The Shyft Group, Inc. (NASDAQ:SHYF) Q1 2024 Earnings Call Transcript

The Shyft Group, Inc. (NASDAQ:SHYF) Q1 2024 Earnings Call Transcript April 25, 2024

The Shyft Group, Inc. beats earnings expectations. Reported EPS is $-0.04, expectations were $-0.18. The Shyft Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, and welcome to The Shyft Group’s First Quarter 2024 Conference Call and Webcast. All participants will be in a listen-only mode until the question-and-answer session of the conference call. As a reminder, this call is being recorded. And I would now like to introduce Randy Wilson, Vice President of Investor Relations and Treasury for The Shyft Group. Please go ahead.

Randy Wilson: Good morning, and thank you for joining us. Today, you will hear from John Dunn, President and Chief Executive Officer; and Jon Douyard, Chief Financial Officer. Their prepared remarks will be followed by a question-and-answer session. Before we begin, please turn to Slide 2 of the presentation for our safe harbor statement. Today’s conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. Primary risks that management believes could materially affect our results are identified in our Forms 10-K and 10-Q filed with the SEC. We will be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company’s operating performance.

Reconciliations for these non-GAAP measures can be found in the conference call materials. We will begin with a business overview from our CEO, John Dunn, followed by John Douyard’s review of first-quarter performance and our 2024 outlook. We will then open the line for Q&A. Please turn to Slide 3, and I’ll turn it over to John Dunn, who will begin today’s prepared remarks.

John Dunn: Thank you, Randy, and good morning. I would like to welcome everyone to our earnings call, and appreciate your interest in The Shyft Group. Through the first quarter, our team delivered results better than our outlook provided in February. Key financial highlights include: Our specialty vehicle team continued to perform well with another solid quarter that resulted in high-teens margin. In addition, we saw early signs of commercial progress as the FVS team delivered the highest order level in nearly two years, resulting in their first sequential backlog increase since early 2022. While parcel order activity remained soft, as CapEx decisions continued to be delayed by fleet operators, our FVS sales team responded by focusing on other vocations, and Q1 order performance was highlighted by solid activity with utilities and food and beverage customers.

As we look at the parcel market, we’re confident in our leadership position and remain closely aligned with our customers. Although we remain cautious about the timing of the parcel market recovery, we believe our business is well-positioned to deliver for our customers as it returns. Overall, I want to emphasize that Shyft team members are acting with urgency to drive improved results and return the company to historical profitability over time. Please turn to Slide 4, and I’ll expand on the operational framework progress. Although we spoke only two months ago, we continue to chart a pathway to realize the full potential of our business. Back in February, I introduced an operating framework that serves as the foundation to drive sustainable financial growth and shareholder value.

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Q&A Session

It includes a relentless focus on building high-performing teams, delivering operational excellence, and keeping our customers at the center of everything we do. The team is driving improved performance by focusing on operational rigor, financial growth, and meeting the needs of our customers. We are equipping our business leaders with the appropriate tools and support for success. Senior management has conducted site visits to key facilities engaging with local teams to eliminate performance obstacles. Our One Shyft mindset is driving us to break down silos and increased coordination across the company. An example of this is in procurement, where we recently completed our first cross-company initiative to leverage total business spend for a product category.

Our actions led to consolidation of suppliers, allowing us to strengthen our relationships, while also positioning us to realize cost savings. Now turning to customer centricity. In March, our commercial and senior leadership teams met with key customers at the NTEA Work Show. We saw excellent customer engagement and elevated interest in all our product offerings, which reinforce that our core businesses have leading positions in their respective end markets. It also highlighted our strong collaborative relationships with customers and industry partners, which positions us to effectively respond to their needs and provide innovative solutions. To emphasize recent examples, we announced the first order for a driver rapid cooling system with a key fleet customer, reflecting our ability to deliver customer-focused innovation.

Additionally, we were designated a Ford Pro Upfitter, highlighting our operational capability and leadership in the upfit market, which will present expanded growth opportunities for Shyft. In summary, we are increasing collaboration across the company as we act with a One Shyft mindset to accelerate decision-making, relentlessly focus on our customers, and increase the pace of operational and financial improvement. The Shyft team continues to prioritize these efforts to drive long-term performance. Now let’s turn to Slide 5, and I will provide an update around the status of the Blue ARC EV program. As discussed on our last call, we focused our team’s efforts on bringing the Class 3 and Class 4 Blue Arc EV walk-in van to market later this year.

I’m pleased to say that the Blue Arc’s progress remains in line with these expectations. There is ongoing customer interest in the vehicle, and commercial conversations are progressing, evidenced by the high level of customer interest at NTEA. From a development standpoint, the Blue Arc vehicle validation and testing continues, and performance with the battery from Our Next Energy is meeting expectations. The Blue Arc team is preparing for production in late 2024, and we will continue to keep you informed of commercial and product developments. I will now turn it over to Jon for a detailed review of our financial results and 2024 outlook.

