CHARLOTTE, Mich., Oct. 31, 2018 /PRNewswire/ -- Spartan Motors, Inc. (NASDAQ: SPAR) ("Spartan" or the "Company"), a global leader in specialty chassis and vehicle design, manufacturing and assembly, today reported operating results for the third quarter ended September 30, 2018.
Third Quarter 2018 Overview
For the third quarter of 2018 compared to the third quarter of 2017 the results reflect strong revenue growth and continued profitability from all three business segments. However, the results were negatively impacted by industry-wide headwinds, including tariff-driven increases in commodity and component costs, chassis shortages, supplier component delays, freight costs and disruptions, and labor shortages, which resulted in production and labor inefficiencies and shipment delays.
- Sales increased $37.0 million, or 19.6%, to $226.2 million, from $189.2 million.
- Gross profit margin decreased 350 basis points to 11.6% of sales, from 15.1% of sales.
- Net income decreased $8.3 million, or 61.5%, to $5.2 million, or $0.15 per share, from $13.5 million, or $0.38 per share. The prior year net income includes the benefit from a $6.3 million, or $0.18 per share, tax valuation allowance adjustment due to the Company's improved financial condition.
- Adjusted EBITDA decreased 17.8% to $10.6 million, or 4.7% of sales, from $12.9 million, or 6.8% of sales.
- Adjusted net income decreased $1.4 million, or 18.9%, to $6.0 million, or $0.17 per share, from $7.4 million, or $0.21 per share, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment.
- Consolidated backlog, excluding the multi-year USPS truck body order at September 30, 2018 totaled $325.9 million, essentially flat, compared to $323.4 million at September 30, 2017. Including the USPS order, consolidated backlog, totaled $484.9 million compared to $537.7 million a year ago.
Notes: As of January 1, 2018, the Company has adopted the new Revenue Recognition Standard ("ASC 606") using the modified retrospective transition method. The adoption of ASC 606 decreased third quarter reported consolidated sales by $4.9 million, decreased net income by $0.2 million, and reduced reported consolidated backlog by $32.2 million. For more details regarding ASC 606 and its impact on the Company's financial results, see the Company's quarterly report on Form 10-Q for the quarter ended September 30, 2018.
"Our third quarter sales were up significantly year-over-year and all three of our segments remained profitable. Despite that progress, unexpected industry-wide headwinds negatively impacted our profitability for the period," said Daryl Adams, President and Chief Executive Officer. "As it stands, our results were hindered by multiple external factors, which resulted in production and labor inefficiencies and shipment delays. If not for the significant industry-wide headwinds and the operating issues we sustained as a result, we would have exceeded our internal operating plan for the quarter."
Fleet Vehicles and Services (FVS)
FVS segment sales increased $39.8 million, or 50.6%, to $118.4 million from $78.6 million. The revenue increase was primarily due to increased volume relating to USPS truck body, Reach® vehicle, and upfits. The adoption of ASC 606 increased reported segment sales by $0.9 million.
Adjusted EBITDA decreased $1.6 million to $7.2 million, or 6.1% of sales, from $8.8 million, or 11.2% of sales, a year ago. The adjusted EBITDA decrease is primarily due to unfavorable sales mix, tariff-driven increases in commodity and component costs, chassis shortages, supplier component delays, and increased freight costs and disruptions. These factors resulted in production and labor inefficiencies as well as unit shipment delays. The adoption of ASC 606 had minimal impact on reported segment adjusted EBITDA.
The segment backlog, excluding the multi-year USPS truck body order at September 30, 2018, totaled $116.2 million, up 48.6%, compared to $78.2 million at September 30, 2017. Including the USPS order, segment backlog totaled $275.2 million compared to $292.5 million a year ago. The adoption of ASC 606 reduced reported segment backlog by $9.3 million.
Emergency Response (ER)
ER segment sales decreased $5.6 million to $60.3 million, or 8.5%, from $65.9 million. The decrease is primarily due to lower volume and unfavorable sales mix, partially offset by pricing changes realized in 2018. The adoption of ASC 606 decreased reported segment sales by $5.8 million.
Adjusted EBITDA decreased $1.9 million to $0.6 million, or 1.0% of sales, from $2.5 million, or 3.8% of sales, a year ago, primarily due to reduced volume, tariff-driven increases in commodity and component costs and supplier component delays resulting in production and labor inefficiencies. The adoption of ASC 606 decreased reported segment adjusted EBITDA by $0.3 million.
The segment backlog at September 30, 2018, totaled $175.7 million, down 17.6%, compared to $213.3 million at September 30, 2017. The adoption of ASC 606 reduced reported segment backlog by $22.8 million.
Specialty Chassis and Vehicles (SCV)
SCV segment sales increased 5.5% to $51.7 million from $49.0 million a year ago. Revenues were driven mainly by a $1.9 million increase in luxury motor coach chassis sales, due to increased unit volume driven by market share gains and continued industry demand.
Adjusted EBITDA increased $0.8 million to $5.9 million, or 11.4% of sales, from $5.1 million, or 10.5% of sales, a year ago, mainly due to the strong demand for luxury motor coach chassis, partially offset by tariff-driven increases in commodity and component costs, increased freight costs and disruptions, and chassis component and labor shortages, resulting in production and labor inefficiencies.
The segment backlog at September 30, 2018, totaled $34.0 million, up 6.6%, compared to $31.9 million at September 30, 2017.
