The Shyft Group (NASDAQ: SHYF), a leader in specialty vehicle manufacturing, reported mixed financial results for the third quarter of 2024. Despite a 4% decline in sales to $194.1 million, the company saw a 31% year-over-year increase in adjusted EBITDA, reaching $14.3 million.
Net income for the quarter was $3.1 million, or $0.09 per share, a decrease from the previous year's $4.5 million, or $0.13 per share, which had included a one-time tax credit. CEO John Dunn highlighted operational efficiencies, the integration of Independent Truck Outfitters (ITU), and the transition of the Blue Arc electric vehicle program into production, with initial outputs expected by year-end.
Key Takeaways
- The Shyft Group's adjusted EBITDA increased by 31% year-over-year to $14.3 million.
- Sales declined by 4% to $194.1 million, with net income falling to $3.1 million from $4.5 million.
- The Specialty Vehicles segment grew by 14% in sales, while the Fleet Vehicles and Services (FVS) segment saw a 15% decrease.
- Blue Arc electric vehicle program is expected to reach financial breakeven by 2025, with sales in the hundreds for the upcoming year.
- The company maintains a full-year adjusted EBITDA outlook of $45 million to $50 million on approximately $800 million in sales.
Company Outlook
- Full-year adjusted EBITDA is projected to be between $45 million and $50 million.
- Sales for the year are anticipated to be around $800 million.
- The company is optimistic about demand recovery in the Parcel Fleet sector in 2025.
Bearish Highlights
- Sales in the FVS segment decreased by 15% to $105.9 million.
- Net income and earnings per share both declined from the previous year.
Bullish Highlights
- Specialty Vehicles segment sales increased by 14% to $87.4 million.
- Adjusted EBITDA margins improved in both segments, with Specialty Vehicles at 18.5%.
- Blue Arc electric vehicle program is transitioning to production, with breakeven expected by 2025.
Misses
- The company experienced a decrease in overall sales and net income compared to the previous year.
- There is a slight softening in service body demand within the FVS segment.
Q&A Highlights
- Management clarified that Q4 might see a slight revenue increase due to order timing and backlogs.
- There is a focus on replicating previous EBITDA progress to meet the lower end of the revenue target.
- The ICT acquisition has been integrated, providing new strategic opportunities for growth.
The Shyft Group has shown resilience in its ability to grow adjusted EBITDA amid declining sales and is looking forward to the full integration of ITU and the production of Blue Arc electric vehicles. The company's strategic focus on operational efficiency and market share maintenance, particularly in the EV upfitting space, positions it favorably for future growth. With the FedEx (NYSE:FDX) agreement for 150 units and other fleet trial orders, the Shyft Group is laying a solid foundation for its electric vehicle program. The company's management remains confident in their strategies and is actively seeking additional growth opportunities, as evidenced by the recent ICT acquisition and the exploration of new ventures beyond the upfitting segment.
InvestingPro Insights
The Shyft Group's recent financial results reflect a company in transition, balancing challenges with strategic growth initiatives. According to InvestingPro data, The Shyft Group's market capitalization stands at $401.15 million, with a revenue of $787.08 million for the last twelve months as of Q3 2024. This represents a revenue decline of 19.01% over the same period, aligning with the company's reported sales decrease in the recent quarter.
Despite the revenue contraction, there are positive signals for investors. An InvestingPro Tip highlights that net income is expected to grow this year, which could indicate a potential turnaround from the current negative earnings per share of -$0.11. This expectation aligns with the company's focus on operational efficiencies and the anticipated ramp-up of the Blue Arc electric vehicle program.
Another InvestingPro Tip notes that The Shyft Group has maintained dividend payments for 37 consecutive years, demonstrating a commitment to shareholder returns even during challenging periods. The current dividend yield is 1.72%, which may appeal to income-focused investors.
It's worth noting that the stock has taken a significant hit over the last week, with a 1-week price total return of -9.28%. This recent volatility could present an opportunity for investors who believe in the company's long-term strategy, especially considering that analysts predict the company will be profitable this year.
