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 Spartan Motors Reports Third Quarter Net Income of $13.5 Million; Increases 391%, on 27% Sales Growth
   Wednesday, November 01, 2017 7:30:00 AM ET

Spartan Motors, Inc. (SPAR ) ("Spartan" or the "Company") today reported operating results for the third quarter ending September 30, 2017. The Company reported net income of $13.5 million, or $0.38 per share, compared to $2.7 million, or $0.08 per share, in the third quarter of 2016.

Third Quarter 2017 Highlights

For the third quarter of 2017 compared to the third quarter of 2016:

-- Sales increased 27.3% to $189.2 million from $148.7 million.

-- Gross margin improved 300 basis points, or 24.8%, to 15.1% of sales compared to 12.1% of sales.

-- Net income rose $10.7 million, or 390.9%, to $13.5 million, or $0.38 per share, and reflects the release of a $6.3 million, or $0.18 per share, tax valuation allowance recorded in 2015, as a result of the Company’s improved financial condition. This compares to net income of $2.7 million, or $0.08 per share, in the prior year.

-- Adjusted EBITDA increased $5.5 million, or 74.9%, to $12.9 million, or 6.8% of sales, compared to $7.4 million, or 5.0% of sales.

-- Adjusted net income rose 119.7% to $7.4 million, or $0.21 per share, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment. This compares to adjusted net income of $3.4 million, or $0.10 per share, in the prior year.

-- Emergency Response segment was profitable on both a GAAP and an adjusted basis - achieving $2.5 million of adjusted EBITDA.

-- Backlog was up 97.6% to $537.7 million at September 30, 2017, and reflects the recently announced $214 million USPS order and the acquisition of Smeal in January 2017. This compares to $272.1 million at September 30, 2016.

"We are very pleased with the strong operating results achieved for the quarter," said Daryl Adams, President and Chief Executive Officer of Spartan Motors. "Not only does it represent, on an adjusted basis, our seventh profitable quarter in a row, it also highlights a significant milestone as our Emergency Response segment returned to profitability generating $2.5 million of adjusted EBITDA for the quarter - up $3.7 million from last year. Our strong financial performance across all business segments reflects a continued focus on sales growth and operational performance by the entire Spartan team."

Fleet Vehicles and Services (FVS) Third Quarter Results

FVS segment sales increased $0.6 million to $78.6 million from $78.0 million.

Adjusted EBITDA decreased $1.3 million to $8.8 million, or 11.2% of sales, from $10.1 million, or 13.0% of sales, a year ago, primarily due to a large upfit order that did not reoccur in 2017, offset by lean manufacturing activities and the continued implementation of the Spartan Production System.

Segment backlog at September 30, 2017 totaled $292.5 million, up 186.2%, and reflects the recently announced $214 million USPS order. This compares to $102.2 million at September 30, 2016.

Specialty Chassis & Vehicles (SCV) Third Quarter Results

SCV segment revenue increased $18.2 million, or 59.0%, to $49.0 million from $30.8 million. Sales of motorhome chassis increased 65.7% to $37.0 million from $22.3 million, due primarily to increased shipments as a result of market share gains.

Adjusted EBITDA increased $3.8 million, or 287.1%, to $5.1 million, or 10.5% of sales, from $1.3 million, or 4.3% of sales, a year ago, primarily due to increased sales and improved operational performance.

Segment backlog at September 30, 2017 totaled $31.9 million, up 58.4%, compared to $20.1 million at September 30, 2016.

Emergency Response (ER) Third Quarter Results

ER segment revenue increased $23.8 million, or 56.4%, to $65.9 million from $42.1 million. Revenues from the Smeal acquisition contributed to $17.3 million of the increase, with the remaining increase due to increased shipments of complete fire apparatus.

Adjusted EBITDA increased $3.7 million to $2.5 million, or 3.8% of sales, from a loss of $1.2 million a year ago. The increase was primarily the result of increased sales, improved operational performance and warranty cost reduction. Adjusted EBITDA loss in the 2016 third quarter included an adjustment of $1.7 million relating to a legacy product recall.

