle we’ve put in front of them will be exactly what they need. And then the range, right, is probably a little bit on the high side to their needs, but when you start turning on electronics in the vehicle, it's going drain some of the battery — and that some of the issues that you've seen from other people entering that space is they think the range is correct with the battery size, but then they come in short. So I think with the team we have, and what we've seen with the vehicle so far, we're very confident that, as we get the prototype in front of them, let them start testing them, that they will like the vehicle like they like the rest of our vehicles and should see some orders start flowing once they start to test them.

Great. Last one for me, and then I'll turn it over. Um, historically you've been pretty opportunistic with some smart (inaudible) in acquisitions. Is that still sort of on the radar, or is it sort of head down job one is getting our product out the door right now. Thanks.

Yes. I think, fortunately, particularly in time of uncertainty, we're sitting here with a strong balance sheet today. And so we're pretty comfortable from that perspective. Our strategy continues to be to look for opportunities from an M&A perspective. I think we've been able to prove over the last number of deals, that's been successful and has allowed us to continue our growth trajectory, even as you look at this quarter with SV. And so we continue to build that funnel and engage potential parties. And so, M%A continues to be high on our list in terms of our growth strategy.

(Operator Instructions) The next question is from Mike Shlisky of D.A. Davidson.

Can we talk about supply chain questions beyond just the chassis supply? So maybe some more general supply chain question — I know you guys aren't selling chassis in the Ukraine or in Russia, to my knowledge (inaudible) your product there, at least to my knowledge. But that issue has, more recently, caused uptick in steel prices of aluminum and other materials. Have you had any challenges there recently, have you had to put any (inaudible) pricing out there to offset?

We’re constantly evaluating input costs and looking at opportunities or evaluating whether we need to take pricing actions. I think we have seen, outside of some of the commodity prices that you discussed — we haven't seen really any further impacts come out of that crisis. And I think that at this point extends to some of the China shutdowns as well. There's been some noise in the system in terms of parts supply, but our teams have been successful and creative and in their ability to work through that. So we haven't seen any disruption from that perspective. That said, we continue to look at price. We talked about repricing the backlog multiple times; we did it in the first — in the fourth quarter. We did it a couple times in different parts of the business here in Q1. And we'll continue to evaluate that as commodity price has changed, but thus far we've proven to be successful. And to Daryl’s point, we haven't really seen any fallout as we've executed.

Excellent. I wanted to turn to some of those class 2 EVs that you mentioned, Daryl, a few minutes ago, (inaudible) the transit. I know you guys have been updating some of those to my knowledge. Have you had any issues with some of the earlier units falling offline and getting your outfits on there, or have they been relatively smooth compared to the (inaudible) version, just a different underpinning, in terms of margin also.

Yes. Thanks, Mike, appreciate the question. Right now we're — it's at a really slow pace, so we're not being influenced by any chassis issues or component issues. And I think the other piece, right, is that we're working very closely with (inaudible) on their upfitting on their EV vehicle that will go through our plant down in Mexico, which is our ship through plant down there. So we're excited about both of those, coming to market. And I think if you — in retrospect, right — you and I probably talked about this a couple years ago, and that's one of the reasons why we stayed out of that class 2 space.

Got it. Let me just lastly — quick question housekeeping wise: does the guidance include any additional share purchases beyond what we saw in the first quarter, or is that separate?

No, there's nothing additional contemplated in the guide.

This concludes our Question-and-Answer Session. I would like to turn the conference back over to Jeff Tryka for closing remark.

Thank you, Kate. We plan to participate in the Craig-Hallum conference on June 1. So we hope to see many of you there, but please keep an eye out on the upcoming event section of our website for future events. With that I'd like to thank you for participating in today's call. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.