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The Shyft Group, Inc. (NASDAQ:SHYF)
Q2 2021 Earnings Call
Aug 05, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to The Shyft Group's second-quarter 2021 earnings results conference call. All participants will be in a listen-only mode. [Operator instructions] Please note, this event is being recorded. I would now like to turn the conference over to Juris Pagrabs, group treasurer and head of investor relations. Please go ahead.

Juris Pagrabs -- Treasurer and Head of Investor Relations

Thank you, Kate, and good morning, everyone, and welcome to The Shyft Group's second-quarter 2021 earnings call. Joining me on the call today are Daryl Adams, our president and chief executive officer; and Jon Douyard, our chief financial officer. For today's call, we have included a presentation deck, which will be filed with the SEC and is also available on our website at theshyftgroup.com. You may download the deck from the Investor Relations section of our website to follow along with our presentation during the call. Before we start, 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 that management believes could materially affect the results are identified in our Forms 10-K and 10-Q filed with the SEC. However, there may be other risks that we cannot anticipate.

On the call today, we will provide a business update before moving on to a more detailed review of the results and our outlook for the remainder of 2021. We will then open the line for Q&A. I would also like to remind everyone that with the divestiture of the emergency response business last year in February, the revenues and expenses associated with the ER business, as well as the assets and liabilities, have been reclassified as discontinued operations for all periods presented. With this reclassification, 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.

Daryl Adams -- President and Chief Executive Officer

Thank you, Juris. Good morning, everyone, and thank you for joining us to discuss our second-quarter 2021 results. We are very excited and pleased to share with you our second-quarter performance that exceeded our expectations as our sales nearly doubled and our adjusted EBITDA tripled over the prior year. As you see on Slide 4, this momentum driven by the strength and quality, innovation, and customer-focused product development combined with rising demand in our markets led to a significant order intake across all segments. With backlog more than doubling to a record of $751 million, providing visibility through 2021 and into 2022.

The benefits of our strategy continue to be clear as we delivered our highest quarterly sales on record with revenues of $244 million, resulting in income from continuing operations of $17 million and $0.44 per share. Please turn to Slide 5, and I'll provide our business update. Let me start with an update on what we are experiencing with respect to the supply chain as I'm sure this is top of mind for many of you. During the back half of the second quarter, we experienced industrywide supply constraints including chassis and other components, which caused production challenges.

However, as our results show, we effectively manage through these challenges. Thanks to the hard work and determination of our entire team. Based on feedback from our OEM and suppliers, we expect these challenges to continue at some level and we will continue to add rigor to our internal processes to ensure we are able to minimize any potential impact. Jon will have more -- sorry, Jon will have additional comments later in the presentation. Turning to the business segments.

In fleet vehicles and services, strong order flow continues as we have positioned ourselves with the right products that meet the needs of our customers and the industry. In Q2, we achieved a steady ramp in production of the new velocity vehicle with our daily output increasing significantly despite chassis and component constraints. We expect to see continued acceleration as we enter the second half. Giving the positive feedback we are receiving on the velocity, we are now working with other locations and channels, and we are now seeing interest from the dealer market. Other highlights in the quarter include continued strong truck body order flow, and we continue to make headway in our efforts to provide grocery customers with both upfit and delivery refrigeration solutions and walking vans, truck bodies, and cargo vans. Moving to specialty vehicle segment.

The strength of our innovative products and underlying markets has resulted in significant growth in sales and profitability even as our team has managed to pandemic-related supply constraints. Our motor home market share during the quarter increased to 31%, reflecting the demand of our product offerings in our brand among the motor homebuyers. We are even more optimistic about the upcoming 22 motor launch, which is happening this month. We believe we'll reflect strong consumer demand amid low dealer inventory levels. Our service body business continues to execute on our strategy of geographically expanding our product offerings to drive additional growth in volume and new products.

Our service body team achieved record revenue in the second quarter, which includes the impact of the DuraMag acquisition. We continue to leverage our flexible manufacturing capabilities by expanding in California and add in equipment upfit in mountains in Charlotte, Michigan, and West Palm Beach, Florida. Additionally, our service body operations have been improved or shipped through by General Motors in Charlotte Michigan, which allows us to deliver mounted services -- sorry, mountain service bodies to any dealer in the General Motors distribution network across the United States. Let me provide an update and some additional context on Shyft innovations, which we announced in the second quarter. Shyft innovations is a dedicated mobility research and development team reporting directly to me, which is initially focused on the introduction of the Shyft electric vehicle chassis. We're very excited by this opportunity to leverage our near half-century of expertise in building chassis to a new product with great potential.