Segment backlog at September 30, 2017 totaled $213.3 million, up 42.4%, compared to $149.8 million at September 30, 2016.

Acquisition Update

Smeal Fire Apparatus Co. ("Smeal"), which was acquired effective January 1, 2017, is expected to generate approximately $105 million in sales during 2017.

"The tireless efforts of our Spartan integration team are inspiring as we continue to realize more synergies than originally anticipated," said Adams. "The integration is running ahead of schedule and we will complete the process during the current fourth quarter. We expect the entire Emergency Response segment to be profitable on both a GAAP and an adjusted basis in the fourth quarter of 2017, and it remains on track to return to profitability on an adjusted basis for full year 2017."

Fourth Quarter and 2017 Outlook

"Looking ahead to the fourth quarter of 2017, which typically has lower sales volumes than the third quarter, we expect to see continued year-over-year sales growth and improved operational performance resulting in eight profitable quarters in a row, on an adjusted basis," said Rick Sohm, Chief Financial Officer of Spartan Motors.

Based on the Company’s improved earnings trend over the past seven quarters, the valuation allowance recorded in 2015 on certain deferred tax assets was reversed and, as a result, its effective tax rate going forward will be more closely aligned with the statutory rate. This will impact the 2017 fourth quarter and, accordingly, our adjusted EPS guidance for the full year.

The Company is maintaining its previously stated 2017 revenue and adjusted EBITDA mid-point guidance and modifying the income tax expense and adjusted earnings per share guidance as follows:

-- Revenue of $690.0 - $710.0 million.

-- Adjusted EBITDA of $29.3 - $30.3 million.

-- A tax benefit of $3.7 million recorded in the 2017 third quarter and an expected effective tax rate of approximately 35% in the 2017 fourth quarter.

-- Adjusted earnings per share of $0.40 to $0.42, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment recorded in the 2017 third quarter and includes the impact of the expected fourth quarter income tax expense.

Conference Call, Webcast, Investor Presentation and Investor Information Spartan Motors will host a conference call for analysts and portfolio managers at 10 a.m. ET today to discuss these results and current business trends. The conference call and webcast will be available via:

Webcast: www.spartanmotors.com (Click on "Investor Relations" then "Webcasts") Conference Call: 1-844-868-8845 (domestic) or 412-317-6591 (international); passcode: 10113640

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(TM) and UST?; and Utilimaster?, a Spartan Motors Company -- are known for quality, durability, performance, customer service and first-to-market innovation. The Company employs approximately 2,200 associates, and operates facilities in Michigan, Indiana, Pennsylvania, Missouri, Wisconsin, Nebraska, South Dakota; Saltillo, Mexico; and Lima, Peru. Spartan reported sales of $591 million in 2016. 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.

