Spartan Motors Posts Solid First Quarter Results

Sales up 35% to $234 million, Reports EPS and Adjusted EPS of $0.04

Motors, Inc. Spartan the North American leader in specialty vehicle manufacturing and assembly for the commercial and retail vehicle industries, as well as for the emergency response and recreational vehicle markets, today reported operating results for the first quarter ending March 31, 2019.   

“We are pleased with the positive start to the year, as many of the initiatives we pursued last year are gaining traction,” said Daryl Adams, President and Chief Executive Officer.  “With the hard work and concentrated efforts of our entire team, we were able mitigate continued tariff-related commodity headwinds and post solid operating results to start the year.  We also achieved new business wins in several key markets in all three of our business units, which we expect will help drive our results for the remainder of the year.” 

First Quarter 2019 Highlights
For the first quarter of 2019 compared to the first quarter of 2018: 

• Sales increased $61.0 million, or 35.2%, to $234.0 million from $173.0 million.
• As anticipated, the first quarter 2019 results included incremental tariff-related commodity cost increases and higher component costs totaling $2.3 million, or $0.05 per share, that negatively impacted net income, adjusted net income and adjusted EBITDA.
• Gross profit margin declined 230 basis points to 10.5% of sales from 12.8% of sales. Of the decline, 170 basis points were attributable to $32.5 million of USPS chassis pass-through sales and an additional 100 basis points were due to the tariff-related headwinds, partially offset by pricing and operational improvements.
• Net income decreased to $1.4 million, or $0.04 per share, from $4.2 million, or $0.12 per share. Prior-year net income includes a net working capital adjustment of $1.5 million, or$0.03 per share, relating to the Smeal acquisition and a tax benefit of $1.4 million, or $0.04per share, related to the appreciation in value of equity-based compensation that vested during the year-ago quarter. Excluding these items, net income was comparable to the prior year.
• Adjusted EBITDA decreased 17.9% to $4.6 million, or 2.0% of sales, from $5.6 million, or 3.2% of sales.
• Adjusted net income decreased $1.8 million, or 54.5%, to $1.5 million, or $0.04 per share, from $3.3 million, or $0.09 per share. Excluding the $1.4 million tax benefit from the first quarter of 2018, adjusted net income decreased $0.4 million, or 21.1%, from the prior year.
• Consolidated backlog, excluding the one-time multi-year USPS truck body order at March 31, 2019, totaled $359.2 million, up $18.6 million, or 5.5%, compared to $340.6 million atMarch 31, 2018. Including the USPS order, consolidated backlog totaled $432.3 millioncompared to $554.6 million a year ago.

“The hard work, resourcefulness and determination of our teams have set a positive foundation for long-term performance,” continued Adams.  “Each business unit has made progress on several fronts, and we are confident that this effort has set the stage for sustained revenue growth, improved profitability and broader geographic reach.”

Fleet Vehicles and Services (FVS) 
The FVS business unit continues to invest in new product development and geographic expansion to support the growth in last-mile delivery.  During the quarter, FVS introduced two new electric vehicle (EV) platforms at the NTEA Work Truck Show in Indianapolis alongside a temperature-controlled truck body, which was specifically developed for last-mile grocery delivery.  Additionally, to support its growing upfit business, FVS secured a new facility in North Charleston, South Carolina, near the new Mercedes-Benz Sprinter plant.  This multi-purpose facility will initially operate as a Sprinter upfit ship-thru facility and is capable of handling FVS’s entire product line.  By joining this facility with existing plants in Ephrata, Pennsylvania, and Pompano Beach, Florida – a result of the Strobes-R-Us acquisition – FVS is better positioned on the East Coast to support customer demands.  

FVS segment sales increased 105.4% to $122.6 million from $59.7 million. A substantial portion of the revenue increase was due to pass-through sales on the USPS truck body order ($32.5 million) in addition to increased volume related to walk-in-van, truck body and upfits.  Excluding the pass-through sales impact from the USPS order, FVS sales increased 51.0% from the prior year.

Adjusted EBITDA increased $2.4 million to $7.0 million, or 5.7% of sales, from $4.6 million, or 7.7% of sales, a year ago.  The increase was primarily due to the USPS truck body order, partially offset by mix and higher material and component costs. 