We have a strong track record of building alternative propulsion vehicles for more than 17 years, which will bring to bear on this new effort. We know the demand is there and many of our biggest customers in last month's delivery are searching for innovative and efficient ways to meet their commitments to stakeholders to improve efficiency and to reduce carbon emissions within their operations. We continue to make good progress on the existing new initiative. But let me outline some of how we will differentiate our offering from the growing competitor base.

The first phase of the project will focus on class three electric vehicle chassis. Our electric vehicle chassis will initially be available in two-wheel bases -- two-wheelbase options with a 5,000-pound payload offering a range of up to 175 miles. We are very excited with the extremely talented team we are assembling to support our electric vehicle chassis development. We have made considerable progress on electric vehicle chassis design and have finalized key design objectives and performance requirements on electric vehicle chassis. Proof of concept chassis sign has been completed and we start the assembly of the first electric vehicle chassis this month. We assign LOIs with a number of key suppliers and we have also secured additional component suppliers to support prototypes and production.

We look forward to updating you on our continued progress. 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 2021 outlook beginning at Slide 6. Thank you Darryl and good morning everyone. Please turn to Slide 7, and I'll provide an overview of our financial results for the second quarter. The Shyft Group continued to perform at a high level in the second quarter despite ongoing challenges in the broader supply chain.

We saw robust growth across all segments of the business. And while the second quarter of 2020 was depressed due to the impacts of COVID, the underlying strength in demand for our products was clear in our results. Revenue for the second quarter was $244 million, up 96.8% from the year-ago quarter. Income from continuing operations with $17 million, compared to a loss of $1.1 million. Diluted earnings per share from continuing operations was $0.44 per share, compared to a loss of $0.03 per share in the second quarter of 2020. On an adjusted basis, EBITDA from continuing operations more than tripled rising 206% to $28.6 million from $9.4 million last year.

As a percent of sales, adjusted EBITDA increased 420 basis points to 11.7% of sales from 7.5% of sales last year. Adjusted net income rose 316% to $19 million, or $0.53 per share from $4.6 million, or $0.13 per share in the prior year. Let me now take you through the results by operating segment beginning with fleet vehicles and services on Slide 8. Our FVS business posted an impressive quarter, effectively managing through the supply chain and labor challenges to get vehicles in the hands of our customers while also seeing continued order strength. The business delivered revenue of $168.3 million, up 73%, compared to $97.2 million a year ago.

The increase was broad-based with strong double-digit percentage growth across all product categories, as well as a significant contribution from initial sales of the Velocity product line. FVS adjusted EBITDA was up 107% to $28.3 million versus $13.7 million a year ago. Adjusted EBITDA margin was 16.8% of sales, compared to 14% in the second quarter of 2020. We continue to see the benefits of both our factory lean initiatives, as well as our investment in automation, which has helped us expand our output and partially offset supply chain challenges. With impressive growth and new products led by velocity, we saw significant order growth that resulted in an FVS backlog of $660.9 million, the third consecutive quarter of record highs.

FVS backlog was up 12% sequentially, and up a remarkable 130% compared to the prior year. Please turn to Slide 9 for the specialty vehicle segment overview. Specialty vehicles' momentum continued in the second quarter as the business delivered strong revenue growth across all categories with impressive growth in motor home chassis in particular. Sales were $75.7 million, an increase of $49 million, or 183% versus the prior year. Or luxury motor coach chassis business drew 191% year over year. And while the prior-year comp includes the impact of COVID, the increase in motor coach chassis sales was up over 40% when compared to the same quarter of 2019, clearly demonstrating the strength of our products in the market.

On an organic basis, specialty vehicles grew 144% in the quarter. As you can see on the left side of this chart, FVS continued to see consistent sequential growth in sales since Q2 of last year, including 14% growth over the first quarter. Adjusted EBITDA was $8.6 million or 11.4% of sales, compared to $1.2 million or 4.6% of sales in the same period last year, primarily driven by higher sales volumes. As the backlog was up 79% to $90.5 million, which included a 46% growth in motor home chassis backlog and a 191% increase in our service body backlog. Please turn to the liquidity and outlook update on Slide 10. We remain focused on working capital and managing our overall liquidity.

