The Shyft Group Posts Strong Third Quarter Results

Reports EPS Gain of 46% to Record $0.54 on Sales of $203.5 million

The Shyft Group, Inc. (NASDAQ: SHYF) (“Shyft” or the “Company”), the North American leader in specialty vehicle manufacturing, assembly and upfit for the commercial, retail, and service specialty vehicle markets, reported operating results for the third quarter ending September 30, 2020. 

As part of its transformational strategy to further focus on accelerating growth and profitability, the Company divested its Emergency Response (“ER”) business effective February 1, 2020, as previously announced. Accordingly, the financial results of ER have been classified as discontinued operations for all periods presented. Unless otherwise noted, financial results presented are based on continuing operations. 

Sales for the three and nine-month periods ending September 30, 2019, include $23.0 million and $91.4 million, respectively, of pass-through revenues from the one-time USPS truck body order (USPS order). 

Third Quarter 2020 Highlights from Continuing Operations

For the third quarter of 2020 compared to the third quarter of 2019: 

• Sales of $203.5 million, a decrease of $21.2 million, or 9.4%, from $224.7 million. Sales increased $1.8 million, or 0.9%, excluding the USPS order.
• Gross profit margin of 24.9% of sales, an 800 basis point improvement from 16.9% of sales, driven by product mix, improved material costs and actions taken to improve overall operating efficiency.
• Income from continuing operations of $19.4 million, or $0.54 per share, compared to $13.1 million, or $0.37 per share.
• Adjusted EBITDA of $32.6 million, or 16.0% of sales, an increase of $10.3 million, or 46%, from $22.3 million, or 9.9% of sales. The USPS order reduced adjusted EBITDA as a percentage of sales by approximately 110 basis points in the prior year.
• Adjusted net income of $22.1 million, or $0.62 per share, an increase of $6.2 million, or 39.7%, from $15.9 million, or $0.45 per share.
• Generated $32.4 million of cash from operating activities during the third quarter of 2020, providing $143.7 million of total liquidity
• Consolidated backlog at September 30, 2020, totaled $280.6 million, up $16.9 million, or 6.4%, compared to $263.7 million at September 30, 2019. Since September 30, 2020, consolidated backlog has increased approximately $46 million, to $326 million in October, reflecting strong demand for parcel delivery vehicles.
• Purchased F3 MFG, Inc. (“F3”), a leading aluminum service body and accessory manufacturer of the well-recognized DuraMag® and Magnum® brands, effective October 1, 2020.

“I am extremely proud of our team and of our performance this quarter, as we navigated the pandemic resulting in the most profitable quarter in our Company’s history,” said Daryl Adams, President and Chief Executive Officer.  The strong performance reflects growing momentum from our transformative efforts to focus on higher growth and margin opportunities in parcel delivery supporting ecommerce and specialty vehicles.” 

Fleet Vehicles and Services (FVS)

FVS segment sales were $145.2 million, a decrease of 19.2% from $179.6 million, primarily due to significantly lower truck body sales and upfit volumes being impacted by the pandemic, partially offset by higher walk-in-van volumes.  Sales decreased 7.3%, or $11.4 million, excluding the USPS order. 

Adjusted EBITDA increased $8.5 million to $33.2 million, or 22.9% of sales, from $24.7 million, or 13.7% of sales, a year ago.  The increase was primarily due to product mix, productivity, cost reduction actions, lower healthcare costs, and the USPS order. 

Segment backlog at September 30, 2020, which totaled $228.9 million, has increased $54 million, or 23%, to approximately $282 million as of October 31, 2020.   This compares to $223.8 million at September 30, 2019 and reflects strong demand for vehicles across the entire FVS product portfolio.   

Specialty Vehicles (SV)

SV segment sales were $58.3 million, an increase of 29.2%, from $45.1 million due to higher luxury motor coach chassis sales and the Royal Truck Body (Royal) acquisition completed in September 2019.

Adjusted EBITDA increased $3.1 million to $7.2 million, or 12.3% of sales, from $4.1 million, or 9.0% of sales, a year ago.  The increase was primarily due to volume and the Royal acquisition.

Segment backlog at September 30, 2020, totaled $51.8 million, up 29.6% compared to $39.9 million at September 30, 2019, due to increased luxury motor coach chassis orders.

Liquidity Update

The Shyft Group’s access to capital remains strong at $143.7 million, including $43.1 million of cash on hand at September 30, 2020, a portion of which was used to fund the F3 acquisition on October 1, 2020.  The Company paid down $10.0 million on its revolving credit facility during the third quarter and another $10.0 million in October.  The leverage ratio currently stands at 0.5 times adjusted EBITDA and leaves the Company in a solid position to continue to pursue strategic opportunities.

Outlook – Reinstates Initial 2020 Guidance

Based on our strong third quarter performance, our current growing backlog position and chassis visibility, notwithstanding intensifying pandemic-related issues, the Company is reinstating its previously issued March 2020 guidance, and shifting its profitability targets to the higher end as follows: 

• Revenue to be in the range of $660.0 to $680.0 million
• Adjusted EBITDA of $73.0 to $75.0 million
• Adjusted earnings per share of $1.28 to $1.32

“As we approach the end of the year, I’m pleased to say that our strategy is paying off.  The end markets we serve continue to be strong, fueled of course by the surge in ecommerce parcel deliveries.  As we begin Q4, we are seeing the increase in demand that we expected, and we are encouraged by our interactions with our customers about future growth,” said Adams. “Q3 was incredible for us, due in large part to our ability to pull ahead key builds and produce at optimal levels.  I’m extremely optimistic for what the future has in store for The Shyft Group.”

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