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 |
|
|
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 |
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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| 8 | ||||
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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 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, 2021,2022, as filed with the Securities and Exchange Commission on February 24, 2022,23, 2023, 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.
Financial Statements |
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
| September 30, | December 31, | March 31, | December 31, | |||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 2,862 | $ | 37,158 | $ | 7,378 | $ | 11,548 | ||||||||
Accounts receivable, less allowance of $176 and $187 | 87,673 | 87,262 | ||||||||||||||
Accounts receivable, less allowance of $255 and $246 | 120,141 | 115,742 | ||||||||||||||
Contract assets | 87,099 | 21,483 | 60,094 | 86,993 | ||||||||||||
Inventories | 111,213 | 67,184 | 109,308 | 100,161 | ||||||||||||
Other receivables – chassis pool agreements | 24,277 | 9,926 | 16,112 | 19,544 | ||||||||||||
Other current assets | 12,813 | 10,813 | 4,908 | 11,779 | ||||||||||||
Total current assets | 325,937 | 233,826 | 317,941 | 345,767 | ||||||||||||
Property, plant and equipment, net | 66,970 | 61,057 | 73,939 | 70,753 | ||||||||||||
Right of use assets – operating leases | 53,156 | 43,316 | 54,931 | 53,386 | ||||||||||||
Goodwill | 48,880 | 48,880 | 48,880 | 48,880 | ||||||||||||
Intangible assets, net | 50,054 | 52,981 | 48,126 | 49,078 | ||||||||||||
Net deferred tax assets | 4,816 | 4,880 | 10,390 | 10,390 | ||||||||||||
Other assets | 1,886 | 2,927 | 2,805 | 2,227 | ||||||||||||
TOTAL ASSETS | $ | 551,699 | $ | 447,867 | $ | 557,012 | $ | 580,481 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 106,621 | $ | 82,442 | $ | 107,807 | $ | 124,309 | ||||||||
Accrued warranty | 6,432 | 5,975 | 6,183 | 7,161 | ||||||||||||
Accrued compensation and related taxes | 15,559 | 19,064 | 16,038 | 14,434 | ||||||||||||
Contract liabilities | 10,601 | 988 | 7,719 | 5,255 | ||||||||||||
Operating lease liability | 10,060 | 7,934 | 11,576 | 10,888 | ||||||||||||
Other current liabilities and accrued expenses | 11,703 | 9,256 | 14,404 | 19,452 | ||||||||||||
Short-term debt – chassis pool agreements | 24,277 | 9,926 | 16,112 | 19,544 | ||||||||||||
Current portion of long-term debt | 190 | 252 | 183 | 189 | ||||||||||||
Total current liabilities | 185,443 | 135,837 | 180,022 | 201,232 | ||||||||||||
Other non-current liabilities | 6,576 | 8,108 | 9,557 | 10,033 | ||||||||||||
Long-term operating lease liability | 44,660 | 36,329 | 45,251 | 44,256 | ||||||||||||
Long-term debt, less current portion | 65,222 | 738 | 65,224 | 56,266 | ||||||||||||
Total liabilities | 301,901 | 181,012 | 300,054 | 311,787 | ||||||||||||
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; 35,063 and 35,416 outstanding | 90,160 | 95,375 | ||||||||||||||
Common stock, no par value: 80,000 shares authorized; 34,915 and 35,066 outstanding | 89,260 | 92,982 | ||||||||||||||
Retained earnings | 159,537 | 171,379 | 167,629 | 175,611 | ||||||||||||
Total Shyft Group, Inc. shareholders’ equity | 249,697 | 266,754 | 256,889 | 268,593 | ||||||||||||
Non-controlling interest | 101 | 101 | 69 | 101 | ||||||||||||
Total shareholders' equity | 249,798 | 266,855 | 256,958 | 268,694 | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 551,699 | $ | 447,867 | $ | 557,012 | $ | 580,481 | ||||||||
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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Sales | $ | 286,075 | $ | 272,622 | $ | 725,153 | $ | 714,492 | ||||||||
Cost of products sold | 231,979 | 216,564 | 603,008 | 566,542 | ||||||||||||
Gross profit | 54,096 | 56,058 | 122,145 | 147,950 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 7,051 | 2,582 | 19,541 | 4,304 | ||||||||||||
Selling, general and administrative | 25,033 | 25,368 | 78,445 | 78,645 | ||||||||||||
Total operating expenses | 32,084 | 27,950 | 97,986 | 82,949 | ||||||||||||
Operating income | 22,012 | 28,108 | 24,159 | 65,001 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest expense | (1,137 | ) | (253 | ) | (1,754 | ) | (310 | ) | ||||||||
Other income (expense) | 181 | 54 | (342 | ) | 743 | |||||||||||
Total other income (expense) | (956 | ) | (199 | ) | (2,096 | ) | 433 | |||||||||
Income from continuing operations before income taxes | 21,056 | 27,909 | 22,063 | 65,434 | ||||||||||||
Income tax expense | 3,770 | 6,910 | 3,346 | 15,952 | ||||||||||||
Income from continuing operations | 17,286 | 20,999 | 18,717 | 49,482 | ||||||||||||
Income from discontinued operations, net of income taxes | - | - | - | 81 | ||||||||||||
Net income | 17,286 | 20,999 | 18,717 | 49,563 | ||||||||||||
Less: net income attributable to non-controlling interest | - | 77 | - | 1,102 | ||||||||||||
Net income attributable to The Shyft Group Inc. | $ | 17,286 | $ | 20,922 | $ | 18,717 | $ | 48,461 | ||||||||
Basic earnings per share | ||||||||||||||||
Continuing operations | $ | 0.49 | $ | 0.59 | $ | 0.53 | $ | 1.37 | ||||||||
Discontinued operations | - | - | - | - | ||||||||||||
Basic earnings per share | $ | 0.49 | $ | 0.59 | $ | 0.53 | $ | 1.37 | ||||||||
Diluted earnings per share | ||||||||||||||||
Continuing operations | $ | 0.49 | $ | 0.58 | $ | 0.53 | $ | 1.34 | ||||||||
Discontinued operations | - | - | - | - | ||||||||||||
Diluted earnings per share | $ | 0.49 | $ | 0.58 | $ | 0.53 | $ | 1.34 | ||||||||
Basic weighted average common shares outstanding | 35,056 | 35,346 | 35,071 | 35,330 | ||||||||||||
Diluted weighted average common shares outstanding | 35,365 | 36,074 | 35,481 | 36,024 | ||||||||||||
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
Sales | $ | 243,439 | $ | 206,883 | ||||
Cost of products sold | 200,515 | 180,952 | ||||||
Gross profit | 42,924 | 25,931 | ||||||
Operating expenses: | ||||||||
Research and development | 6,949 | 4,927 | ||||||
Selling, general and administrative | 32,289 | 26,552 | ||||||
Total operating expenses | 39,238 | 31,479 | ||||||
Operating income (loss) | 3,686 | (5,548 | ) | |||||
Other income (expense) | ||||||||
Interest expense | (1,648 | ) | (154 | ) | ||||
Other income (expense) | 70 | (35 | ) | |||||
Total other income (expense) | (1,578 | ) | (189 | ) | ||||
Income (loss) before income taxes | 2,108 | (5,737 | ) | |||||
Income tax expense (benefit) | 430 | (1,885 | ) | |||||
Net income (loss) | 1,678 | (3,852 | ) | |||||
Less: net loss attributable to non-controlling interest | 32 | - | ||||||
Net income (loss) attributable to The Shyft Group Inc. | $ | 1,710 | $ | (3,852 | ) | |||
Basic earnings (loss) per share | $ | 0.05 | $ | (0.11 | ) | |||
Diluted earnings (loss) per share | $ | 0.05 | $ | (0.11 | ) | |||
Basic weighted average common shares outstanding | 35,058 | 35,108 | ||||||
Diluted weighted average common shares outstanding | 35,340 | 35,108 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 18,717 | $ | 49,563 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Net income (loss) | $ | 1,678 | $ | (3,852 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation and amortization | 10,055 | 8,312 | 3,864 | 2,969 | ||||||||||||
Non-cash stock based compensation expense | 4,922 | 6,571 | 1,827 | 1,648 | ||||||||||||
Deferred income taxes | 64 | 134 | ||||||||||||||
Loss (gain) on disposal of assets | 481 | (104 | ) | |||||||||||||
(Gain) on disposal of assets | - | (10 | ) | |||||||||||||
Changes in accounts receivable and contract assets | (66,026 | ) | (35,842 | ) | 22,500 | (5,012 | ) | |||||||||
Changes in inventories | (44,029 | ) | (35,473 | ) | (9,147 | ) | (24,072 | ) | ||||||||
Changes in accounts payable | 24,708 | 43,230 | (16,920 | ) | 7,594 | |||||||||||
Changes in accrued compensation and related taxes | (3,505 | ) | 910 | 419 | (7,966 | ) | ||||||||||
Changes in accrued warranty | 457 | 1,626 | (978 | ) | (326 | ) | ||||||||||
Change in other assets and liabilities | 9,663 | 3,396 | 2,644 | 1,243 | ||||||||||||
Net cash provided by (used in) operating activities | (44,493 | ) | 42,323 | 5,887 | (27,784 | ) | ||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property, plant and equipment | (14,228 | ) | (18,238 | ) | (4,469 | ) | (5,514 | ) | ||||||||
| Proceeds from sale of property, plant and equipment | 148 | 16 | 25 | 29 | ||||||||||||
Acquisition of business, net of cash acquired | - | 904 | (500 | ) | - | |||||||||||
Net cash used in investing activities | (14,080 | ) | (17,318 | ) | (4,944 | ) | (5,485 | ) | ||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from long-term debt | 120,000 | 25,000 | 40,000 | 45,000 | ||||||||||||
Payments on long-term debt | (55,000 | ) | (47,400 | ) | (31,000 | ) | (10,000 | ) | ||||||||
Payment of dividends | (5,395 | ) | (2,660 | ) | (1,878 | ) | (1,886 | ) | ||||||||
Purchase and retirement of common stock | (26,789 | ) | (3,348 | ) | (8,765 | ) | (26,789 | ) | ||||||||
Issuance and vesting of stock incentive awards | (8,539 | ) | (3,043 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 24,277 | (31,451 | ) | |||||||||||||
Exercise and vesting of stock incentive awards | (3,470 | ) | (6,523 | ) | ||||||||||||
Net cash used in financing activities | (5,113 | ) | (198 | ) | ||||||||||||
Net decrease in cash and cash equivalents | (34,296 | ) | (6,446 | ) | (4,170 | ) | (33,467 | ) | ||||||||
Cash and cash equivalents at beginning of period | 37,158 | 20,995 | 11,548 | 37,158 | ||||||||||||
Cash and cash equivalents at end of period | $ | 2,862 | $ | 14,549 | $ | 7,378 | $ | 3,691 | ||||||||
Note: Consolidated Statements of Cash Flows include continuing operations and discontinued operations for all periods presented.