Jonathan Douyard: Thanks, John. Please turn to Slide 7. Overall, we delivered financial results for the quarter that were above our prior expectations. With the backdrop of softer FVS demand, our team did a nice job focusing on improving performance, and we saw benefits from overall cost management, deferral of Blue Arc spending, and delivery of incremental sales volume that was initially planned for the second quarter. Sales for the first quarter were $197.9 million, down 18.7%, from $243.4 million in the prior-year quarter. Net loss was $4.7 million, or $0.14 per share, compared to net income of $1.7 million, or $0.05 per share in the previous year. Please note that these results include a $1.85 million charge for the expected settlement of the EPA vehicle labeling matter, which we initially disclosed in 2020.

The settlement is not final, but we believe we are nearing resolution and do not expect the outcome to be materially different than the accrual taken in the quarter. In the first quarter, adjusted EBITDA was $6.1 million, or 3.1% of sales, down from $10.8 million, or 4.4% of sales in the first quarter of 2023. These results include EV program spend of $5.5 million, down from $8.5 million in the prior year as we focus our spending on bringing the Class 4 vehicle to market. Excluding these expenses, adjusted EBITDA was 5.9% of sales. Adjusted net loss for the quarter was $1.4 million, while adjusted EPS decreased to a loss of $0.04 per share. Please turn to Slide 8, and I’ll provide an update on our segment performance. In the first quarter, FVS achieved sales of $107.8 million, down 32.4%, compared to $159.4 million a year ago, reflecting ongoing softness in the parcel end markets as customers continue to delay capital expenditures.

Adjusted EBITDA for the quarter was $0.9 million versus $12.5 million a year ago, with the decline in profitability driven by the impacts of lower sales volume as well as negative product mix. Adjusted EBITDA margin was 0.9% of sales compared to 7.8% in the first quarter last year. Quarter-end backlog for FVS was $356.1 million, up 10% versus the fourth quarter of 2023. Turning to SV. The business delivered another solid quarter with both top line growth and strong margin performance. Sales of $90.1 million were up 3.4% compared to last year, with growth in service bodies and motorhome. Adjusted EBITDA was $17 million, or 18.8% of sales, compared to $13.9 million, or 15.9% of sales in the same period last year. SV backlog of $83.3 million is roughly flat versus the end of the year.

Please turn to Slide 9 for a discussion on the full year. We are affirming our 2024 outlook with sales in the range of $850 million to $900 million, and adjusted EBITDA of $40 million to $50 million. While our team did deliver improved profit performance versus initial expectations to start the year, we remain cautious on near-term parcel order activity. We are confident in the long-term growth of the parcel market, but there continues to be uncertainty on the timing of market recovery. Given our visibility, we are focused on continuing the commercial momentum from the first quarter and driving efficiency across the organization. On cash flow, we remain on track to deliver our prior free cash flow guidance of $25 million to $35 million and expect improvement as the year progresses.

In closing, we are pleased with our start to the year. Our team is focused on commercial and operational execution to deliver our full-year outlook, while we also look to position the company for improved performance in 2025. With that, I will turn it back over to John Dunn.

John Dunn: Thank you, Jon. Turning to Slide 10. I want to conclude today’s prepared remarks by first extending my appreciation to the Shyft team as we continue our improvement journey. At the start of the call, I highlighted our commitment to enhancing shareholder value and returning Shyft to historic profitability by implementing our operational framework. The team is taking concrete steps to achieve this through operational excellence and a One Shyft mindset, all of which is focused on customer satisfaction and long-term growth. The dedication of our team is clear, and we are making progress. Together, we are acting with urgency to drive the enhanced performance. Thank you again for your trust and engagement. I’m confident in the direction of the company and look forward to sharing future updates with you. We are now ready to take your questions. Operator, please open the line.

Operator: Thank you very much. We’ll begin the question-and-answer session. [Operator Instructions] At this time, we will start with a question from Matt Koranda from Roth MKM. Matt, please go ahead.

Matt Koranda: Hi, guys. Good morning. I wanted to start off with the backlog and FVS guidance that the sequential increase is encouraging. And I guess, the implied order flow looks relatively healthy relative to kind of what you’ve been experiencing for the last several quarters. I noticed you mentioned in, at least, the release that doesn’t sound like it’s necessarily coming from parcel fleet customers. So I just wanted to see if you could talk about where is the strength in order flow coming from for FVS? And then what’s your expectation for fleet customers for the remainder of this year in terms of just the cadence of order flow? I guess, we’ve noticed that parcel unit growth does look like it’s being projected by some of the major fleets. So what does that mean for order flow from your parcel fleet customers for the rest of this year? If you could sort of expand upon that, that would be great.

Jonathan Douyard: Yes, Matt, thanks for the question. I think — I mean, we’re certainly pleased with the performance of the FVS commercial teams this quarter. I think we’ve talked in the past about how do we expand and diversify that customer base. We’re seeing some of the fruits of that here in the quarter. And as John mentioned in his prepared remarks, we really saw strength from a utility perspective as well as in food and beverage in the quarter. So if you look at it, just maybe for some historical perspective, if you go back a couple of years, FVS was 75% parcel, 25% other vocations. What we saw this quarter was an inverse of that from an orders perspective. And so while there was some parcel activity, certainly not to the levels that we saw historically.

As we look at the timing of that, consistent with what we’ve said in prior discussions, the — our fleet customers continued to discuss about their need for additional vehicles in their fleets. And so we remain close to them, engaged anticipating the timing of their needs. We would expect to see some pickup in activity here in the second quarter, but most likely closer to midyear. So some of that may be in the third quarter as well.