UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| OR |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33582
THE SHYFT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Michigan |
| 38-2078923 |
41280 Bridge Street |
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Registrant’s Telephone Number, Including Area Code: (517) 543-6400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | SHYF | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller Reporting Company | ☐ | |
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at |
Common Stock |
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INDEX
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Item 1. | ||||
Condensed Consolidated Balance Sheets – | 4 | |||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
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Item 3. | ||||
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Item 4. | ||||
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| Item 1. | Legal Proceedings | |||
Item 1A. | ||||
Item 2. | ||||
| Item 5. | Other Information | |||
| Item 6. | |||
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This Form 10-Q contains some statements that are not historical facts. These statements are called “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve important known and unknown risks, uncertainties and other factors and generally can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “will,” “should” or similar expressions or words. The Shyft Group, Inc.'s (the “Company,” “we,” “us” or “our”) future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.
Risk Factors include the risk factors listed and more fully described in Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, as filed with the Securities and Exchange Commission on February 23, 2023,22, 2024, subject to any changes and updates disclosed in Part II, Item 1A – Risk Factors below, “Risk Factors”, as well as risk factors that we have discussed in previous public reports and other documents filed with the Securities and Exchange Commission. Those risk factors include the primary risks our management believes could materially affect the potential results described by forward-looking statements contained in this Form 10-Q. However, these risks may not be the only risks we face. Our business, operations, and financial performance could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. In addition, new Risk Factors may emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, although we believe that the forward-looking statements contained in this Form 10-Q are reasonable, we cannot provide you with any guarantee that the results described in those forward-looking statements will be achieved. All forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements contained in this section, and investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date this Form 10-Q is filed with the Securities and Exchange Commission.
Trademarks and Service Marks
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this Quarterly Report on Form 10-Q are, to our knowledge, the property of their respective owners.
PART I. FINANCIAL INFORMATION
Financial Statements |
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
June 30, | December 31, | March 31, | December 31, | |||||||||||||
| 2023 | 2022 | 2024 | 2023 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 7,808 | $ | 11,548 | $ | 13,251 | $ | 9,957 | ||||||||
Accounts receivable, less allowance of $270 and $246 | 93,442 | 115,742 | ||||||||||||||
Accounts receivable, less allowance of $277 and $276 | 78,820 | 79,573 | ||||||||||||||
Contract assets | 41,230 | 86,993 | 52,803 | 50,305 | ||||||||||||
Inventories | 101,303 | 100,161 | 97,931 | 105,135 | ||||||||||||
Other receivables – chassis pool agreements | 9,312 | 19,544 | 18,890 | 34,496 | ||||||||||||
Other current assets | 7,078 | 11,779 | 6,700 | 7,462 | ||||||||||||
Total current assets | 260,173 | 345,767 | 268,395 | 286,928 | ||||||||||||
Property, plant and equipment, net | 77,393 | 70,753 | 80,905 | 83,437 | ||||||||||||
Right of use assets – operating leases | 49,132 | 53,386 | 45,078 | 45,827 | ||||||||||||
Goodwill | 48,880 | 48,880 | 48,880 | 48,880 | ||||||||||||
Intangible assets, net | 47,173 | 49,078 | 44,399 | 45,268 | ||||||||||||
Net deferred tax assets | 10,390 | 10,390 | 17,300 | 17,300 | ||||||||||||
Other assets | 2,705 | 2,227 | 2,724 | 2,409 | ||||||||||||
TOTAL ASSETS | $ | 495,846 | $ | 580,481 | $ | 507,681 | $ | 530,049 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 85,733 | $ | 124,309 | $ | 86,159 | $ | 99,855 | ||||||||
Accrued warranty | 6,018 | 7,161 | 8,212 | 7,231 | ||||||||||||
Accrued compensation and related taxes | 14,770 | 14,434 | 11,675 | 13,526 | ||||||||||||
Contract liabilities | 4,198 | 5,255 | 3,939 | 4,756 | ||||||||||||
Operating lease liability | 11,378 | 10,888 | 10,050 | 10,817 | ||||||||||||
Other current liabilities and accrued expenses | 8,549 | 19,452 | 12,605 | 11,965 | ||||||||||||
Short-term debt – chassis pool agreements | 9,312 | 19,544 | 18,890 | 34,496 | ||||||||||||
Current portion of long-term debt | 179 | 189 | 164 | 185 | ||||||||||||
Total current liabilities | 140,137 | 201,232 | 151,694 | 182,831 | ||||||||||||
Other non-current liabilities | 9,826 | 10,033 | 7,265 | 8,184 | ||||||||||||
Long-term operating lease liability | 39,501 | 44,256 | 36,776 | 36,724 | ||||||||||||
Long-term debt, less current portion | 45,184 | 56,266 | 65,121 | 50,144 | ||||||||||||
Total liabilities | 234,648 | 311,787 | 260,856 | 277,883 | ||||||||||||
Commitments and contingent liabilities | ||||||||||||||||
Shareholders' equity: | ||||||||||||||||
Preferred stock, no par value: 2,000 shares authorized (none issued) | - | - | - | - | ||||||||||||
Common stock, no par value: 80,000 shares authorized; 34,956 and 35,066 outstanding | 90,606 | 92,982 | ||||||||||||||
Common stock, no par value: 80,000 shares authorized; 34,361 and 34,303 outstanding | 94,790 | 93,705 | ||||||||||||||
Retained earnings | 170,523 | 175,611 | 152,035 | 158,461 | ||||||||||||
Total Shyft Group, Inc. shareholders’ equity | 261,129 | 268,593 | ||||||||||||||
Non-controlling interest | 69 | 101 | ||||||||||||||
Total shareholders' equity | 261,198 | 268,694 | 246,825 | 252,166 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 495,846 | $ | 580,481 | $ | 507,681 | $ | 530,049 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended June 30, | Six Months Ended June 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2024 | 2023 | |||||||||||||||||||
Sales | $ | 225,101 | $ | 232,195 | $ | 468,540 | $ | 439,078 | $ | 197,889 | $ | 243,439 | ||||||||||||
Cost of products sold | 182,347 | 190,077 | 382,862 | 371,029 | 163,827 | 200,515 | ||||||||||||||||||
Gross profit | 42,754 | 42,118 | 85,678 | 68,049 | 34,062 | 42,924 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | 5,890 | 7,563 | 12,839 | 12,490 | 3,719 | 6,949 | ||||||||||||||||||
Selling, general and administrative | 30,270 | 26,860 | 62,559 | 53,412 | 32,273 | 32,289 | ||||||||||||||||||
Total operating expenses | 36,160 | 34,423 | 75,398 | 65,902 | 35,992 | 39,238 | ||||||||||||||||||
Operating income | 6,594 | 7,695 | 10,280 | 2,147 | ||||||||||||||||||||
Operating income (loss) | (1,930 | ) | 3,686 | |||||||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Interest expense | (1,477 | ) | (463 | ) | (3,125 | ) | (617 | ) | (2,053 | ) | (1,648 | ) | ||||||||||||
Other income (expense) | 124 | (488 | ) | 194 | (523 | ) | ||||||||||||||||||
Other income | 97 | 70 | ||||||||||||||||||||||
Total other expense | (1,353 | ) | (951 | ) | (2,931 | ) | (1,140 | ) | (1,956 | ) | (1,578 | ) | ||||||||||||
Income before income taxes | 5,241 | 6,744 | 7,349 | 1,007 | ||||||||||||||||||||
Income tax expense (benefit) | 556 | 1,461 | 986 | (424 | ) | |||||||||||||||||||
Net income | 4,685 | 5,283 | 6,363 | 1,431 | ||||||||||||||||||||
Income (loss) before income taxes | (3,886 | ) | 2,108 | |||||||||||||||||||||
Income tax expense | 783 | 430 | ||||||||||||||||||||||
Net income (loss) | (4,669 | ) | 1,678 | |||||||||||||||||||||
Less: net loss attributable to non-controlling interest | - | - | 32 | - | - | 32 | ||||||||||||||||||
Net income attributable to The Shyft Group Inc. | $ | 4,685 | $ | 5,283 | $ | 6,395 | $ | 1,431 | ||||||||||||||||
Net income (loss) attributable to The Shyft Group Inc. | $ | (4,669 | ) | $ | 1,710 | |||||||||||||||||||
Basic earnings per share | $ | 0.13 | $ | 0.15 | $ | 0.18 | $ | 0.04 | ||||||||||||||||
Diluted earnings per share | $ | 0.13 | $ | 0.15 | $ | 0.18 | $ | 0.04 | ||||||||||||||||
Basic earnings (loss) per share | $ | (0.14 | ) | $ | 0.05 | |||||||||||||||||||
Diluted earnings (loss) per share | $ | (0.14 | ) | $ | 0.05 | |||||||||||||||||||
Basic weighted average common shares outstanding | 34,935 | 35,049 | 34,995 | 35,078 | 34,319 | 35,058 | ||||||||||||||||||
Diluted weighted average common shares outstanding | 34,991 | 35,243 | 35,161 | 35,437 | 34,319 | 35,340 | ||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
| 2023 | 2022 | 2024 | 2023 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 6,363 | $ | 1,431 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Net income (loss) | $ | (4,669 | ) | $ | 1,678 | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 8,050 | 6,696 | 4,435 | 3,864 | ||||||||||||
Non-cash stock based compensation expense | 3,090 | 3,708 | 1,474 | 1,827 | ||||||||||||