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, 2021 | 35,416 | $ | 95,375 | $ | 171,379 | $ | 101 | $ | 266,855 | |||||||||||||||||||||||||||||||
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 | 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 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | 6 | 52 | - | - | 52 | |||||||||||||||||||||||||||||||||||
| Dividends declared ($0.05 per share) | - | (1,790 | ) | - | (1,790 | ) | ||||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellation | (6 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Non-cash stock based compensation expense | 1,214 | - | - | 1,214 | ||||||||||||||||||||||||||||||||||||
| Net income | - | 17,286 | - | 17,286 | ||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | 35,063 | 90,160 | 159,537 | 101 | 249,798 | |||||||||||||||||||||||||||||||||||
Net income (loss) | - | - | 1,710 | (32 | ) | 1,678 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 | 34,915 | $ | 89,260 | $ | 167,629 | $ | 69 | $ | 256,958 | |||||||||||||||||||||||||||||||
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, 2020 | 35,344 | $ | 91,044 | $ | 109,286 | $ | (171 | ) | $ | 200,159 | ||||||||||||||||||||||||||||||
Balance at December 31, 2021 | 35,416 | $ | 95,375 | $ | 171,379 | $ | 101 | $ | 266,855 | |||||||||||||||||||||||||||||||
Issuance of common stock and tax impact of stock incentive plan | 3 | (2,255 | ) | - | - | (2,255 | ) | 3 | (8,372 | ) | - | - | (8,372 | ) | ||||||||||||||||||||||||||
Dividends declared ($0.025 per share) | - | - | (983 | ) | - | (983 | ) | |||||||||||||||||||||||||||||||||
Dividends declared ($0.05 per share) | - | - | (1,794 | ) | - | (1,794 | ) | |||||||||||||||||||||||||||||||||
Purchase and retirement of common stock | (100 | ) | (260 | ) | (3,088 | ) | - | (3,348 | ) | (607 | ) | (1,598 | ) | (25,191 | ) | - | (26,789 | ) | ||||||||||||||||||||||
Issuance of restricted stock, net of cancellation | 61 | - | - | - | - | 215 | - | - | - | - | ||||||||||||||||||||||||||||||
Non-cash stock based compensation expense | - | 1,642 | - | - | 1,642 | - | 1,648 | - | - | 1,648 | ||||||||||||||||||||||||||||||
Net income | - | - | 11,576 | 35 | 11,611 | |||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | 35,308 | $ | 90,171 | $ | 116,791 | $ | (136 | ) | $ | 206,826 | ||||||||||||||||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | 2 | (712 | ) | - | - | (712 | ) | |||||||||||||||||||||||||||||||||
| Dividends declared ($0.025 per share) | - | - | (901 | ) | - | (901 | ) | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellation | 36 | - | - | - | - | |||||||||||||||||||||||||||||||||||
| Non-cash stock based compensation expense | - | 2,850 | - | - | 2,850 | |||||||||||||||||||||||||||||||||||
| Net income | - | - | 15,963 | 990 | 16,953 | |||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | 35,346 | 92,309 | 131,853 | 854 | 255,016 | |||||||||||||||||||||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | 3 | (76 | ) | - | - | (76 | ) | |||||||||||||||||||||||||||||||||
| Dividends declared ($0.025 per share) | - | - | (902 | ) | - | (902 | ) | |||||||||||||||||||||||||||||||||
| Issuance of restricted stock, net of cancellation | (7 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Non-cash stock based compensation expense | - | 2,079 | - | - | 2,079 | |||||||||||||||||||||||||||||||||||
| Net income | - | - | 20,922 | 77 | 20,999 | |||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 35,342 | 94,312 | 151,873 | 931 | 247,116 | |||||||||||||||||||||||||||||||||||
Net loss | - | - | (3,852 | ) | - | (3,852 | ) | |||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | 35,027 | $ | 87,053 | $ | 140,542 | $ | 101 | $ | 227,696 | |||||||||||||||||||||||||||||||
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) 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 motor homemotorhome 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 September 30, 2022,March 31, 2023, and our results of operations and cash flows for the three and ninemonths ended September 30, 2022.March 31, 2023. 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, 20212022 filed with the Securities and Exchange Commission on February 24, 2022.23, 2023. The results of operations for the three and ninemonths ended SeptemberMarch 31, 2023, 30,2022,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, 2021,2022, included in our Annual Report on Form 10-K.
Supplemental Disclosures of Cash Flow Information
Non-cash investing in the ninethree months ended SeptemberMarch 31, 2023 30,2022and SeptemberMarch 31, 2022, 30,2021,included $982$2,494 and $394$1,443 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 43 – Debt" for further information about the chassis pool agreements.
NOTE 2 – DISCONTINUED OPERATIONSINVENTORIES
OnInventories are summarized as follows:
March 31, 2023 | December 31, | |||||||
Finished goods | $ | 11,696 | $ | 13,361 | ||||
Work in process | 3,796 | 5,200 | ||||||
Raw materials and purchased components | 93,816 | 81,600 | ||||||
Total inventories | $ | 109,308 | $ | 100,161 | ||||
NOTE February 1, 2020, 3we completed the sale of our emergency response vehicle ("ERV") business for $55,000 cash subject to certain post-closing adjustments. In September 2020, the Company finalized the post-close net working capital adjustment and subsequently paid $7,500 on October 1, 2020. The results – DEBT
Short-term debt consists of the ERV business have been reclassified to Income from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30,2021.following:
The Income from discontinued operations presented in the Condensed Consolidated Statement of Operations are summarized below:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
Other income | $ | - | $ | - | $ | - | $ | 109 | ||||||||
Income from discontinued operations before taxes | - | - | - | 109 | ||||||||||||
Income tax expense | - | - | - | (28 | ) | |||||||||||
Income from discontinued operations, net of income taxes | $ | - | $ | - | $ | - | $ | 81 | ||||||||
There were no depreciation and amortization expenses or capital expenditures for the discontinued operations for the three and nine months ended September 30,2022 and 2021.
