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Edited Transcript of STS earnings conference call or presentation 1-May-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Supreme Industries Inc Earnings Call

Goshen May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Supreme Industries Inc earnings conference call or presentation Monday, May 1, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark D. Weber

Supreme Industries, Inc. - CEO, President and Director

* Matthew W. Long

Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary

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Conference Call Participants

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* Greg Alan Eisen

Singular Research, LLC - Research Analyst

* James R. Wilen

Wilen Investment Management Corp. - President and Chief Compliance Officer

* Ralph Marash

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Presentation

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Operator [1]

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Welcome to the Supreme Industries 2017 First Conference Call. Some statements made on today's call may be predictive and are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995. Although the company believes its forward-looking statements are based on reasonable assumptions, some statements are subject to risks and uncertainties that could cause actual results to differ materially. Important factors that could cause actual results to differ materially from those in the forward-looking statements are set forth in the company's reports on Forms 10-K and 10-Q filled with and a news release is furnished to the Securities and Exchange Commission. Today's call will be archived and available for replay on Supreme's website for approximately 30 days. (Operator Instructions) And please note, this event is being recorded. At this time, I'd like to introduce your host for today's call, President and Chief Executive Officer, Mark Weber; and Chief Financial Officer, Treasurer and Assistant Secretary, Matthew Long. Please go ahead, Mr. Weber.

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [2]

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Thank you, Ryan. Good morning, and thank you for joining us today to discuss our results for the first quarter of 2017. A press release highlighting the results was issued earlier this morning and is available within the Investor Relations section of our website. I'm pleased to report that during the first quarter, we booked over $100 million in new orders, establishing a new first quarter record for order intake at Supreme. It is exciting to see the investments in our sales organization, supported by improved operations execution, generate sales growth that is certainly outpacing the rate of growth for the overall industry, as reported by the NTEA. Rental fleet orders for delivery during the first half of 2017 increased 48% as compared to 2016, and were a significant contributor to achieving record quarterly orders. In addition, retail orders for the quarter were 9% higher on a year-over-year basis and up 17% sequentially from the fourth quarter of 2016. While the rental fleet orders are related to a small number of national accounts, we are encouraged by the growth in orders with the broader retail and leasing segments as we think about the outlook for the balance of the year.

Backlog at the end of the first quarter was $115 million, up 16% from $99 million at the same time last year. Adjusted for the divestiture of the Trolley product line, and also established a new record level for first quarter backlog. Net sales in the first quarter were essentially flat with last year at $68.7 million, compared with $69.4 million in the first quarter of 2016. As mentioned in the press release, delays in receiving customer-supplied chassis designated for rental fleet production across all 5 plants created significant operating friction during the quarter. Capacity constraints in the third-party transportation system caused the initial chassis deliveries to slip a few weeks, delaying the production ramp up and shipments for rental fleets. The rental fleets are produced on dedicated assembly lines with dedicated seasonal employees, which must be onboarded and trained prior to the initial chassis deliveries in order to meet daily build and ship commitments. Once the chassis transportation delays were recognized, we attempted to reallocate the seasonal employees to other value-added activities. But given their specific expertise, we still experienced significant inefficiencies and lower-than-planned shipments. We did not lose any orders due to the delays. However, we did have to reschedule several units across our plants, pushing units from the first quarter into subsequent quarters. The flow of customer-supplied chassis had normalized by the end of March and fleet assembly lines across all 5 plants ramped up quickly to planned build rates.

Nevertheless, the fleet ramp up complications had a negative impact on both sales and profitability in the quarter. Operating income in the quarter was $3 million, down from $5.8 million last year, and net income was $1.9 million or $0.11 per diluted share compared with $3.8 million of net income or $0.22 per diluted share in the initial quarter of 2016. In addition to the temporary customer-supplied chassis issues, income was also impacted by onetime project cost, health care cost increases and product mix, which Matt will cover in more detail. During prior calls, I have discussed that we commissioned a small team to lead our transformation to lean manufacturing. I wanted to share one example where this group is starting to gain some traction. Our lean manufacturing team working with the operations staff at our Indiana plant completed a major flow improvement project for our retail assembly lines during the first quarter. Reducing line cycle times and elimination of excess material handling, both of which improved efficiency, and inventory reduction were the major objectives of the process mapping initiative. The physical plant flow changes, including relocating a couple of our retail assembly lines, decentralizing some functions and relocating several subassembly processes to improve line synchronization.

