Shyft Group Inc (SHYF) 2020 Q2 法說會逐字稿

Good morning, and welcome to the Shyft Group's Second Quarter 2020 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'd now like to introduce Juris Pagrabs, Group Treasurer and Head of Investor Relations for the Shyft Group. Mr. Pagrabs, you may proceed.

Thank you, Grant, and good morning, everyone, and welcome to the Shyft Group's Second Quarter 2020 Earnings Call. Joining me on the call today are Darryl Adams, our President and Chief Executive Officer; and Jon Douyard, our Chief Financial Officer.

For today's call, we've included a presentation deck, which has been filed with the SEC, results are available on our website at the www.shyftgroup.com. You may download the deck from the Investor Relations section of the 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 Litigation 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 projections. All known risks the management believes could materially affect the results identified on our Forms 10-K and 10-Q filed with the SEC. However, there may be other risks that we cannot anticipate.

On the call today, we will provide a business update including the impact of the COVID-19 pandemic at our operations and second quarter highlights. Before moving on to a more detailed review of the second quarter results and our outlook for the remainder of the year. We will then be opening the line for Q&A.

I would also like to remind everyone that with the divestiture of the emergency response business, this past February the revenues and expenses associated with our business as well as the assets and liabilities have been reclassified as discontinued operations for all periods presented. With this reclassification, 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, Juris. Good Morning, everyone, and thank you for joining us to discuss our second quarter 2020 results. Today, we are hosting our first earnings call, under the new corporate brand, the Shyft Group. This is an exciting change for our company, following 45 years of operating as part owners.

We carefully considered our new brand, I wanted to assure and align with the next phase of our long-term growth strategy. While allowing our global market brands the names, our customers know and trust to take a more prominent position and our externally facing sales and marketing materials. The Shyft Group represents at pivot and market focus and clear formal manner we've built in the delivery vehicle work truck and specialty service vehicle markets, as the name indicates the Shyft Group as nimble aggressive and here to win. Please turn to slide 4 well, I'll discuss the current environment some of our Q2 earnings and challenges related to the pandemic. This health crisis has created some of the more difficult challenges most of us has faced in our lifetimes inflicting uncertainty and disruption in our lives that we cannot imagine just 6 months ago. I'd like to recognize the tremendous effort flexibility and dedication of our entire team as we work together to mitigate the impact of the pandemic.

Our leadership team has been fully engaged and aligned on controlling what we can and mitigating the potential negative impact of the unique challenges presented by this pandemic. Our highest priority has been the health and safety of our workforce as we continue to maintain enhanced screening protocols social distancing and our manufacturing plants and offices. Securing TCE for our team members and supporting remote work where possible.

On our last earnings call, we mentioned that we ended the quarter with approximately 40% of our facilities operating due to the chassis and component shortages as a result of the pandemic, as the quarter progressed, we quickly recognized that the chassis supply chain will take longer to ramp up than originally anticipated. So we chose to make a number of difficult decisions in the quarter, including furloughing employees, reducing executive compensation and implementing additional cost controls to mitigate the short-term risk and ensure long-term success of the business.

Today 95% of our facilities are operational and we are encouraged by the recent performance of the North American OEM's but uncertainty remains given the recent surge in COVID cases and hospitalizations around the country and how this may impact to supply chain sustainability. Operationally, while the chassis and component shortages created its own set of challenges during the quarter, including production scheduling vessel had some labor shortages shortage headwinds to overcome to resolve the employee-related issues.

We have been aggressively conducting drive through job interviews in various campuses, which have been very successful, parcel delivery for e-commerce continues to be strong as more consumers are ordering online and ever before, which is reflected in the 18% increase in our FPS backlog year-over-year. Goldman Sachs recently published an e-commerce report they concluded that the COVID-19 pandemic has driven a doubling of the penetration of e-commerce globally accelerating what we were already seen and in some major categories, like consumer packaged goods driving as much as 3 years. The penetration in 3 months. If we believe that this trend is sustainable with a permanent steepening of the growth curve for e-commerce. As the financial realities of fewer people in stores, particularly during key holidays lead to even more store closures. E-commerce in the US through 2022 is now forecasted to grow at a 22% CAGR rate versus is pre-COVID estimate of 14 which implies continued delivery vehicle growth from their peak level last holiday season.