Spartan Motors, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except par value)
                                                                                       September 30,
                                                                                       2017              December 31,
                                                                                       (Unaudited)       2016
ASSETS
Current assets:
Cash and cash equivalents                                                              $         21,855  $         32,041
Accounts receivable, less allowance of $191 and $487                                   93,682            65,441
Inventories                                                                            95,070            58,896
Income taxes receivable                                                                -                 1,287
Other current assets                                                                   4,482             4,526
Total current assets                                                                   215,089           162,191
Property, plant and equipment, net                                                     55,984            53,116
Goodwill                                                                               27,489            15,961
Intangible assets, net                                                                 9,642             6,385
Other assets                                                                           2,872             2,331
Net deferred tax assets                                                                9,790             3,310
TOTAL ASSETS                                                                           $       320,866   $       243,294
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                                                       $        55,000   $         31,336
Accrued warranty                                                                       19,786            19,334
Accrued compensation and related taxes                                                 12,043            13,188
Deposits from customers                                                                26,950            16,142
Other current liabilities and accrued expenses                                         12,461            7,659
Current portion of long-term debt                                                      49                65
Total current liabilities                                                              126,289           87,724
Long-term debt, less current portion                                                   22,840            74
Other non-current liabilities                                                          5,103             2,544
Total liabilities                                                                      154,232           90,342
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value: 2,000 shares authorized (none issued)                   -                 -
Common stock, $0.01 par value; 80,000 shares authorized; 35,087 and 34,383 outstanding 351               344
Additional paid in capital                                                             78,773            76,837
Retained earnings                                                                      88,168            76,428
Total Spartan Motors, Inc. shareholders’ equity                                        167,292           153,609
Non-controlling interest                                                               (658)             (657)
Total shareholders’ equity                                                             166,634           152,592
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                                             $       320,866   $       243,294
Spartan Motors, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
                                                        Three Months Ended                 Nine Months Ended
                                                        September 30,                      September 30,
                                                        2017              2016             2017           2016
Sales                                                   $ 189,215         $ 148,664        $   526,029    $   444,927
Cost of products sold                                   160,564           130,571          461,327        390,206
Restructuring charge                                    -                 83               156            83
Gross profit                                            28,651            18,010           64,546         54,638
Operating expenses:
Research and development                                1,598             1,377            5,265          4,408
Selling, general and administrative                     17,057            13,820           48,160         41,782
Restructuring charge                                    232               221              1,044          788
Total operating expenses                                18,887            15,418           54,469         46,978
Operating income                                        9,764             2,592            10,077         7,660
Other income (expense):
Interest expense                                        (189)             (112)            (582)          (314)
Interest and other income                               159               151              438            305
Total other income (expense)                            (30)              39               (144)          (9)
Income before taxes                                     9,734             2,631            9,933          7,651
Taxes                                                   (3,736)           (113)            (3,561)        (11)
Net Income                                              13,470            2,744            13,494         7,662
Less: net loss attributable to non-controlling interest -                 (1)              (1)            (6)
Net income attributable to Spartan Motors Inc.          $       13,470    $        2,745   $    13,495    $     7,668
Basic net earnings per share                            $           0.38  $          0.08  $        0.39  $       0.22
Diluted net earnings per share                          $           0.38  $          0.08  $        0.39  $       0.22
Basic weighted average common shares outstanding        35,105            34,439           34,882         34,406
Diluted weighted average common shares outstanding      35,105            34,439           34,882         34,406
Spartan Motors, Inc. and Subsidiaries
Sales and Other Financial Information by Business Segment
Unaudited
Three Months Ended September 30,  2017 (in thousands of dollars)
                                     Business Segments
                                     Emergency Response         Fleet Vehicles & Services         Specialty Chassis &Vehicles         Other                   Consolidated
Emergency response vehicle sales     $     63,369               $             -                   $            -                      $           -           $      63,369
Fleet vehicle sales                  -                          66,850                            4,312                               (4,312)                 66,850
Motorhome chassis sales              -                          -                                 37,034                              -                       37,034
Other specialty chassis and vehicles -                          -                                 4,738                               -                       4,738
Aftermarket parts and assemblies     2,503                      11,787                            2,934                               -                       17,224
Total Sales                          $     65,872               $    78,637                       $   49,018                          $(4,312)                $     189,215
Adjusted EBITDA                      $       2,501              $      8,785                      $     5,149                         $(3,541)                $       12,894
Spartan Motors, Inc. and Subsidiaries
Sales and Other Financial Information by Business Segment
Unaudited
Three Months Ended September 30,  2016 (in thousands of dollars)
                                            Business Segments
                                            Emergency Response         Fleet Vehicles & Services         Specialty Chassis &Vehicles  Other          Consolidated
Emergency response vehicle sales            $     40,185               $               -                 $              -             $          -   $        40,185
Fleet vehicle sales                         -                          57,422                            2,244                        (2,244)        57,422
Motorhome chassis sales                     -                          -                                 22,344                       -              22,344
Other specialty chassis and vehicles        -                          -                                 4,091                        -              4,091
Aftermarket parts and assemblies            1,934                      20,537                            2,151                        -              24,622
Total Sales                                 $     42,119               $    77,959                       $   30,830                   $ (2,244)      $      148,664
Adjusted EBITDA                             $      (1,166)             $    10,118                       $     1,330                  $ (2,909)      $          7,373
Sales and Other Financial Information by Business Segment
(Unaudited)
Period End Backlog (amounts in thousands of dollars)
                                   Sept. 30,                    June 30,                     Mar. 31,                     Dec. 31,                      Sept. 30,
                                   2017                         2017                         2017                         2016                          2016
Emergency Response Vehicles*       $  213,334                   $  214,794                   $  214,463                   $  139,870                    $  149,753
Fleet Vehicles and Services*       292,540                      131,280                      113,960                      89,549                        102,218
Motorhome Chassis *                31,179                       25,823                       21,772                       18,749                        19,114
Aftermarket Parts and Accessories  694                          892                          1,075                        1,288                         1,012
Total Specialty Chassis & Vehicles 31,873                       26,715                       22,847                       20,037                        20,126
Total Backlog                      $  537,747                   $  372,789                   $  351,270                   $  249,546                    $  272,097
* Anticipated time to fill backlog orders at September 30, 2017; 12 months or less for emergency response vehicles; 3 months or less for motorhome chassis; 4 months or less for fleet vehicles and services, except for the USPS truck body order which will be fulfilled throughout 2018 and 2019; and 1 month or less for other products.