For those interested in a deeper dive into The Shyft Group's financials and future prospects, InvestingPro offers 8 additional tips that could provide valuable insights for investment decisions.
Full transcript - Shyft Group Inc (SHYF) Q3 2024:
Operator: Good morning, and welcome to The Shyft Group's Third Quarter 2024 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 like now to introduce Randy Wilson, Vice President of Investor Relations and Treasury for The Shyft Group. Please go ahead.
Randy Wilson: Good morning and thank you for joining us. Today, you will hear from 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 two 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. We'll begin with a business overview from our CEO John Dunn, followed by Jon Douyard’s review of third quarter performance and our 2024 outlook. We will then open the line for Q&A. Please turn to Slide three and I'll turn it over to John Dunn who will begin today's prepared remarks.
John Dunn: Thank you, Randy and good morning. Welcome to our earnings call and we appreciate your interest in The Shyft Group. We are pleased with our third quarter performance and encouraged by our margin improvements as we continue to drive operational efficiency and flexibility. I would like to recognize The Shyft Team for their commitment and dedication to delivering improved results. Overall, we've increased adjusted EBITDA by 31% versus the prior year and achieved 10.5% adjusted EBITDA excluding EV spending. Additionally, despite a soft market, our fleet vehicles and services business has expanded margins to 9.3% of sales, demonstrating consistent sequential improvement since the start of the year. We have generated solid cash flow year-to-date and leveraged the strength of our balance sheet to accelerate our growth as evidenced by the acquisition of independent truck outfitters expanding our vocational truck products and capabilities. Although ITU is in the initial stages of integration, we are already realizing synergies and seeing additional commercial opportunities. Overall, in the third quarter we achieved better results and the team is engaged to execute further improvements. Please turn to slide four. Let me take a moment to expand on our progress and highlight Shyft's journey over my first year as CEO. As a team, we've been focused on creating the foundation to efficiently deploy resources and capital that will deliver shareholder value. This focus includes working together as one Shyft, investing in our people, driving efficiency in our operations, improving the quality of our products and enhancing our customer focus. Throughout the year, we highlighted key successes within our operational framework and I would like to reinforce a subset of those accomplishments. We focused on making Shyft a great place to work by strengthening our talent, improving leadership training and ensuring safety is at the front and center of everything we do. Our Mission Zero Safety Initiative is showing results. We're reducing injuries and eliminating risks as we progress to a zero-injury workplace. We have focused on lean manufacturing and process improvements in our factories resulting in reduced costs and improved quality. Our progress is evidenced by FES expanding margins year-over-year as well as positive customer feedback on our product quality. We have greatly expanded our customer relationships, particularly at the senior levels of Shyft, and have taken great steps in implementing tools and processes to ensure our sales force is highly effective. And we've made solid progress on key strategic initiatives, including a focused Class IV Blue Arc program which has transitioned from development into production, and expanding our M&A funnel to allow us to strategically deploy capital and accelerate future growth. In summary, we're fostering collaboration across the company to accelerate decision making, focus on customers and improve performance. Our strategic actions are strengthening the company and positioning us for success, ensuring we're well prepared as markets recover. Now let's turn to slide five and I will provide a Blue Arc EV update. I'm excited to say that initial production is now underway and our team is focused on delivering high quality vehicles to customers by the end of the year. The Blue Arc team has done an incredible job getting us to this milestone and I want to recognize their accomplishments in delivering a great vehicle. From a commercial perspective, we can now announce further expansion of the Blue ARC dealer network with the addition of Allegiance Trucks, a leading commercial work truck dealer covering the Northeast United States. We are confident Allegiance will represent Blue Arc well and with this addition, Blue Arc now has a robust nationwide dealer and service network. In July, we discussed vehicle demonstrations in the US and Canada. We're pleased to report those trials resulted in a dealer order and also a letter of intent from a key Canadian customer totaling 52 Blue Arc vehicles. Our vehicle is currently in pilot with a large parcel customer in the New York metro area as well as on the west coast with favorable feedback and performance. Overall, we're encouraged by the long-term prospects of Blue Arc and we are actively engaged with customers and continuing to build out the commercial pipeline. However, we remain cautious on the rate of EV adoption as customer purchasing plans are measured in the near term. We continue to efficiently manage the program and as we discussed in the last call, we are striving for financial break even in 2025. To sum it up, this year a lot has been accomplished. We have focused the program on Class IV, lowered overall spending, transitioned into production and positioned Blue Arc to be self-sustaining in the future. Now I will turn it over to Jon for a detailed review of our financial results and 2024 outlook.