Our customers assess and plan for the new normal, we believe this is favorable for us longer term and especially vehicle side luxury motor coach chassis operations were impacted by OEM manufacturing and do a shutdown earlier in the quarter. However Jesse orders are ramping up and some cases, customers are exceeding their pre-COVID order levels, which again should be favorable for us longer term. On a service Chuck by side for the quarter, Royal was also impacted by chassis shortages as well as the dealer networks shutdowns.

As a point of reference, we had nearly 4 times as many chassis in our production system at the end of Q1, 338 that we did at the end of Q2 89. I'm pleased that chassis availability is improving our visibility is still somewhat limited beyond the third quarter. We will flex our operations accordingly in the coming months. But I'm pleased to say that it appears we are turning the corner as recent trends are favorable across all product lines as shown in our backlog, which is up 56% to 50.5 million at the end of June and includes a record amount of motor coach chassis.

With that, let me take a moment to summarize our year-to-date results on slide 5. They are really good first half despite the considerable pandemic related headwinds we encountered in Q2. Our year to date results demonstrate the effectiveness of our business transformation strategy which is focused on higher margin product offerings within our core markets. Growing market share within our expanding geographic footprint and improving productivity at our location. The results can be clearly seen an increase in our overall adjusted EBITDA margins despite the impact of COVID related shutdowns revenues for the first half increased $17 million or 6% to 301 million excluding the USPS order and adjusted EBITDA increased 10 million or 53% to 28 million while adjusted EBITDA margin improved 400 basis points to 9.2% of sales. Please turn to slide 6, I'll provide a business update. NTA, the work structural emerge just ahead of pandemic we lost a velocity M3 Utilimaster's answer to flexible delivery needs to meet our customers and emerging and ongoing demand. The vehicle feature smart delivery access and ergonomics provisions enhancing effect efficiencies for drivers with more stops than ever before.

The world's most advanced purpose-built walk in cargo van as fast comprehensive durability testing and is currently being reviewed and tested by multiple customers with production, scheduled to begin in Q4 or early 2020. To meet the increase in fresh delivery demand, we have introduced additional temperature control cargo vans for both new and existing fleet customers including vehicles for grocery and pharmaceutical applications. In addition, during the quarter we completed testing of an electric version of the velocity Class 2 purpose-built walking cargo van. Which is currently being scheduled for delivery to our customers for their field testing initial reactions to this potentially game changing electric vehicle walk in cargo van has been very positive from the customer aspects.

On the FP side of the business we enhanced operating efficiencies while continuing to lead the market with new products and features including launching our new K2 chassis on numerous new air and Ventana coach, a Gen-2 digital dash is now on 100% of our models eliminating analog gauges they have to exceed that alerts to drivers using seat fabrications when the part of the Lane a new positive steer tag axle with improved wheel cost. This is a technology that allows the rear wheels to turn to assist in making turns with the motor coach.

With that, I'll turn the call over to Jon to discuss Shyft's financial results for the second quarter in more detail as well as provide an update on our 20 outlook, beginning on slide 7.

Thank you, Daryl, and good morning, everyone. Please turn to slide 8 and I'll provide an overview of our financial results for the second quarter. As a reminder, the results will be just, we will be discussing reflect continuing operations as our ER business has been classified as discontinued operations for all the periods presented as there are alluded to earlier, we operated in unprecedented times throughout the second quarter as the health crisis drove supply shortages in suspension of production at a number of our facilities.

The quarter got off to a slow start and while our supply chain begin to ramp in May. It was slower than initially anticipated driven by complications with re-integrating the workforce, management reacted by swiftly taking cost actions, which enabled us to lessen the impact of the COVID related volume declines revenues for the second quarter were $124 million, a 31% drop from 180 million in the second quarter of 2019. Sales decreased $20 million or 13.9% excluding $35.7 million of pass-through revenues from the onetime USPS truck body order in the prior year. Income from continuing operations for the second quarter was a loss of $1.1 million compared to a profit of $4.5 million a year ago. Reflecting the decrease in revenues. These results also include a pre-tax $4.8 million or $0.10 per share non-cash charge to write off certain ERP assets given the significance of the charge, I would like to take a minute to discuss the decision in more detail.