Once the employees become experienced with the new line flow, we anticipate it will result in improved lead times and a more efficient retail assembly process. This flow improvement initiative is projected to have an 18- to 24-month return and also support our continued growth in refrigerated body sales. In addition, we have capital projects underway at our California and Georgia plants to address production flow constraints and improve overall efficiency. The facility changes in California will begin during the third quarter of this year, post rental fleet production and should be completed by the end of 2017. Georgia is a much larger campus consolidation project and will take place in 2 phases, with the first phase to be completed by the end of this year and the final phase to be completed by the end of 2018. In both cases, the project work will be scheduled in such a manner that it does not impact our ability to meet high build rates required during peak rental fleet production. Looking ahead to the rest of the year, leading economic indicators remain optimistic. Homebuilder sentiment hit a record reading of 71% in March, which was the highest since June of 2005 and indicates the expectation of robust demand in future new home construction.

The NABE also has 2017 housing starts forecasted at an annualized rate of $1.3 million, indicating an 11% expansion as compared to 2016. Last Tuesday, the commerce department released that March new home sales were up 5.8%, hitting a new 8-month high. The manufacturers Purchasing Managers' Index has also remained above 54% since November, another indication of an expanding economy. While there are several positive indicators, we are also seeing some signs of headwinds in terms of employment constraints, wage inflation and upward pressure on certain material costs. According to the NTEA, the work truck industry is still expected to grow at low single digits for 2017. However, our mission is to drive profitable growth several points above the base market expansion. With that, I'll turn the call over to Matt for more details on our financials.

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [3]

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Thank you, Mark. Net sales of $68.7 million in the first quarter were down 1% compared with $69.4 million in the first quarter of 2016. Our net sales would have been appreciably higher in the quarter if we had been able to start our rental fleet runs on time. These sales will be realized in future periods based on our deferred build schedules. In the first quarter of 2017, gross margin declined to 18.9% of sales, down from 21.8% of sales in 2016's comparable quarter. This was primarily a result of labor inefficiencies associated with the chassis delays, as Mark described earlier, sizable expenses incurred related to our lean initiatives to reconfigure plant layouts and higher health insurance claims. While sales remained essentially flat this quarter compared to last year's first quarter, we had a much higher mix of lower margin rental fleet shipments, adding an additional downward pressure on margin.

First quarter selling, general and administrative expenses increased 6% to $10.1 million from $9.4 million in the previous year. The increase was due to higher sales wages as the company upgraded key sales personnel, annual merit increases, increased group health insurance claims, higher OEM marketing expense and higher legal expenses. The lower gross profit combined with higher operating expenses resulted in operating income of $3 million in the first quarter, which was down from operating income of $5.6 million in 2016's comparable quarter. Net income was $1.9 million in the first quarter of 2017 compared with the net income of $3.8 million reported in the same quarter of 2016. Diluted earnings per share were $0.11 per share compared with $0.22 per share in the first quarter of 2016. Shifting to the balance sheet. We ended the first quarter of 2017 with $5.4 million of cash on hand versus $35.2 million of cash at the end of 2016. To support our increased business activity, inventory increased $17.7 million and accounts receivable grew $13.8 million since the beginning of the year. Total debt at the end of the first quarter was $7.3 million, representing the outstanding balance on our low cost term loan, which matures in the fourth quarter of this year.

We have started the renewal process on our revolving credit facility and plan to retire the term loan as part of the renewal. As we discussed in our last call, capital expenditures are expected to increase in 2017 versus 2016. In the first quarter, we invested a little over $500,000 to support growth projects, which was up approximately 35% from the capital investment made in the first quarter of last year. Working capital increased to $59.6 million at quarter end compared with $52.8 million at the end of 2016. Stockholders' equity rose to $102.8 million as of April 1, 2017, compared with $101.7 million at the end of last year. On a per share basis, book value at the end of first quarter was $6.06 per share compared with $6.02 at the end of 2016. Subsequent to the quarter ending, we signed an agreement to sell the remaining Indiana manufacturing facilities with an anticipated close in the second quarter. There will be no material gain or loss with this transaction. This concludes our prepared remarks. Operator, let's open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Greg Eisen with Singular Research.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [2]