Jon Douyard: Thanks John. Please turn to slide seven. Overall, our team improved operational performance and delivered solid Results in the third quarter despite ongoing market softness, sales for the third quarter were $194.1 million, down 4% from $201.3 million in the prior year quarter. Net income was $3.1 million or $0.09 per share, compared to net income of $4.5 million or $0.13 per share in the previous year. Prior year results included a favorable one-time tax benefit of $2 million, primarily related to R&D Tax Credits. In the third quarter, adjusted EBITDA grew to $14.3 million or 7.4% of sales, up from $11 million or 5.5% of sales in the third quarter of 2023. These results include EV program spend of $6.1 million, down from $7.6 million in the prior year. Excluding these expenses, adjusted EBITDA was 10.5% of sales. Adjusted net income for the quarter was $6.1 million, while adjusted EPS was $0.18 per share. Please turn to Slide eight and I'll provide an update on our segment performance. In the third quarter, Fleet Vehicles and Services achieved sales of $105.9 million, down 15% from a year ago as customer vehicle purchases remained slow. Adjusted EBITDA for the quarter grew to $9.8 million versus $8 million a year ago despite the lower sales volume. Importantly, adjusted EBITDA margin was 9.3% of sales, up 2.9 points versus the third quarter last year, reflecting our team's efforts to drive operational improvements in our production facilities. Quarter end backlog for FVS was $268 million, down 18% versus the end of 2023. Turning to specialty vehicles, the business delivered another strong quarter of high teens adjusted EBITDA margins. SV results also include the positive contributions from the ITU acquisition, which closed at the end of July. Sales of $87.4 million were up 14% compared to last year, with strength in vocational products, including the addition of ITU offsetting motorhome weakness. Adjusted EBITDA was $16.1 million or 18.5% of sales, compared to $16 million or 20.9% of sales in the same period last year. SV backlog of $77.5 million was down 8% versus the end of 2023 as orders were softer across the business. Please turn to Slide nine for a discussion on our full year outlook. Overall, we are maintaining our previously communicated adjusted EBITDA outlook, which is expected to be in the range of $45 million to $50 million on sales of approximately $800 million. At the adjusted EBITDA midpoint, we will deliver growth of 19% versus the prior year. We ended the third quarter with net leverage of 2.2 times better than we previously communicated. We remain on track to deliver our free cash flow outlook of approximately $30 million. In closing, we were pleased with our financial performance in the quarter and we anticipate further strengthening of our balance sheet as we close out the year, positioning the company to invest and grow in 2025 and beyond. With that, I'll turn it back over to John.
John Dunn: Thank you, Jon. Turning to Slide 10. In summary, we delivered improved operational and financial results by aligning our team with our operating framework and ONE Shyft mindset. We are laser focused on delivering our 2024 profit outlook and positioning the business to be more efficient and profitable when the markets recover. The team is highly engaged in improving the commercial pipeline, driving the ITU integration forward, and delivering Blue Arc trucks to customers by the end of the year. Overall, it's a very exciting time for our company and I'm confident that the Shyft team is taking the right steps to drive long term growth and enhance shareholder value. We are now ready to take your questions. Operator, please open the line.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Matt Koranda of ROTH Capital. Please go ahead.