Prior to the sale of the ER business, the company had been on a multi-year path to standardize on one ERP platform for all locations after ER was sold, we launched an initiative focused on streamlining the remaining IT systems and processes across the organization. Part of that exercise we determined that the legacy ERP strategy we've not the optimal solution for us going forward. Primarily due to the fact that the system has been highly configured for the more customized ER products and was tougher to scale in our higher volume businesses without further investment.

In addition, given that we have stable operating platforms in the FBS and SB segments. It is a better use of company resources to transition away from the legacy ERP project and focus our IT resources on areas where we can drive greater returns and build scalable infrastructure that will support our future growth.

Please note that of the $4.8 million charge, approximately half was recorded as accelerated depreciation related to the 2 remaining locations at where it was active and the other half was recorded as an impairment. Turning to slide 9 for the quarter adjusted EBITDA from continuing operations decreased slightly to $9.4 million from $9.8 million, while as a percentage of sales. Adjusted EBITDA from continuing operations increased 210 basis points to 7.5% of sales compared to 5.4% of sales in the same period last year.

The margin growth reflects favorable product mix, productivity improvements and the addition of Royal truck body, partially offset by the impact of lower sales volume. Our response to take cost actions at the outset of the crisis also played a key role in mitigating the profit fall through. Adjusted net income from continuing operations was $4.6 million, a 26% decrease from $6.2 million.

While adjusted EPS from continuing operations was $0.13 per share compared to $0.18 per share at this time last year. Next, we'll jump into results by operating segment. Let's begin with the fleet vehicles and Services segment on slide 10, FSPS generated total revenues of $97.2 million, which was down 31% compared to $141 million in the second quarter of 2019. As a reminder, second quarter 2019 included $35.7 million of USPS pass-through revenue. So excluding that impact FBS sales decreased year-over-year by $8.2 million or 7.8%. Despite the decreased revenue, FBS adjusted EBITDA increased 73% to $13.7 million from $7.9 million a year ago. Due to improved product mix, productivity and lower material costs and the impact of the pass-through USPS order in the prior year which were partially offset by the lower sales volume.

Adjusted EBITDA margin increased 8.4 percentage points to 14% of sales from 5.6% a year ago. FBS Backlog totaled $287 million, up $43 million or 18% compared to $244 million at the end of the second quarter 2019, excluding the USPS truck body order.

Please turn to slide 11 for the specialty vehicle segment overview. SV had revenue of $26.7 million, a decline of $15 million primarily due to a decrease in luxury motor coach chassis and lower contract manufacturing sales as production was shut down for all of April. These declines were partially offset by the addition of revenues from the Royal truck body acquisition. Adjusted EBITDA was $1.2 million or 4.6% of sales compared to $5.1 million or 12.2% of sales in the same period last year. SV backlog was up 56% to $51 million, lead by record motor coach backlog and the addition of the Royal truck body business.

Please turn to the liquidity and outlook update on slide 12. As we noted in our first quarter call, we took a number of steps to enhance our liquidity including adjusting our cost structure and delaying or deferring non-critical capital investments to maximize our financial flexibility.

Despite the COVID headwinds, we were able to generate $5.4 million of cash from operating activities and ended the quarter with $115 million of in total liquidity, including $24 million of cash on hand and an additional $91 million IN borrowing capacity. As conditions stabilized, we paid down $50 million of debt, reducing our cash on hand to more normal levels at the end of June. Our current leverage ratio stands at 0.84 times adjusted EBITDA, providing sufficient liquidity to fund our operations and to pursue opportunistic growth initiatives.

Turning to the right side of the page, I would like to take the opportunity to address the second announcement that we made this morning regarding a shares in our dividend frequency. After review our Board approved a quarterly dividend of 2.5 cents per share, payable September 18 to shareholders of record on August 18. While the annual dividend value remains the same, we believe that this change in dividend frequency from semi-annual to quarterly is advantageous by provide And more consistent cash flow to our shareholders and is also better aligned with our industry peers. Transitioning to our outlook, we are proud of our overall performance for the quarter as we could quickly implemented the measures necessary to help ensure the safety and well-being of our employees, while also implementing margin enhancement actions to help mitigate the financial impact of the pandemic.

As of today, 95% of our operations are running at full or modified production levels and we expect to fully resume operations in early August. Bring all of our locations back online. We remain optimistic regarding the underlying strength of our end markets and saw positive demand indicators for both our FES and motorhome businesses in the quarter.