March 31, | December 31, | |||||||
Chassis pool agreements | $ | 16,112 | $ | 19,544 | ||||
Total short-term debt | $ | 16,112 | $ | 19,544 | ||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 3– INVENTORIES
Inventories are summarized as follows:
September 30, 2022 | December 31, | |||||||
Finished goods | $ | 4,685 | $ | 2,990 | ||||
Work in process | 8,176 | 2,471 | ||||||
Raw materials and purchased components | 98,352 | 61,723 | ||||||
Total inventories | $ | 111,213 | $ | 67,184 | ||||
NOTE 4– DEBT
Short-term debt consists of the following:
September 30, | December 31, | |||||||
Chassis pool agreements | $ | 24,277 | $ | 9,926 | ||||
Total short-term debt | $ | 24,277 | $ | 9,926 | ||||
Chassis Pool Agreements
The Company obtains certain vehicle chassis for its walk-in vans, truck 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. 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, the obligation is 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 agreements and 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:
September 30, | December 31, | March 31, | December 31, | |||||||||||||
Line of credit revolver | $ | 65,000 | $ | - | $ | 65,000 | $ | 56,000 | ||||||||
Finance lease obligation | 412 | 450 | 407 | 455 | ||||||||||||
Other | - | 540 | ||||||||||||||
Total debt | 65,412 | 990 | 65,407 | 56,455 | ||||||||||||
Less current portion of long-term debt | (190 | ) | (252 | ) | (183 | ) | (189 | ) | ||||||||
Total long-term debt | $ | 65,222 | $ | 738 | $ | 65,224 | $ | 56,266 | ||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Line ofRevolving Credit RevolverFacility
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, JPMorgan Chase Bank, N.A., PNC Bank, 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.
Under the Credit Agreement, we may borrow up to $400,000 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, subject to certain limitations and restrictions. ThisThe 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 LIBOR plus 1.0%; or (ii) adjusted LIBOR, 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 4.14%5.66% (or one-month LIBOR plus 1.00%) at SeptemberMarch 31, 2023. 30,2022.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 SeptemberMarch 31, 2023 30,2022and December 31, 2021,2022, we had outstanding letters of credit totaling $1,100 and $760, respectively,$1,200, related to our workers’ compensation insurance.
Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $165,441$218,336 and $376,776$187,162 at SeptemberMarch 31, 2023 30,2022and December 31, 2021,2022, 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 SeptemberMarch 31, 2023 30,2022and December 31, 2021,2022, we were in compliance with all covenants in our Credit Agreement.
NOTE 54– REVENUE
Changes in our contract assets and liabilities for the ninethree months ended SeptemberMarch 31, 2023 30,2022and 20212022 are summarized below:
September 30, 2022 | September 30, 2021 | March 31, 2023 | March 31, 2022 | |||||||||||||
Contract Assets | ||||||||||||||||
Contract assets, beginning of period | $ | 21,483 | $ | 9,414 | $ | 86,993 | $ | 21,483 | ||||||||
Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | (21,482 | ) | (9,414 | ) | (66,340 | ) | (18,635 | ) | ||||||||
Contract assets recognized, net of reclassification to receivables | 87,098 | 42,459 | 39,441 | 30,141 | ||||||||||||
Contract assets, end of period | $ | 87,099 | $ | 42,459 | $ | 60,094 | $ | 32,989 | ||||||||
Contract Liabilities | ||||||||||||||||
Contract liabilities, beginning of period | $ | 988 | $ | 756 | $ | 5,255 | $ | 988 | ||||||||
Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | (988 | ) | (743 | ) | (4,421 | ) | (988 | ) | ||||||||
Cash received in advance and not recognized as revenue | 10,601 | 2,135 | 6,885 | 5,193 | ||||||||||||
Contract liabilities, end of period | $ | 10,601 | $ | 2,148 | $ | 7,719 | $ | 5,193 | ||||||||
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 $915,135$584,933 and $128,769,$82,478, respectively.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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 withwithin the reportable segments.
Three Months Ended September 30, 2022 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||
FVS | SV | Eliminations and Other | Total | FVS | SV | Eliminations and Other | Total | |||||||||||||||||||||||||
Primary geographical markets | ||||||||||||||||||||||||||||||||
United States | $ | 183,409 | $ | 103,869 | $ | (2,335 | ) | $ | 284,943 | $ | 154,028 | $ | 87,184 | $ | (3,181 | ) | $ | 238,031 | ||||||||||||||
Other | 1,085 | 47 | - | 1,132 | 5,405 | 3 | - | 5,408 | ||||||||||||||||||||||||
Total sales | $ | 184,494 | $ | 103,916 | $ | (2,335 | ) | $ | 286,075 | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | ||||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||||||||||
Products transferred at a point in time | $ | 10,821 | $ | 58,729 | $ | - | $ | 69,550 | $ | 12,154 | $ | 37,562 | $ | - | $ | 49,716 | ||||||||||||||||
Products and services transferred over time | 173,673 | 45,187 | (2,335 | ) | 216,525 | 147,279 | 49,625 | (3,181 | ) | 193,723 | ||||||||||||||||||||||
Total sales | $ | 184,494 | $ | 103,916 | $ | (2,335 | ) | $ | 286,075 | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | ||||||||||||||
Three Months Ended September 30, 2021 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 186,914 | $ | 81,230 | $ | - | $ | 268,144 | ||||||||
Other | 4,473 | 5 | - | 4,478 | ||||||||||||
Total sales | $ | 191,387 | $ | 81,235 | $ | - | $ | 272,622 | ||||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 8,949 | $ | 50,286 | $ | - | $ | 59,235 | ||||||||
Products and services transferred over time | 182,438 | 30,949 | - | 213,387 | ||||||||||||
Total sales | $ | 191,387 | $ | 81,235 | $ | - | $ | 272,622 | ||||||||
Nine Months Ended September 30, 2022 | Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||||
FVS | SV | Eliminations and Other | Total | FVS | SV | Eliminations and Other | Total | |||||||||||||||||||||||||
Primary geographical markets | ||||||||||||||||||||||||||||||||
United States | $ | 428,606 | $ | 293,325 | $ | (2,335 | ) | $ | 719,596 | $ | 111,336 | $ | 94,183 | $ | - | $ | 205,519 | |||||||||||||||
Other | 5,482 | 75 | - | 5,557 | 1,361 | 3 | - | 1,364 | ||||||||||||||||||||||||
Total sales | $ | 434,088 | $ | 293,400 | $ | (2,335 | ) | $ | 725,153 | $ | 112,697 | $ | 94,186 | $ | - | $ | 206,883 | |||||||||||||||
Timing of revenue recognition | ||||||||||||||||||||||||||||||||
Products transferred at a point in time | $ | 31,092 | $ | 163,068 | $ | - | $ | 194,160 | $ | 9,555 | $ | 52,851 | $ | - | $ | 62,406 | ||||||||||||||||
Products and services transferred over time | 402,996 | 130,332 | (2,335 | ) | 530,993 | 103,142 | 41,335 | - | 144,477 | |||||||||||||||||||||||
Total sales | $ | 434,088 | $ | 293,400 | $ | (2,335 | ) | $ | 725,153 | $ | 112,697 | $ | 94,186 | $ | - | $ | 206,883 | |||||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Nine Months Ended September 30, 2021 | ||||||||||||||||
FVS | SV | Eliminations and Other | Total | |||||||||||||
Primary geographical markets | ||||||||||||||||
United States | $ | 468,725 | $ | 237,608 | $ | - | $ | 706,333 | ||||||||
Other | 8,104 | 55 | - | 8,159 | ||||||||||||
Total sales | $ | 476,829 | $ | 237,663 | $ | - | $ | 714,492 | ||||||||
Timing of revenue recognition | ||||||||||||||||
Products transferred at a point in time | $ | 24,197 | $ | 141,737 | $ | - | $ | 165,934 | ||||||||
Products and services transferred over time | 452,632 | 95,926 | - | 548,558 | ||||||||||||
Total sales | $ | 476,829 | $ | 237,663 | $ | - | $ | 714,492 | ||||||||
NOTE 65 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classifications as follows:
September 30, 2022 | December 31, 2021 | March 31, 2023 | December 31, 2022 | |||||||||||||
Land and improvements | $ | 12,554 | $ | 9,810 | $ | 12,314 | $ | 12,314 | ||||||||
Buildings and improvements | 43,557 | 45,724 | 42,857 | 42,827 | ||||||||||||
Plant machinery and equipment | 52,872 | 49,305 | 58,517 | 55,969 | ||||||||||||
Furniture and fixtures | 15,441 | 20,421 | 18,700 | 18,334 | ||||||||||||
Vehicles | 2,057 | 2,607 | 2,116 | 2,083 | ||||||||||||
Construction in process | 10,396 | 12,700 | 12,990 | 9,946 | ||||||||||||
Subtotal | 136,877 | 140,567 | 147,494 | 141,473 | ||||||||||||
Less accumulated depreciation | (69,907 | ) | (79,510 | ) | (73,555 | ) | (70,720 | ) | ||||||||
Total property, plant and equipment, net | $ | 66,970 | $ | 61,057 | $ | 73,939 | $ | 70,753 | ||||||||
We recorded depreciation expense of $2,404$2,912 and $2,138$2,125 during the three months ended SeptemberMarch 31, 2023 30,2022and 2021, respectively, and $7,155 and $5,778 during the nine months ended September 30,2022, and 2021, respectively.
