The Shyft Group, Inc. (NASDAQ:SHYF) Q4 2023 Earnings Call Transcript
The Shyft Group, Inc. (NASDAQ:SHYF) Q4 2023 Earnings Call Transcript February 22, 2024
The Shyft Group, Inc. misses on earnings expectations. Reported EPS is $-0.03 EPS, expectations were $-0.02625. SHYF 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 Fourth Quarter and Full Year 2023 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. I would now like to introduce Randy Wilson, Vice President, Investor Relations and Treasury of The Shyft Group. Please go ahead.
Randy Wilson: Good morning and thank you for joining us. I'm joined by 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 posted on our website. We'll start with opening comments from our CEO, John Dunn before turning the call over to Jon Douyard for our view of a 2023 performance as well as our 2024 outlook. We will then open the line for Q&A. Please turn to slide 3 and John Dunn will begin today's prepared remarks.
John Dunn: Thank you, Randy and good morning to everyone. As I noted on our call back in October, I'm excited to be leading this fantastic company. Over the last 50 years, Shyft has grown to a national leader in many specialty vehicle markets, while consistently demonstrating the ability to innovate, partnering with customers, and maintain financial stability. In past roles, I've delivered ambitious growth by focusing on building solid teams and driving commercial and operational excellence. I spent my career in the automotive sector with experience launching vehicles for General Motors and having senior leadership roles for Tier 1 auto suppliers, one of which grew annual sales from $50 million to $1.5 billion in North America.
I look forward to building on Shyft's great legacy and leveraging my experience to deliver a higher level of performance. Having just completed my first full year at Shyft, including the last four months as CEO, I continue to be impressed by the industry leading products and the team's capabilities together with the leadership team, we have defined an operating framework, which will serve as the foundation to drive sustainable financial growth and deliver value for our shareholders going forward. Our approach includes a relentless focus on building high-performing teams to foster collaboration and drive results delivering operational excellence, improving efficiency in all aspects of the business, while bringing innovative and high-quality products to our customers, and keeping customers at the center of everything we do from sales to design to delivery, we are here to enable our customer success.
Shyft's recent performance has been impacted by end market demand softness and we are acting with urgency to return the business to historical profitability. As we transition to Slide 4, I will talk walk you through the actions we have taken over the past four months, which reflect this operating framework. It all starts with the team and our immediate focus was on team alignment to drive operational rigor and financial growth. We top-graded key roles including production and sales leadership to improve immediate performance and build bench strength. We promoted Jacob Farmer into our FVS President role. He previously led our SV business. Jacob is a proven leader and we are confident though he will continue to drive the necessary improvements already underway in FVS and utilize his experience within SV these to strengthen coordination across the company.
We look for better ways to enable our businesses to ensure that they had the appropriate tools and support needed to be successful. We have simplified our internal reporting rhythms and identified opportunities to push down functional support into the businesses where it is needed most. An example of this is in our marketing function which now reports directly into our segments. Transitioning to operational excellence, we understand the importance of product quality and process efficiency as well as sales force effectiveness and overall customer satisfaction. We are focused on improvements in all of these areas. In December, for the first time, we pulled together our sales team from across the company. We held product training and identified cross-selling opportunities.
Coming out of the sales summit, we adjusted our sales compensation structure to incentivize business with new customers and to establish targets for our sales team to sell all Shyft brands. We have a portfolio of industry-leading products and need to make sure we are selling them broadly to the market. By taking a more comprehensive approach we will expand our reach and diversify our customer base. Operationally, we've identified opportunities including deeper cross-company synergies in procurement and ways to optimize our footprint. I look forward to updating you on the output of these initiatives, on our upcoming calls. Another area of focus, given its strategic importance to Shyft and our customers has been the Blue Arc EV program. I've spent time with the team, validating the overall market opportunity, reviewing the project plan in depth and assessing our manufacturing capability.
I'm impressed by the quality of the product, the robustness of the design and what the team has been able to accomplish. I had direct conversations with our key customers, who communicated their excitement for our Blue Arc Vehicle and its role in their fleet strategy. After assessing progress and interest, we prioritize the Class 3 to 4 walk-in van, as the most efficient path to getting Blue Arc to market. While we discussed other class sizes and vocations historically, we have refined our focus in 2024 which will drive lower spending versus 2023. Now let's turn to slide 5, and I'll give you more detail around the status of our Blue Arc program. Our team continues to make solid progress on overall Vehicle Development including the Battery performance.
We previously discussed, Battery quality issues impacting our ability to go into production. We worked with our supplier, Proterra to solve the issues, until the recent purchase of Proterra by Volvo. Currently we are exploring a new commercial agreement with Volvo. In parallel, we accelerated the Battery Integration in our Class 3 to 4 Vehicle, with battery supplier, Our Next Energy. We recently completed performance testing and are pleased to confirm the vehicle range is over 200 miles. These results meet customer requirements and are consistent with our prior vehicle testing. From a vehicle standpoint, we have finalized the design and the first production and 10 units have been manufactured in our Charlotte Michigan facility. With the revised program timeline, we expect final testing in the coming months to complete and start production in late 2024.
In conclusion, our team has built an outstanding vehicle. While there is more work to do, I am confident, this will be a growth driver for Shyft. We will provide additional detail around Blue Arc, as Jon Douyard, discusses our outlook later in the presentation. With that, I'll turn it over to him, to discuss our financial results.