With our strong backlog and visibility to chassis for the balance of the quarter, we are positioned to provide Q3 guidance, we expect to deliver third-quarter revenues in the range of 180-200 million adjusted EBITDA of 20 million to 23 million and adjusted EPS of 37, $0.03 per share notwithstanding further or unforeseen pandemic related issues given the longer-term uncertainty, the company is not in a position to reinstate full year 2020 guidance at this time. We expect to provide an updated outlook for the year once we have sufficient clarity into supply chain and production schedules.

Now I'll turn the call back to Daryl for closing remarks.

Thank you, Jon. Please turn to slide 13 in closing, I'd like to thank all of our employees for their continued commitment an incredible work ethic then able to Shyft Group to deliver on the promises we've made to our customers to provide delivery vehicles work truck and especially service vehicles that are critical to their success.

We do believe the worst is behind us, production and output have ramped up significantly. Our current backlog position remains robust and we continue to see strong interest from delivery customers for our products to support e-commerce growth which we see accelerating. We continue to monitor the rapidly evolving COVID 19 situation closely and will maintain our operational flexibility to respond to any changes that protect our employees, our business and long-term shareholder value.

The actions we have taken to improve our efficiency and optimize our operations. We are confident that we can deliver a strong second half for 2020. With that operator, we are now ready to take Q&A call.

Our first question will come from Steve Dyer with Craig-Hallum.

So you have a lot of questions lately, just kind of with the perceived or expected move in final mile delivery to EVs pick your company reviewing workforce whoever, can you talk a little bit about how your position there. I know you've always said your Drivetrain agnostic. But maybe so that others on the call could sort of hear higher position. Is there any, is there any scenario or supplier that you benefit more or less from?

Yes, Steve, and thanks for the question. I think that you're right, it's evolving quickly as we are, we still haven't changed our position, but because our customers do like multiple chassis, at least in the ICE side of the powertrain. But with that said, we are working with a number of EV chassis, if you will see suppliers on a regular basis, constantly working with them unfortunate, right now we can't mention their names. Because we all do have NDA signed, but we are trust me, we're very into EV and close to a lot of, as I said the skateboard suppliers that do need some of the build of the body and actually possibly to build the skateboard as well. So we are engaged with a number of players currently.

Got it. That's helpful. And then just within the FBS segment. A couple of questions there, sort of what, what are you seeing in terms of customer order patterns are people keeping a pretty close to the best. I mean obviously, COVID is accelerating a trend that already was very well in place. And I'm just wondering throughout the quarter, did you see any pauses or cancellations of orders. Just sort of pending visibility that I mean, the backlog is solid, but it's not quarters and quarters and quarters out. So maybe if you could kind of characterize what you're seeing from those customers in terms of real-time ordering.

Yes. Dave, this is Jon. It's a question. We've asked ourselves a lot this quarter as well. I think to your point, what we are seeing is the customers are kind of holding it close to their vest at this point, I think they were they are in the process of assessing what acceleration of e-commerce and parcel delivery looks like in assessing their networks and capital investments associated with that. So we do not see in a significant orders in the second quarter as it relates to that. I think to your point, our backlog remains very strong. We feel like we're in a good position through the end of the year from a demand perspective, with what we have on the books and it's a question of chassis availability in conversion of that backlog and I think longer term, the expectation is that. We would continue to partner with our customers and meet their needs as we address the increase, the expected increased volume here.

See if I could add on to that a little bit last quarter we talked more about the velocity Chad body that we're putting on the cargo van cutaway chassis, which would give us for additional chassis we can build on. And we did say that those vehicles will be at customers and the feedback from the 3 customers that have seen them so far is very positive. What they like about it is, it fits the Class 3 void that we talked about as well where the packages through cooperatives in size have changed. So they're trying to figure out is it a cargo van or Class 4 walk in van and our Class 3 basically solve that problem form where they have the flexibility to go either larger packages are or can handle a small packages as well. So we're looking forward to get that launched in out in the market later this year and early next year.

Got it. That's helpful. With respect to chassis availability. It seems like a topic we've talked about a lot in the last couple of years, is there any I mean is there any reason to think you either more or less in a more or less advantageous position vis-a-vis competitors in the space in terms of availability in the flow of those chassis.