NOTE 76– LEASES
We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of one year to 1817 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 43 – 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 September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Operating leases | $ | 2,683 | $ | 2,048 | $ | 7,492 | $ | 5,984 | $ | 2,964 | $ | 2,238 | ||||||||||||
Short-term leases(1) | 87 | 135 | 144 | 301 | 252 | 38 | ||||||||||||||||||
Total lease expense | $ | 2,770 | $ | 2,183 | $ | 7,636 | $ | 6,285 | $ | 3,216 | $ | 2,276 | ||||||||||||
(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:
March 31, | ||||||||
2023 | 2022 | |||||||
Weighted average remaining lease term of operating leases (in years) | 7.9 | 8.5 | ||||||
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:
September 30, | ||||||||
2022 | 2021 | |||||||
Weighted average remaining lease term of operating leases (in years) | 8.2 | 9.2 | ||||||
Weighted average discount rate of operating leases | 2.7 | % | 3.0 | % | ||||
Supplemental cash flow information related to leases was as follows:
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||||||
Operating cash flow for operating leases | $ | 6,874 | $ | 5,870 | $ | 2,793 | $ | 2,061 | ||||||||
Right of use assets obtained in exchange for lease obligations: | ||||||||||||||||
Operating leases | $ | 16,367 | $ | 6,305 | $ | 3,975 | $ | 14,955 | ||||||||
| Finance leases | $ | 202 | $ | 106 | $ | 65 | $ | 121 | ||||||||
Maturities of operating lease liabilities as of SeptemberMarch 31, 2023 30,2022are as follows:
Years ending December 31: | ||||||||
2022(1) | $ | 5,128 | ||||||
2023 | 10,214 | |||||||
2023(1) | $ | 8,800 | ||||||
2024 | 9,472 | 11,017 | ||||||
2025 | 8,328 | 9,742 | ||||||
2026 | 6,672 | 7,737 | ||||||
2027 | 5,499 | |||||||
Thereafter | 24,056 | 20,500 | ||||||
Total lease payments | 63,870 | 63,295 | ||||||
Less: imputed interest | (9,150) | ) | (6,468 | ) | ||||
Total lease liabilities | $ | 54,720 | $ | 56,827 | ||||
(1) Excluding the ninethree months ended September 30,2022.March 31, 2023.
NOTE 87 –COMMITMENTS AND CONTINGENT LIABILITIES
At SeptemberMarch 31, 2023, 30,2022,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.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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:
Nine Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||
Balance of accrued warranty at January 1 | $ | 5,975 | $ | 5,633 | $ | 7,161 | $ | 5,975 | ||||||||
Provisions for current period sales | 3,597 | 2,720 | 1,035 | 793 | ||||||||||||
| Changes in liability for pre-existing warranties | 430 | 1,958 | (769 | ) | (174 | ) | ||||||||||
Cash settlements | (3,570 | ) | (3,052 | ) | (1,244 | ) | (945 | ) | ||||||||
| Acquired | - | 289 | ||||||||||||||
Balance of accrued warranty at September 30 | $ | 6,432 | $ | 7,548 | ||||||||||||
Balance of accrued warranty at March 31 | $ | 6,183 | $ | 5,649 | ||||||||||||
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 discussions 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) for this matter.
NOTE 98 –TAXES ON INCOME
Our effective income tax rate was 17.9%a tax expense of 20.4% and 24.8%a tax benefit of 32.9% for the three months ended September 30, 2022March 31, 2023 and 2021, respectively, and 15.2% and 24.4% for the nine months ended September 30, 2022,and 2021, respectively.
The effective tax rate for the three months ended September 30, 2022March 31, 2023 is lower thandiffers from the U.S. statutory tax rate of 21.0% primarily due an increase into the tax benefit of research credits whereas theoffset by state tax expense and non-deductible officer compensation.
The effective tax rate of a benefit of 32.9% for the same period in 2021three wasmonths ended March 31, 2022 is higher than the U.S. statutory tax rate of 21.0% due to non-deductible executive compensation and state income taxes.
Our effective income tax rate for the firstnine months of 2022 at 15.2% was lower as compared to 24.4% in the firstnine months of 2021 primarily because of thea discrete tax benefit from increased research creditsrelated to the difference in 2022.stock compensation expense recognized for financial reporting purposes and tax purposes upon vesting.
NOTE 109 – 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.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
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/parcel delivery, beverage and grocery delivery, laundry and linen, mobile retail, and trades industries. Our commercial vehicles are marketed under the Utilimaster brand name, which serves a diverse customer base and sells aftermarket parts and accessories for walk-in vans and other delivery vehicles. We also provide vocation-specific equipment upfit services.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Our Specialty VehiclesSV segment includes our Spartan RV chassis operations, Builtmore Contract Manufacturing operations, service body operations, vocation-specific equipment upfit services marketed under the Strobes-R-Us brand, and distribution of related aftermarket parts and accessories.
The accounting policies of the segments are the same as those described, or referred to, in "Note 1 – Nature of Operations and Basis of Presentation.". 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 September 30, 2022 | Three Months Ended March 31, 2023 | |||||||||||||||||||||||||||||||
| Segment | Segment | |||||||||||||||||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | FVS | SV | Eliminations and Other | Consolidated | |||||||||||||||||||||||||
Fleet vehicle sales | $ | 173,673 | $ | - | $ | - | $ | 173,673 | $ | 147,279 | $ | - | $ | - | $ | 147,279 | ||||||||||||||||
Motor home chassis sales | - | 50,399 | - | 50,399 | ||||||||||||||||||||||||||||
Motorhome chassis sales | - | 27,960 | - | 27,960 | ||||||||||||||||||||||||||||
Other specialty vehicle sales | - | 48,570 | (2,335 | ) | 46,235 | - | 54,697 | (3,181 | ) | 51,516 | ||||||||||||||||||||||
Aftermarket parts and accessories sales | 10,821 | 4,947 | - | 15,768 | 12,154 | 4,530 | - | 16,684 | ||||||||||||||||||||||||
Total sales | $ | 184,494 | $ | 103,916 | $ | (2,335 | ) | $ | 286,075 | $ | 159,433 | $ | 87,187 | $ | (3,181 | ) | $ | 243,439 | ||||||||||||||
Depreciation and amortization expense | $ | 1,144 | $ | 1,692 | $ | 523 | $ | 3,359 | $ | 1,338 | $ | 1,679 | $ | 847 | $ | 3,864 | ||||||||||||||||
Adjusted EBITDA | 24,361 | 15,550 | (12,849 | ) | 27,062 | 12,473 | 13,852 | (15,537 | ) | 10,788 | ||||||||||||||||||||||
Segment assets | 281,510 | 231,185 | 39,004 | 551,699 | 300,578 | 235,844 | 20,590 | 557,012 | ||||||||||||||||||||||||
Capital expenditures | 2,791 | 220 | 195 | 3,206 | 1,865 | 741 | 2,298 | 4,904 | ||||||||||||||||||||||||
Three Months Ended March 31, 2022 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 103,142 | $ | - | $ | - | $ | 103,142 | ||||||||
Motorhome chassis sales | - | 44,891 | - | 44,891 | ||||||||||||
Other specialty vehicle sales | - | 44,706 | - | 44,706 | ||||||||||||
Aftermarket parts and accessories sales | 9,555 | 4,589 | - | 14,144 | ||||||||||||
Total sales | $ | 112,697 | $ | 94,186 | $ | - | $ | 206,883 | ||||||||
Depreciation and amortization expense | $ | 748 | $ | 1,661 | $ | 560 | $ | 2,969 | ||||||||
Adjusted EBITDA | (871 | ) | 10,099 | (9,871 | ) | (643 | ) | |||||||||
Segment assets | 209,954 | 210,897 | 38,289 | 459,140 | ||||||||||||
Capital expenditures | 4,133 | 234 | 1,078 | 5,445 | ||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Three Months Ended September 30, 2021 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 182,438 | $ | - | $ | - | $ | 182,438 | ||||||||
Motor home chassis sales | - | 42,507 | - | 42,507 | ||||||||||||
Other specialty vehicle sales | - | 33,773 | - | 33,773 | ||||||||||||
Aftermarket parts and accessories sales | 8,949 | 4,955 | - | 13,904 | ||||||||||||
Total sales | $ | 191,387 | $ | 81,235 | $ | - | $ | 272,622 | ||||||||
Depreciation and amortization expense | $ | 744 | $ | 1,685 | $ | 553 | $ | 2,982 | ||||||||