Jon Douyard: Thanks, John. Please turn to slide 7 and I'll start with our full year 2023 financial results and highlights. Overall 2023 was a challenging year for Shyft, as deterioration in the parcel and motorhome markets impacted overall performance. In the year we delivered $872 million of revenue and $40 million of adjusted EBITDA which was in line with our recent expectations. Excluding the impact of EV expenses, our core business delivered adjusted EBITDA of $73 million or 8.3% of sales. We delivered tremendous performance in our Specialty Vehicles business with 20% adjusted EBITDA margin for the full year. And we drove solid cash generation, allowing us to fund key growth initiatives including Blue Arc. Throughout the year reflects our operations, moving production between sites and adjusting headcount as needed in response to the decreased sales volume.
Overall, we reduced headcount by approximately 30% from the beginning of the year. Despite the sales volume pressure our team focused on driving cash flow and reducing working capital resulting in free cash flow of $36 million, up $75 million versus the prior year. Turning to Slide 8. I will now provide an overview of our fourth quarter financial results. Sales were $202.3 million, down 33% from $302 million in the prior year. Net loss of $4.4 million or a loss of $0.13 per share compared to net income of $17.8 million or $0.50 per share in the previous year. Fourth quarter 2023 results included a tax benefit of $4.8 million. In the fourth quarter, adjusted EBITDA was $2.3 million or 1.1% of sales, down from $30.7 million or 10.2% of sales in the fourth quarter of 2022.
These results include EV program spend of $9.3 million, up from $7.6 million in the prior year. Excluding these expenses, adjusted EBITDA was 5.7% of sales. Adjusted net loss for the quarter was $0.9 million, while adjusted EPS decreased to a loss of $0.03 per share. I'll now walk you through our results by operating segment on Slide 9. In the quarter Fleet Vehicles and Services achieved sales of $119 million, down 44.1% compared to $212.9 million a year ago reflecting softness in the last mile delivery end markets. These results include $15 million of pass-through chassis revenue related to the USPS truck body program. Adjusted EBITDA for the quarter was a loss of $2.6 million versus income of $27.7 million a year ago. With lower profitability, driven by sales volume and negative product mix, which includes the impact of the USPS pass-through sales.
Adjusted EBITDA margin was negative 2.2% of sales compared to 13% in the fourth quarter last year. FVS backlog was $325 million at the end of the year, down 15% versus the prior quarter. In Specialty Vehicles, our team closed out a strong year with another quarter of record profitability, as our infrastructure focused vocational truck businesses continued to deliver solid growth and operational improvements, offsetting ongoing market weakness in motorhome chassis. Fourth quarter sales were $83.4 million, a 10.6% decrease from $93.2 million in the prior year. Adjusted EBITDA was $19 million or 22.8% of sales compared to $15.9 million or 17.1% of sales in the same period last year. SV backlog was $84.3 million at the end of the year, up 4% versus prior quarter.
Please turn to Slide 10 for our 2024 outlook. We continue to be excited about the long-term growth prospects of the Company. Our focus and investment into infrastructure related businesses is paying off as reflected in the strength of SV's performance. For the last-mile parcel delivery business has been soft recently. We continue to maintain a leading position in the long-term growth projections remain intact for the industry. As we enter 2024, we continue to take a cautious view on near-term demand for both parcel and motorhome volume and we expect the softness we experienced in the second half of 2023 to persist, likely through mid-year. And response, as John Dunn discussed earlier, our team is taking urgent actions both commercially by identifying cross-selling synergies and diversifying our customer base and on spending including a focused approach to Blue Arc.
Given these factors and notwithstanding further changes in the operating environment, we are introducing our 2024 outlook as follows; sales to be in the range of $850 million to $900 million. While we plan for Blue Arc to be in production later this year, we have not included any revenue estimate or forecast at this time. Adjusted EBITDA of $40 million to $50 million including $20 million to $25 million of Blue Arc spending. Given the expected slow start to the year, we anticipate that first quarter adjusted EBITDA will be approximately breakeven. Adjusted EPS is expected to be in the range of $0.28 to $0.51 per share and free cash flow of $25 million to $35 million. Before I close out this section, I would like to reinforce our core business's ability to generate cash.
Over the last four years, through a challenging cycle, we have generated approximately eight -- approximately $100 million of free cash flow, while self-funding a transit informational EV initiatives and return capital to shareholders going forward. As our end markets recover and with continued focus on working capital, we believe we are well-positioned to generate cash flow and continue to confidently invest in our future. With that I will turn it back over to John Dunn for closing remarks and key.
John Dunn: Thank you, John. Turning to slide 11. We have excellent core businesses with leading market positions, well-recognized brands and our customers rely on us every day. We are preparing for the future with our Blue Arc EV truck and continue to offer innovative solutions to our customers. The team is acting with utmost urgency to deliver improved 2024 results. We are laser-focused on execution, efficiency and leveraging our internal strengths. As Jon Douyard discussed earlier, our core businesses are excellent at generating cash through the cycle. Looking ahead we've established a framework to drive improved performance at shift. Our experienced and highly engaged team is committed to creating value for our customers and shareholders. I'm very excited about Shyft’s future and look forward to the years to come. Thank you. And with that operator we are now ready for the Q&A portion of the call.
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