Yes. And that dovetails into the previous discussion I had. And the last question where 2018 when the tariffs came in there was the chassis shortage and at that time, we quickly or to develop our Class 3 the purpose-built walk in cargo van. And that's on the Mercedes chassis for chassis and we're working on the ProMaster chassis as we speak. So the chassis supply right is the vehicles are getting reviewed by our customer today. We are pretty confident that the Class 3 is going to be filling that void. And with the Class 3, we will not have chassis supply issues because we get it from 3 different OEMs versus today, we only get it from Ford and freight line. So we'll continue to report Freightliner, but it's something that we saw the need in the market and we took advantage of it and the first mover into that space as well. Competitors are not there yet. As I mentioned on the last call. So we're excited to be in the Class 3 space which is a, maybe a hybrid walk-in van between the larger [Class 4 and 5] in the Class 2 cargo van.

Yes, it makes sense. And then one last question, I'll jump back in the queue. You have talked about sort of food delivery in, then I see so something in the slide presentation. You talk about pharmaceutical refrigerated vehicles are those products sort of selling in mass at this point in time, if think of your sort of your big freight customers taken any of those or are those just kind of go into market early days right now. Thanks.

Yes, it's early, Steve. The -- we have unlike Jon talked about. I think the food delivery is very similar to the grocery delivery is very similar to the parcel where the customers are waiting to see how much of the increase is going to stick. We have shipped the number, I think it's been continue for probably the last 18 months, it has really taken off, but with the additional cargo vans that we have in the refrigerated space today, we do think, as you know, our goal is to be one-stop shop and that's helping us get there is that when it does free up and people do start ordering we can hit it with different options for them, in so us it's like EV it's coming, it depends on when.

Our next question will come from Matt Koranda with ROTH Capital.

On the third quarter outlook, I'm curious to get your take as to the split between at FBS and in terms of how we're thinking about the EBITDA split or revenues, whatever you want to attack.

Yes, I think the mix within the quarter will be, will be in line with what we've seen really year-to-date. We do have the reason that we are comfortable from a from a guide in Q3 standpoint is really the visibility that we have to the chassis on the FBS side of the business right now, we have approximately 80% of chassis in our possession or close to being in our possession. So we feel pretty strongly about that position at this point.

Okay. That's helpful. And then since you mentioned the better visibility on chassis supply, maybe you could comment on sort of are you getting better flow supply from one chassis supplier relative to another and what's your ability to like to shift customers between the 2 platforms and FBS.

Yes, this is there a lot, I will take that. So we did see early on, we did see early on Freightliner came up faster than Ford did, but through the last couple of months Ford has increased their output, they actually did change shut your line down for a bit. To make some changes that would help them produce more and once they came back up from that they do continue to hit the ramp curve as they move up. So we see that visibility, Jon. So we have 80, but we see the rest of it, it's not a real issue in Q3 and we, we hope it continues in Q4 but this pandemic is seem to come and go and increase hotspots and certain areas that we see a chassis issue. It's just we're really sure not what the, what's going to happen with the pandemic as we move into Q4, as we continue to have to see the improvement. There is a chance, if you will, that we may have a conversation. Before we get to the end of the year.

Matt, Juris here. I'll also add on that revenue split between FDs and that disclosure on I think the first or second slide 75.25 is probably a good number to use. As far as gauging 3rd quarter

Got it. Very helpful, guys. And I'm curious I know Steve asked the question on fleet order demand dynamics, but maybe I'll ask going to a different way. Do you think that there is just a lot of distraction that some of your fleet customers we're dealing with in Q2 that caused a delay on their part? In terms of order flow for the year. Just trying to get a sense for the, is there a decently large backlog of demand that should be flowing into the order book as we head into Q3 and then in terms of the order flow. What do we think the mix of velocity will be within that the order flow. For the remainder of the year

Yes, I'll take a shot at it, Matt, let Jon jump in FY it does additional comments. But I want to be clear, we have not seen the order flow slowdown down from our traditional customers. It's still coming in, what we haven't seen was what people may expect as an increase due to the e-commerce increased due to COVID the people stay at home, that's when we talk about the customers are still trying to figure it that the increase that we've seen. So I think. Want to make sure that what level of is going to stick before they start place additional orders beyond their normal growth plan. So I think we've talked about before that it's of Goldman Sachs in all, the 14%. We were talking of 16 to 19 as a kangaroo rate and our Goldman is going to be up to 22. So the orders have been coming in at the, let's say, the lower rate of cater on a regular basis what we're waiting to see is the increase, I think that's what people are asking about. And the velocity. Right. The vehicle is currently in customers' hands, so we haven't received any orders. And that's why we have a weather as Q4 or Q1 of 2021.