Adjusted EBITDA | 36,393 | 6,247 | (8,900 | ) | 33,740 | |||||||||||
Segment assets | 179,580 | 220,775 | 29,920 | 430,275 | ||||||||||||
Capital expenditures | 3,844 | 465 | 882 | 5,191 | ||||||||||||
Nine Months Ended September 30, 2022 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 402,996 | $ | - | $ | - | $ | 402,996 | ||||||||
Motor home chassis sales | - | 138,000 | - | 138,000 | ||||||||||||
Other specialty vehicle sales | - | 140,320 | (2,335 | ) | 137,985 | |||||||||||
Aftermarket parts and accessories sales | 31,092 | 15,080 | - | 46,172 | ||||||||||||
Total sales | $ | 434,088 | $ | 293,400 | $ | (2,335 | ) | $ | 725,153 | |||||||
Depreciation and amortization expense | $ | 3,074 | $ | 5,306 | $ | 1,675 | $ | 10,055 | ||||||||
Adjusted EBITDA | 38,015 | 38,508 | (36,415 | ) | 40,108 | |||||||||||
Segment assets | 281,510 | 231,185 | 39,004 | 551,699 | ||||||||||||
Capital expenditures | 10,590 | 906 | 2,202 | 13,698 | ||||||||||||
Nine Months Ended September 30, 2021 | ||||||||||||||||
| Segment | ||||||||||||||||
FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
Fleet vehicle sales | $ | 452,635 | $ | - | $ | - | $ | 452,635 | ||||||||
Motor home chassis sales | - | 118,666 | - | 118,666 | ||||||||||||
Other specialty vehicle sales | - | 104,571 | - | 104,571 | ||||||||||||
Aftermarket parts and accessories sales | 24,194 | 14,426 | - | 38,620 | ||||||||||||
Total sales | $ | 476,829 | $ | 237,663 | $ | - | $ | 714,492 | ||||||||
Depreciation and amortization expense | $ | 1,805 | $ | 5,142 | $ | 1,365 | $ | 8,312 | ||||||||
Adjusted EBITDA | 82,375 | 22,415 | (23,309 | ) | 81,481 | |||||||||||
Segment assets | 179,580 | 220,775 | 29,920 | 430,275 | ||||||||||||
Capital expenditures | 11,852 | 3,790 | 1,485 | 17,127 | ||||||||||||
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) 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 motor homemotorhome 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.
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 able 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 Margin of |
● | Operating expense of |
● | Operating income of |
● | Income tax expense of |
● |
| |
| ● | Diluted earnings per share |
● | 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 ("EV") Solutions, a new go-to-market brand alongside a trio of initial product offerings—an industry-first commercial grade purpose-built EV chassis; a fully reimagined from the ground up all-electric delivery walk-in van; and a fully portable, remote-controlled charging station, the Power Cube™. |
○ | The proprietary battery-powered chassis features customizable length and wheelbase, making it well-suited to serve a wide range of medium-duty trucks and end uses. The chassis’ modular design will accommodate multiple weight ratings and classifications, based on build-out and usage. |
○ | Leveraging a scalable design, the full Blue Arc EV portfolio is available in Class 3, 4 and 5 walk-in van configurations with body length options from 12 to 22 feet. Designed for high-frequency, last-mile delivery fleets, these vehicles are powered by lithium-ion battery packs |
○ |
|
● | 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 new Severe Duty body, built to fit General Motors’ |
● | In March 2023, we debuted the all-new steel Royal XP Service Body, precision engineered to eliminate water, salt and chemical traps and featuring a proprietary high-endurance coating for a glossy, high-edge finish to seal out weather and wear. The body is third party tested to live up to its promise on the punishing proving grounds of a leading commercial testing facility and is performance-rated for 250,000 miles. |
● | The K3 and K4 motorhome chassis are equipped with the Spartan® RV Chassis Connected Coach®, featuring the new 15-inch anti-glare digital dash that is custom designed for the RV customer to meet their specific display or operational needs. Integrating with the digital dash is the new Tri-Pod Steering Wheel, which places driving features and instrumentation right at the driver's fingertips, enabling a more effortless engagement with driving features and controls. |
● | The strength of our balance sheet and access to working capital through our revolving line of credit. |
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 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2022.23, 2023.
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 September 30, | Nine Months Ended September 30, | Three Months Ended March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Sales | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||||||||
Cost of products sold | 81.1 | 79.4 | 83.2 | 79.3 | 82.4 | 87.5 | ||||||||||||||||||
Gross profit | 18.9 | 20.6 | 16.8 | 20.7 | 17.6 | 12.5 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | 2.5 | 0.9 | 2.7 | 0.6 | 2.9 | 2.4 | ||||||||||||||||||
Selling, general and administrative | 8.8 | 9.3 | 10.8 | 11.0 | 13.3 | 12.8 | ||||||||||||||||||
Operating income | 7.7 | 10.3 | 3.3 | 9.1 | ||||||||||||||||||||
Other income (expense), net | (0.3 | ) | (0.1 | ) | (0.3 | ) | 0.1 | |||||||||||||||||
Income from continuing operations before income taxes | 7.4 | 10.2 | 3.0 | 9.2 | ||||||||||||||||||||
Income tax expense | 1.3 | 2.5 | 0.5 | 2.2 | ||||||||||||||||||||
Income from continuing operations | 6.0 | 7.7 | 2.6 | 6.9 | ||||||||||||||||||||
Income from discontinued operations, net of income taxes | - | - | - | - | ||||||||||||||||||||
Operating income (loss) | 1.5 | (2.7 | ) | |||||||||||||||||||||
Other income (expense) | (0.6 | ) | (0.1 | ) | ||||||||||||||||||||
Income (loss) before income taxes | 0.9 | (2.8 | ) | |||||||||||||||||||||
Income tax expense (benefit) | 0.2 | (0.9 | ) | |||||||||||||||||||||
Income (loss) | 0.7 | (1.9 | ) | |||||||||||||||||||||
Non-controlling interest | - | - | - | 0.2 | 0.0 | - | ||||||||||||||||||
Net income attributable to The Shyft Group, Inc. | 6.0 | 7.7 | 2.6 | 6.8 | ||||||||||||||||||||
Net income (loss) attributable to The Shyft Group, Inc. | 0.7 | (1.9 | ) | |||||||||||||||||||||
Three Months September 30, 2022March 31, 2023 Compared to the Three Months Ended September 30, 2021March 31, 2022
Sales
For the quarter ended September 30, 2022,March 31, 2023, we reported consolidated sales of $286.1$243.4 million, compared to $272.6$206.9 million for the thirdfirst quarter of 2021,2022, an increase of $13.5$36.5 million or 4.9%17.7%. This increase reflects strong demand in our SpecialtyFleet Vehicles and Services (“SV”FVS”) segment and favorable pricing implemented to offset material and labor inflation, partially offset by lower sales volumes in our FleetSpecialty Vehicles and Services (“FVS”SV”) segment primarily dueattributable to supply chain constraints.lower motorhome chassis sales.
Cost of Products Sold
Cost of products sold was $232.0$200.5 million in the thirdfirst quarter of 2023, compared to $181.0 million for the first quarter of 2022, compared to $216.6 million for the third quarter of 2021, an increase of $15.4$19.5 million or 7.1%10.8%. Cost of products sold increased by $15.7The increase was due to $28.9 million inhigher volume and mix and $2.0 million higher material and labor costs, and $2.7partially offset by $11.3 million due to inefficiencies and other costs in locations impacted by supply chain constraints. These increases were partially offset by $3.0 million due to volume and mix.higher productivity.
Gross Profit
Gross profit was $54.1$42.9 million for the thirdfirst quarter of 2023, compared to $25.9 million for the first quarter of 2022, compared to $56.1 million for the third quarteran increase of 2021, a decrease of $2.0$17.0 million or (3.5%)65.5%. Gross profit decreased $15.7The increase was due to $7.7 million more favorable volume and mix net of cost and $11.3 million higher productivity and other items, partially offset by $2.0 million due to higher material and labor costs, $5.1 million due to inefficiencies in locations impacted by supply chain constraints and $1.9 million in volume, partially offset by price and mix increases of $20.7 million.costs.