But we typically see seasonally lower cash flow in the first half of the year. We saw significant improvement this year as year-to-date cash flow from operating activities increased $15 million versus 2020. At the end of Q2, we had total liquidity of $120 million, including $4 million of cash on hand and $116 million in borrowing availability under our credit -- current credit agreements. Our leverage ratio stands at point four times adjusted EBITDA, and our strong balance sheet enables us to access capital as needed to fund our operations and to continue to invest in our growth strategy. Capex for the quarter was approximately $6 million and included investment in Velocity production, as well as fabrication equipment at a number of facilities, which we are using to meet increased demand and drive margin expansion across the company. Year to date, capex with $12 million, tracking in line with our expected full-year range of $20 to $25 million as previously disclosed. Overall, we are pleased with our results and our team's ability to execute at a high level through the first half.

As we look forward, we are optimistic about the demand for our products and are well-positioned to have a strong year. That said, we are not immune to the ongoing challenges in the supply chain and labor markets and expect supply constraints and inflation to have some impact on us through at least the balance of the year. We have taken several actions to mitigate these risks including instituting price increases across the business, expanding the supply base to manage both material inflation, as well as component shortages, flexing production as needed, and continuing to be innovative in our hiring process to address the labor shortages. With our current visibility, we are confident that our performance through the first half of the year, as well as the strength of our backlog, puts us in a position to exceed our previous guidance. With this backdrop, we are excited to raise our 2021 estimates as follows: we expect revenue to be in the range of $900 million to $950 million, adjusted EBITDA of $100 million to $110 million, and adjusted EPS of $1.75 to $1.95 per share.

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

Thank you, Jon. Please turn to Slide 11. Our results for the second quarter highlight the successful execution of our strategy and the amazing efforts of the entire Shyft team. Our commitment to quality execution, innovation, and investment in operating efficiencies are generating improved profitability.

The Shyft innovations team and their efforts in developing our new electric vehicle chassis is a great example of our innovation DNA, unleashed to tackle a critical issue facing fleet operators around the nation. Bringing a new solution to the market that will limit carbon emission while enhancing the productivity and efficiency of fleets is a game-changer. In summary, our momentum continued in the second quarter with each of our businesses performing well and positioned to support our full growth and profitability for the remainder of the year, and probably this great team and can -- that continues to perform for our shareholders. With that, operator, we're now ready for the Q&A portion of the call.

Questions & Answers:


Operator

We will now begin the question-and-answer session. [Operator instructions] The first question today is from Steve Dyer of Craig-Hallum. Please go ahead.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Thanks. Good morning, guys.

Daryl Adams -- President and Chief Executive Officer

Good morning, Steve. 

Jon Douyard -- Chief Financial Officer

Good morning, Steve. 

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

You talked about price increases. There are others in the industry that have talked about sort of the guidance -- raising guidance for the remainder of the year on the revenue side driven largely by price increases. Is that play into your guidance, you know, the revenue bump much?

Jon Douyard -- Chief Financial Officer

I think, Steve, when you look at it, you know, our -- I think, there's certainly an element of price in there but I think we really think about it as our comfort with the backlogs. You know, we've seen significant order growth here over the last three quarters that has put us in a good position and really in a position where we need. We just need to execute. I think the, you know, as we look at chassis component availability as we've worked through the second quarter, I think, at this point, we feel comfortable with the portion of that backlog that we're able to execute. And so, that's really where the increase is coming from.

I think the price will certainly play an element in that, but more on the demand side.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

And so, your ability to raise them for the back half of the year, I mean, do you feel like the supply chain pinch the worst is behind you, or do you think it will impact you more in Q3 than Q2. 

Jon Douyard -- Chief Financial Officer

I think there's -- I think, you know, it's tough to pinpoint that. I think if you look at the OEMs in the chassis situation, particularly in the second quarter, there were certainly shutdowns throughout Q2, which will have implications on us in Q3. GM announced some of their pickup truck plants will be idled here in the third quarter. And so, there will be continued to be sort of ongoing issues from a chassis perspective. You've got the freight issues coming out of China, you've got just component challenges across the board.

But, I think, where we find comfort is that the visibility that we have both from an order perspective, and really just our ability to execute on that.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

OK. Got it. And, you know, you talk about the backlog. You're out more than three quarters of revenue without taking any more orders.

Do you have mechanisms in place to sort of protect margin then, just kind of given the duration of that backlog and all of the uncertainty around supply chain, commodities, and things like that? In the year 2022, do you the mechanism started to protect pricing, protect margin there?