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First place to start, I guess, is try to understand better the chassis situation. So around when during the quarter did this become kind of obvious to you guys that you weren't getting chassis on a timely basis?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [3]

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Well, this is Mark Weber, and I'll comment on that. And just to reiterate, these are customer-supplied chassis that are being planned and scheduled by the rental fleet national account folks. So they provide us with the estimated delivery schedule of the chassis, and then their in-service dates that they want the trucks delivered once we have built the bodies on them. So we're not working directly with -- we don't purchase the chassis. We're not managing the transportation logistics side of it. So when we first realized there was a problem is when deliveries began to slip. So that was in February when we had intended to start up, and again, all these schedules were built with a lot of input from the customers in the December and January time frame. We have to onboard our staff typically 2 to 2.5 weeks ahead of chassis deliveries, so we can get through safety training, assembly training and so forth, so they're ready to go. So that's when we first began to see it is sort of mid-February. And fundamentally, it was sort of a capacity issue in the transportation system because these are put on rail and then they're delivered via rail to certain railhead locations and then delivered via truck from that point to our plants. And as those deliveries started slipping, there's obviously quite a bit of expediting activity going on, on the part of our end customer who control the transportation organizations. And that -- we tried to reallocate the resources, but again they're pretty specially trained to build high volume fleet units that are a similar configuration. There's no variation in those units. So it's a very sort of vanilla truck that they're building.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [4]

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So it sounds like you received kind of all the chassis that you had expected to receive, if we read you correctly, by the end of the quarter, but you received them so late in the quarter that you couldn't just snap your fingers and voila, there's a truck?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [5]

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That's correct. So I mean, the flow was delayed a couple of weeks initially and then they started ramping up. Because our production lines can't go from 0 to 20 units a week in 1 week. So we typically have our production lines staged. So in the first week they might be offlining 5 units that week. The next week they might be at 10 units a week. So we're staged to ramp up, chassis were staged to come in accordingly. But by the end of March, we had -- our lines were all ramped up, chassis flow was at scheduled rates to support our lines, but we just had difficulty in that first 2- to 4-week period kind of 1st of -- mid-February, early March, in that ramp-up schedule.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [6]

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Right. So this quarter, the second quarter is already 1/3 done or 1 month in. Is it fair to ask, have you just actually caught up on that whole cycle? And are you now really on schedule for deliveries for the rental fleet?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [7]

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Yes I mean, again, with our customer we had to reschedule because of the chassis. So there was some demand that slipped out of Q1 or some shipments that slipped out of Q1 into subsequent quarters. But once we reschedule that, put that new schedule, revised schedule together, we're on schedule now. So our plants are running at full bore right now, and we had a very good production month last month. We just closed April right on where we expected to be. And the chassis flow is steady now. So we don't anticipate additional issues.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [8]

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Okay, okay. And then just following on, there were -- you had higher SG&A versus last year. You pointed out, I guess this might be for Matt, the higher sales wages, merit increases, health and legal costs. Is there anything to the increased SG&A this quarter that I should consider to be onetime and nonrecurring? Or is this essentially just a step up in overhead levels?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [9]

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I think the -- if you look year-over-year, probably the anomaly to think about was that our health insurance claims in 2016 were a little more favorable than what we normally have. And so 2017's health insurance claims, at least as we were anticipating, are pretty much right on the money. They are certainly higher than what they were last year. But there aren't any real onetime things that -- of any significance otherwise.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [10]

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Okay. So then there isn't any one thing that's large that would stand out as totally nonrecurring?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [11]

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No.