Operating Expenses
Operating expenses were $32.1$39.2 million for the thirdfirst quarter of 2023, compared to $31.5 million for the first quarter of 2022, compared to $28.0 million for the third quarter of 2021, an increase of $4.1$7.7 million or 14.8%24.6%. Research and development expense for the thirdfirst quarter of 2023 was $6.9 million, compared to $4.9 million in the first quarter of 2022, was $7.1 million, compared to $2.6 million in the third quarter of 2021, an increase of $4.5$2.0 million, primarilyof which $2.4 million was related to the electric vehicle development initiatives.initiatives partially offset by a $0.4 million decrease related to other products. Selling, general and administrative expense was $25.0$32.3 million for the thirdfirst quarter of 2023, compared to $26.6 million for the first quarter of 2022, compared to $25.4 million for the third quarteran increase of 2021, a decrease of $0.4$5.7 million, primarily driven by cost reduction actions.increased employee and administrative costs, of which $1.7 million was related to electric vehicle development.
Other Income (Expense)
Interest expense was $1.1$1.6 million for the thirdfirst quarter of 2022,2023, compared to $0.3$0.2 million for the thirdfirst quarter of 2021,2022, driven by higher borrowing costs. Other income was $0.2 million for the third quarter of 2022, compared to income of $0.1 million for the thirdfirst quarter of 2021.2023, compared to de minimis expense for the first quarter of 2022.
Income Tax Expense (Benefit)
Our effective income tax rate was 17.9% ina tax expense of 20.4% for the thirdfirst quarter of 2022,2023, compared to 24.8% ina tax benefit of 32.9% for the thirdfirst quarter of 2021.2022. The effective tax ratesrate for 2022 and 2021 reflect2023 reflects the impact of current statutory income tax rates on our Income from continuing operationsincome before income taxes combined with the impacttax expense of non-deductible executiveofficer compensation and aoffset by the benefit of research credits.
The effective tax rate for the first quarter of 2023 compares unfavorably to the first quarter of 2022 primarily due to the discrete tax benefit related to the difference in stock compensation expense recognized for bookfinancial reporting purposes and tax purposes upon vesting. The rate in 2022 is lower as compared to the 2021 rate primarily due to an increasevesting realized in the tax benefitfirst quarter of research credits.2022.
Net Income from Continuing Operations(Loss)
Income from continuing operationsNet income (loss) for the thirdfirst quarter of 2022 decreased2023 increased by $3.7$5.6 million to $17.3$1.7 million compared to $21.0a loss of $3.9 million for the thirdfirst quarter of 2021.2022. On a diluted per share basis, Income from continuing operations decreased $0.09earnings increased $0.16 to $0.49$0.05 for the thirdfirst quarter of 20222023 compared to earningsa loss of $0.58$0.11 per share for the thirdfirst quarter of 2021.2022. Driving this decreaseincrease were the factors noted above.
Income from Discontinued Operations
There was no Income from discontinued operations, net of income taxes for the third quarter of 2022 or 2021.
Adjusted EBITDA
Our consolidated Adjusted EBITDA for the thirdfirst quarter of 2023 was $10.8 million, compared to a loss of $0.6 million for the first quarter of 2022, was $27.1 million, compared to $33.7 million for the third quarteran increase of 2021, a decrease of $6.6 million or (19.8%).$11.4 million.
The table below describes the changes in Adjusted EBITDA for the three months ended September 30, 2022March 31, 2023 compared to the same period for 20212022 (in millions):
Adjusted EBITDA three months ended September 30, 2021 | $ | 33.7 | ||
Product pricing and mix | 20.7 | |||
Material and labor costs | (19.0 | ) | ||
| EV development costs | (5.6 | ) | ||
| Sales volume and other | (3.7 | ) | ||
General and administrative costs and other | 1.0 | |||
Adjusted EBITDA three months ended September 30, 2022 | $ | 27.1 |
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
Sales
For the nine months ended September 30, 2022, we reported consolidated sales of $725.2 million, compared to $714.5 million for the nine months ended September 30, 2021, an increase of $10.7 million or 1.5%. This increase reflects strong demand in our SV segment and favorable pricing implemented to offset material and labor inflation, partially offset by lower sales volumes in our FVS segment primarily due to supply chain constraints.
Cost of Products Sold
Cost of products sold was $603.0 million for the nine months ended September 30, 2022, compared to $566.5 million for the nine months ended September 30, 2021, an increase of $36.5 million or 6.4%. Cost of products sold increased $47.8 million due to higher material and labor costs, $17.0 million due to inefficiencies and other costs in locations impacted by supply chain constraints, partially offset by lower volume and mix of $28.3 million.
Gross Profit
Gross profit was $122.1 million for the nine months ended September 30, 2022, compared to $148.0 million for the nine months ended September 30, 2021, a decrease of $25.9 million or (17.4%). Gross profit decreased $47.8 million due to higher material and labor costs, $19.5 million due to inefficiencies and other costs in locations impacted by supply chain constraints, and $10.7 million in volume, partially offset by price and mix increases of $52.1 million.
Operating Expenses
Operating expenses were $98.0 million for the nine months ended September 30, 2022, compared to $82.9 million for the nine months ended September 30, 2021, an increase of $15.1 million or 18.1%. Research and development expense for the nine months ended September 30, 2022 was $19.5 million, compared to $4.3 million for the nine months ended September 30, 2021, an increase of $15.2 million primarily related to the electric vehicle development initiatives. Selling, general and administrative expense was $78.4 million for the nine months ended September 30, 2022, compared to $78.6 million for the nine months ended September 30, 2021, a decrease of $0.2 million.
Other Income (Expense)
Interest expense was $1.7 million for the nine months ended September 30, 2022, compared to $0.3 million for the nine months ended September 30, 2021, driven by higher borrowing costs. Other expense was $0.3 million for the nine months ended September 30, 2022, compared to income of $0.7 million for the nine months ended September 30, 2021.
Income Tax Expense
Our effective income tax rate was 15.2% in the first nine months of 2022, compared to 24.4% in the first nine months of 2021. The effective tax rates for 2022 and 2021 reflect the impact of current statutory income tax rates on our Income from continuing operations before taxes, the impact of non-deductible executive compensation, and a discrete tax benefit related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting. The lower effective tax rate for 2022 reflects the favorable impact of an increase in the tax benefit of research credits.
Income from Continuing Operations
Income from continuing operations for the nine months ended September 30, 2022 decreased by $30.8 million to $18.7 million compared to income of $49.5 million for the nine months ended September 30, 2021. On a diluted per share basis, Income from continuing operations decreased $0.81 to $0.53 for the nine months ended September 30, 2022, compared to earnings of $1.34 per share for the nine months ended September 30, 2021. Driving this decrease were the factors noted above.
Income from Discontinued Operations
Income from discontinued operations, net of income taxes for the nine months ended September 30, 2022 decreased by $0.1 million to none compared to $0.1 million for the nine months ended September 30, 2021, primarily attributable to 2021 winddown activities subsequent to the ERV divestiture not repeated in 2022.
Adjusted EBITDA
Our consolidated Adjusted EBITDA for the nine months ended September 30, 2022 was $40.1 million, compared to $81.5 million for the nine months ended September 30, 2021, a decrease of $41.4 million or (50.8%).
The table below describes the changes in Adjusted EBITDA for the nine months ended September 30, 2022 compared to the same period for 2021 (in millions):
Adjusted EBITDA nine months ended September 30, 2021 | $ | 81.5 | ||||||
Adjusted EBITDA three months ended March 31, 2022 | $ | (0.6 | ) | |||||
| Sales volume and other | 7.7 | |||||||
Product pricing and mix | 52.1 | 8.1 | ||||||
Material and labor costs | (58.9 | ) | (2.0 | ) | ||||
| EV development costs | (17.0 | ) | (4.1 | ) | ||||
| Sales volume and other | (19.1 | ) | ||||||
General and administrative costs and other | 1.5 | 1.7 | ||||||
Adjusted EBITDA nine months ended September 30, 2022 | $ | 40.1 | ||||||
Adjusted EBITDA three months ended March 31, 2023 | $ | 10.8 | ||||||
Order Backlog
Our order backlog by reportable segment is summarized in the following table (in thousands):
September 30, 2022 | September 30, 2021 | March 31, 2023 | March 31, 2022 | |||||||||||||
Fleet Vehicles and Services | $ | 915,135 | $ | 749,731 | $ | 584,933 | $ | 1,148,700 | ||||||||
Specialty Vehicles | 128,769 | 102,829 | 82,478 | 123,999 | ||||||||||||
Total consolidated | $ | 1,043,904 | $ | 852,560 | $ | 667,411 | $ | 1,272,699 | ||||||||
The consolidated backlog at September 30, 2022,March 31, 2023 totaled $1,043.9$667.4 million, up 22.4%a decrease of $605.3 million, or 47.6%, compared to $852.6$1,272.7 million at September 30, 2021, which reflects strong demand for vehicles across the Company’s product portfolio.March 31, 2022.