Matt Koranda: Hey everybody. Good morning. Maybe just wanted to start with the Blue Arc. So could you just clarify exactly when you went into production officially and then how do we think about unit capacity as we ramp Production in the program. And then the, you guys said sort of financial breakeven is the goal for '25. But just could you unpack what that means exactly? Is that EBITDA breakeven? And then what does that require in terms of unit deliveries for next year? If we kind of, you know, pencil in some kind of rough gross margin for the, for the units.
Jon Douyard: Yeah. Matt, good morning. I think in terms of when we went into production, you know, it was really at the end of September work through some of the early units. I think John's been very consistent in what he said, that our focus is getting on getting high quality units out on the road. And so that's really been the team's focus in the early days of production. Here as you look towards 2025, striving for breakeven is a comment on adjusted EBITDA. And so, as we look at this year, which will be in the $20 million to $25 million dollars from a spend perspective, we expect spending to come down and then we expect the volume spending to come down and then we expect the volume from sales of vehicles and the gross margin that brings to offset the remaining spending that's in the business. And that's really because we're, you know, we're no longer developing a vehicle. The vehicle is developed. Certainly, there will be some things from a sustaining standpoint and tweaks that need to be made and engineering support and those types of things. But we're not in sort of development anymore. And so, we can, we'll see an expense reduction as it relates to that in terms of overall capacity. You know, we've talked before about having sort of adequate capacity really for us and in John's prepared remarks talked about being more measured from a demand perspective and really pacing it based on that. And so, we're talking hundreds of units next year. We previously communicated that breakeven for us is less than 500 units. And so, we don't need this to be thousands in order for this to financially contribute or at least self-sustain as we move forward. And so, we're really in the hundreds as we look at next year, really gating the demand side of things with the customers.
Matt Koranda: Okay, that's super helpful, Jon, thanks. And then just in terms of the visibility into the units for next year, it sounds like between sort of the Randy and Marion agreement that you guys announced a long time ago and maybe some of the incremental unit orders that you've gotten from fleets, I would assume you already have visibility into those units. Are we counting on additional orders from the fleets that are in trial currently. Maybe just give us some context around sort of what we require to hit that break even mark for '25.
Jon Douyard: Yeah, I think as you look at the building blocks there, we announced the FedEx order of 150 units. I think the positivity that we've seen coming out of the demonstrations and the trials that we've executed earlier this year and that we're in process of now, leading to the LOI that John referred to. You've got 100 plus units on the FedEx order. You've got 50 plus from what John talked about. We've got a number of others in the pipeline. And so, we feel like the building blocks are there to get to those breakeven levels.
Matt Koranda: Okay, fair enough. And then just on FVS, wanted to see if you could maybe just unpack the moving pieces within margin there. It looks like you're seeing some pretty good margin improvement despite the revenue headwinds that you're experiencing. And I know you touched on it a little bit in the prepared remarks, but maybe you could just unpack sort of what's going on underneath the surface. The work you're doing to improve margins in FVS and how sustainable this sort of EBITDA margin rate is from the third quarter is.
John Dunn: Sure to start off with Matt, we're really proud of what the team has done. A couple of our plants have really driven nice improvements. As we've leaned in to drive operational efficiency, we also became more flexible so we can run multiple products in different plants. There was a period to ramp that up, and we're really seeing that yielding better performance and results overall. So, we've taken costs out of the plants, we run the plants way more efficiently, and we've made them more flexible so we can flex products accordingly. And that's driving much of that improvement.
Jon Douyard: And I think, to John's point, that, you know, that's not something that happened overnight necessarily. I think as you look at the sequential progress throughout the year, you'll be able to see that, you know, it was a bit of a journey, but we were happy to see the margins approach double digits again. And we'll continue to push that. I mean, the business naturally can be sort of volatile from a mix perspective on any given quarter. And so there may be some dynamics, but we fully expect this business to be north of 10% as we move forward.