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. Our management uses Adjusted EBITDA to evaluate the performance of and allocate resources to our segments. These non-GAAP measures are calculated by excluding items that we believe to be infrequent or not indicative of our operating performance. For the periods covered by this release such items consist of expenses associated with restructuring actions taken to improve the efficiency and profitability of certain of our manufacturing operations, expenses related to a recent business acquisition, the impact of the step-up in inventory value associated with the recent business acquisition, and the impact of the business acquisition on the timing of chassis revenue recognition. We present these adjusted Non-GAAP measures because we consider them to be important supplemental measures of our performance and believe them 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 operating performance.

The adjusted Non-GAAP measures are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income or earnings per share under GAAP. These adjusted Non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating the adjusted Non-GAAP measures, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation, despite our assessment that such expenses are infrequent or not indicative of our operating performance. Our presentation of the adjusted Non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using adjusted Non-GAAP measures only as a supplement.

The following tables reconcile net income to Adjusted EBITDA, net income to adjusted net income, earnings per share to adjusted earnings per share, forecasted net income to Adjusted EBITDA and forecasted earnings per share to adjusted earnings per share for the periods indicated.

Financial Summary (Non-GAAP)
Consolidated
(In thousands, except per share data)
(Unaudited)
                                         Three Months Ended September 30,
Spartan Motors, Inc.                     2017           % of    2016          % of
                                                        sales                 sales
Net income                               $     13,470   7.1%    $      2,744  1.8%
Add (subtract):
Restructuring                            232                    304
Intercompany chassis impact              108                    -
Asset impairment                         -                      406
Recall expense                           (368)                  1,742
Acquisition related expenses             354                    -
Deferred tax asset valuation allowance   (6,295)                (1,716)
Tax effect of adjustments                (98)                   (111)
Adjusted net income                      $       7,403  3.9%    $      3,369  2.3%
Net income                               $     13,470   7.1%    $      2,744  1.8%
Add (subtract):
Depreciation and amortization            2,645                  2,178
Taxes on income                          (3,736)                (113)
Interest expense                         189                    112
EBITDA                                   $     12,568   6.6%    $      4,921  3.3%
Add (subtract):
Restructuring                            232                    304
Intercompany chassis impact              108                    -
Asset impairment                         -                      406
Recall expense                           (368)                  1,742
Acquisition related expenses             354                    -
Adjusted EBITDA                          $     12,894   6.8%    $      7,373  5.0%
Diluted net earnings per share           $         0.38         $        0.08
Add (subtract):
Restructuring                            0.01                   0.01
Intercompany chassis impact              -                      -
Asset impairment                         -                      0.01
Recall expense                           (0.01)                 0.05
Acquisition related expenses             0.01                   -
Deferred tax asset valuation allowance   (0.18)                 (0.05)
Tax effect of adjustments                -                      -
Adjusted Diluted net earnings per share  $         0.21         $        0.10
Emergency Response Vehicles Segment
(In thousands, unaudited)
                                                                          Three Months Ended September 30,
                                                                          2017        % of sales  2016           % of sales
Net income (loss) attributable to Emergency Response                      $     2,186 3.3%        $      (3,835) -9.1%
Add (subtract):
Depreciation and amortization                                             575                     217