"The underlying business fundamentals in each of our business segments remain strong, as indicated by our strong backlog, despite the increased industry-wide headwinds," said Matt Long, Interim Chief Financial Officer. "We remain encouraged by the continued strength of orders across all of our business segments. As we head into the remainder of the year, we have taken proactive steps and cost reduction actions to help mitigate the unfavorable market conditions experienced in the third quarter."
Based on year-to-date results, the Company is adjusting its previous guidance for 2018 as follows:
- Revenue to be in the range of $790.0 - $815.0 million, unchanged
- Net income of $14.4 - $16.4 million, changed from $20.2 - $22.4 million
- Adjusted EBITDA of $29.3 - $31.3 million, changed from $39.0 - $42.0 million
- Effective tax rate of approximately 24.5%
- Earnings per share of $0.41 - $0.47, changed from $0.58 - $0.64, assuming approximately 35.3 million shares outstanding
- Adjusted earnings per share of $0.42 - $0.48, changed from $0.60 - $0.66
"While we expect near-term growth and profitability challenges from these recent headwinds to impact the fourth quarter, our long-term expectations have not changed," Adams concluded. "Our long-term growth strategy, fueled by continued demand for our last-mile delivery vehicles, remains strong. We see opportunities for sustained revenue and margin expansion through 2020 and beyond, although it may take longer than originally anticipated. We remain focused on executing our overall strategic plan, including our capital allocation strategy, which prioritizes the funding of our growth initiatives, including acquisitions, and increasing shareholder value."
Conference Call, Webcast, Investor Presentation and Investor Information
Spartan Motors will host a conference call for analysts and portfolio managers at 10 a.m. EDT today to discuss these results and current business trends. The conference call and webcast will be available via:
Conference Call: 1-844-868-8845 (domestic) or 412-317-6591 (international); passcode: 10124900
For more information about Spartan, please visit www.spartanmotors.com .
About Spartan Motors
Spartan Motors, Inc. is a leading designer, engineer, manufacturer and marketer of a broad range of specialty vehicles, specialty chassis, vehicle bodies and parts for the fleet and delivery, recreational vehicle (RV), emergency response, defense forces and contract assembly (light/medium duty truck) markets. The Company's brand names — Spartan Motors, Spartan Specialty Vehicles, Spartan Emergency Response, Spartan Parts and Accessories, Smeal and its family of brands, including Ladder Tower™ and UST®; and Utilimaster®, a Spartan Motors Company — are known for quality, durability, performance, customer service and Second-to-market innovation. The Company employs approximately 2,300 associates, and operates facilities in Michigan, Indiana, Pennsylvania, Missouri, Nebraska, South Carolina, South Dakota; Saltillo, Mexico; and Lima, Peru. Spartan reported sales of $707 million in 2017. Visit Spartan Motors at www.spartanmotors.com .
This release contains several forward-looking statements that are not historical facts, including statements concerning our business, strategic position, financial projections, financial strength, future plans, objectives, and the performance of our products and operations. These statements can be identified by words such as "believe," "expect," "intend," "potential," "future," "may," "will," "should," and similar expressions regarding future expectations. These forward-looking statements involve various known and unknown risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, and likelihood. Therefore, actual performance and results may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could contribute to these differences include operational and other complications that may arise affecting the implementation of our plans and business objectives; continued pressures caused by economic conditions and the pace and extent of the economic recovery; challenges that may arise in connection with the integration of new businesses or assets we acquire or the disposition of assets; restructuring of our operations, and/or our expansion into new geographic markets; issues unique to government contracting, such as competitive bidding processes, qualification requirements, and delays or changes in funding; disruptions within our dealer network; changes in our relationships with major customers, suppliers, or other business partners, including Isuzu; changes in the demand or supply of products within our markets or raw materials needed to manufacture those products; and changes in laws and regulations affecting our business. Other factors that could affect outcomes are set forth in our Annual Report on Form 10-K and other filings we make with the Securities and Exchange Commission (SEC), which are available at www.sec.gov or our website. All forward-looking statements in this release are qualified by this paragraph. Investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update or revise any forward-looking statements in this release, whether as a result of new information, future events, or otherwise.
Group Treasurer & IR
Spartan Motors, Inc.
Reconciliation of Non-GAAP Financial Measures
This release contains adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted net income, adjusted earnings per share, forecasted adjusted EBITDA, and forecasted adjusted earnings per share, which are all non-GAAP financial measures. These non-GAAP measures are calculated by excluding items that we believe to be infrequent or not indicative of our continuing operating performance. For the periods covered by this release such items include expenses associated with restructuring actions taken to improve the efficiency and profitability of certain of our operations, various items related to business acquisition and strategic planning activities, and the impact that our deferred tax asset valuation allowance that we recorded in 2015 has had on our tax expense and net income in 2017.
We present the non-GAAP measures adjusted EBITDA, adjusted net income and adjusted earnings per share because we consider them to be important supplemental measures 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. The presentation of adjusted net income and adjusted earnings per share enables investors to better understand our operations by removing the impact of tax adjustments, including the impact that our deferred tax asset valuation allowance that we recorded in 2015 has had on our tax expense and net income in 2017, and other items that we believe are not indicative of our longer term operating trends. We believe these measures 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 these non-GAAP measures 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 these non-GAAP measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of these disclosures.
Our management uses adjusted EBITDA to evaluate the performance of and allocate resources to our segments. In addition, non-GAAP measures are used by management to review and analyze our operating performance and, along with other data, as internal measures for setting annual budgets and forecasts, assessing financial performance, and comparing our financial performance with our peers. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual and long-term incentive compensation for our management team.
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SOURCE Spartan Motors, Inc.