Jon Douyard -- Chief Financial Officer

Yeah, I think the -- there's a couple of things I would point to. I think Daryl talked about adding rigor to some of our processes. We've certainly done that in respect of the raw material changes. And so, we've instituted that in quotes and new order activity.

I think when you look at our backlog, in general, particularly on the fleet side of the business, we do have mechanisms in our standard terms and conditions where we're able to work with our customers if there are certain inflationary elements where we can go back for pricing as well.

Daryl Adams -- President and Chief Executive Officer

And, Steve, I'd add, back in 2018 when the terrorist came in we've put in our raw material purchasing strategy. That is still in place. And as we continue to move backlog out, we are continuing to ensure we have an adequate supply of material and we understand the pricing to put into the pricing of the quotes that are out that far. So, we've moved it forward. We were running, I think, it was six months at the time that we've moved that out, so we're locking them further.

And that, you know, sometimes can be challenging with the suppliers. But once we get comfortable with them and they get comfortable with us, it's a good discussion and we're both comfortable with the pricing we lock in at.

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Yeah, that's what drove that question. Thanks for the color guys.

Daryl Adams -- President and Chief Executive Officer

Thanks, Steve.

Operator

[Operator instructions] The next question is from Matt Koranda of ROTH Capital. Please go ahead.

Matt Koranda -- ROTH Capital Partners -- Analyst

Hey, guys, thanks. Just wanted to see if you could just start out by talking about the bookings environment in fleet vehicles. It looks like the implied order flow is still very strong, maybe ticked down just a touch quarter by quarter. But, maybe you could just talk about seasonality and bookings in fleet vehicles and then just traction with Velocity and then sort of maybe mix of new orders that were Velocity.

Daryl Adams -- President and Chief Executive Officer

Yeah. I'll take a little bit of that, Matt. Good morning, by the way, and then I'll let Jon finish. You know, I think it shows the strength of our strategy and the strength of our operational team where -- as we continue to set records in revenue, we are also continuing to take on the additional backlog.

So, it's not like a delay in the production, which I think is important to mention, right? We're accelerating on all fronts on production and the backlog is expected to grow. So, as I mentioned this is based on us having the right products at the time, our customers need them, and the design and innovation that you're looking for. And if we continue to look at FVS the typical walking ramp plant is setting daily records on volume -- monthly records on volume. Same with Velocity as it ramps up, and we continue to get backlog. So, when, you know, we typically would say the delivery customers want their products, right, in October for Halloween, due to the delay in some of the chassis supply during Q2, they are asking for them all the way up through Q4.

And right through the holiday. So, that's a little unique for this year and that's helping us with the typical Q4 seasonality. So, we're excited about that. And, Jon, do you have anything you want to add?

Jon Douyard -- Chief Financial Officer

I think the only thing I'd add is, we saw really -- the last three quarters of significant order strength in the FVS business really puts us through now into early 2022. And so, we expect that to continue from an order flow perspective. It probably will slow down here in the second half of the year just as our customers really prepare for 2022. But, you know, we feel pretty confident with the pipeline that we have for next year, as well as where we are from the current backlog perspective. 

Daryl Adams -- President and Chief Executive Officer

And I think, Matt, I'll just come back and add one more. I think, you know, if you remember about a year ago there was some concern about how much of this online ordering e-commerce was going to stick. And, I think, if you look at our backlog and you continue to look at, you know, the overall macro and micro items in the last mile delivery, the growth is still there for this year and next year. And we're, you know, I think, it's out for probably three to five years that we're looking at. So, we're excited about where this business is going to go, and we're putting in capital and team members to make sure that we can handle the growth as it continues over the next few years.

Matt Koranda -- ROTH Capital Partners -- Analyst

Great color. Thanks for that. And then if I heard you right, I guess, fleet vehicles, you know, typically, seasonally, you see is kind of a weaker quarter in Q4 as the fleet customers kind of hold off on deliveries during their busier periods. But it sounds like, you know, the fleet vehicles revenues should sort of build from Q2 and then hold flattish in the Q4.

Is that the way to kind of think about the cadence of the revenue for fleet vehicles for the rest of the year and what's embedded in guidance?

Jon Douyard -- Chief Financial Officer

Yeah. Well, I think if you look at our guidance overall, you know, it's probably tough to parse out exactly. We certainly didn't guide on Q3 in particular. But if you look at the sort of the Q2 run rate through the balance of the year, it's really our midpoint guidance.