It's dependent on that when they release the feels to us. So we're ready and we've built number of them they're being tested and their fleets today. So we're just right now wait for the orders.

Yes, I think it's very I would add or from a walk-in van perspective, our backlog takes us out through the end of the year as it is. So the urgency in terms of getting in line is not necessary there in that type of chassis availability.

I think the one spot where we have seen an uptick in orders, particularly towards the end of the quarter was on our truck body business, which was a little bit slower earlier in Q2.

And we've seen some strong activity there where there is a little bit more availability and we can turn it more quickly.

Our next question will come from Mike Shlisky with Colliers Securities.

So I wanted to touch on some of your comments on the EV velocity model that's coming out within testing. Just a little more detail there, can you tell us what's the capacity of the vehicles for cargo, tell us we move the powertrain, it is definitely a JV over somewhere else.

And is that a shift exclusive powertrain now. And then maybe thirdly how competitive is the vehicle from a cost perspective versus your eyes he engine goes from an upfront cost and a total cost of ownership. Just on the basic numbers --around that modestly

Since it is a couple of questions that, sorry. Yes, I know, I guess if I, we can. None. We are saying we can answer some of them due to confidentiality we can't answer all your questions, but I will tell you it fits into the Class 3 that we've talked about the velocity. So the velocity body is the same whether it's on an ICE engine or EV skateboard Rador platform and it is, it is traditional one of the traditional current cut away, walk-in, sorry, cargo vans. So as size is going to be on a transit Sprinter or a Pro Master so someone those 3 and it is and it is not our EV system powertrain. It is one of the partners I mentioned from Steve's call and it has been tested, we've done a durability, it fits the demand if you will as a customer wants to see on the EV side which is why we're excited about it. So I think that answers all did the miss any?

Yes, just wanted to know about the upfront cost and total cost of ownership.

Yes, thank you for the reminder, the reason we're excited about the partnership we have with this company is it is going to be in our mind significantly less than some of the ones in the market today and that's where we're excited about it optimistic about the future with this partner we have and the performance of the EV system itself.

That sounds great. Turning to the other more recent events. I'm curious to see how you drive through hiring events have gone so far and you're hiring in general and some of the comments on absenteeism in the quarter, has that improved at all here in July and August?

Yes. So I will give you some feedback on that. So far, we've had 3. Our [line] is successful each one of the events has been 50% in higher and the Atkins coming through. We've done both online and back through few and I guess, we're like everyone we're trying to get creative the unemployment checks that people receiving the stopped I think last week. We don't think that helped us a whole bunch as you know, some people were making more money to stay at home and when they work they kind of work, so that's challenge that not only we have a lot of people have. So that's why we say get creative on the drive-through and our minus has been successful trying to pull people from other employers in the area and just to get people back in as Jon mentioned, back into the workforce has to be an offer a number of months.

So -- and we'll continue with those until we have the team in place by the way it's not just to replace the work is that we have. We are ramping up down in Bristol right to increase the plant throughput. So it's is twofold for us. It's to get some of the workers to stay if you will, and then we're also ramping up, so we need new workers to fill those spots that we have.

Great. Maybe my other last question here is on the luxury motor coach business. A couple of things there, I guess, can you just give us a sense as to where that fits in your margin profile. Is that a high margin business for you still? And then it sounds like there has been great demand for, for ISVs of all types this summer? And so there could be some lower retail inventories out there at this point. Do you think there is a tailwind not just in this quarter, but into next year for that category of your business?

So we haven't typically disclose profitability at the product line fine level. I think in terms of the demand side of things, we certainly see there is an opportunity beyond the second half of this year and going into next year.

We talked about the backlog has increased, we've got, I think most of our, if not all of our manufacturers at this point back to pre-COVID levels are increased from pre-COVID levels and that, that's not an investment they're making just for a short period of time here. So I think we feel pretty good about the long term, longer term or intermediate term demand profile in that business.

(Operator Instructions) Our next question will come from Steve O'Hara with Sidoti & Company.