Excluding the one-time multi-year USPS truck body order, sequential segment backlog at March 31, 2019, increased 9.9% to $115.4 million, reflecting the continuing order momentum among last-mile delivery customers.   Reported segment backlog at March 31, 2019, totaled $188.5 millioncompared $335.3 million a year ago, reflecting the progress made on the USPS contract. 

Emergency Response (ER) 
The ER business unit remains focused on improvement initiatives that will drive profitable results, which include manufacturing optimization and ongoing dealer network realignment.  The segment also continues to invest in new products to support long-term revenue and earnings growth, including several innovative products focused on the emerging needs of first responders, particularly in tight, urban markets. These emergent products, launched at the most recent FDIC Expo, have resulted in a new eight-unit order for the city of Philadelphia, and, most recently, an 11-unit order for the city of St. Louis.

First quarter ER segment sales decreased $4.9 million to $61.8 million, or 7.4%, from $66.7 million.  The decline reflects decreased market demand for higher content vehicles and continued efforts to realign the dealer network. These efforts were completed last month with the addition of a new, Georgia-based dealership, which is authorized to sell and service the full Spartan fire apparatus portfolio.

Adjusted EBITDA decreased to a loss of $2.3 million, or 3.7% of sales, from adjusted EBITDA of $1.2 million a year ago, primarily due to product mix, increased material costs, higher warranty expense, and operating inefficiencies resulting from temporary production disruptions due to severe weather-related flooding surrounding the Company’s Nebraska facilities.

The segment backlog at March 31, 2019, totaled $214.7 million, up 13.2%, compared to $189.6 million at March 31, 2018, reflecting an increase in orders from an improved dealer network. 

Specialty Chassis & Vehicles (SCV) 
The SCV business unit continues to drive growth and operating performance through product innovation and market share gains within the luxury motor coach segment, particularly in the faster-growing, less-than-40-foot diesel market, which is favored by younger consumers.  Additionally, SCV continues to grow its relationships with existing customers through exclusive supply agreements, highlighting the demand for Spartan chassis within the luxury diesel motor coach segment.  These wins are a result of ongoing innovation efforts to integrate automotive technology into the luxury motor coach market.  For example, Spartan chassis now utilizes “Mobile Eye,” which includes pedestrian detection, speed limit sign detection, vehicle-ahead indicator, and forward-collision warning to the luxury motor coach segment.

SCV segment sales increased 7.2% to $51.7 million from $48.2 million a year ago, representing continued growth on top of a 46% growth rate in the prior year.  Revenues were driven mainly by increased contract manufacturing and pricing from luxury motor coach chassis sales, offset by lower sales of Reach vehicles due to timing.

Adjusted EBITDA increased $1.9 million to $5.0 million, or 9.6% of sales, from $3.1 million, or 6.5% of sales, a year ago, mainly due to mix from increased contract manufacturing, partially offset by higher material costs.

The segment backlog at March 31, 2019, totaled $29.1 million, essentially flat compared to $29.7 million at March 31, 2018, reflecting pricing from luxury motor coach as well as strength in contract manufacturing.

Maintaining 2019 Guidance
“Spartan’s first quarter results reflect top-line growth and continued operational improvements throughout our business, and we remain encouraged in our outlook for the remainder of 2019,” commented Rick Sohm, Chief Financial Officer.  “As a result, we are maintaining our previous top-line and profitability guidance for the full year.” 

• Revenue to be in the range of $865 – $905 million
• Net income of $19.5 – $22.6 million
• Adjusted EBITDA of $37.1 – $41.1 million
• Effective tax rate of approximately 24%
• Earnings per share of $0.56 – $0.64
• Adjusted earnings per share of $0.57 – $0.65

Adams concluded, “We are pleased with the results of our progress in the first quarter, as our team put forth tremendous efforts to drive improvements across all of our operations.  Despite the solid performance, we understand the need to carry the momentum forward and improve our operations to enhance productivity, efficiency, and ultimately, profitability to the benefit of our shareholders.  With the growth in last-mile delivery driving FVS, continued focus on operational improvements in ER, and expanding addressable markets within SCV, we are confident in our ability to deliver increased results in 2019 and beyond.” 

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