Our Fleet Vehicles and Services backlog increaseddecreased by $165.4$563.8 million, or 22.1%49.1%, which reflects strongdue to increased sales volume driven by easing of supply chain constraints and demand for vehicles across the segment’s walk in van, Velocity and Truck Body products.returning to normalized levels. Our Specialty Vehicles segment backlog increaseddecreased by $25.9$41.5 million, or 25.2%33.5%, due to increased service bodylower 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 Income from continuing operations to Adjusted EBITDA for the periods indicated.
Financial Summary (Non-GAAP) Consolidated (In thousands, Unaudited) |
Three Months Ended | Nine Months Ended | Three Months Ended | ||||||||||||||||||||||
September 30, | September 30, | March 31, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||
Income from continuing operations | $ | 17,286 | $ | 20,999 | $ | 18,717 | $ | 49,482 | ||||||||||||||||
Net (income) attributable to non-controlling interest | - | (77 | ) | - | (1,102 | ) | ||||||||||||||||||
Net Income (loss) | $ | 1,678 | $ | (3,852 | ) | |||||||||||||||||||
Net loss attributable to non-controlling interest | 32 | - | ||||||||||||||||||||||
Add (subtract): | ||||||||||||||||||||||||
Interest expense | 1,137 | 253 | 1,754 | 310 | 1,648 | 154 | ||||||||||||||||||
Depreciation and amortization expense | 3,359 | 2,982 | 10,055 | 8,312 | 3,864 | 2,969 | ||||||||||||||||||
Income tax expense | 3,770 | 6,910 | 3,346 | 15,952 | ||||||||||||||||||||
Income tax expense (benefit) | 430 | (1,885 | ) | |||||||||||||||||||||
Restructuring and other related charges | 53 | - | 514 | 505 | 62 | 107 | ||||||||||||||||||
Acquisition related expenses and adjustments | 243 | 594 | 800 | 808 | 291 | 216 | ||||||||||||||||||
Non-cash stock based compensation expense | 1,214 | 2,079 | 4,922 | 6,571 | 1,827 | 1,648 | ||||||||||||||||||
| Loss from liquidation of JV | - | - | - | 643 | ||||||||||||||||||||
| Legacy legal matters | 956 | - | ||||||||||||||||||||||
Adjusted EBITDA | $ | 27,062 | $ | 33,740 | $ | 40,108 | $ | 81,481 | $ | 10,788 | $ | (643 | ) | |||||||||||
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 109 – 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 | Financial Data | |||||||||||||||||||||||||||||||
(Dollars in Thousands) | (Dollars in Thousands) | |||||||||||||||||||||||||||||||
Three Months Ended September 30, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||
Amount | Percentage | Amount | Percentage | Amount | Percentage | Amount | Percentage | |||||||||||||||||||||||||
Sales | $ | 184,494 | 100.0 | % | $ | 191,387 | 100.0 | % | $ | 159,433 | 100.0 | % | $ | 112,697 | 100.0% | |||||||||||||||||
Adjusted EBITDA | 24,361 | 13.2 | % | 36,393 | 19.0 | % | 12,473 | 7.8 | % | (871 | ) | (0.8% | ) | |||||||||||||||||||
Sales in our FVS segment were $184.5$159.4 million for the thirdfirst quarter of 2023, compared to $112.7 million for the first quarter of 2022, compared to $191.4 million for the third quarteran increase of 2021, a decrease of $6.9$46.7 million or (3.6%)41.5%. This decreaseincrease was primarily attributable to a increased sales volume decrease due todriven by truck body sales as well as easing of industry wide supply chain constraints, partially offset by pricing actions.constraints.
Adjusted EBITDA in our FVS segment for the thirdfirst quarter of 2023 was $12.5 million compared to a loss of $0.9 million for the first quarter of 2022, was $24.4 million compared to $36.4 million for the third quarteran increase of 2021, a decrease of $12.0 million or (33.1%).$13.4 million. This decreaseincrease was primarily attributable to $12.0$2.4 million in material and labor inflation and $9.4 million lowerfavorable volume, and inefficiencies due to supply chain constraints. These costs were partially offset by$3.4 million favorable pricing and mix, of $9.4 million.
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 434,089 | 100.0 | % | $ | 476,829 | 100.0 | % | ||||||||
Adjusted EBITDA | 38,015 | 8.8 | % | 82,375 | 17.3 | % | ||||||||||
Sales in our FVS segment were $434.1$5.8 million for the nine months ended September 30, 2022, compared to $476.8favorable productivity and $1.8 million for nine months ended September 30, 2021, a decrease of $42.7 million or (9.0%). This decrease was primarily attributable to a sales volume decrease due to supply chain constraints, partially offset by pricing actions.
favorable material,
Adjusted EBITDA in our FVS segment for the nine months ended September 30, 2022 was $38.0 million compared to $82.4 million for the nine months ended September 30, 2021, a decrease of $44.4 million or (53.9%). This decrease was primarily attributable to $27.5 million inand labor inflation, $26.7 million lower volume and inefficiencies due to supply chain constraints, and $10.7 million in manufacturingcosts, and other costs. These decreases were partially offset by pricing and mix of $20.5 million.
Specialty Vehicles
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Three Months Ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 103,916 | 100.0 | % | $ | 81,235 | 100.0 | % | ||||||||
Adjusted EBITDA | 15,550 | 15.0 | % | 6,247 | 7.7 | % | ||||||||||
Sales in our SV segment were $103.9 million in the third quarter of 2022, compared to $81.2 million for the third quarter of 2021, an increase of $22.7 million or 27.9%. This increase was due to strong sales volume growth coupled with pricing actions to offset material and labor inflation.
Specialty Vehicles
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2023 | 2022 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 87,187 | 100.0 | % | $ | 94,186 | 100.0 | % | ||||||||
Adjusted EBITDA | 13,852 | 15.9 | % | 10,099 | 10.7 | % | ||||||||||
Sales in our SV segment were $87.2 million in the first quarter of 2023, compared to $94.2 million for the first quarter of 2022, a decrease of $7.0 million or 7.4%. This decrease was primarily attributable to lower motorhome sales volumes, partially offset by higher service body sales.
Adjusted EBITDA for our SV segment for the thirdfirst quarter of 2023 was $13.9 million, compared to $10.1 million for the first quarter of 2022, was $15.6 million, compared to $6.2 million for the third quarter of 2021, an increase of $9.4$3.8 million or 148.9%37.2%. This increase was primarily attributable to $7.6 million favorable pricing and mix of $12.5and $0.5 million favorable productivity, partially offset by $2.3 million due to lower volume and productivity of $3.9$2.0 million offset bydue to material, and labor, costs of $4.7 million and increased operating and other expenses of $2.4 million.
Financial Data | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
Amount | Percentage | Amount | Percentage | |||||||||||||
Sales | $ | 293,400 | 100.0 | % | $ | 237,663 | 100.0 | % | ||||||||
Adjusted EBITDA | 38,508 | 13.1 | % | 22,415 | 9.4 | % | ||||||||||
Sales in our SV segment were $293.4 million for the nine months ended September 30, 2022, compared to $237.7 million for the nine months ended September 30, 2021, an increase of $55.7 million or 23.4%. This increase was due to strong sales volume growth coupled with pricing actions to offset material and labor inflation.
costs.
Adjusted EBITDA for our SV segment for the nine months ended September 30, 2022 was $38.5 million, compared to $22.4 million for the nine months ended September 30, 2021, an increase of $16.1 million or 71.8%. This increase was primarily attributable to favorable pricing and mix of $33.3 million, volume and productivity of $6.9 million, offset by material and labor costs of $20.3 million and increased operating and other expenses of $3.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Cash and cash equivalents decreased by $34.3$4.2 million from December 31, 2021,2022, to a balance of $2.9$7.4 million as of September 30, 2022.March 31, 2023. These funds, in addition to cash generated from future operations and availability under our existing credit facilities, are expected to be sufficient to finance our foreseeable liquidity and capital needs, including potential future acquisitions.