| Deferred income taxes | - | (432 | ) | |||||||||||||
Loss on disposal of assets | 128 | 481 | 66 | - | ||||||||||||
Changes in accounts receivable and contract assets | 68,064 | (12,863 | ) | (1,746 | ) | 22,500 | ||||||||||
Changes in inventories | (1,142 | ) | (34,826 | ) | 7,204 | (9,147 | ) | |||||||||
Changes in accounts payable | (38,567 | ) | 7,333 | (10,119 | ) | (16,920 | ) | |||||||||
Changes in accrued compensation and related taxes | 303 | (6,146 | ) | (1,851 | ) | 419 | ||||||||||
Changes in accrued warranty | (1,143 | ) | (379 | ) | 981 | (978 | ) | |||||||||
Change in other assets and liabilities | (9,525 | ) | (1,672 | ) | 268 | 2,644 | ||||||||||
Net cash provided by (used in) operating activities | 35,621 | (36,669 | ) | (3,957 | ) | 5,887 | ||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property, plant and equipment | (10,963 | ) | (10,010 | ) | (5,719 | ) | (4,469 | ) | ||||||||
| Proceeds from sale of property, plant and equipment | 82 | 148 | 75 | 25 | ||||||||||||
Acquisition of business, net of cash acquired | (500 | ) | - | - | (500 | ) | ||||||||||
Net cash used in investing activities | (11,381 | ) | (9,862 | ) | (5,644 | ) | (4,944 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from long-term debt | 70,000 | 85,000 | 40,000 | 40,000 | ||||||||||||
Payments on long-term debt | (81,000 | ) | (30,000 | ) | (25,000 | ) | (31,000 | ) | ||||||||
Payment of dividends | (3,653 | ) | (3,640 | ) | (1,716 | ) | (1,878 | ) | ||||||||
Purchase and retirement of common stock | (8,786 | ) | (26,789 | ) | - | (8,765 | ) | |||||||||
Exercise and vesting of stock incentive awards | (4,541 | ) | (8,591 | ) | (389 | ) | (3,470 | ) | ||||||||
Net cash provided by (used in) financing activities | (27,980 | ) | 15,980 | 12,895 | (5,113 | ) | ||||||||||
Net decrease in cash and cash equivalents | (3,740 | ) | (30,551 | ) | ||||||||||||
Net increase (decrease) in cash and cash equivalents | 3,294 | (4,170 | ) | |||||||||||||
Cash and cash equivalents at beginning of period | 11,548 | 37,158 | 9,957 | 11,548 | ||||||||||||
Cash and cash equivalents at end of period | $ | 7,808 | $ | 6,607 | $ | 13,251 | $ | 7,378 | ||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands)
Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 35,066 | $ | 92,982 | $ | 175,611 | $ | 101 | $ | 268,694 | |||||||||||||||||||||||||||||||
Issuance of common stock and tax impact of stock incentive plan | 5 | (4,656 | ) | - | - | (4,656 | ) | |||||||||||||||||||||||||||||||||
Dividends declared ($0.05 per share) | - | - | (1,820 | ) | - | (1,820 | ) | |||||||||||||||||||||||||||||||||
Purchase and retirement of common stock | (349 | ) | (893 | ) | (7,872 | ) | - | (8,765 | ) | |||||||||||||||||||||||||||||||
Issuance of restricted stock, net of cancellation | 193 | - | - | - | - | |||||||||||||||||||||||||||||||||||
Non-cash stock based compensation expense | - | 1,827 | - | - | 1,827 | |||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | 1,710 | (32 | ) | 1,678 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 34,915 | $ | 89,260 | $ | 167,629 | $ | 69 | $ | 256,958 | |||||||||||||||||||||||||||||||
Balance at January 1, 2024 | 34,303 | $ | 93,705 | $ | 158,461 | $ | - | $ | 252,166 | |||||||||||||||||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | 5 | 83 | - | - | 83 | 10 | (389 | ) | - | - | (389 | ) | ||||||||||||||||||||||||||||
| Dividends declared ($0.05 per share) | - | - | (1,770 | ) | - | (1,770 | ) | - | - | (1,757 | ) | - | (1,757 | ) | ||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellation | 36 | - | (21 | ) | - | (21 | ) | 48 | - | - | - | - | ||||||||||||||||||||||||||||
| Non-cash stock based compensation expense | - | 1,263 | - | - | 1,263 | - | 1,474 | - | - | 1,474 | ||||||||||||||||||||||||||||||
| Net income | - | - | 4,685 | - | 4,685 | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 34,956 | $ | 90,606 | $ | 170,523 | $ | 69 | $ | 261,198 | |||||||||||||||||||||||||||||||
Net loss | - | - | (4,669 | ) | - | (4,669 | ) | |||||||||||||||||||||||||||||||||
Balance at March 31, 2024 | 34,361 | $ | 94,790 | $ | 152,035 | $ | - | $ | 246,825 | |||||||||||||||||||||||||||||||
Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 35,416 | $ | 95,375 | $ | 171,379 | $ | 101 | $ | 266,855 | |||||||||||||||||||||||||||||||
Balance at January 1, 2023 | 35,066 | $ | 92,982 | $ | 175,611 | $ | 101 | $ | 268,694 | |||||||||||||||||||||||||||||||
Issuance of common stock and tax impact of stock incentive plan | 3 | (8,372 | ) | - | - | (8,372 | ) | 5 | (4,656 | ) | - | - | (4,656 | ) | ||||||||||||||||||||||||||
Dividends declared ($0.05 per share) | - | - | (1,794 | ) | - | (1,794 | ) | - | - | (1,820 | ) | - | (1,820 | ) | ||||||||||||||||||||||||||
Purchase and retirement of common stock | (607 | ) | (1,598 | ) | (25,191 | ) | - | (26,789 | ) | (349 | ) | (893 | ) | (7,872 | ) | - | (8,765 | ) | ||||||||||||||||||||||
Issuance of restricted stock, net of cancellation | 215 | - | - | - | - | 193 | - | - | - | - | ||||||||||||||||||||||||||||||
Non-cash stock based compensation expense | - | 1,648 | - | - | 1,648 | - | 1,827 | - | - | 1,827 | ||||||||||||||||||||||||||||||
Net loss | - | - | (3,852 | ) | - | (3,852 | ) | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 35,027 | $ | 87,053 | $ | 140,542 | $ | 101 | $ | 227,696 | |||||||||||||||||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | 3 | (219 | ) | - | - | (219 | ) | |||||||||||||||||||||||||||||||||
| Dividends declared ($0.05 per share) | - | - | (1,784 | ) | - | (1,784 | ) | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellation | 33 | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Non-cash stock based compensation expense | - | 2,060 | - | - | 2,060 | |||||||||||||||||||||||||||||||||||
| Net income | - | - | 5,283 | - | 5,283 | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | 35,063 | $ | 88,894 | $ | 144,041 | $ | 101 | $ | 233,036 | |||||||||||||||||||||||||||||||
Net income (loss) | - | - | 1,710 | (32 | ) | 1,678 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 34,915 | $ | 89,260 | $ | 167,629 | $ | 69 | $ | 256,958 | |||||||||||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As used herein, the term “Company”, “we”, “us” or “our” refers to The Shyft Group, Inc. and its subsidiaries unless designated or identified otherwise.
Nature of Operations
We are a niche market leader in specialty vehicle manufacturing and assembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments)upfit) and recreational vehicle industries. Our products include walk-in vans and truck bodies used in e-commerce/parcel delivery, upfit equipment used in the mobile retail and utility trades, service and vocational truck bodies, luxury Class A diesel motorhome chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture as well as truck accessories.
The accompanying unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of our financial position as of June 30, 2023, andMarch 31, 2024, our results of operations for the three months ended March 31, 2024 and our cash flows for the three and six months ended June 30, 2023.March 31, 2024. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 20222023 filed with the Securities and Exchange Commission on February 23, 2023.22, 2024. The results of operations for the three and six months ended June 30, 2023,March 31, 2024, are not necessarily indicative of the results expected for the full year.
For a description of key accounting policies followed, refer to the notes to The Shyft Group, Inc. consolidated financial statements for the year ended December 31, 2022,2023, included in our Annual Report on Form 10-K.
Supplemental Disclosures of Cash Flow Information
Non-cash investing in the sixthree months ended June 30,March 31, 2024 and March 31, 2023 included $2,007 and June 30, 2022 included $2,106 and $1,994$2,494 of capital expenditures, respectively. The Company has chassis pool agreements, where it participates in chassis converter pools that are non-cash arrangements and they are offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. See "Note 3 – Debt" for further information about the chassis pool agreements.
NOTE 2 – INVENTORIES
Inventories are summarized as follows:
June 30, 2023 | December 31, | March 31, 2024 | December 31, | |||||||||||||
Finished goods | $ | 13,430 | $ | 13,361 | $ | 5,164 | $ | 9,374 | ||||||||
Work in process | 3,150 | 5,200 | 2,209 | 2,543 | ||||||||||||
Raw materials and purchased components | 84,723 | 81,600 | 90,558 | 93,218 | ||||||||||||
Total inventories | $ | 101,303 | $ | 100,161 | $ | 97,931 | $ | 105,135 | ||||||||
NOTE 3 – DEBT
Short-term debt consists of the following:
June 30, | December 31, | March 31, | December 31, | |||||||||||||
Chassis pool agreements | $ | 9,312 | $ | 19,544 | $ | 18,890 | $ | 34,496 | ||||||||
Total short-term debt | $ | 9,312 | $ | 19,544 | $ | 18,890 | $ | 34,496 | ||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Chassis Pool Agreements
The Company obtains certain vehicle chassis for its walk-in vans, truckservice bodies and specialty vehicles directly from the chassis manufacturers under converter pool agreements. Chassis are obtained from the manufacturers based on orders from customers, with receipt at our facilities dependent on manufacturer’s production schedules.and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer).
Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled any related obligations in cash, nor does it expect to do so in the future. Instead, theexcept as required under our credit agreement. The obligation is usually settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. The Company has included this financing agreement on the Company’s Condensed Consolidated Balance Sheets within Other receivables – chassis pool agreementsand Short-term debt – chassis pool agreements. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company. The chassis converter pool is a non-cash arrangement and is offsetting between Current assets and Current liabilities on the Company’s Condensed Consolidated Balance Sheets.
Long-term debt consists of the following:
June 30, | December 31, | March 31, | December 31, | |||||||||||||
Line of credit revolver | $ | 45,000 | $ | 56,000 | $ | 65,000 | $ | 50,000 | ||||||||
Finance lease obligation | 363 | 455 | 285 | 329 | ||||||||||||
Total debt | 45,363 | 56,455 | 65,285 | 50,329 | ||||||||||||
Less current portion of long-term debt | (179 | ) | (189 | ) | (164 | ) | (185 | ) | ||||||||
Total long-term debt | $ | 45,184 | $ | 56,266 | $ | 65,121 | $ | 50,144 | ||||||||
Revolving Credit Facility
On November 30, 2021, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, N.A. ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, N.A., JPMorgan Chase Bank, N.A., PNC Bank, National AssociationN.A. and Bank of America, N.A. (the "Lenders"). Certain of our other subsidiaries have executed guaranties guarantying the borrowers' obligations under the Credit Agreement.
On May 31, 2023, the Company amended the Credit Agreement to effectuate the transition of the underlying variable interest rate
On March 27, 2024, we entered into the Second Amendment to Amended and Restated Credit Agreement (the “Credit Agreement Amendment”). which amended the Credit Agreement. The Credit Agreement Amendment, among other things, (i) reduced the revolving credit commitments from $400,000 to $300,000, (ii) increased the applicable margin for term SOFR loans and base rate loans, (iii) adjusted the calculation of debt for purposes of determining the leverage ratio and (iv) temporarily increased the maximum leverage ratio.
Under the Credit Agreement, we may borrow up to $400,000$300,000 from the Lenders under a secured revolving credit facility which matures November 30, 2026. We may also request an increase in the facility of up to $200,000 in the aggregate, subject to customary conditions. The revolving credit facility is also available for the issuance of letters of credit of up to $20,000 and swing line loans of up to $10,000,$15,000, subject to certain limitations and restrictions. The revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted SOFR including a credit spread adjustment plus 1.0%2.00%; or (ii) adjusted SOFR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The applicable borrowing rate including the margin was 6.27%7.42% (or one-month SOFR including a credit spread adjustment plus 1.00%2.00%) at June 30, 2023. March 31, 2024.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The revolving credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At June 30, 2023March 31, 2024 and December 31, 2022,2023, we had outstanding letters of credit totaling $1,550, and $1,200, respectively, related to our workers’ compensation insurance.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $244,315$48,155 and $187,162$83,243 at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial covenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales, all subject to certain exceptions and baskets. At June 30, 2023March 31, 2024 and December 31, 2022,2023, we were in compliance with all financial covenants in our Credit Agreement.
NOTE 4 – REVENUE
Changes in our contract assets and liabilities for the sixthree months ended June 30,March 31, 2024 and 2023 and 2022 are summarized below:
June 30, 2023 | June 30, 2022 | March 31, 2024 | March 31, 2023 | |||||||||||||
Contract Assets | ||||||||||||||||
Contract assets, beginning of period | $ | 86,993 | $ | 21,483 | $ | 50,304 | $ | 86,993 | ||||||||
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | (83,470 | ) | (20,777 | ) | (37,163 | ) | (66,340 | ) | ||||||||
Contract assets recognized, net of reclassification to receivables | 37,707 | 41,662 | 39,662 | 39,441 | ||||||||||||
Contract assets, end of period | $ | 41,230 | $ | 42,368 | $ | 52,803 | $ | 60,094 | ||||||||
Contract Liabilities | ||||||||||||||||
Contract liabilities, beginning of period | $ | 5,255 | $ | 988 | $ | 4,756 | $ | 5,255 | ||||||||
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | (4,912 | ) | (988 | ) | (3,319 | ) | (4,421 | ) | ||||||||
Cash received in advance and not recognized as revenue | 3,855 | 1,359 | 2,502 | 6,885 | ||||||||||||
Contract liabilities, end of period | $ | 4,198 | $ | 1,359 | $ | 3,939 | $ | 7,719 | ||||||||
The aggregate amount of the transaction price allocated to remaining performance obligations in existing contracts that are yet to be completed in the Fleet Vehicles and Services ("FVS") and Specialty Vehicles ("SV") segments are $437,802$356,089 and $72,402,$83,334, respectively.
In the following tables, revenue is disaggregated by primary geographical market and timing of revenue recognition. The tables also include a reconciliation of the disaggregated revenue within the reportable segments.
Three Months Ended June 30, 2023 | Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||
FVS | SV | Eliminations and Other | Total | FVS | SV | Eliminations and Other | Total | |||||||||||||||||||||||||
Primary geographical markets | ||||||||||||||||||||||||||||||||
United States | $ | 124,463 | $ | 87,519 | $ | (1,443 | ) | $ | 210,539 | $ | 81,369 | $ | 90,098 | $ | - | $ | 171,467 | |||||||||||||||
Other | 14,520 | 42 | - | 14,562 | 26,390 | 32 | - | 26,422 | ||||||||||||||||||||||||
Total sales | $ | 138,983 | $ | 87,561 | $ | (1,443 | ) | $ | 225,101 | $ | 107,759 | $ | 90,130 | $ | - | $ | 197,889 | |||||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||||||||||
Products transferred at a point in time | $ | 13,692 | $ | 38,118 | $ | - | $ | 51,810 | $ | 12,281 | $ | 42,757 | $ | - | $ | 55,038 | ||||||||||||||||
Products and services transferred over time | 125,291 | 49,443 | (1,443 | ) | 173,291 | 95,478 | 47,373 | - | 142,851 | |||||||||||||||||||||||
Total sales | $ | 138,983 | $ | 87,561 | $ | (1,443 | ) | $ | 225,101 | $ | 107,759 | $ | 90,130 | $ | - | $ | 197,889 | |||||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Three Months Ended June 30, 2022 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 133,861 | $ | 95,273 | $ | - | $ | 229,134 | ||||||||
Other | 3,036 | 25 | - | 3,061 | ||||||||||||
Total sales | $ | 136,897 | $ | 95,298 | $ | - | $ | 232,195 | ||||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 10,716 | $ | 51,488 | $ | - | $ | 62,204 | ||||||||
Products and services transferred over time | 126,181 | 43,810 | - | 169,991 | ||||||||||||
Total sales | $ | 136,897 | $ | 95,298 | $ | - | $ | 232,195 | ||||||||
Six Months Ended | ||||||||||||||||
June 30, 2023 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 278,491 | $ | 174,703 | $ | (4,624) | $ | 448,570 | ||||||||
Other | 19,925 | 45 | - | 19,970 | ||||||||||||
Total sales | $ | 298,416 | $ | 174,748 | $ | (4,624) | $ | 468,540 | ||||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 25,846 | $ | 75,680 | $ | - | $ | 101,526 | ||||||||
Products and services transferred over time | 272,570 | 99,068 | (4,624) | 367,014 | ||||||||||||
Total sales | $ | 298,416 | $ | 174,748 | $ | (4,624) | $ | 468,540 | ||||||||
Six Months Ended | ||||||||||||||||
June 30, 2022 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 245,197 | $ | 189,456 | $ | - | $ | 434,653 | ||||||||
Other | 4,397 | 28 | - | 4,425 | ||||||||||||
Total sales | $ | 249,594 | $ | 189,484 | $ | - | $ | 439,078 | ||||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 20,271 | $ | 104,339 | $ | - | $ | 124,610 | ||||||||
Products and services transferred over time | 229,323 | 85,145 | - | 314,468 | ||||||||||||
Total sales | $ | 249,594 | $ | 189,484 | $ | - | $ | 439,078 | ||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Three Months Ended March 31, 2023 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 154,028 | $ | 87,184 | $ | (3,181 | ) | $ | 238,031 | |||||||
Other | 5,405 | 3 | - | 5,408 | ||||||||||||
Total sales | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | |||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 12,154 | $ | 37,562 | $ | - | $ | 49,716 | ||||||||
Products and services transferred over time | 147,279 | 49,625 | (3,181 | ) | 193,723 | |||||||||||
Total sales | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | |||||||
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classifications as follows:
June 30, 2023 | December 31, 2022 | March 31, 2024 | December 31, 2023 | |||||||||||||
Land and improvements | $ | 12,226 | $ | 12,314 | $ | 12,583 | $ | 12,578 | ||||||||
Buildings and improvements | 43,195 | 42,827 | 55,466 | 53,789 | ||||||||||||
Plant machinery and equipment | 58,810 | 55,969 | 61,188 | 60,517 | ||||||||||||
Furniture and fixtures | 19,415 | 18,334 | 19,460 | 19,474 | ||||||||||||
Vehicles | 2,008 | 2,083 | 2,157 | 2,015 | ||||||||||||
Construction in process | 15,367 | 9,946 | 8,190 | 10,570 | ||||||||||||
Subtotal | 151,021 | 141,473 | 159,044 | 158,943 | ||||||||||||
Accumulated depreciation | (73,628 | ) | (70,720 | ) | (78,139 | ) | (75,506 | ) | ||||||||
Total property, plant and equipment, net | $ | 77,393 | $ | 70,753 | $ | 80,905 | $ | 83,437 | ||||||||
We recorded depreciation expense of $3,233$3,566 and $2,626$2,912 during the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, and $6,145 and $4,751 during the six months ended June 30, 2023 and 2022, respectively.