And so, between Q3 and Q4, there may be some pluses and minuses depending on, you know, component flow and chassis availability, those types of things. But we feel, you know, feel pretty comfortable essentially delivering Q2 for the balance of the year.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. Got you. And then, you did mention that the supply chain got a little bit tougher in the back half of the second quarter and it sounds like probably more chassis than anything but wanted to give you the opportunity to kind of discuss anything else that got crimped in the quarter and how are you addressing some of that stuff?

Daryl Adams -- President and Chief Executive Officer

Yeah. I think, Matt, it's -- I just tell you it's up and down the supply chain. It's not just chassis. I think, you know, we're not unique to have some labor issues.

I think when you look around, talk to different people, I think, it's everybody's having it, just do the expansion. But we've, you know, as we mentioned we're taking, you know, and Jon mentioned, it would take some alternative actions and having great new ideas on how to hire people to keep some limited turnover. And the other thing is we mentioned that we're adding additional suppliers to ensure that we can have the capacity as we need it because we can see the backlog. So, we're looking at it and understanding the current supply constraints and adding on additional suppliers for the commodities that we need. Whether it's fasteners or fiberglass parts or plastic parts.

So, the team is really doing a nice job to keep out in front of that, and it's pretty neat to watch.

Matt Koranda -- ROTH Capital Partners -- Analyst

All right. Appreciate it, guys. I'll go back in the queue. Thank you. 

Daryl Adams -- President and Chief Executive Officer

Thank you.

Operator

The next question is from Mike Shlisky of D.A. Davidson. Please go ahead.

Mike Shlisky -- D.A. Davidson -- Analyst

Hey, good morning, guys. Thanks for taking my question. 

Daryl Adams -- President and Chief Executive Officer

Good morning, Mike.

Mike Shlisky -- D.A. Davidson -- Analyst

Thanks. I want to start off by asking about some other big news of the weekend in EV, and that is the new commercial in EV that was announced by GM the other day. I'm not sure of the sizing of it and it didn't get much as far as the details. But is your impression of that vehicle -- is that anywhere in the same size range as the Class 3 that you're going to be putting out, and to your knowledge, will that be the same kind of vehicle as other vans out there that will need enough space from an outside provider such as, you know, such as Shyft group?

Jon Douyard -- Chief Financial Officer

Mike, good question. I think when we reclassified a whole lot of details, our assumption is probably in the higher classes and more of a maybe even a dry van box. So, it could be the higher classes, but we're trying to understand it as you are. But, again, I think you know I have confidence in our team and what we're doing in Class 3, which is is a niche space as we mentioned. That's why we went into a cause we didn't want to compete against other OEMs in the Class 2 space, or even though the people up in that class, you know, five and six.

Mike Shlisky -- D.A. Davidson -- Analyst

OK. Got it. I also want to ask just a question about market share maybe so far this year. You've done a great job executing it up in your way and you get a sense that some of the smaller players and cargo events just aren't getting it done.

Have you found a way to gain some share that others couldn't really fulfill? 

Daryl Adams -- President and Chief Executive Officer

I think it's is probably more of, you know, as I mentioned the star quality, ability to execute, find labor, and get the products in the customer's hands. We've seen -- backlog has seen a nice order flow from customers that we haven't built for typically. Some are from the grocery side, some are on the delivery side, so it's broad-based, and it's exciting to see, right, that what we've been talking to teams about is being able to get the products out the door at high quality and customer service is paying off. And it's -- the conquest businesses is very nice for us in the backlog, as well as our new technology new products like the Velocity in other products.

Mike Shlisky -- D.A. Davidson -- Analyst

Got it. Thanks so much, Daryl. I'll leave it there. 

Daryl Adams -- President and Chief Executive Officer

Thanks, Mike.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Juris Pagrabs for closing remarks.

Juris Pagrabs -- Treasurer and Head of Investor Relations

Thanks, Kate, and thanks, everyone, for participating this morning. Stay tuned for announcements the next month or so on additional sell-side conferences that we'll be participating in. I think we have two in September and then we actually have a live one in November, virtual, that we're all looking forward to. So, again, thanks for participating, and have a great day.

Operator

[Operator signoff]

Duration: 31 minutes

Call participants:

Juris Pagrabs -- Treasurer and Head of Investor Relations

Daryl Adams -- President and Chief Executive Officer

Steve Dyer -- Craig-Hallum Capital Group -- Analyst

Jon Douyard -- Chief Financial Officer

Matt Koranda -- ROTH Capital Partners -- Analyst

Mike Shlisky -- D.A. Davidson -- Analyst

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