Matt Koranda: Okay, got it. Maybe just last one in terms of implied order flow. And FVS looked reasonably healthy just given the environment we're in. And I would assume Parcel Fleet just has not really come back in full force yet, but maybe if you could talk about some of the order book trends you're seeing in FVS. Any signs of life in terms of just maybe preliminary discussions with Parcel Fleet customers. Maybe just a little bit more detail about what you're seeing on sort of the demand front in the early stages here.
John Dunn: Start to start off with the fact that at the senior level, including me, we're out there engaging with those key customers. So we really are building that tight network with them to understand when the recovery will come. It's been very measured right now. To understand when the recovery will come. It's been very measured right now in the Parcel area. What we've been proud of is our sales team is out there finding other orders and not just waiting for a market recovery. And so that's what you're seeing the activity that's going on is we aligned our sales organization to sell the total product portfolio. They've been much more aggressive out there finding new customers and growing the customers that are ordering, grabbing business there.
Jon Douyard: Yeah and I think to your point, Matt, I think sequential improvement in the quarter still not to where we were in the first quarter of this year, but the team is incredibly active, has developed a nice pipeline of activity as we go to 2025 and beyond that will help support that business outside of even the core parcel customers. What we've seen even from an October perspective is actually some pretty good order flow. So, there are signs of improvement. There was a good print from one of the large parcel customers this morning talking about volume increasing year-over-year pretty significantly. And so, we alluded to some of those signs back in July. I think we continue to see them; we continue to hear from customers that they need vehicles and we look forward to recovery at some point in 2025.
Matt Koranda: Okay, very helpful. I'll leave it there guys. Thank you.
Operator: The next question is from Mike Shlisky with D. A. Davidson. Please go ahead.
Mike Shlisky: Yes, hi, good morning. Thanks for taking my question. Maybe to follow up on Matt's question, just to go over to the SV side. I was a little surprised, if I heard correctly, that orders were actually down a little bit over the prior year. The people who make the chassis certainly aren’t cutting production. They were at all-time highs for production and supply chain seems to be no longer an issue for them. So if they're going to make so many chassis, I'm a little surprised that there's not a lot of orders to match those chassis. I Just want to get a feel for whether you think there's a good Runway into 2025 or maybe comment on the orders for October for that business. For the service values and vocational.
John Dunn: What we're seeing is a slight softening on those service bodies demands that we make. It could just be the period of time. So, we don't see it as a trend yet, but we are experiencing some slight softening. And it's not just us, it seems to be the overall industry when we talk to Key OEMs as well.
Jon Douyard: Yeah. And I think when dealer. Dealer inventory levels, I think slightly elevated at this point, but nothing that's necessarily alarming. I think to John's point, we wouldn't say there's necessarily a trend here. I think as you look at 2025, we're very confident in that business. 2025 and beyond. We've got a great position. We've expanded into Nashville. We've got plans to expand into other geographies. The ITU acquisition helps there as well. So, we like where we're positioned. We like the share that we've been able to gain in that business and we'll continue to be out being proactive from a commercial perspective.
Mike Shlisky: Okay. And then just wanted to talk, just want to ask about Blue Arc as well. And I want to get too ahead of myself as you look to '26. So, you had mentioned a few 125. That's really all you need to kind of break even. I know it's early, but do you feel like you've got a positive EBITDA expectation for '26 for Blue Arc?
John Dunn: As we stay close to the customers and really understand their needs, there's a lot of dynamics as they try to make this transition. And certainly, getting the infrastructure and charging stations installed is one of the gating aspects as well. So, I think the great news is they like our truck. They're leaning in and buying it and then it's setting up their whole system to be able to support those trucks going forward. And that's why we think it's more measured now. And as they get the pieces and infrastructure in place, we see potential to continue to grow that business.
Mike Shlisky: Okay, and then maybe one last one for me on the FVS side. Non Blue Arc EVs, you know, just the upfitting pieces for the E Transit or what have you. How's that gone recently? Has the share been any larger maybe this quarter than you saw at this time last quarter or last year or have volumes and again, you know, you still do diesel and it's almost the same product. It doesn't really matter. But it's curious whether volumes have flattened out or if they're still on the, on the upswing here.