NOTE 6 – LEASES
We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of one year to 1716 years, some of which include options to extend the leases for up to 15 years. Our leases do not contain residual value guarantees. Assets recorded under finance leases were immaterial (See "Note 3 – Debt").
Operating lease expenses are classified as Cost of products sold and Operating expenses on the Condensed Consolidated Statements of Operations. The components of lease expense were as follows:
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2024 | 2023 | |||||||||||||||||||
Operating leases | $ | 2,983 | $ | 2,571 | $ | 5,947 | $ | 4,809 | $ | 2,744 | $ | 2,964 | ||||||||||||
Short-term leases(1) | 370 | 19 | 622 | 57 | 318 | 252 | ||||||||||||||||||
Total lease expense | $ | 3,353 | $ | 2,590 | $ | 6,569 | $ | 4,866 | $ | 3,062 | $ | 3,216 | ||||||||||||
(1) Includes expenses for month-to-month equipment leases, which are classified as short-term as the Company is not reasonably certain to renew the lease term beyond one month.
The weighted average remaining lease term and weighted average discount rate were as follows:
June 30, | ||||||||
2023 | 2022 | |||||||
Weighted average remaining lease term of operating leases (in years) | 7.2 | 8.4 | ||||||
Weighted average discount rate of operating leases | 2.8 | % | 2.7 | % | ||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
The weighted average remaining lease term and weighted average discount rate were as follows:
March 31, | ||||||||
2024 | 2023 | |||||||
Weighted average remaining lease term of operating leases (in years) | 7.0 | 7.9 | ||||||
Weighted average discount rate of operating leases | 3.0 | % | 2.8 | % | ||||
Supplemental cash flow information related to leases was as follows:
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flow for operating leases | $ | 5,622 | $ | 4,287 | $ | 2,918 | $ | 2,793 | ||||||||
Right of use assets obtained in exchange for lease obligations: | ||||||||||||||||
Operating leases | $ | 8,672 | $ | 15,331 | $ | 1,879 | $ | 3,975 | ||||||||
| Finance leases | $ | 65 | $ | 202 | $ | 7 | $ | 65 | ||||||||
Maturities of operating lease liabilities as of June 30, 2023March 31, 2024 are as follows:
Years ending December 31: | ||||||||
2023(1) | $ | 5,805 | ||||||
2024 | 10,770 | |||||||
2024(1) | $ | 8,610 | ||||||
2025 | 10,034 | 10,569 | ||||||
2026 | 7,867 | 8,434 | ||||||
2027 | 5,540 | 5,735 | ||||||
2028 | 4,148 | |||||||
| 2029 | 3,650 | |||||||
Thereafter | 20,511 | 10,715 | ||||||
Total lease payments | 60,527 | 51,861 | ||||||
Imputed interest | (9,648 | ) | (5,035 | ) | ||||
Total lease liabilities | $ | 50,879 | $ | 46,826 | ||||
(1) Excluding the sixthree months ended June 30, 2023.March 31, 2024.
NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES
At June 30, 2023,March 31, 2024, we and our subsidiaries were parties, both as plaintiff and defendant, to a number of lawsuits and claims arising out of the normal course of our businesses. In the opinion of management, our financial position, future operating results or cash flows will not be materially affected by the final outcome of these legal proceedings.
Warranty Related
We provide limited warranties against assembly/construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for a specified period following the date of sale. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles.
Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Infrequently, a material warranty issue can arise which is beyond the scope of our historical experience. We provide for any such warranty issues as they become known and are estimable. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters beyond the scope of our historical experience. An estimate of possible penalty or loss, if any, cannot be made at this time.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Changes in our warranty liability are summarized below:
Six Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||
Balance of accrued warranty at January 1 | $ | 7,161 | $ | 5,975 | $ | 7,231 | $ | 7,161 | ||||||||
Provisions for current period sales | 2,002 | 2,151 | ||||||||||||||
Accruals for warranties issued | 2,257 | 1,035 | ||||||||||||||
| Changes in liability for pre-existing warranties | (1,437 | ) | (256 | ) | 273 | (769 | ) | |||||||||
Cash settlements | (1,708 | ) | (2,274 | ) | (1,549 | ) | (1,244 | ) | ||||||||
Balance of accrued warranty at June 30 | $ | 6,018 | $ | 5,596 | ||||||||||||
Balance of accrued warranty at March 31 | $ | 8,212 | $ | 6,183 | ||||||||||||
Legal Proceedings Relating to Environmental Matters
As previously disclosed, in May 2020, the Company received an information request from the United States Environmental Protection Agency (“EPA”) requesting certain information regarding emissions labels on chassis, vocational vehicles, and vehicles that the Company manufactured or imported into the U.S. between January 1, 2017 to the date the Company received the request in May 2020. The Company responded to the EPA’s request and furnished the requested materials in the third quarter of 2020.
On April 6, 2022, the Company received a Notice of Violation from the EPA alleging a failure to secure certain certifications on manufactured chassis and a failure to comply with recordkeeping and reporting requirements related to supplier-provided chassis. The Company continues to investigate this matter, including potential defenses, and will continue discussionsis continuing to discuss the allegations with the EPA regarding the allegations. At this time, it is not possible to estimate the potential fines or penalties that the Company may incur (if any)EPA. We have recorded an accrual of $1,850 at March 31, 2024 for this matter.matter and do not believe the outcome will be materially different from the amount accrued.
NOTE 8 – TAXES ON INCOME
Our effective income tax rateexpense was 10.6%$783 and 21.7%$430 for the three months ended June 30,March 31, 2024 and 2023, and 2022, respectively, compared to arespectively. The tax expense of 13.4%represented a (20.1%) effective tax rate and a20.4% effective tax benefit of 42.1%rate for the sixthree months ended June 30,March 31, 2024 and 2023, and 2022, respectively.
The effective tax rates of 10.6% and 21.7%rate for the three months ended June 30,March 31, 2024 and 2023 and 2022, respectively, differdiffers from the U.S. statutory tax rate of 21.0%21% primarily due to non-deductible executive compensation offset by the tax benefit of research credits.
Our effective income tax rate was acredits offset by state tax expense of 13.4% in the first six months of 2023, compared to a tax benefit of 42.1% in the first six months of 2022 primarily because ofand non-deductible officer compensation and a discrete tax benefitexpense in 20222024 related to the difference in stock compensation expense recognized for bookfinancial reporting purposes and tax purposes upon vesting.
NOTE 9 – BUSINESS SEGMENTS
We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: Fleet Vehicles and Services and Specialty Vehicles.
We evaluate the performance of our reportable segments based on Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and it is calculated by excluding items that we believe to be infrequent or not indicative of our underlying operating performance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations.
Our FVS segment manufactures commercial vehicles used in the e-commerce/last mile/focuses on designing and manufacturing walk-in vans for parcel delivery, beverage and grocery delivery, laundry and linen, mobile retail, and trades industries. Ourand construction industries, the production of commercial vehicles are marketed undertruck bodies, and the Utilimaster brand name, which serves a diverse customer base and sellsdistribution of related aftermarket parts and accessories for walk-in vans and other delivery vehicles. We also provide vocation-specific equipment upfit services.accessories.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Our SV segment includes our Spartan RVconsists of service bodies operations, operations that engineer and manufacture motorhome chassis, operations, Builtmore Contract Manufacturing operations, Royal Truck Bodyother specialty chassis and DuraMag service body operations,distributes related aftermarket parts and assemblies. We also provide vocation-specific equipment upfit services, which are marketed and sold under the Strobes-R-Us brand, and distribution of related aftermarket parts and accessories.brand.
The accounting policies of the segments are the same as those described, or referred to, in "Note“Note 1 – Nature of Operations and Basis of PresentationPresentation..".” Assets and related depreciation expense in the column labeled “Eliminations and Other” pertain to capital assets maintained at the corporate level. Eliminations for inter-segment sales are shown in the column labeled “Eliminations and Other.” Adjusted EBITDA in the “Eliminations and Other” column contains corporate related expenses not allocable to the operating segments. Interest expense and Income tax expense are not included in the information utilized by the chief operating decision maker to assess segment performance and allocate resources, and accordingly, are excluded from the segment results presented below.