Cash Flow from Operating Activities
We used $44.5generated $5.9 million of cash from operating activities during the ninethree months ended September 30, 2022, a decreaseMarch 31, 2023, an increase in cash provided of $86.8$33.7 million from $42.3$27.8 million of positive cash flowused in operating activities during the ninethree months ended September 30, 2021.March 31, 2022. The decrease is primarily due$5.9 million of cash generated in the first quarter of 2023 was driven by a $7.4 million net inflow related to a $30.2 million decrease in net income adjusted for non-cash charges to operations, andpartially offset by a $56.6$1.5 million decrease innet outflow related to the change in net working capital. The change in net working capital is primarily attributable to a $30.2 million decrease in the change infirst quarter of 2023 was driven by a $22.5 million net inflow related to decreased receivables and contract assets an $18.5primarily attributable to increased sales volumes driven by easing of industry wide supply chain constraints and a $3.0 million decrease in the change in payables, an $8.6 million decrease in the change in inventories, a $4.4 million decrease in the changenet inflow related to changes in accrued compensation and a $1.2 million decrease in the change in accrued warranty, partiallyrelated taxes and other assets and liabilities, offset by a $6.3$16.9 million increase in the change in other assets and liabilities.
Asnet outflow related to decreased payables primarily attributable to timely processing of September 30, 2022, contract assets increased $65.6payments, a $9.1 million and contract liabilities increased by $9.6 million primarily duenet outflow related to increased work in process production resulting from industry wide supply chain constraints. Inventories increased by $44.0 millioninventories primarily dueattributable to increased raw material inventories relativeand a $1.0 million net outflow related to finished goods due to industry wide supply chain interruptions. Payables increased by $24.2 million primarily due to the Company’s continued focus on extending payment terms with suppliers.changes in accrued warranty.
Cash Flow from Investing Activities
We used $14.1$4.9 million in investing activities during the ninethree months ended September 30, 2022,March 31, 2023, a decrease in cash used of $3.2$0.6 million from $17.3$5.5 million used during the ninethree months ended September 30, 2021.March 31, 2022. The decrease in cash used in investing activities is primarily due to a $4.0$1.0 million decrease in the purchases of property, plant and equipment.
Cash Flow from Financing Activities
We generated $24.3used $5.1 million of cash through financing activities during the ninethree months ended September 30, 2022,March 31, 2023, an increase in cash generatedused of $55.7$4.9 million from $31.5$0.2 million used during the ninethree months ended September 30, 2021.March 31, 2022. The increase in cash providedused by financing activities is primarily attributable to $95.0$21.0 million of increased payments on long-term debt and $5.0 million of decreased proceeds from long-term debt, partially offset by $7.6an $18.0 million of increased payments on long-term debt, a $23.4 million increasedecrease in the purchase and retirement of common stock and a $5.5$3.1 million increasedecrease in issuanceexercise and vesting of stock awards, and a $2.7 million increase in the paymentawards.
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, JPMorgan Chase Bank, N.A., PNC Bank, 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.
Under the Credit Agreement, we may borrow up to $400.0 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 million, subject to certain limitations and restrictions. ThisThe 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 LIBOR plus 1.0%; or (ii) adjusted LIBOR, 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 4.14%5.66% (or one-month LIBOR plus 1.00%) at September 30, 2022.March 31, 2023. 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 September 30, 2022March 31, 2023 and December 31, 2021,2022, we had outstanding letters of credit totaling $1.1$1.2 million, and $0.8 million, respectively, related to our workers’ compensation insurance.
Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $165.4$218.3 million and $376.8$187.2 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, 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 September 30, 2022March 31, 2023 and December 31, 2021,2022, we were in compliance with all 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 2022,2023, we repurchased 607,306348,705 shares for $26.8 million and made no repurchases in the second and third quarters of 2022.$8.8 million. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.
Dividends
The amounts or timing of any dividends are subject to earnings, financial condition, liquidity, capital requirements and such other factors as our Board of Directors deems relevant. We declared dividends on our outstanding common shares in 20222023 and 20212022 as shown in the table below.
Date dividend declared | Record date | Payment date | Dividend per share ($) | |||||
| August 5, 2022 | August 17, 2022 | September 16, 2022 | $ | 0.050 | ||||
| May 2, 2022 | May 17, 2022 | June 17, 2022 | $ | 0.050 | ||||
| Feb. 16, 2022 | Feb. 17, 2022 | Mar. 17, 2022 | $ | 0.050 | ||||
| Nov. 5, 2021 | Nov. 6, 2021 | Dec. 16, 2021 | $ | 0.025 | ||||
| Aug. 6, 2021 | Aug. 18, 2021 | Sep. 15, 2021 | $ | 0.025 | ||||
| May 7, 2021 | May 18, 2021 | June 18, 2021 | $ | 0.025 | ||||
| Feb. 15, 2021 | Feb. 25, 2021 | Mar. 25, 2021 | $ | 0.025 | ||||
Date dividend declared | Record date | Payment date | Dividend per share ($) | |||||
| Jan. 31, 2023 | Feb. 17, 2023 | Mar. 17, 2023 | $ | 0.050 | ||||
| Nov. 1, 2022 | Aug. 17, 2022 | Sep. 16, 2022 | $ | 0.050 | ||||
| Aug. 5, 2022 | Aug. 17, 2022 | Sep. 16, 2022 | $ | 0.050 | ||||
| May 2, 2022 | May 17, 2022 | June 17, 2022 | $ | 0.050 | ||||
| Feb. 16, 2022 | Feb. 17, 2022 | Mar. 17, 2022 | $ | 0.050 | ||||
Effect of Inflation
Inflation affects us in two principal ways. First, our revolving credit agreementfacility is generally tied to the prime and LIBOR 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 September 30, 2022,March 31, 2023, we had $65.0 million debt outstanding under our revolving line of credit agreement.facility. An increase of 100 basis points in interest rates would result in $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.
The interest rate charged on our outstanding borrowings pursuant to our revolving credit facility is currently based on LIBOR, as described in Part 1, Item 1, "Note 4 – Debt" of this Form 10-Q. On July 27, 2017, the Financial Conduct Authority in the U.K. announced that it would phase out LIBOR by the end of 2021. On November 30, 2020, the ICE Benchmark Administration Limited (ICE) announced plans to delay the phase out of LIBOR to June 30, 2023. The U.S. Federal Reserve is considering replacing U.S. dollar LIBOR with a newly created index called the Secured Overnight Funding Rate (SOFR), a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. Our revolving credit facility provides for the transition to a replacement for LIBOR, and it also provides for an alternative to LIBOR. When LIBOR ceases to exist, our interest expense is not expected to increase materially. It is also possible that the overall financing market may be disrupted as a result of the phase-out or replacement of LIBOR with SOFR or any other reference rate. 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 and nine months ended September 30, 2022.March 31, 2023.
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 September 30, 2022,March 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
In August 2022,February 2023, Shyft implemented a new enterprise resource planning system at the CorporateCharlotte, Michigan, Specialty Vehicles location. In connection with this implementation, Shyft replaced multiple internal controls with new or modified controls.
Except as described above, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2022,March 31, 2023, that have materially affected, or are reasonably 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 87 – 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, 2021,2022, 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, 20212022 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 2022,2023, we repurchased 607,306348,705 shares for $26.8$8.8 million. During the second and third quarters of 2022, no shares were repurchased under this authorization. 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(1) (In millions) | ||||||||||||
July 1 to July 31 | 442 | $ | 22.40 | - | $ | 242.1 | ||||||||||
August 1 to August 31 | - | - | - | 242.1 | ||||||||||||
September 1 to September 30 | 1,852 | 24.15 | - | 242.1 | ||||||||||||
Total | 2,294 | - | ||||||||||||||
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 | - | $ | - | - | $ | 242.1 | ||||||||||
February 1 to February 28 | 152,062 | 30.66 | - | 242.1 | ||||||||||||
March 1 to March 31 | 363,320 | 24.65 | 348,705 | 233.3 | ||||||||||||
Total | 515,382 | 348,705 | ||||||||||||||
(1) During the quarter ended March 31, 2023, 166,677 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.
During the quarter ended September 30, 2022, 2,294 shares were delivered by associates in satisfaction of tax withholding obligations that occurred upon the vesting of restricted shares.
Exhibits. |
(a) Exhibits. The following exhibits are filed as a part of this report on Form 10-Q:
Exhibit No. |
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31.1 |
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31.2 |
| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
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| Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350. |
101.INS | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
*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 |