In terms of the 3rd quarter outlook, is it possible to frame it in terms of kind of with the impact of COVID is in the quarter and maybe what it might have been, I mean obviously it's kind of a tough thing to answer, but what the impact of COVID was on the quarter? Or it's kind of the projected outlook for the 3rd quarter?

Yes, I mean your point that it's tough to put our finger on.

We do, we do see certainly saw depressed volumes in the second quarter related to chassis. There will be some timing given our, our backlog remains strong. Some of that backlog shifted from second quarter to third quarter.

I think as you look at Q3, in particular, I think it's fair to say that yet, the opportunity would have been higher without, without part shortages or labor issues but it's tough to put a number on that.

Okay. And then maybe just on the motor home side, I mean it seems like the RV market is booming. Is that more or less would what's going on with the backlog there from talking to RV guys, it sounds like a lot of that's been on the entry-level side, a lot of new buyers coming in, but I'm just kind of curious what your thoughts there.

Yes, this is Daryl. I think in the past, we've talked about it, trying to put analogy anywhere towables and the lower class RVs and I can tell you put a number on it. As they move large, we're going to move overall bidding they were going to move a little they move down they recall right, we may have a sniff type of a thing. Just because the cost of the larger motor coaches. So we do trend with them, but it is a little bit delayed and it's not quite as large as due to the cost profiles of vehicle versus the towable or smaller driver way RV which I think if you talk to and that's the same answer that will give you that they're seeing in high demand in towables in a smaller class drivable RVs.

Okay. And then is the, so the backlog improvement. I think you said this is the biggest kind of record backlog, it may be part of that is due to COVID, is that the other issue there that there was delays or is there was a market share gains or maybe your customers had market share gains or something like that.

Yes, it's I think it's a mixed bag. We had a little bit of a delay in COVID, but I think majority of it is due to also due to right because people are concerned on Zeno hotel, air travel and I personally this number of people in our office that decided with families to take rents motor homes and take motor home vacations which in the past. If I would have flown somewhere for the summer vacations and I that's it. And I've seen a couple of people outside of work that is done the same. So it may be a longer-term trend or travel again just due to the concern of Vienna airplane in the year with a lot of people on the plane. So unfortunately that way. Well for the airlines, but we are enjoying the trend and then we're seeing in the motor home luxury coach market.

Okay. And maybe just lastly, in terms of potential acquisitions, things like that, could you just talk about the landscape there, maybe I think in the past it's been partially about improving geography of your locations, things like that. Where do you stand now on that front? And then are there other areas that you're kind of comfortable with the footprint from a business standpoint that you have or are there other kind of avenues that you might find attractive here.

Yes, thank you. So I think -- our position has not changed. We -- even through COVID, we still have our pipeline meetings, we please --we are looking at a couple closely right now. We are happy with the footprint. Where I think on previous maps in our IR deck, you'll see that we can contact within 300 miles of each location, 80% of the US population. Now we have said -- it doesn't mean now we're not going to tweak it a little bit or find an opportunity that will give us additional product. So that's the key right now is find additional products that will enhance our product portfolio, as well as if there is a location that can give us additional increase 80% to something higher, we look at that as well.

Also, if there is a larger one sort of tuck-ins, which was larger one that could be a third leg to the stool, we're open for that as well. So we have a new business development person on board, who is doing a great job and stern up different opportunities for us. So we're excited about what that might bring, especially with our liquidity position going forward.

Our next question will come from Steve Dyer with Craig-Hallum.

Follow-up maybe to ask an earlier question in a different way. With respect to Specialty Chassis business backlog et cetera, I know Royal truck is sort of smudged in there. Maybe that's more of a final mile business. But are you, are you willing to sort of break out kind of demand between the motor home business compared with the Royal truck business?

I mean if you look at those 2 businesses, I would say, Royal backlog is about 3 to 4 months out. Motorhome is maybe 3 to 6 beyond that, I'm not sure we're in a position to provide it more detailed split up.

And Steve, just add to that I -- maybe a correction. I wouldn't consider the Royal service bodies into the last mile more into the construction, infrastructure, electrical cable type of products, more of a world-class in a last mile delivery truck.

This will conclude our question and answer session. I would now like to turn the conference back over to Juris Pagrabs for any closing remarks.

Thank you, everyone. We look forward to keeping you updated on our progress. I think if you keep tuned, we have a number of virtual conferences, we'll be participating in over the next several months. So please keep in touch and have a great day and be safe. Thank you.

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