Three Months Ended June 30, 2023 | Three Months Ended March 31, 2024 | |||||||||||||||||||||||||||||||
| Segment | Segment | |||||||||||||||||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | FVS | SV | Eliminations and Other | Consolidated | |||||||||||||||||||||||||
Fleet vehicle sales | $ | 125,291 | $ | - | $ | - | $ | 125,291 | $ | 95,478 | $ | - | $ | - | $ | 95,478 | ||||||||||||||||
Motorhome chassis sales | - | 30,099 | - | 30,099 | - | 30,771 | - | 30,771 | ||||||||||||||||||||||||
Other specialty vehicle sales | - | 51,652 | (1,443 | ) | 50,209 | - | 53,405 | - | 53,405 | |||||||||||||||||||||||
Aftermarket parts and accessories sales | 13,692 | 5,810 | - | 19,502 | 12,281 | 5,954 | - | 18,235 | ||||||||||||||||||||||||
Total sales | $ | 138,983 | $ | 87,561 | $ | (1,443 | ) | $ | 225,101 | $ | 107,759 | $ | 90,130 | $ | - | $ | 197,889 | |||||||||||||||
Depreciation and amortization expense | $ | 1,641 | $ | 1,700 | $ | 845 | $ | 4,186 | $ | 1,753 | $ | 1,542 | $ | 1,140 | $ | 4,435 | ||||||||||||||||
Adjusted EBITDA | 12,468 | 17,367 | (13,968 | ) | 15,867 | 935 | 16,973 | (11,820 | ) | 6,088 | ||||||||||||||||||||||
Segment assets | 252,352 | 194,718 | 48,776 | 495,846 | 217,779 | 212,288 | 77,614 | 507,681 | ||||||||||||||||||||||||
Capital expenditures | 1,702 | 438 | 5,137 | 7,277 | 785 | 413 | 943 | 2,141 | ||||||||||||||||||||||||
Three Months Ended June 30, 2022 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 126,181 | $ | - | $ | - | $ | 126,181 | ||||||||
Motorhome chassis sales | - | 42,710 | - | 42,710 | ||||||||||||
Other specialty vehicle sales | - | 47,044 | - | 47,044 | ||||||||||||
Aftermarket parts and accessories sales | 10,716 | 5,544 | - | 16,260 | ||||||||||||
Total sales | $ | 136,897 | $ | 95,298 | $ | - | $ | 232,195 | ||||||||
Depreciation and amortization expense | $ | 1,182 | $ | 1,953 | $ | 592 | $ | 3,727 | ||||||||
Adjusted EBITDA | 14,525 | 12,859 | (13,695 | ) | 13,689 | |||||||||||
Segment assets | 228,863 | 223,388 | 42,762 | 495,013 | ||||||||||||
Capital expenditures | 3,666 | 452 | 929 | 5,047 | ||||||||||||
Three Months Ended March 31, 2023 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 147,279 | $ | - | $ | - | $ | 147,279 | ||||||||
Motorhome chassis sales | - | 27,960 | - | 27,960 | ||||||||||||
Other specialty vehicle sales | - | 54,697 | (3,181 | ) | 51,516 | |||||||||||
Aftermarket parts and accessories sales | 12,154 | 4,530 | - | 16,684 | ||||||||||||
Total sales | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | |||||||
Depreciation and amortization expense | $ | 1,338 | $ | 1,679 | $ | 847 | $ | 3,864 | ||||||||
Adjusted EBITDA | 12,473 | 13,852 | (15,537 | ) | 10,788 | |||||||||||
Segment assets | 300,578 | 235,844 | 20,590 | 557,012 | ||||||||||||
Capital expenditures | 1,865 | 741 | 2,298 | 4,904 | ||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Six Months Ended | ||||||||||||||||
June 30, 2023 | ||||||||||||||||
Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 272,570 | $ | - | $ | - | $ | 272,570 | ||||||||
Motorhome chassis sales | - | 58,059 | - | 58,059 | ||||||||||||
Other specialty vehicle sales | - | 106,349 | (4,624 | ) | 101,725 | |||||||||||
Aftermarket parts and accessories sales | 25,846 | 10,340 | - | 36,186 | ||||||||||||
Total sales | $ | 298,416 | $ | 174,748 | $ | (4,624 | ) | $ | 468,540 | |||||||
Depreciation and amortization expense | $ | 2,979 | $ | 3,379 | $ | 1,692 | $ | 8,050 | ||||||||
Adjusted EBITDA | 24,941 | 31,219 | (29,505 | ) | 26,655 | |||||||||||
Segment assets | 252,352 | 194,718 | 48,776 | 495,846 | ||||||||||||
Capital expenditures | 3,567 | 1,179 | 7,435 | 12,181 | ||||||||||||
Six Months Ended | ||||||||||||||||
June 30, 2022 | ||||||||||||||||
Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 229,323 | $ | - | $ | - | $ | 229,323 | ||||||||
Motorhome chassis sales | - | 87,601 | - | 87,601 | ||||||||||||
Other specialty vehicle sales | - | 91,750 | - | 91,750 | ||||||||||||
Aftermarket parts and accessories sales | 20,271 | 10,133 | - | 30,404 | ||||||||||||
Total sales | $ | 249,594 | $ | 189,484 | $ | - | $ | 439,078 | ||||||||
Depreciation and amortization expense | $ | 1,930 | $ | 3,614 | $ | 1,152 | $ | 6,696 | ||||||||
Adjusted EBITDA | 13,654 | 22,958 | (23,566 | ) | 13,046 | |||||||||||
Segment assets | 228,863 | 223,388 | 42,762 | 495,013 | ||||||||||||
Capital expenditures | 7,799 | 686 | 2,007 | 10,492 | ||||||||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The Shyft Group, Inc. was organized as a Michigan corporation and is headquartered in Novi, Michigan. We are a niche market leader in specialty vehicle manufacturing and assembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments)upfit) and recreational vehicle industries. Our products include walk-in vans, and truck bodies, and cargo van and pick-up truck upfits used in e-commerce/parcel delivery, upfit equipment used in the mobile retail and utility trades, service and vocational truck bodies,as well as luxury Class A diesel motorhome custom chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture as well as truck accessories.manufacture.
Our vehicles, parts and services are sold to commercial users, original equipment manufacturers (OEMs), dealers, individual end users, and municipalities and other governmental entities. Our diversification across several sectors provides numerous opportunities while reducing overall risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business structure is agile and ableprovides agility to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth. Our growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market is an excellent example of our ability to generate growth and profitability by quickly fulfilling customer needs.
We believe we can best carry out our long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under our credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.
Executive Overview
● | Sales of |
● | Gross |
● | Operating expense of |
● | Operating |
● | Income tax expense of |
● | Net | |
| ● | Diluted loss per share of $0.14 for the first quarter of 2024, compared to diluted earnings per share of |
● | Order backlog of |
We believe we are well positioned to take advantage of long-term opportunities and continue our efforts to bring product innovations to each of the markets that we serve. Some of our recent innovations, strategic developments and strengths include:
● | In March 2022, we announced Blue Arc™ Electric Vehicle |
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● | The Velocity lineup of last-mile delivery vehicles span Gross Vehicle Weight Rating class sizes 2 and 3 and are available on Ford Transit, Mercedes Sprinter, and RAM Promaster chassis. The Velocity combines fuel efficiency, comfort, and maneuverability with the cargo space, access, and load capacity similar to a traditional walk-in van. |
● | Royal Truck Body’s |
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The following section provides a narrative discussion about our financial condition and results of operations. Certain amounts in the narrative may not sum due to rounding. The comments should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with our 20222023 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2023.22, 2024.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components of the Company’s Condensed Consolidated Statements of Operations as a percentage of sales (percentages may not sum due to rounding):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Sales | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost of products sold | 81.0 | 81.9 | 81.7 | 84.5 | ||||||||||||
Gross profit | 19.0 | 18.1 | 18.3 | 15.5 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 2.6 | 3.3 | 2.7 | 2.8 | ||||||||||||
Selling, general and administrative | 13.4 | 11.6 | 13.4 | 12.2 | ||||||||||||
Operating income | 2.9 | 3.3 | 2.2 | 0.5 | ||||||||||||
Other expense | (0.6 | ) | (0.4 | ) | (0.6 | ) | (0.3 | ) | ||||||||
Income before income taxes | 2.3 | 2.9 | 1.6 | 0.2 | ||||||||||||
Income tax expense (benefit) | 0.2 | 0.6 | 0.2 | (0.1 | ) | |||||||||||
Net income | 2.1 | 2.3 | 1.4 | 0.3 | ||||||||||||
Non-controlling interest | - | - | - | - | ||||||||||||
Net income attributable to The Shyft Group, Inc. | 2.1 | 2.3 | 1.4 | 0.3 | ||||||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2024 | 2023 | |||||||
Sales | 100.0 | 100.0 | ||||||
Cost of products sold | 82.8 | 82.4 | ||||||
Gross profit | 17.2 | 17.6 | ||||||
Operating expenses: | ||||||||
Research and development | 1.9 | 2.9 | ||||||
Selling, general and administrative | 16.3 | 13.3 | ||||||
Operating income (loss) | (1.0 | ) | 1.5 | |||||
Other expense | (1.0 | ) | (0.6 | ) | ||||
Income (loss) before income taxes | (2.0 | ) | 0.9 | |||||
Income tax expense | 0.4 | 0.2 | ||||||
Net income (loss) | (2.4 | ) | 0.7 | |||||
Non-controlling interest | - | 0.0 | ||||||
Net income (loss) attributable to The Shyft Group, Inc. | (2.4 | ) | 0.7 | |||||
Three Months June 30, 2023Ended March 31, 2024 Compared to the Three Months Ended June 30, 2022March 31, 2023
Sales
For the quarterthree months ended June 30, 2023,March 31, 2024, we reported consolidated sales of $225.1$197.9 million, compared to $232.2$243.4 million for the secondfirst quarter of 2022,2023, a decrease of $7.1$45.5 million or 3.1%18.7%. This decrease is primarily attributed todriven by lower sales volumes in our Specialty Vehicles (“SV”) segment attributed to lower motorhome chassis sales, partially offset by increased sales in the Fleet Vehicles and Services (“FVS”) segment attributed to lower sales volumes of walk-in vans and lower USPS pass-through chassis sales, partially offset by higher truck body and upfit sales, including $7.5 millionand higher sales in pass-through chassis sales.the Specialty Vehicles (“SV”) segment.