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Operator [12]

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(Operator Instructions) And our next question comes from Jamie Wilen with Wilen Management.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [13]

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Just a question about chassis, and we have made a great effort to control the chassis that we own. So we -- our production is always on a smooth flow. Is there any reason why we can't purchase the chassis ourselves for these leasing customers? And more, take control of our own destiny here?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [14]

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Yes, Jamie, this is Mark Weber, and that's a good question. The simple answer is, our purchasing power is nowhere near the purchasing power of these national accounts. So we're -- and you know who they are; they're Penske, Ryder and Budget, I mean, that have rental business. So there is no way that we could buy the chassis like they do from a pricing standpoint. They also, I mean, clearly, they want to control that because they have very specific requirements in the field in terms of chassis preferences, and so forth. So -- and just to be clear, this is separate than when I first came here, we had some issues with our pool chassis through GM and Ford. This issue is totally unrelated to our pool chassis program, and we do have quite a bit of influence over how the pool chassis are planned, scheduled and brought in. In this particular case, these rental units, the end customer that being the 3 I mentioned, they own the chassis, they plan and schedule the chassis in line with how they want those going into service in the field. And in this particular case, quite frankly, both us and the end customer got caught sort of by surprise with the inability of the transportation system to ramp up for the rental fleet run. It just took them 2 to 3 weeks longer to ramp up their flow of delivery on those chassis. But that's a good question.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [15]

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So when I look at the inventory, obviously from your press release it's not fully there, but that's raw materials in anticipation of the additional?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [16]

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Yes, that's correct because we had a little bit of a glut, because we had material scheduled and planned and our workforce, as I indicated earlier, sort of in place for those first deliveries. Because once these chassis come to us, we have a very tight window to turn these, get them built, get the bodies on them and get them back to the end-user. So -- and that's a real key element of our value proposition is our ability to deliver these products on time. So inventory and we had human resources sort of on standby and ready to go and the chassis didn't show up. So that will all flush itself through the system as we go forward.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [17]

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What is our monthly capacity right now in terms of dollar revenues?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [18]

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Well, I mean even with the fleet business, we're not running at full capacity. We're running some second shift. And I would say that, if you think about the fact that when we're running retails, we running about $20 million a month. And that said, about 1/3 capacity.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [19]

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On the refrigerated body side, that's an area we really haven't had a lot of, I wouldn't say focus, but haven't had a great market share in that business. What kind of plan do you have moving forward to penetrate that area more?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [20]

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Well -- and that's a good question, and we have done quite a bit of work. And also sort of the good news, the last 2 years we've grown the sales of our refrigerated product double digits. So we're growing the refrigerated segment faster than sort of the base business and it's also growing faster than market. We've made a lot of improvements to the product. We've also in-sourced the installation of the refrigeration units, which in the past we had to send the trucks out to a third party like Carrier or Thermo King to get that installation done, which typically added anywhere from 1 to 3 weeks to our lead time. So now we have trained technicians, certified technicians in all 5 locations that can install the refrigeration units, which makes our delivery and lead time much more competitive. So we have done some things there around that product. The change that we're making in California from a capacity standpoint is really targeted at improving the efficiency and capacity for refrigerated product. So we are making some progress there.

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Operator [21]

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(Operator Instructions) And our next question comes from Ralph Marash with First Manhattan Company.

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Ralph Marash, [22]

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Just to go back to the chassis delay again, 2 related questions. The first is, I'm assuming that overall, over the life of the build for this year, you're not going to actually lose any business?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [23]

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No. And again, to your -- to the point earlier, this is only related to the rental fleet runs.

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Ralph Marash, [24]

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Right.

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [25]

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So we didn't have issues with chassis on leasing business or our pool chassis like duty pool chassis. So it was really related to the spring runs here and again, we're sort of -- it's sort of -- it's really behind us now. The flow of chassis is good. We've got chassis on ground. Our lines are running at planned capacity and it should not have impacts on our leasing or retail business or additional rental business that might get tagged on later in the year.

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [26]

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So to kind of close that, they've actually been rescheduled. They're going to be delivered in subsequent quarters.

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [27]

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Correct. Right, right.

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Ralph Marash, [28]

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Okay. So again, just to be clear and I'll make up a number. So if you were going to deliver 5,000 trucks overall to the rental fleets, you're still going to deliver 5,000 trucks, it's just that the delivery times are now on schedule, which is a later schedule?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [29]

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That's correct.