Taxes on income                                                           -                       -
Earnings before interest, taxes, depreciation and amortization            $     2,761 4.2%        $      (3,618) -8.6%
Earnings before interest, taxes, depreciation and amortization            $     2,761 4.2%        $      (3,618) -8.6%
Restructuring charges                                                     -                       304
Intercompany chassis impact                                               108                     -
Recall expense                                                            (368)                   1,742
Asset impairment                                                          -                       406
Adjusted earnings before interest, taxes, depreciation and amortization   $     2,501 3.8%        $     (1,166)  -2.8%
Fleet Vehicles and Services Segment
(In thousands, unaudited)
                                                                          Three Months Ended September 30,
                                                                          2017        % of sales  2016           % of sales
Net income (loss) attributable to Fleet Vehicles and Services             $     7,671 9.8%        $       9,262  11.9%
Add (subtract):
Depreciation and amortization                                             855                     813
Interest expense                                                          27                      43
Earnings before interest, taxes, depreciation and amortization            $     8,553 10.9%       $     10,118   13.0%
Earnings before interest, taxes, depreciation and amortization            $    8,553  10.9%       $     10,118   13.0%
Restructuring charges                                                     232                     -
Adjusted earnings before interest, taxes, depreciation and amortization   $     8,785 11.2%       $     10,118   13.0%
Specialty Chassis and Vehicles Segment
(In thousands, unaudited)
                                                                          Three Months Ended September 30,
                                                                          2017        % of sales  2016           % of sales
Net income (loss) attributable to Specialty Chassis and Vehicles          $     4,781 9.8%        $      1,144   3.7%
Add (subtract):
Depreciation and amortization                                             368                     186
Earnings before interest, taxes, depreciation and amortization            $     5,149 10.5%       $      1,330   4.3%
Earnings before interest, taxes, depreciation and amortization            $     5,149 10.5%       $      1,330   4.3%
Restructuring charges                                                     -                       -
Adjusted earnings before interest, taxes, depreciation and amortization   $     5,149 10.5%       $      1,330   4.3%
FINANCIAL SUMMARY (Non-GAAP)
CONSOLIDATED
(In thousands, except per share data)
(Unaudited)
                               Forecast
                               Year Ending December 31, 2017
                               Low              Mid               High
Net income                     $      17,000    $      17,200     $      17,500
Add:
Depreciation and amortization  10,200           10,200            10,200
Interest expense               600              600               600
Tax benefit                    (2,800)          (2,500)           (2,300)
EBITDA                         $      25,000    $      25,500     $      26,000
Add (subtract):
Restructuring                  1,200            1,200             1,200
Acquisition related expenses   1,300            1,300             1,300
Recall expense                 (300)            (300)             (300)
Chassis shipment delay         2,100            2,100             2,100
Adjusted EBITDA                $      29,300    $      29,800     $      30,300
Earnings per share             $          0.48  $          0.49   $          0.50
Add (subtract):
Restructuring                  0.03             0.03              0.03
Acquisition related expenses   0.04             0.04              0.04
Recall expense                 (0.01)           (0.01)            (0.01)
Chassis shipment delay         0.07             0.07              0.07
Valuation allowance adjustment (0.18)           (0.18)            (0.18)
Less tax effect of adjustments (0.03)           (0.03)            (0.03)
Adjusted earnings per share    $          0.40  $          0.41   $          0.42

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SOURCE Spartan Motors, Inc.

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