Cost of Products Sold
Cost of products sold was $182.3$163.8 million in the secondfirst quarter of 2024, compared to $200.5 million for the first quarter of 2023, compared to $190.1 million for the second quarter of 2022, a decrease of $7.8$36.7 million or 4.1%18.3%. The decrease was due to $11.0$38.2 million in lower volume and mix and $5.8$2.2 million due to higher productivity,in lower pass-through chassis costs, partially offset by $7.5 million in pass-through chassis costs and $1.5$3.7 million higher material and labor inflation,manufacturing and other costs.
Gross Profit
Gross profit was $42.8$34.1 million for the secondfirst quarter of 2024, compared to $42.9 million for the first quarter of 2023, compared to $42.1 million for the second quartera decrease of 2022, an increase of $0.7$8.8 million or 1.5%20.6%. The increasedecrease was due to $5.8 million in higher productivity, partially offset by $3.6$5.1 million in lower volume and mix, net of favorable pricing, and $1.5$3.7 million in higher material, labormanufacturing and other costs.
Operating Expenses
Operating expenses were $36.2$36.0 million for the secondfirst quarter of 2024, compared to $39.2 million for the first quarter of 2023, compared to $34.4 million for the second quartera decrease of 2022, an increase of $1.8$3.2 million or 5.0%8.3%. Research and development expense for the secondfirst quarter of 2024 was $3.7 million, compared to $6.9 million in the first quarter of 2023, was $5.9 million, compared to $7.6 million in the second quarter of 2022, a decrease of $1.7$3.2 million, of which $1.4$2.9 million was related to electric vehicle development initiatives.initiatives as the program moves closer to production. Selling, general and administrative expense was $30.3$32.3 million for the secondfirst quarter of 2023,2024, compared to $26.9$32.3 million for the secondfirst quarter of 2022, an increase2023.
InterestOther expense was $1.5$2.0 million for the secondfirst quarter of 2023,2024, compared to $0.5$1.6 million for the secondfirst quarter of 2022,2023, driven by higher borrowing costs. Other income was $0.1 million for the second quarter of 2023, compared to $0.5 million expense for the second quarter of 2022.
Income Tax Expense (Benefit)
Our effective income tax rateexpense was 10.6%$0.8 million for the secondfirst quarter of 2023,2024, compared to 21.7%an expense of $0.4 million for the secondfirst quarter 2022,2023. The tax expense represented a (20.1%) effective tax rate and 20.4% effective tax rate for the three months ended March 31, 2024 and 2023, respectively, which reflects the impact of current statutory income tax rates on our income before income taxes combined with the tax expense related toof non-deductible officer compensation offset by the benefit of research credits.credits combined with a discrete tax expense in 2024 related to the difference in stock compensation expense recognized for financial reporting purposes and tax purposes upon vesting.
Net Income (Loss)
Net incomeloss was $4.7 million for the secondfirst quarter of 2024 compared to net income of $1.7 million for the first quarter of 2023, decreased by $0.6 million to $4.7 milliona decrease of $6.4 million. Diluted loss per share was $0.14 for the first quarter of 2024 compared to $5.3 milliondiluted earnings per share of $0.05 for the secondfirst quarter of 2022. On a diluted per share basis, earnings decreased $0.02 to $0.13 for the second quarter of 2023 compared to $0.15 per share for the second quarter of 2022.2023. Driving this decrease were the factors noted above.
Adjusted EBITDA
Our consolidated Adjusted EBITDA for the secondfirst quarter of 2024 was $6.1 million, compared to $10.8 million for the first quarter of 2023, was $15.9 million, compared to $13.7 million for the second quartera decrease of 2022, an increase of $2.2$4.7 million.
The table below describes the changes in Adjusted EBITDA for the three months ended June 30, 2023March 31, 2024 compared to the same period for 20222023 (in millions):
Adjusted EBITDA three months ended June 30, 2022 | $ | 13.7 | ||
| Sales volume and other | 2.2 | |||
Material and labor costs | (0.9 | ) | ||
| EV development/program costs | 0.5 | |||
General and administrative costs and other | 0.4 | |||
Adjusted EBITDA three months ended June 30, 2023 | $ | 15.9 |
Six Months June 30, 2023 Compared to the Six Months Ended June 30, 2022
Sales
For the six months ended June 30, 2023, we reported consolidated sales of $468.5 million, compared to $439.1 million for the first six months of 2022, an increase of $29.5 million or 6.7%. This increase was primarily attributable to increased sales volume driven by truck body sales in our FVS segment including $13.2 million in pass-through chassis sales and favorable pricing implemented to offset material and labor inflation, partially offset by lower sales volumes in our SV segment primarily attributable to lower motorhome chassis sales.
Cost of Products Sold
Cost of products sold was $382.9 million for the first six months of 2023, compared to $371.0 million for the first six months of 2022, an increase of $11.9 million or 3.2%. The increase was due to $12.2 million higher volume and mix and $3.5 million higher material and labor inflation and $13.2 million in pass-through chassis costs, partially offset by $17.0 million due to higher productivity.
Gross Profit
Gross profit was $85.7 million for the first six months of 2023, compared to $68.0 million for the first six months of 2022, an increase of $17.6 million or 25.9%. The increase was due to $4.1 million more favorable pricing net of lower volume and mix and $17.0 million in higher productivity, partially offset by $3.5 million due in higher material, labor and other costs.
Operating Expenses
Operating expenses were $75.4 million for the first six months of 2023, compared to $65.9 million for the first six months of 2022, an increase of $9.5 million or 14.4%. Research and development expense for the first six months of 2023 was $12.8 million, compared to $12.5 million in the first six months of 2022, an increase of $0.3 million, of which $1.0 million was related to electric vehicle development initiatives partially offset by a $0.7 million decrease related to other products. Selling, general and administrative expense was $62.6 million for the first six months of 2023, compared to $53.4 million for the first six months of 2022, an increase of $9.2 million, primarily driven by $6.6 million of increased employee and administrative costs including CEO transition and severance related to cost reduction initiatives and in addition $2.6 million of electric vehicle program costs.
Other Income (Expense)
Interest expense was $3.1 million for the first six months of 2023, compared to $0.6 million for the first six months of 2022, driven by higher borrowing costs. Other income was $0.2 million for the first six months of 2023, compared to $0.5 million expense for the first six months of 2022.
Income Tax Expense (Benefit)
Our effective income tax rate was 13.4% for the first six months of 2023, compared to a tax benefit of 42.1% for the first six months of 2022, which reflects the impact of current statutory income tax rates on our income before income taxes combined with a discrete tax benefit in 2022 related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting.
Net Income
Net income for the first six months of 2023 increased by $5.0 million to $6.4 million compared to $1.4 million for the first six months of 2022. On a diluted per share basis, earnings increased $0.14 to $0.18 for the first six months of 2023 compared to $0.04 per share for the first six months of 2022. Driving this increase were the factors noted above.
Adjusted EBITDA
Our consolidated Adjusted EBITDA for the first quarter of 2023 was $26.7 million, compared to $13.0 million for the first quarter of 2022, an increase of $13.7 million.
The table below describes the changes in Adjusted EBITDA for the six months ended June 30, 2023 compared to the same period for 2022 (in millions):
Adjusted EBITDA six months ended June 30, 2022 | $ | 13.0 | ||||||
Adjusted EBITDA three months ended March 31, 2023 | $ | 10.8 | ||||||
| Sales volume and other | 9.9 | (12.3 | ) | |||||
Product pricing and mix | 8.1 | 3.4 | ||||||
Material and labor costs | (2.9 | ) | ||||||
| EV development/program costs | (3.6 | ) | 3.0 | |||||
General and administrative costs and other | 2.2 | 1.2 | ||||||
Adjusted EBITDA six months ended June 30, 2023 | $ | 26.7 | ||||||
Adjusted EBITDA three months ended March 31, 2024 | $ | 6.1 | ||||||
Order Backlog
Our order backlog by reportable segment is summarized in the following table (in thousands):
June 30, 2023 | June 30, 2022 | March 31, 2024 | March 31, 2023 | |||||||||||||
Fleet Vehicles and Services | $ | 437,802 | $ | 1,000,021 | $ | 356,089 | $ | 584,933 | ||||||||
Specialty Vehicles | 72,402 | 135,162 | 83,334 | 82,478 | ||||||||||||
Total consolidated | $ | 510,204 | $ | 1,135,183 | $ | 439,423 | $ | 667,411 | ||||||||
The consolidated backlog at June 30, 2023March 31, 2024 totaled $510.2$439.4 million, a decrease of $625.0$228.0 million, or 55.1%34.2%, compared to $1,135.2$667.4 million at June 30, 2022.March 31, 2023.
Our FVS backlog decreased by $562.2$228.8 million, or 56.2%39.1%, primarily due to vehicle sales and softeningsofter demand in delivery vans. Our SV segment backlog decreasedincreased by $62.8$0.9 million, or 46.4%1.0%, due toas higher service body orders more than offset lower motorhome orders.
Orders in the backlog are subject to modification, cancellation or rescheduling by customers. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions, supply of chassis, and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period-to-period is not necessarily indicative of eventual actual shipments.
Reconciliation of Non-GAAP Financial Measures
This report presents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our underlying operating performance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations.
We present the non-GAAP measure Adjusted EBITDA because we consider it to be an important supplemental measure of our performance. The presentation of Adjusted EBITDA enables investors to better understand our operations by removing items that we believe are not representative of our continuing operations and may distort our longer-term operating trends. We believe this measure to be useful to improve the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not indicative of our continuing operating performance.
We believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.
We use Adjusted EBITDA to evaluate the performance of and allocate resources to our segments. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual incentive compensation for our management team and long-term incentive compensation for certain members of our management team.
The following table reconciles Net Income from continuing operations to Adjusted EBITDA for the periods indicated.
Financial Summary (Non-GAAP) Consolidated (In thousands, Unaudited) |
Three Months Ended | Six Months Ended | Three Months Ended | ||||||||||||||||||||||
June 30, | June 30, | March 31, | ||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2024 | 2023 | |||||||||||||||||||
Net Income | $ | 4,685 | $ | 5,283 | $ | 6,363 | $ | 1,431 | ||||||||||||||||
Net Income (loss) | $ | (4,669 | ) | $ | 1,678 | |||||||||||||||||||
Net loss attributable to non-controlling interest | - | - | 32 | - | - | 32 | ||||||||||||||||||
Add (subtract): | ||||||||||||||||||||||||
Interest expense | 1,477 | 463 | 3,125 | 617 | 2,053 | 1,648 | ||||||||||||||||||
Depreciation and amortization expense | 4,186 | 3,727 | 8,050 | 6,696 | 4,435 | 3,864 | ||||||||||||||||||
Income tax expense (benefit) | 556 | 1,461 | 986 | (424 | ) | |||||||||||||||||||
Income tax expense | 783 | 430 | ||||||||||||||||||||||
Restructuring and other related charges | 1,253 | 354 | 1,315 | 461 | 52 | 62 | ||||||||||||||||||
Acquisition related expenses and adjustments | - | 341 | 291 | 557 | - | 291 | ||||||||||||||||||
Non-cash stock based compensation expense | 1,263 | 2,060 | 3,090 | 3,708 | 1,474 | 1,827 | ||||||||||||||||||
Legacy legal matters | - | - | 956 | - | 1,850 | 956 | ||||||||||||||||||
| Non-recurring professional fees | 160 | - | 160 | - | ||||||||||||||||||||
| CEO transition | 2,287 | - | 2,287 | - | 110 | - | ||||||||||||||||||
Adjusted EBITDA | $ | 15,867 | $ | 13,689 | $ | 26,655 | $ | 13,046 | $ | 6,088 | $ | 10,788 | ||||||||||||
Our Segments
We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: FVS and SV.
For certain financial information related to each segment, see "Note 9 – Business Segments," of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q.
Fleet Vehicles and Services
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Three Months Ended June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 138,983 | 100.0 | % | $ | 136,897 | 100.0 | % | ||||||||
Adjusted EBITDA | 12,468 | 9.0 | % | 14,525 | 10.6 | % | ||||||||||
Sales in our FVS segment were $139.0 million for the second quarter of 2023, compared to $136.9 million for the second quarter of 2022, an increase of $2.1 million or 1.5%. This increase was primarily attributable to increased truck body sales including $7.5 million in pass-through chassis sales partially offset by a softening in the delivery van markets.
Adjusted EBITDA in our FVS segment for the second quarter of 2023 was $12.5 million compared to $14.5 million for the second quarter of 2022, a decrease of $2.0 million. This decrease was attributable to $1.1 million lower volume and $6.6 million unfavorable mix net of pricing, partially offset by $3.2 million favorable productivity and $2.5 million favorable material, labor costs, and other costs.
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 298,416 | 100.0 | % | $ | 249,594 | 100.0 | % | ||||||||
Adjusted EBITDA | 24,941 | 8.4 | % | 13,654 | 5.5 | % | ||||||||||
Fleet Vehicles and Services
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2024 | 2023 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 107,759 | 100.0 | % | $ | 159,433 | 100.0 | % | ||||||||
Adjusted EBITDA | 935 | 0.9 | % | 12,473 | 7.8 | % | ||||||||||
Sales in our FVS segment were $298.4$107.8 million for the first six monthsquarter of 2023,2024, compared to $249.6$159.4 million for the first six monthsquarter of 2022, an increase2023, a decrease of $48.8$51.6 million or 19.6%32.4%. This increasedecrease was primarily attributable to increasedsofter delivery van markets and lower pass-through chassis sales, volume drivenpartially offset by increased truck body sales as well as easing of industry wide supply chain constraints.and higher upfit volume.
Adjusted EBITDA in our FVS segment for the first six monthsquarter of 20232024 was $24.9$0.9 million compared to $13.7$12.5 million for the first six monthsquarter of 2022, an increase2023, a decrease of $11.2$11.6 million. This increasedecrease was attributable to $1.3$6.7 million favorablein lower volume $9.0and $1.7 million favorableof unfavorable mix net of pricing and $3.2 million of lower productivity and $4.3 million favorablenet of material, labor costs, and other costs, partially offset by $3.4 million unfavorable mix net of pricing.costs.
Specialty Vehicles
Financial Data | Financial Data | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2023 | 2022 | 2024 | 2023 | |||||||||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
Sales | $ | 87,561 | 100.0 | % | $ | 95,298 | 100.0 | % | $ | 90,130 | 100.0 | % | $ | 87,187 | 100.0 | % | ||||||||||||||||
Adjusted EBITDA | 17,367 | 19.8 | % | 12,859 | 13.5 | % | 16,973 | 18.8 | % | 13,852 | 15.9 | % | ||||||||||||||||||||
Sales in our SV segment were $87.6$90.1 million in the secondfirst quarter of 2024, compared to $87.2 million for the first quarter of 2023, compared to $95.3 million for the second quarter of 2022, a decrease of $7.7 million or 8.1%. This decrease was primarily attributable to lower motorhome sales volumes, partially offset by higher service body sales.
an increase of
Adjusted EBITDA for our SV segment for the second quarter of 2023 was $17.4 million, compared to $12.9 million for the second quarter of 2022, $4.5$2.9 million or 35.1%3.4%. This increase was primarily attributable to $6.7 million favorable pricinghigher motorhome chassis market demand and mix and $2.5 million favorable productivity,higher service body sales partially offset by $2.4 million due to lower volume and $2.3 million due to material, labor, anda decline in other costs.
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 174,748 | 100.0 | % | $ | 189,484 | 100.0 | % | ||||||||
Adjusted EBITDA | 31,219 | 17.9 | % | 22,958 | 12.1 | % | ||||||||||
Sales in our SV segment were $174.7 million in the first six months of 2023, compared to $189.5 million for the first six months of 2022, a decrease of $14.8 million or 7.8%. This decrease was primarily attributable to lower motorhome sales volumes, partially offset by higher service bodyspecialty vehicle sales.
Adjusted EBITDA for our SV segment for the first six monthsquarter of 20232024 was $31.2$17.0 million, compared to $23.0$13.9 million for the first six monthsquarter of 2022,2023, an increase of $8.2$3.1 million or 36.0%22.5%. This increase was primarily attributable to $14.2$2.8 million of favorable pricing and mix, $0.8 million lower manufacturing costs, and $3.0$0.4 million of favorable productivity,volume, partially offset by $4.7$0.9 million due to lower volume and $4.3 million due to material, labor, and other costs.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents decreasedincreased by $3.7$3.3 million from December 31, 2022,2023, to a balance of $7.8$13.3 million as of June 30, 2023.March 31, 2024. These funds, in addition to cash generated from future operations and availability under our existing credit facilities,facility, are expected to be sufficient to finance our foreseeable liquidity and capital needs, including potential future acquisitions.
Cash Flow from Operating Activities
We generated $35.6used $4.0 million of cash from operating activities during the sixthree months ended June 30, 2023, an increaseMarch 31, 2024, a decrease in cash provided of $72.3$9.9 million from $36.7$5.9 million of cash provided by operating activities during the three months ended March 31, 2023. The $4.0 million of cash used in operating activities during the six months ended June 30, 2022. The $35.6 million of cash generated in the first sixthree months of 20232024 was driven by a $17.6$1.3 million net inflow related to income adjusted for non-cash charges to operations and by a $18.0$5.3 million net inflowoutflow related to the change in net working capital. The change in working capital in the first sixthree months of 20232024 was driven by a $68.1 million net inflow related to decreased receivables and contract assets primarily attributable to the completion of in process vehicles and a $0.3 million net inflow related to changes in accrued compensation and related taxes, partially offset by a $38.6$10.1 million net outflow related to decreased payables primarily attributable to timing of payments within the period and a $1.1 million net outflow related to increased inventories primarily attributable to increased raw material inventories, a $1.1$1.9 million net outflow related to changes in accrued warranty,compensation and related taxes, partially offset by a $9.5$7.2 million net outflowinflow related to changes in other assets and liabilities.decreased inventories.
Cash Flow from Investing Activities
We used $11.4$5.6 million in investing activities during the sixthree months ended June 30, 2023,March 31, 2024, an increase in cash used of $1.5$0.7 million from $9.9$4.9 million used during the sixthree months ended June 30, 2022.March 31, 2023. The increase in cash used in investing activities is primarily due to a $1.0$1.2 million increase in the purchases of property, plant and equipment, andpartially offset by a $0.5 million increasedecrease related to the acquisition of a business.business in prior year.