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Ralph Marash, [30]

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Okay. And then the related question is, there are no additional margin issues for the second and third quarters regarding the rental trucks other than what you've said in terms of the labor dislocations?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [31]

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That's correct. I mean, we don't see that we're going to have any of those issues as we move forward. Certainly, certain things are out of our control, but we don't anticipate that. Most of that was or all of that was related to the delays, had people ready to go and just no chassis to build on.

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Ralph Marash, [32]

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Okay. I'm not sure how you're going to answer this, because it's sort of a projection. But second and third quarters, all things being equal, should be slightly better than normal because of order flow?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [33]

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I think you can look at it from the standpoint that, that, which we did not ship during the first quarter is going to certainly fall into second and/or third, depending on timing. So you would think that there would be some pick up from that versus what we anticipate.

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [34]

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The other thing, Ralph, to sort of keep in mind is that the retail orders were pretty strong in the first quarter. So they were up 9% year-over-year, set the rental aside. And then they were up almost 17% sequentially from the fourth quarter. So we're -- and that's across retail includes sort of the mom and pop 1 to 5 trucks. But also our leasing orders go through that retail bucket. And so that's a nice start to the year in terms of bookings on the retail side.

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Ralph Marash, [35]

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And of course, you're making headway in leasing in general. I mean, that's been a focus for you. So do we think the rest of the year will look good in leasing?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [36]

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Well, I mean, we're pretty optimistic what we saw in the first quarter, because we do track some large leasing accounts specifically. And just to monitor their outlook. There was a recent release on Ryder, public release from an analyst and they indicated that they're pretty bullish on their leasing business. Their rental business on Ryder's side, anyway, they said was a little bit soft. Utilization rates were down a bit, but they were pretty optimistic about growth in the leasing segment. So I mean, we're just looking at as many data points as we can. And unfortunately, as you know that leasing business can be kind of lumpy as well, because you may have a customer that buys or replaces 10% of their fleet every year in the leasing side. You may have an account, which we've had before, that comes in and buys -- they don't buy anything for 5 years and then they'll buy 400 trucks. So it's pretty hard to predict, but at least the secular trends that are out there and the Penske's and the Ryder's of the world, the people that we're engaging with on a pretty regular frequency seem to feel pretty optimistic that leasing is going to kind of continue to move in a positive way.

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Ralph Marash, [37]

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Okay. And then the last question that I tend to pester you with often on, anything new on the U.S. government armored vehicle contract?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [38]

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No. Nothing really new there.

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Operator [39]

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And up next, we have a follow-up from Jamie Wilen from Wilen Management.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [40]

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Yes, the sale of the Indiana facilities, I know there was no material impact. But can you tell us how much you will receive for that?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [41]

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I'm trying to remember; it's about $4.2 million. Yes, $4.2 million in cash.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [42]

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Okay. Do we have any expenses with maintaining those facilities or it's just going to be a full wash moving forward?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [43]

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No. That's a full wash moving forward. We have a couple of smaller ones. I think we've talked about that we had some long-term leases that we put in place. So those should be a wash also. And we have, we believe, an investor that wants to monetize those for us as well, but we haven't finished that negotiation. So what's left is the empty properties, that have no buildings on them yet, still to be monetized at this point.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [44]

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Okay. And you're always tweaking the efficiency levels. How would you characterize where you are now, now that the Indiana is fully situated and you've done a few other things?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [45]

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Well, we made some major moves in Indiana over the Christmas holidays in January and February. So I think we've got the chairs in the right spot. I think it's going to take the employees a few months to get used to the fact that we moved the chairs around a bit, which is pretty normal. We haven't made a lot of other major layout changes in our other locations. But our -- so our lean team is going to be heavily involved in the California addition, they're involved in that right now. Actually the build-out on the back of the building starts in the third quarter. And they're also involved in Georgia, which is a more significant layout of that sort of entire factory consolidated into 1 building versus we're right now in 2 buildings on different sides of the road. So I still think that we're sort of in an early innings. We're clearly not in mid innings. I think once we get through the Georgia project and the California project, I would say then we're probably at a point where we're sort of more mid-inning in terms of the path here. But my experience, both the common's and federal's signal in terms of lean initiatives like this, when you're sort of starting out. It's -- you're going to make sort of continuous progress, but it's a 2 to 4, 3- to 5-year initiative to really kind to get it where you want it to be. So like I said -- I would say that we're sort of early innings right now and within the next -- the project we have on the table, will put us sort of mid-inning.