John Dunn: Is specifically around the EV outfits we do.
Mike Shlisky: Yeah. I was just curious to see if you have a higher EV mix now than last quarter or is it the same and then the same question for the prior year.
John Dunn: I would say it's flat right now. As people get that infrastructure installed, I think we'll see some more increase. But we continue to hold our market share there. We're outfitting a number of EV vehicles for customers. Last year we did around 3,000. We're trending in that same direction.
Mike Shlisky: All right, I'll leave it there. Thank you so much.
Operator: The next question is from Greg Lewis of BTIG. Please go ahead.
Gregory Lewis: Yeah, hi. Thank you and good morning and thank you for taking my questions. I can appreciate the guidance and thank you for that. But I was hoping to get a little bit of color around how we're thinking about implied Q4 revenue. Just as we kind of look at it, it's kind of pointing to a nice step up there. Obviously, Specialty has kind of been growing sequentially. You know, FVS has kind of been heading the other way. Is there just some kind of pull forward that we're going to see in 4Q that kind of gets FVS back up just as we kind of try to top back into this, you know, $800 million revenue number?
Jon Douyard: Yeah, I mean, I think as you look at our revenue throughout the year, it's been relatively consistent quarter-to-quarter, you know, as I think there is, I don't know if I would call it significant step up. I think there's a slight step up as we get into Q4, really, just based on order, timing and, you know, basically how the backlog is scheduled. So, I think as we look at it today, we have, you know, good visibility to where we are. I think you will see a slight step up, you know, particularly in the FVS business. But I wouldn't, you know, it's not anything that's abnormal or anything like that. And so, I think relatively consistent. I think as you look at the EBITDA progress we've had throughout the year, you know, we did 6, 12, 14, basically need to repeat second or third quarter here to get into the low end of the guidance and so not looking to do necessarily anything sort of heroic from that perspective. Certainly, some work ahead of us, but very confident with where we are from a guidance perspective.
Gregory Lewis: Okay. Great. And then obviously we're integrating the ICT acquisition you kind of mentioned in the financial growth expanded M&A funnel. Is that kind of been like, is there a little bit of a flywheel going on there where you guys kind of came in, got that and now there's more opportunities there because people see what you're doing there or really just looking for any color around. What you mean by the funnel?
John Dunn: What we mean is we're certainly taking a look at more opportunities out there, finding those strategic fits that will help expand our business. And we're able to do that primarily because we're ramping down that significant spend of developing Blue Arc. So, it's kind of a pivot from getting the Blue Arc to market achieved. And now we have capital to redeploy to expand our business in other areas.
Gregory Lewis: Okay, so maybe beyond, you know, it seems like upfitting has been the folk, you know, where we're kind of bolted on some stuff. Maybe we could look farther afield than just the upfitting segment?
John Dunn: Well, we're looking at different opportunities that come present to us that are in our core business. But like, ITU was excellent addition because they added some capabilities we weren't traditionally doing. So, they were a little bit, let's say, to the left or right of our core business. Those are the ideal opportunities. And we're seeing really nice benefits from ITU, not only from adding additional product capabilities, which we can expand into all of our facilities based on their expertise, but also, they had good customer relationships, or they do have good customer relationships with people and customers that we had some interaction with, but maybe didn't have that strength. The same strength. So, we're now able to go to these especially fleet companies and really offer this broad portfolio of products to meet their needs. So ITU has worked out fantastic. It's in its early stages, but we really see the benefits there.
Gregory Lewis: Yes, sounds good. Thank you for the time.
Operator: Again. If you have a question, please press star than one. This concludes our question-and-answer session. I would like to turn the conference back over to Randy Wilson for any closing remarks.
Randy Wilson: Thank you, Operator. I'd like to thank everyone for joining today's call. And the Shyft management team looks forward to connecting with the investment community over the coming months. Thank you for your interest in The Shyft Group. And as always, please reach out if you have any follow up questions. With that operator, please disconnect the call.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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