Cash Flow from Financing Activities
We used $28.0generated $12.9 million of cash through financing activities during the sixthree months ended June 30, 2023,March 31, 2024, an increase in cash usedgenerated of $44.0$18.0 million from $16.0$5.1 million generatedused during the sixthree months ended June 30, 2022.March 31, 2023. The increase in cash usedgenerated by financing activities is primarily attributable to $51.0$6.0 million of increaseddecreased payments on long-term debt, and $15.0 million of decreased proceeds from long-term debt, partially offset by an $18.0a $8.8 million decrease in the purchase and retirement of common stock, and a $4.1$3.1 million decrease in exercise and vesting of stock awards.awards and a $0.1 million decrease in payment of dividends.
Debt
On November 30, 2021, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, N.A. ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, N.A., JPMorgan Chase Bank, N.A., PNC Bank, N.A., National Association and Bank of America, N.A. (the "Lenders"). Certain of our other subsidiaries have executed guaranties guarantying the borrowers' obligations under the Credit Agreement.
On May 31, 2023, the Company amended the Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Our interest expense is not expected to increase materially with this transition. Increased interest expense and/or disruption in the financial market could have a material adverse effect on our business, financial condition, or results of operations.
On March 27, 2024, we entered into the Second Amendment to Amended and Restated Credit Agreement (the “Credit Agreement Amendment”), which amended the Credit Agreement. The Credit Agreement Amendment, among other things, (i) reduced the revolving credit commitments from $400.0 million to $300.0 million, (ii) increased the applicable margin for term SOFR loans and base rate loans, (iii) adjusted the calculation of debt for purposes of determining the leverage ratio and (iv) temporarily increased the maximum leverage ratio.
Under the Credit Agreement, we may borrow up to $400.0$300.0 million from the Lenders under a secured revolving credit facility which matures November 30, 2026. We may also request an increase in the facility of up to $200.0 million in the aggregate, subject to customary conditions. The revolving credit facility is also available for the issuance of letters of credit of up to $20.0 million and swing line loans of up to $10.0$15.0 million, subject to certain limitations and restrictions. The revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted SOFR including a credit spread adjustment plus 1.0%2.00%; or (ii) adjusted SOFR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The applicable borrowing rate including the margin was 6.27%7.42% (or one-month SOFR including a credit spread adjustment plus 1.00%2.00%) at June 30, 2023. March 31, 2024.
The revolving credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At June 30, 2023March 31, 2024 and December 31, 2022,2023, we had outstanding letters of credit totaling $1.2$1.6 million, related to our workers’ compensation insurance.
Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $244.3$48.2 million and $187.2$83.2 million at June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial covenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales, all subject to certain exceptions and baskets. At June 30, 2023March 31, 2024 and December 31, 2022,2023, we were in compliance with all financial covenants in our Credit Agreement.
Equity Securities
On February 17, 2022, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock in open market transactions. In the first quarter of 2023, we repurchased 348,705 shares for $8.8 million. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.
Dividends
The amounts or timing of any dividends are subject to earnings, financial condition, liquidity, capital requirements and such other factors as our Board of Directors deems relevant. We declared dividends on our outstanding common shares in 20232024 and 20222023 as shown in the table below.
Date dividend declared | Record date | Payment date | Dividend per share ($) | |||||
| May 2, 2023 | May 17, 2023 | Jun. 20, 2023 | $ | 0.05 | ||||
| Jan. 31, 2023 | Feb. 17, 2023 | Mar. 17, 2023 | $ | 0.05 | ||||
| Nov. 1, 2022 | Aug. 17, 2022 | Sep. 16, 2022 | $ | 0.05 | ||||
| Aug. 5, 2022 | Aug. 17, 2022 | Sep. 16, 2022 | $ | 0.05 | ||||
| May 2, 2022 | May 17, 2022 | June 17, 2022 | $ | 0.05 | ||||
| Feb. 16, 2022 | Feb. 17, 2022 | Mar. 17, 2022 | $ | 0.05 | ||||
Date dividend declared | Record date | Payment date | Dividend per share ($) | |||||
| Feb. 1, 2024 | Feb. 16, 2024 | Mar. 18, 2024 | $ | 0.05 | ||||
| Oct. 31, 2023 | Nov. 16, 2023 | Dec. 15, 2023 | $ | 0.05 | ||||
| Aug. 2, 2023 | Aug. 17, 2023 | Sep. 18, 2023 | $ | 0.05 | ||||
| May 2, 2023 | May 17, 2023 | Jun. 20, 2023 | $ | 0.05 | ||||
| Jan. 31, 2023 | Feb. 17, 2023 | Mar. 17, 2023 | $ | 0.05 | ||||
Effect of Inflation
Inflation affects us in two principal ways. First, our revolving credit facility is generally tied to the prime and SOFR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, we attempt to cover increased costs of production and capital by adjusting the prices of our products. However, we generally do not attempt to negotiate inflation-based price adjustment provisions into our contracts. We have limited ability to pass on cost increases to our customers on a short-term basis. In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. We strive to minimize the effect of inflation through cost reductions and improved productivity. Refer to the Commodities Risk section in Item 3 of this Form 10-Q for further information regarding commodity cost fluctuations.
Quantitative and Qualitative Disclosures About Market Risk. |
Interest Rate Risk
We are exposed to market risks related to changes in interest rates and the effect of such a change on outstanding variable rate short-term and long-term debt. At June 30, 2023,March 31, 2024, we had $45.0$65.0 million debt outstanding under our revolving credit facility. An increase of 100 basis points in interest rates would result in $0.5$0.7 million of incremental interest expense on an annualized basis. We believe that we have sufficient financial resources to accommodate this hypothetical increase in interest rates. We do not enter into market-risk-sensitive instruments for trading or other purposes.
On May 31, 2023, the Company amended the Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to SOFR. The interest rate charged on our outstanding borrowings pursuant to our revolving credit facility is currently based on SOFR, as described in Part 1, Item 1, "Note 3 – Debt" of this Form 10-Q. Our interest expense is not expected to increase materially with this transition. Increased interest expense and/or disruption in the financial market could have a material adverse effect on our business, financial condition, or results of operations.
Commodities Risk
We are also exposed to changes in the prices of raw materials, primarily steel and aluminum, along with components that are made from these raw materials. We generally do not enter into derivative instruments for the purpose of managing exposures associated with fluctuations in steel and aluminum prices. We do, from time to time, engage in pre-buys of components that are impacted by changes in steel, aluminum and other commodity prices in order to mitigate our exposure to such price increases and align our costs with prices quoted in specific customer orders. We also actively manage our material supply sourcing and may employ various methods to limit risk associated with commodity cost fluctuations due to normal market conditions and other factors including tariffs. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part 1, Item 2 of this Form 10-Q for information on the impacts of changes in input costs during the three months ended June 30, 2023.March 31, 2024.
We do not believe that there has been a material change in the nature or categories of the primary market risk exposures or in the particular markets that present our primary risk of loss. As of the date of this report, we do not know of or expect any material changes in the general nature of our primary market risk exposure in the near term. In this discussion, “near term” means a period of one year following the date of the most recent balance sheet contained in this report.
Prevailing interest rates, interest rate relationships and commodity costs are primarily determined by market factors that are beyond our control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned “Forward-Looking Statements” before Part I of this Quarterly Report on Form 10-Q for a discussion of the limitations on our responsibility for such statements.
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023,March 31, 2024, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes during the quarter ended June 30, 2023,March 31, 2024, in our internal control over financial reporting that have materially affected, or are likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.
Legal Proceedings |
See “Note 7 – Commitments and Contingent Obligations,” included in Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” within this quarterly report on Form 10-Q.
Risk Factors |
We have included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022,2023, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). There have been no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 20222023 with respect to the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to our stock.
Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
On February 17, 2022, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock in open market transactions. In the first quarter of 2023, we repurchased 348,705 shares for $8.8 million. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.
Period | Total | Average | Total Number of Purchased Publicly Plans or | Approximate Dollar Value of Shares That Programs(2) (In millions) | ||||||||||||
April 1 to April 30 | - | $ | - | - | $ | 233.3 | ||||||||||
May 1 to May 31 | - | - | - | 233.3 | ||||||||||||
June 1 to June 30 | 3,010 | 23.19 | - | 233.3 | ||||||||||||
Total | 3,010 | - | ||||||||||||||
Period | Total | Average | Total Number of Purchased Publicly Plans or | Approximate Dollar Value of Shares That Programs(2) (In millions) | ||||||||||||
January 1 to January 31 | - | $ | - | - | $ | 223.0 | ||||||||||
February 1 to February 29 | - | - | - | 223.0 | ||||||||||||
March 1 to March 31 | 43,177 | 11.84 | - | 223.0 | ||||||||||||
Total | - | - | ||||||||||||||
(1) During the quarter ended June 30, 2023, 3,010March 31, 2024, 43,177 shares were delivered by employees in satisfaction of tax withholding obligations that occurred upon the vesting of restricted shares.
(2) This column reflects the number of shares that may yet be purchased pursuant to the February 17, 2022 Board of Directors authorization described above.
Item 5. | Other Information |
On May 1, 2023, Daryl Adams, President and Chief Executive Officer andDuring the quarter ended March 31, 2024, no director or officer (as defined in Rule 16a-1(f) under the Exchange Act) of the Company adopted, modified or terminated a director, entered into a Rule“Rule 10b5-1 Trading Arrangementtrading arrangement” or “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K) for the sale of up to 240,000 shares of the Company’s common stock, which trading arrangement is scheduled to terminate no later than July 30, 2024.
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Exhibits. |
(a) Exhibits. The following exhibits are filed as a part of this report on Form 10-Q:
*Management contract or compensatory plan or arrangement
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: | THE SHYFT GROUP, INC. | |
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| By | /s/ Jonathan C. Douyard |
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| Jonathan C. Douyard |