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James R. Wilen, Wilen Investment Management Corp. - President and Chief Compliance Officer [46]

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Okay. And lastly, you've mentioned that you've been doing some work with Costco on some light-weighted trucks. Could you tell us where that stands at the moment? And how the light-weighted project -- product is being accepted in the marketplace, either by them or others that you've had in test?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [47]

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Yes, just to comment on the Costco project. That's the first big truck with a heavy duty liftgate on it. When I say big truck, it's 26-foot dry freight with a, what's called a rail gate, which is the heaviest liftgate you can put on the back of a truck, that we've ever built. And we're checking that truck every 30 days. We're into about the third month. We have had our engineering folks out looking at it. It's on the West Coast and it's performing quite well. So we're very happy with what we've seen with that truck. Costco is very happy about it. We plan to run it 6 months and at that point in time, we'll do a sort of a final evaluation with Costco. And it's quite possible that, that product is going to be their standard in their dry freight going forward, because of the weight savings and the esthetic benefit and corrosion and other things that come along. The rest of the industry, it's kind of hit or miss. We have some trucks in 1 rental fleet that's been out on 16 foots, it's been out 2 years. Great performance. We've had no warranty claims on those trucks. They look great. We're putting some 16-footers in a second rental, national rental fleet this year. So the progress is what I would -- from my standpoint, the progress is slow, the adoption is slow, the people who have them like them. But I think this is something more and more of our competitors are going to a composite or offering a composite. But at the end of the day, the lion's share of the production out there today is still aluminum or plywood, fiberglass reinforced. If you go to Europe and look at trucks over there, the majority of them are composites. So I think this is going to be a slow, general adaptation, but the benefit we have, we have our own laminating facilities. You know they're at the tower. So we're continuously experimenting and looking at different configurations that give you optimization of strength and weight, because I think those things will continue to grow from an important standpoint as we go forward.

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Operator [48]

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And at this time, we have a follow-up from Greg Eisen with Singular Research.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [49]

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Regarding the -- going back to the delayed chassis, can you share with us -- I know that you may not want to, but how much of the end of quarter backlog was represented by business that was delayed that will ship -- that didn't ship in the first quarter because of this problem?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [50]

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Yes, it was between $3 million and $4 million.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [51]

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Okay. And percentage-wise, could you say how much of that will ship in quarters after Q2?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [52]

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Well, I would say the majority of it's going to ship in Q2. There'll be a small amount, probably close to that same amount that we didn't get in Q1 that will spill over into Q3.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [53]

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Okay. But the majority will ship in Q2?

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [54]

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Correct.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [55]

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Okay, okay. And going back to -- you mentioned earlier in the call, capital spending for the quarter was -- what was the number you gave?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [56]

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Little over $500,000.

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [57]

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Little over $500,000. Would you care to share where do you think the year will end up at now? And is this anything different than what you were expecting before?

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Matthew W. Long, Supreme Industries, Inc. - CFO, Treasurer and Assistant Secretary [58]

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I don't think it will be any different. I think we gave some indication maybe in the last call that this would be a little higher than what our normal number was just due to the building projects that we have going on. So we say our normal is $3 million to $4 million. That's -- so would be something north of that. Does that answer your question, Greg?

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Greg Alan Eisen, Singular Research, LLC - Research Analyst [59]

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That does, that does.

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Operator [60]

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And at this time, we're currently showing no further questions. I would now like to turn the conference over back to Mr. Weber for any closing remarks.

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Mark D. Weber, Supreme Industries, Inc. - CEO, President and Director [61]

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Thanks, Ryan. In summary, we remain optimistic as we look to the balance of the year. Our plants are now running at planned production levels on both rental fleet and retail assembly lines. We booked orders at a record pace during the first quarter, which generated a $115 million backlog. We have additional operational improvement projects initiated now for California and Georgia and several economic indicators are pointing towards an expanding economy. Overall, we currently see more upside potential than downside risk for the balance of the year. In closing, I would like to thank you for joining us on the call today, and I look forward to reporting on our ongoing progress when we report our second quarter and first half results this summer. Thank you.

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Operator [62]

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Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect.