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SHYF Shyft Group Inc

Filed: 6 May 21, 4:31pm

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
For the quarterly period ended March 31, 2021.

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                   to                                  

 

Commission File Number 001-33582

 

THE SHYFT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

 

Michigan
(State or Other Jurisdiction of 
Incorporation or Organization)

 

38-2078923
(I.R.S. Employer Identification No.)

41280 Bridge Street
Novi, Michigan
(Address of Principal Executive Offices)

 


48375
(Zip Code)

 

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

NASDAQ Global Select Market

 

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 April 30, 2021

Common Stock

35,319,651 shares

 
 

THE SHYFT GROUP, INC.

 

INDEX
 


 

 

Page

 

  

FORWARD-LOOKING STATEMENTS

3

 

 

  

PART I.  FINANCIAL INFORMATION

  
 

 

 

  
 

Item 1.

Financial Statements:

  
     
  

Condensed Consolidated Balance Sheets – March 31, 2021 and December 31, 2020 (Unaudited)

4

 
  

 

  
  

Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2021 and 2020 (Unaudited)

5

 
  

 

  
  

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2021 and 2020 (Unaudited)

6

 
     
  

Condensed Consolidated Statement of Shareholders’ Equity – Three Months Ended March 31, 2021 and 2020 (Unaudited)

7

 
  

 

  
  

Notes to Condensed Consolidated Financial Statements

8

 
  

 

  
 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

 
 

 

 

  
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

28

 
 

 

 

  
 

Item 4.

Controls and Procedures

29

 
 

 

 

  

PART II.  OTHER INFORMATION

  
     
 

Item 1A.

Risk Factors

30

 
     
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

 
     

 

Item 6.

Exhibits

31

 

 

 

 

  

SIGNATURES

32

 

 

 

FORWARD-LOOKING STATEMENTS

 

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 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks, uncertainties and other factors and can be identified by phrases using “estimate”, “anticipate”, “believe”, “project”, “expect”, “intend,”, “predict”, “potential”, “future”, “may”, “will”, “should” and 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 Part I, Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission on March 25, 2021, subject to any changes and updates disclosed in Part II, Item 1A – Risk Factors below. 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.

 

 

Item 1.

Financial Statements

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(In thousands) 

 

  

March 31,

2021

  

December 31,

2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $10,049  $20,995 

Accounts receivable, less allowance of $115 and $116

  83,610   64,695 

Contract assets

  20,648   9,414 

Inventories, net

  58,543   46,428 

Other receivables – chassis pool agreements

  24,998   6,503 

Other current assets

  8,274   8,172 

Total current assets

  206,122   156,207 

Property, plant and equipment, net

  51,560   45,734 

Right of use assets operating leases

  41,470   43,430 

Goodwill

  49,177   49,481 

Intangible assets, net

  55,553   56,386 

Other assets

  2,026   2,052 

Net deferred tax asset

  5,625   5,759 

TOTAL ASSETS

 $411,533  $359,049 
         

LIABILITIES AND SHAREHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $76,470  $47,487 

Accrued warranty

  6,320   5,633 

Accrued compensation and related taxes

  14,758   17,134 

Deposits from customers

  463   756 

Operating lease liability

  7,228   7,508 

Other current liabilities and accrued expenses

  10,547   8,121 

Short-term debt – chassis pool agreements

  24,998   6,503 

Current portion of long-term debt

  221   221 

Total current liabilities

  141,005   93,363 

Other non-current liabilities

  5,406   5,447 

Long-term operating lease liability

  34,992   36,662 

Long-term debt, less current portion

  23,304   23,418 

Total liabilities

  204,707   158,890 

Commitments and contingent liabilities

          

Shareholders’ equity:

        

Preferred stock; 2,000 shares authorized (none issued)

  0   0 

Common stock; 80,000 shares authorized; 35,308 and 35,344 outstanding

  90,171   91,044 

Retained earnings

  116,791   109,286 

Total The Shyft Group, Inc. shareholders equity

  206,962   200,330 

Non-controlling interest

  (136)  (171

)

Total shareholders equity

  206,826   200,159 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 $411,533  $359,049 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except per share data)

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 
         

Sales

 $197,888  $176,948 

Cost of products sold

  157,902   140,647 

Gross profit

  39,986   36,301 
         

Operating expenses:

        

Research and development

  782   1,541 

Selling, general and administrative

  24,537   21,400 

Total operating expenses

  25,319   22,941 
         

Operating income

  14,667   13,360 
         

Other income (expense):

        

Interest income (expense)

  170   (731

)

Interest and other income (expense)

  183   (510

)

Total other income (expense)

  353   (1,241

)

         

Income from continuing operations before income taxes

  15,020   12,119 

Income tax expense

  3,490   377 

Income from continuing operations

  11,530   11,742 

Income (loss) from discontinued operations, net of income taxes

  81   (3,864

)

Net income

  11,611   7,878 

Less: net income attributable to non-controlling interest

  35   67 
         

Net income attributable to The Shyft Group Inc.

 $11,576  $7,811 
         

Basic earnings (loss) per share

        

Continuing operations

 $0.33  $0.33 

Discontinued operations

  0   (0.11

)

Basic earnings per share

 $0.33  $0.22 
         

Diluted earnings (loss) per share

        

Continuing operations

 $0.32  $0.33 

Discontinued operations

  0   (0.11

)

Diluted earnings per share

 $0.32  $0.22 
         

Basic weighted average common shares outstanding

  35,312   35,401 

Diluted weighted average common shares outstanding

  36,191   35,664 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net income

 $11,611  $7,878 

Adjustments to reconcile net income to net cash used in operating activities:

        

Depreciation and amortization

  2,571   2,801 
Non-cash stock based compensation expense  1,642   2,132 

Deferred income taxes

  134   11,396 

Loss on sale of business

  0   2,138 
(Gain) on disposal of assets  (142)  0 

Changes in accounts receivable and contract assets

  (30,149)  (16,380

)

Changes in inventories

  (12,115)  (3,686

)

Changes in accounts payable

  27,472   472 

Changes in accrued compensation and related taxes

  (4,736)  (6,140

)

Changes in accrued warranty  686   (538)

Change in other assets and liabilities

  1,723   (17,141

)

Net cash used in operating activities

  (1,303)  (17,068

)

         

Cash flows from investing activities:

        

Purchases of property, plant and equipment

  (5,914)  (2,433

)

Acquisition of business, net of cash acquired  404   0 

Proceeds from sale of business

  0   55,000 

Net cash provided by (used in) investing activities

  (5,510)  52,567 
         

Cash flows from financing activities:

        

Proceeds from long-term debt

  0   16,000 

Payments on long-term debt

  0   (30,000

)

Payment of dividends  (889)  0 

Purchase and retirement of common stock

  (3,348)  0 

Exercise and vesting of stock incentive awards

  104   55 

Net cash used in financing activities

  (4,133)  (13,945

)

         

Net increase (decrease) in cash and cash equivalents

  (10,946)  21,554 

Cash and cash equivalents at beginning of period

  20,995   19,349 

Cash and cash equivalents at end of period

 $10,049  $40,903 

 

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

  

Additional

Paid In

Capital

  

Retained

Earnings

  

Non-

Controlling

Interest

  

Total

Shareholders

Equity

 

Balance at December 31, 2020

  35,344  $91,044  $-  $109,286  $(171) $200,159 

Issuance of common stock and tax impact of stock incentive plan

  3   (2,255)  -   0   0   (2,255)
Dividends declared ($0.025 per share)  -   0   -   (983)  0   (983)
Purchase and retirement of common stock  (100)  (260)  -   (3,088)  0   (3,348)

Issuance of restricted stock, net of cancellation

  61   0   -   0   0   0 

Non-cash stock based compensation expense

  -   1,642   -   0   0   1,642 

Net income

  -   0   -   11,576   35   11,611 

Balance at March 31, 2021

  35,308  $90,171  $-  $116,791  $(136) $206,826 

 

  

Number of

Shares

  

Common

Stock

  

Additional

Paid In

Capital

  

Retained

Earnings

  

Non-

Controlling

Interest

  

Total

Shareholders'

Equity

 

Balance at December 31, 2019

  35,344  $353  $85,148  $86,764  $(518

)

 $171,747 

Issuance of common stock and tax impact of stock incentive plan

  4   0   55   0   0   55 

Issuance of restricted stock, net of cancellation

  127   1   0   0   0   1 

Non-cash stock based compensation expense

  -   0   2,132   0   0   2,132 

Net income

  -   0   0   7,811   67   7,878 

Balance at March 31, 2020

  35,475  $354  $87,335  $94,575  $(451

)

 $181,813 

 

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

 

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, 2020, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021.

 

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, luxury Class A diesel motor home 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. Our operating activities are conducted through our wholly-owned operating subsidiary, The Shyft Group USA, Inc., with locations in Novi and Charlotte, Michigan; Bristol, Indiana; Waterville, Maine; Ephrata, Pennsylvania; North Charleston, South Carolina; Pompano Beach and West Palm Beach, Florida; Kansas City, Missouri; Montebello, Carson and McClellan Park, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico.

 

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 March 31, 2021, and our results of operations and cash flows for the three months ended March 31, 2021. 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, 2020. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year.

 

Recent Developments

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”). On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The pandemic has had a significant impact on macroeconomic conditions. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines. While the Company’s plants continued to operate as essential businesses, starting March 23, 2020 certain of our manufacturing facilities were temporarily suspended or cut back on operating levels and shifts as a result of government orders. Since the third quarter of 2020, all of our facilities were at full or modified production levels. However, additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to evolve within our global supply chain and customer base. The Company is taking a variety of measures to maintain operations with as minimal impact as possible to promote the safety and security of our associates, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on visitor access to facilities.

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this filing. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for future periods.

 

On October 1, 2020, the Company acquired substantially all of the assets and certain liabilities of F3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded truck accessories including headache racks (also known as cab protection racks or rear racks). DuraMag operates out of Waterville, Maine and that location is expected to continue to serve as the business’ primary manufacturing and assembly facility for both product lines. The addition of DuraMag aluminum bodies to the Company's product offerings follows the Company’s 2019 acquisition of Royal Truck Body ("Royal"), a West Coast and Southwestern U.S. steel truck body maker. Combined, these acquisitions elevate the Company to a leading position as a national service body manufacturer. DuraMag is part of our Specialty Vehicle segment and continues to go to market under the DuraMag and Magnum brands.

 

8

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Recently Adopted Accounting Standards

 

Effective January 1, 2021, we adopted ASU 2019-12 and all related amendments, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of Topic 740 and improving consistent application of Generally Accepted Accounting Principles ("GAAP") for other areas of Topic 740 by clarifying and amending existing guidance. The adoption of the provisions of ASU 2019-12 did not have a material impact on our consolidated financial position, results of operations or cash flows.

 

Supplemental Disclosures of Cash Flow Information

 

Non-cash investing in the first quarter of 2021 included $2,899 of capital expenditures. The Company has Chassis Pool Agreements, where it participates in a chassis converter pool that is a non-cash arrangement and is offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. See "Note 5 – Debt" for further information about the Chassis Pool Agreements.

 

 

NOTE 2 – DISCONTINUED OPERATIONS

 

On February 1, 2020, we 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 Company recognized a loss on sale of $2,138 in the three months ended March 31, 2020, which is a portion of the Income (loss) from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020, respectively. The ERV business included the emergency response chassis operations in Charlotte, Michigan, and operations in Brandon, South Dakota; Snyder and Neligh, Nebraska; and Ephrata, Pennsylvania. The results of the ERV business have been reclassified to Income (loss) from discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2020. We continue to have an open Transition Services Agreement with the buyer for the provision of certain transition support services, which may continue for certain services into 2022.

 

The Loss from discontinued operations presented in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2021 and 2020 consisted of:

 

  

Three Months Ended

March 31,

 
  

2021

  

2020

 
         

Sales

 $0  $19,167 

Cost of products sold

  0   18,678 

Gross profit

  0   489 

Operating expenses

  0   4,123 

Operating loss

  0   (3,634

)

Other income (expense)

  109   (2,138

)

Loss from discontinued operations before taxes

  109   (5,772

)

Income tax (expense) benefit

  (28)  1,908 

Net income (loss) from discontinued operations

 $81  $(3,864

)

 

Total depreciation and amortization and capital expenditures for the discontinued operations for the three months ended March 31, 2021 and 2020 were as follows:

 

  

Three Months Ended

March 31,

 
  

2021

  

2020

 
         

Depreciation and amortization

 $0  $284 

Capital expenditures

 $0  $84 

 

9

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data) 

 

NOTE 3 – ACQUISITION ACTIVITIES

 

On October 1, 2020, the Company acquired substantially all of the assets and certain liabilities of F3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading, aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded headache racks (also known as cab protection racks or rear racks). The Company paid $18,203 in cash, subject to a net working capital adjustment. The net working capital adjustment was finalized in January 2021, resulting in a decrease to the purchase price of $404. The acquisition was partially financed by borrowing from our existing line of credit, as described in "Note 5 – Debt". DuraMag is part of our Specialty Vehicle segment.

 

Purchase Price Allocation

 

The DuraMag acquisition was accounted for using the acquisition method of accounting with the purchase price allocated to the assets purchased and liabilities assumed based upon their estimated fair values at the date of acquisition. Identifiable intangible assets include customer relationships, DuraMag and Magnum trade names and trademarks, unpatented technology and non-competition agreements. The preliminary excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired of $5,697 was recorded as goodwill, which is expected to be deductible for tax purposes.

 

The fair values of the net assets acquired were based on a preliminary valuation and the estimates and assumptions are subject to change within the measurement period. The Company will finalize the purchase price allocation for adjustments related to accrued warranty and certain other liabilities that we believe to be insignificant as soon as practicable within the measurement period, but in no event later than one year following the acquisition date.

 

As of March 31, 2021, the preliminary allocation of purchase price to assets acquired and liabilities assumed is as follows:

 

Accounts receivable

 $2,230 

Inventories

  3,659 
Other current assets  15 

Property, plant and equipment

  2,949 

Right of use assets-operating leases

  8,469 

Intangible assets

  5,590 

Goodwill

  5,697 

Total assets acquired

  28,609 
     

Accounts payable

  (1,662)

Accrued compensation and related taxes

  (434)

Current operating lease liabilities

  (644)

Other current liabilities and accrued expenses

  (241)

Long-term operating lease liability

  (7,825)

Long-term debt

  (4)

Total liabilities assumed

  (10,810)
     

Total purchase price

 $17,799 

 

10

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Goodwill and Intangible Assets Assigned

 

Intangible assets totaling $5,590 have provisionally been assigned to customer relationships, trade names and trademarks, unpatented technology and non-competition agreements as a result of the acquisition and consist of the following (in thousands):

 

  

Amount

 

Useful Life

Customer relationships

 $2,200 

15 Years

Trade names and trademarks

  2,420 

Indefinite

Unpatented technology

  540 

9 Years

Non-competition agreements

  430 

6 Years

  $5,590  

 

The Company amortizes the customer relationships utilizing an accelerated approach and unpatented technology and non-competition agreements assets utilizing a straight-line approach. Amortization expense, including the intangible assets, recorded from the DuraMag acquisition is $70 for the quarter ended March 31, 2021.

 

Goodwill consists of operational synergies that are expected to be realized in both the short and long-term and the opportunity to enter into new markets which will enable us to increase value to our customers and shareholders. Key areas of expected cost savings include an expanded dealer network, complementary product portfolios and manufacturing and supply chain work process improvements.

 

Due to its insignificant size relative to the Company, supplemental pro forma financial information of the combined entity for the prior reporting period is not provided.

 

 

NOTE 4 – INVENTORIES

 

Inventories are summarized as follows:

 

  

March 31,

2021

  

December 31,
2020

 

Finished goods

 $5,797  $4,200 

Work in process

  2,989   1,908 

Raw materials and purchased components

  55,427   46,576 

Reserve

  (5,670)  (6,256

)

Total inventories, net

 $58,543  $46,428 

 

 

NOTE 5 DEBT

 

Short-term debt consists of the following:

 

  

March 31,
2021

  

December 31,
2020

 

Chassis pool agreements

 $24,998  $6,503 

Total short-term debt

 $24,998  $6,503 

 

11

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Chassis Pool Agreements

 

The Company obtains certain vehicle chassis for its walk-in vans, 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, and in some cases, for unallocated orders. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer).


Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled any related obligations in cash, nor does it expect to do so in the future. Instead, 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. Accordingly, as of March 31, 2021 and December 31, 2020, the Company’s outstanding chassis converter pool with manufacturers totaled $24,998 and $6,503, respectively and 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:

 

  

March 31,
2021

  

December 31,
2020

 

Line of credit revolver

 $22,400  $22,400 

Finance lease obligation

  421   473 

Other

  704   766 

Total debt

  23,525   23,639 

Less current portion of long-term debt

  (221)  (221

)

Total long-term debt

 $23,304  $23,418 

 

Line of Credit Revolver

 

On August 8, 2018, we entered into a Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A. and PNC Bank National Association (the "Lenders"). Subsequently, the Credit Agreement was amended on May 14, 2019, September 9, 2019 and September 25, 2019 and certain of our other subsidiaries executed guaranties guarantying the borrowers’ obligations under the Credit Agreement. Concurrent with the close of the sale of the ERV business and effective January 31, 2020, the Credit Agreement was further amended by a fourth amendment, which released certain of our subsidiaries that were sold as part of the ERV business. The substantive business terms of the Credit Agreement remain in place and were not changed by the fourth amendment.

 

As a result, at March 31, 2021, under the Credit Agreement, as amended, we may borrow up to $175,000 from the Lenders under a secured revolving credit facility which matures August 8, 2023. We may also request an increase in the facility of up to $50,000 in the aggregate, subject to customary conditions. The credit facility is also available for the issuance of letters of credit of up to $20,000 and swing line loans of up to $30,000, subject to certain limitations and restrictions. This 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 margin was 1.38% (or one-month LIBOR plus 1.25%) at March 31, 2021. The 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 March 31, 2021 and December 31, 2020, we had outstanding letters of credit totaling $525 related to our workers’ compensation insurance.

 

12

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Effective April 20, 2021, the Credit Agreement was further amended by a fifth amendment, which increased the swing line loans availability to $40,000, subject to certain limitations and restrictions. The substantive business terms of the Credit Agreement remain in place and were not changed by the fifth amendment.

 

Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $125,951 and $125,836 at March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, we were in compliance with all covenants in our Credit Agreement.

 

 

NOTE 6 – REVENUE

 

The tables below disclose changes in contract assets and liabilities for the three months ended March 31, 2021 and 2020.

 

  

March 31,

2021

  

March 31,

2020

 

Contract Assets

        

Contract assets, beginning of period

 $9,414  $10,898 

Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional

   (8,977)  (10,623

)

Contract assets recognized, net of reclassification to receivables

  20,211   14,370 

Contract assets, end of period

 $20,648  $14,645 
         

Contract Liabilities

        

Contract liabilities, beginning of period

 $756  $2,640 

Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied

  (567)  (2,384

)

Cash received in advance and not recognized as revenue

  274   835 

Contract liabilities, end of period

 $463  $1,091 

 

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 $589,604 and $76,896 respectively, with substantially all revenue expected to be recognized within one year as of March 31, 2021.

 

In the following tables, revenue is disaggregated by primary geographical market and timing of revenue recognition for the three months ended March 31, 2021 and 2020. The tables also include a reconciliation of the disaggregated revenue with the reportable segments.

 

 

13

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands, except per share data)

 

  

Three Months Ended

March 31, 2021

 
  

FVS

  

SV

  

Total

Reportable

Segments

  

Other

  

Total

 

Primary geographical markets

                    

United States

 $129,079  $66,196  $195,275  $0  $195,275 

Other

  2,594   19   2,613   0   2,613 

Total sales

 $131,673  $66,215  $197,888  $0  $197,888 
                     

Timing of revenue recognition

                    

Products transferred at a point in time

 $9,757  $39,337  $49,094  $0  $49,094 

Products and services transferred over time

  121,916   26,878   148,794   0   148,794 

Total sales

 $131,673  $66,215  $197,888  $0  $197,888 

 

  

Three Months Ended

March 31, 2020

 
  

FVS

  

SV

  

Total

Reportable

Segments

  

Other

  

Total

 

Primary geographical markets

                    

United States

 $132,897  $41,075  $173,972  $0  $173,972 

Other

  2,791   185   2,976   0   2,976 

Total sales

 $135,688  $41,260  $176,948  $0  $176,948 
                     

Timing of revenue recognition

                    

Products transferred at a point in time

 $22,257  $24,734  $46,991  $0  $46,991 

Products and services transferred over time

  113,431   16,526   129,957   0   129,957 

Total sales

 $135,688  $41,260  $176,948  $0  $176,948 

 

 

NOTE 7PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are summarized by major classifications as follows:

 

  

March 31,

2021

  

December 31,

2020

 

Land and improvements

 $8,721  $8,721 

Buildings and improvements

  41,045   40,077 

Plant machinery and equipment

  41,954   41,054 

Furniture and fixtures

  16,512   16,259 

Vehicles

  2,571   2,404 

Construction in process

  14,076   8,724 

Subtotal

  124,879   117,239 

Less accumulated depreciation

  (73,319)  (71,505

)

Total property, plant and equipment, net

 $51,560  $45,734 

 

We recorded depreciation expense of $1,741 and $1,814 during the three months ended March 31, 2021 and 2020, respectively.

 

14

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data) 

 

NOTE 8 – LEASES

 

We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of one year to 19 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 5Debt").

 

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

March 31,

 
  

2021

  

2020

 

Operating leases

 $1,954  $1,596 

Short-term leases(1)

  38   16 

Total lease expense

 $1,992  $1,612 

 

(1Includes 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:

 

  

Three Months Ended

March 31,

 
  

2021

  

2020

 

Weighted average remaining lease term of operating leases (in years)

  9.3   8.3 

Weighted average discount rate of operating leases

  3.1%  3.8

%

 

Supplemental cash flow information related to leases was as follows:

 

  

Three Months Ended

March 31,

 
  

2021

  

2020

 

Cash paid for amounts included in the measurement of lease liabilities:

        

Operating cash flow for operating leases

 $1,914  $1,641 
         

Right of use assets obtained in exchange for lease obligations:

        

Operating leases

 $60  $0 
Finance leases $0  $136 

 

15

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Maturities of operating lease liabilities as of March 31, 2021 are as follows:

 

Years ending December 31:

    

2021(1)

 $5,630 

2022

  6,700 

2023

  6,511 

2024

  6,356 

2025

  5,676 

Thereafter

  17,817 

Total lease payments

  48,690 

Less: imputed interest

  (6,470)

Total lease liabilities

 $42,220 

 

(1Excluding the three months ended March 31, 2021.

 

 

NOTE 9 COMMITMENTS AND CONTINGENT LIABILITIES

 

Under the terms of the Credit Agreement we have the ability to issue letters of credit totaling $20,000. We had outstanding letters of credit totaling $525 at March 31, 2021 and December 31, 2020 related to our workers’ compensation insurance.

 

At March 31, 2021, we and our subsidiaries were parties, both as plaintiff and defendant, to a number of lawsuits and claims arising out of the normal course of our businesses. In the opinion of management, our financial position, future operating results or cash flows will not be materially affected by the final outcome of these legal proceedings.

 

Warranty Related

 

We provide limited warranties against assembly/construction defects. These warranties generally provide for the replacement or repair of defective parts or workmanship for a specified period following the date of sale. The end users also may receive limited warranties from suppliers of components that are incorporated into our chassis and vehicles.

 

Certain warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or litigation. Infrequently, a material warranty issue can arise which is beyond the scope of our historical experience. We provide for any such warranty issues as they become known and are estimable. It is reasonably possible that additional warranty and other related claims could arise from disputes or other matters beyond the scope of our historical experience. An estimate of possible penalty or loss, if any, cannot be made at this time.

 

Changes in our warranty liability during the three months ended March 31, 2021 and 2020 were as follows:

 

  

Three Months Ended

March 31,

 
  

2021

  

2020

 

Balance of accrued warranty at January 1

 $5,633  $5,694 

Provisions for current period sales

  824   565 

Cash settlements

  (814)  (548

)

Changes in liability for pre-existing warranties

  677   (556

)

Balance of accrued warranty at March 31

 $6,320  $5,155 

 

16

 

THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)

 

Spartan-Gimaex Joint Venture

 

In February 2015, the Company and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the Spartan-Gimaex joint venture. In June 2015, the Company and Gimaex Holding, Inc. entered into court proceedings to determine the terms of the dissolution. In February 2017, by agreement of the parties, the court proceeding was dismissed with prejudice and the judge entered an order to this effect as the parties agreed to seek a dissolution plan on their own. In late 2019, the Company initiated additional court proceedings to dissolve and liquidate the joint venture. In April of 2020, as a result of a default judgment, the Company was appointed as liquidating trustee of the Gimaex joint venture, but no dissolution terms have been determined as of the date of this Form 10-Q. Costs associated with the wind-down will be impacted by the final dissolution terms. In accordance with accounting guidance, the costs we have accrued so far represent the low end of the range of the estimated total charges that we believe we may incur related to the wind-down. While we are unable to determine the final cost of the wind-down with certainty at this time, we may incur additional charges, depending on the final terms of the dissolution. Such charges are not expected to be material to our future operating results.

 

EPA Information Request

 

In May 2020, the Company received a letter from the United States Environmental Protection Agency (“EPA”) requesting certain information as part of an EPA investigation regarding a potential failure to affix emissions labels on vehicles to determine the Company’s compliance with applicable laws and regulations. This information request pertains to 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. An estimate of possible penalties or loss, if any, cannot be made at this time.

 

 

NOTE 10 – TAXES ON INCOME

 

Our effective income tax rate was 23.2% and 3.1% for the three months ended March 31, 2021 and 2020, respectively.

 

The effective tax rate of 23.2% for the three months ended March 31, 2021 is higher than the U.S. statutory tax rate of 21% primarily because of state income taxes at their statutory rates partially offset by a discrete tax benefit of $468 related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting.

 

The effective tax rate for the three months ended March 31, 2020 reflects the favorable impact of certain provisions of the CARES Act upon the income tax expense as computed based on current statutory income tax rates. Enacted on March 27, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act amended certain provisions of the tax code to allow the five-year carryback of tax basis net operating losses (“NOL”) incurred in the years 2018 through 2020. The closing of the sale of the ERV business during the first quarter of 2020 put the Company into a tax basis NOL position for the year as a result of the reversal of deferred tax assets that were recorded in 2019. Under the CARES Act, the Company will carry the NOL back to offset taxable income incurred in years prior to 2018 when the federal corporate income tax rate was 35%, as compared to the 21% tax rate at which the deferred tax assets were originally recorded. Based upon the accounting guidance, which requires that the impact of tax law changes be recorded in continuing operations, the Company recorded a $2,610 current period tax benefit resulting from the rate difference as a component of Income tax expense in the first quarter of 2020.

 

 

NOTE 11 – 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.

 

17

19

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The Shyft Group, Inc. was organized as a Michigan corporation on September 18, 1975, 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 home 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. Our operating activities are conducted through our wholly-owned operating subsidiary, The Shyft Group USA, Inc., with locations in Novi and Charlotte, Michigan; Bristol, Indiana; Waterville, Maine; Ephrata, Pennsylvania; North Charleston, South Carolina; Pompano Beach and West Palm Beach, Florida; Kansas City, Missouri; Montebello, Carson and McClellan Park, California; Mesa, Arizona; Dallas and Weatherford, Texas; and Saltillo, Mexico.

 

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 expansion of equipment upfit services in our Fleet Vehicles and Services segment, and the growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market, are excellent examples of our ability to generate growth and profitability by quickly fulfilling customer needs and operating efficiently.

 

Recent Developments

 

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”). On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The pandemic has had a significant impact on macroeconomic conditions. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines. While the Company’s plants continued to operate as essential businesses, starting March 23, 2020 certain of our manufacturing facilities were temporarily suspended or cut back on operating levels and shifts as a result of government orders. Since the third quarter of 2020, all of our facilities were at full or modified production levels. However, additional suspensions and cutbacks may occur as the impacts from COVID-19 and related responses continue to evolve within our global supply chain and customer base. The Company is taking a variety of measures to maintain operations with as minimal impact as possible to promote the safety and security of our associates, including increased frequency of cleaning and disinfecting of facilities, social distancing, remote working when possible, travel restrictions and limitations on visitor access to facilities.

 

 

The full impact of the COVID-19 outbreak continues to evolve as of the date of this filing. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the nature of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for future periods.

 

On October 1, 2020, the Company acquired substantially all of the assets and certain liabilities of F3 MFG Inc. through the Company’s subsidiary, The Shyft Group DuraMag LLC (“DuraMag”). DuraMag is a leading aluminum truck body and accessory manufacturer, and DuraMag operations include aluminum manufacturing, finishing, assembly, and installation of DuraMag contractor, service, and van bodies, as well as Magnum branded truck accessories including headache racks (also known as cab protection racks or rear racks). DuraMag operates out of Waterville, Maine and that location is expected to continue to serve as the business’ primary manufacturing and assembly facility for both product lines. The addition of DuraMag aluminum bodies to the Company's product offerings follows the Company’s 2019 acquisition of Royal Truck Body ("Royal"), a West Coast and Southwestern U.S. steel truck body maker. Combined, these acquisitions elevate the Company to a leading position as a national service body manufacturer. DuraMag is part of our Specialty Vehicle segment and continues to go to market under the DuraMag and Magnum brands.

 

 

Executive Overview

 

 

Revenue of $197.9 million in the first quarter of 2021, an increase of 11.8% compared to $176.9 million in the first quarter of 2020.

 

Gross Margin of 20.2% in the first quarter of 2021, compared to 20.5% in the first quarter of 2020.

 

Operating expense of $25.3 million, or 12.8% of sales in the first quarter of 2021, compared to $22.9 million, or 13.0% of sales in the first quarter of 2020.

 

Operating income of $14.7 million in the first quarter of 2021, compared to $13.4 million in the first quarter of 2020.

 

Income tax expense of $3.5 million in the first quarter of 2021, compared to $0.4 million in the first quarter of 2020.

 

Income from continuing operations of $11.5 million in the first quarter of 2021, compared to $11.7 million in the first quarter of 2020.

 

Diluted earnings per share from continuing operations of $0.32 in the first quarter of 2021, compared to $0.33 in the first quarter of 2020.

 

Order backlog of $666.5 million at March 31, 2021, an increase of $321.8 million or 93.4% from our backlog of $344.7 million at March 31, 2020.

 

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:

 

 

The introduction of the Velocity F2, Class 2 walk-in van built on a Ford Transit chassis. The Velocity F2 combines nimbleness, comfort, and fuel efficiency with the cargo space, access, and load capacity similar to a traditional walk-in delivery van. The Velocity F2 gives parcel delivery fleets the flexibility they need to activate a large driver pool, service more customers, and maintain longer routes, consistent with increased demand.

 

 

The introduction of the Velocity M3 walk-in cargo van which is built on a Mercedes-Benz Sprinter cab and chassis, blends the fuel efficiency, driver ergonomics, and safety provisions of a cargo van cab and chassis with the expansive cargo space of a traditional walk-in van. The Velocity M3 builds upon advancements from the Utilimaster Reach®, with a lighter body design, improved payload, better fuel efficiency, and maximized cargo space, punctuated with a game-changing automatic access system that opens, closes, and locks interior and exterior doors—without keys or manual effort—for unequaled ease and stop-by-stop efficiency gains.

 

 

Our continued expansion into the equipment upfit market for vehicles used in the parcel delivery, trades and construction industries. This rapidly expanding market offers an opportunity to add value to current and new customers for our fleet vehicles and vehicles produced by other original equipment manufacturers.

 

 

Electric vehicle ("EV") walk-in van demo units have made their way into customer testing for leading parcel delivery companies. The electrified, traditional walk-in vans will be built on a medium-duty chassis—an industry proven lightweight body design that is advantageous to an EV powertrain. With a gross vehicle weight rating of 19,500 pounds, 900 cubic feet of cargo space, and a payload capacity of 6,000 pounds, this new vehicle will be comparable in size and payload to standard internal combustion engine vans currently in production by Shyft’s Utilimaster brand. The EV's initial range is expected to be up to 120 miles between charges—depending on use characteristics and conditions—and may be enhanced based on feedback from customer testing.

 

 

The introduction of Royal Truck Body’s new Severe Duty body, built to fit General Motors’ medium duty truck class, which includes more standard features than any other service body on the market. With its Fortress five-point lock system, 10-gauge steel and Line-X’d box tops, 3/8″ tread plate steel floors, and more, this work truck is built to last and is ideal for contractors and business owners who put their work truck fleets to the test. 

 

 

The introduction of our refrigeration technology, which demonstrates our ability to apply the latest technical advancements with our unique understanding of last-mile delivery optimization. Utilimaster’s Work-Driven Design™ process provides best-in-class conversion solutions in walk-in vans, truck bodies, and cargo van vehicles. The refrigerated van is upfitted to optimally preserve cold cargo quality while offering customizations such as removable bulkheads and optional thermal curtains. The multi-temperature solution requires no additional fuel source, so it can serve a wide variety of categories from food and grocery to time and temperature sensitive healthcare deliveries.

 

 

 

The introduction of the K4 605 chassis. The K4 605 is equipped with Spartan Connected Coach, a technology bundle featuring the new digital dash display and keyless push-button start. It also features Spartan’s Advanced Protection System, a collection of safety systems that includes collision mitigation with adaptive cruise control, electronic stability control, automatic traction control, Spartan Safe Haul, factory chassis-integrated air supply for tow vehicle braking systems, tire pressure monitoring system with integrated controls with Spartan Connected Coach’s digital dash display, Premier Steer steering assist system, woodgrain and leather SMART steering wheel with integrated radio controls and a Passive Steer Tag Axle, and Cummins Connected Diagnostics.

 

 

The strength of our balance sheet and access to credit 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021.

 

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

March 31,

 
  

2021

  

2020

 

Sales

  100.0   100.0 

Cost of products sold

  79.8   79.5 

Gross profit

  20.2  

20.5

 

Operating expenses:

        

Research and development

  0.4   0.9 

Selling, general and administrative

  12.4   12.1 

Operating income

  7.4   7.6 

Other income (expense), net

  0.2   (0.7

)

Income from continuing operations before income taxes

  7.6   6.8 

Income tax expense

  1.8   0.2 

Income from continuing operations

  5.8   6.6 

Income (loss) from discontinued operations, net of income taxes

  0.0   (2.2

)

Non-controlling interest

  0.0   0.0 

Net income attributable to The Shyft Group, Inc.

  5.8   4.4 

 

Sales

 

For the quarter ended March 31, 2021, we reported consolidated sales of $197.9 million, compared to $176.9 million for the first quarter of 2020, an increase of $21.0 million or 11.8%. This increase reflects a sales volume increase of $21.0 million including acquired business.

 

Cost of Products Sold

 

Cost of products sold was $157.9 million in the first quarter of 2021, compared to $140.6 million in the first quarter of 2020, an increase of $17.3 million or 12.3%. Cost of products sold increased $18.7 million due to higher sales volumes including acquired business, $2.3 million due primarily to Velocity pre-production costs, partially offset by favorable product mix of $2.2 million and other productivity and cost reductions of $1.5 million.

 

Gross Profit

 

Gross profit was $40.0 million for the first quarter of 2021, compared to $36.3 million for the first quarter of 2020, an increase of $3.7 million, or 10.2%. Gross profit increased $5.0 million due to higher sales volumes including acquired business, $1.5 million due to productivity and other cost reductions, partially offset by unfavorable pricing and mix of $0.4 million and pre-production costs of $2.3 million.

 

 

Operating Expenses

 

Operating expense was $25.3 million for the first quarter of 2021, compared to $22.9 million for the first quarter of 2020, an increase of $2.4 million or 10.4%. Research and development expense in the first quarter of 2021 was $0.8 million, compared to $1.5 million in the first quarter of 2020, a decrease of $0.7 million. Selling, general and administrative expense was $24.5 million in the first quarter of 2021, compared to $21.3 million for the first quarter of 2020, an increase of $3.2 million or 14.7%, primarily driven by $1.1 million in increased professional fees and expenses incurred by the acquired business.

 

Other Income (Expense)

 

Interest income was $0.2 million for the first quarter of 2021, compared to interest expense of $0.7 million for the first quarter of 2020, driven by lower borrowings and interest support more than offsetting periodic expense. Other income was $0.2 million in the first quarter of 2021 compared to Other expense of $0.5 million for the first quarter of 2020 driven by costs associated with a transition service agreement.

 

Income Tax Expense

 

Our effective income tax rate was 23.2% in the first quarter of 2021, compared to 3.1% in the first quarter of 2020. The effective tax rate for 2021 reflects the impact of current statutory income tax rates on our Income before taxes partially offset by a discrete tax benefit of $0.5 million related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting.

 

The effective tax rate for the three months ended March 31, 2021 compares unfavorably to the comparable period in 2020 due to a favorable adjustment recorded in 2020 because of provisions of the CARES Act allowing the carryback of tax net operating losses (“NOL”) incurred in the years 2018 through 2020 for five years. The sale of our ERV business in 2020 placed the Company into a tax NOL position because of the reversal of certain deferred tax assets recorded in 2019. As a result, this NOL will be carried back to offset taxable income in years when the federal corporate income tax rate was 35%, as opposed to the 21% rate in effect at the time the deferred tax assets were recorded. The resultant favorable tax rate differential allowed us to record a $2.6 million current year tax benefit as a discrete item. 

 

Income from Continuing Operations

 

Income from continuing operations for the quarter ended March 31, 2021 decreased by $0.2 million, or 1.8%, to $11.5 million compared to $11.7 million for the quarter ended March 31, 2020. On a diluted per share basis, income from continuing operations decreased $0.01 to $0.32 in the first quarter of 2021 compared to $0.33 per share in the first quarter of 2020. Driving this decrease were the factors noted above.

 

Income (Loss) from Discontinued Operations

 

Income from discontinued operations, net of income taxes for the quarter ended March 31, 2021 increased by $4.0 million, or 102.1%, to $0.1 million compared to Loss from discontinued operations of $3.9 million for the quarter ended March 31, 2020 due to the completion of the sale of the ERV business in February 2020.

 

Adjusted EBITDA

 

Our consolidated Adjusted EBITDA in the first quarter of 2021 was $19.2 million, compared to $18.4 million for the first quarter of 2020, an increase of $0.8 million or 4.3%.

 

The table below describes the changes in Adjusted EBITDA for the three months ended March 31, 2021 compared to the same period of 2020 (in millions):

 

Adjusted EBITDA three months ended March 31, 2020

 $18.4 

Sales volume including acquired business

  5.0 

Sales pricing and mix

  (0.4)

Productivity and other cost reductions

  1.5 
Pre-production costs  (2.3)

General and administrative costs and other

  (3.0)

Adjusted EBITDA three months ended March 31, 2021

 $19.2 

 

 

Order Backlog

 

Our order backlog by reportable segment as of March 31, 2021 compared to March 31, 2020 is summarized in the following table (in thousands):

 

  

March 31,

2021

  

March 31,

2020

 

Fleet Vehicles and Services

 $589,604  $302,236 

Specialty Vehicles

   76,896   42,419 

Total consolidated

 $666,500  $344,655 

 

Our Fleet Vehicles and Services backlog increased by $287.4 million, or 95.1%, which reflects strong demand for vehicles across the Company’s product portfolio. Our Specialty Vehicles segment backlog increased by $34.5 million, or 81.3%, due to increased motor home chassis and service truck body orders.

 

The segment backlog at March 31, 2021, totaled $666.5 million, up 93.4%, compared to $344.7 million at March 31, 2020, which reflects strong demand for vehicles across the Company’s product portfolio.

 

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. Adjusted EBITDA for all prior periods presented has been recast to conform to the current presentation.

 

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.

 

Our management uses 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

 
  

March 31,

 
  

2021

  

2020

 

Income from continuing operations

 $11,530  $11,742 

Net (income) loss attributable to non-controlling interest

  (35)  (67

)

Add (subtract):

        

Interest expense

  (170)  731 

Depreciation and amortization expense

  2,571   2,517 

Income tax expense

  3,490   377 

Restructuring and other related charges

  -   992 

Acquisition related expenses and adjustments

  143   93 

Non-cash stock based compensation expense

  1,642   1,991 

Adjusted EBITDA

 $19,171  $18,376 

 

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: Fleet Vehicles and Services ("FVS") and Specialty Vehicles ("SV").

 

For certain financial information related to each segment, see "Note 11 – Business Segments", of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q.

 

Fleet Vehicles and Services

 

  

Financial Data

 
  

(Dollars in Thousands)

 
  

Three Months Ended

March 31,

 
  

2021

  

2020

 
  

Amount

  

Percentage

  

Amount

  

Percentage

 
                 

Sales

 $131,673   100.0% $135,688   100.0

%

Adjusted EBITDA

  18,210   13.8%  21,736   16.0

%

 

Sales in our FVS segment were $131.7 million for the first quarter of 2021, compared to $135.7 million for the first quarter of 2020, a decrease of $4.0 million or 3.0%. This decrease was due to a sales volume decrease of $1.2 million and a product pricing and mix decrease of $2.8 million.

 

Adjusted EBITDA in our FVS segment for the first quarter of 2021 was $18.2 million compared to $21.7 million in the first quarter of 2020, a decrease of $3.5 million. This decrease was due to $0.3 million in lower sales volumes, $0.2 million unfavorable pricing and mix, $2.3 million due to pre-production costs and $1.6 million of increased operating expense, partially offset by other productivity and cost reductions of $0.9 million.

 

 

Specialty Vehicles

 

  

Financial Data

 
  

(Dollars in Thousands)

 
  

Three Months Ended

March 31,

 
  

2021

  

2020

 
  

Amount

  

Percentage

  

Amount

  

Percentage

 
                 

Sales

 $66,215   100.0% $41,260   100.0

%

Adjusted EBITDA

  7,016   10.6%  3,721   9.0

%

 

Sales in our SV segment were $66.2 million in the first quarter of 2021, compared to $41.3 million in the first quarter ended 2020, an increase of $24.9 million or 60.5%. This increase was due to a sales volume increase of $24.8 million including acquired business and product pricing and mix increase of $0.1 million.

 

Adjusted EBITDA for our SV segment for the first quarter of 2021 was $7.0 million, compared to $3.7 million in the first quarter of 2020, an increase of $3.3 million or 88.6%. This increase was due to $3.4 million in higher sales volumes including acquired business, $0.1 million in lower operating expense, partially offset by $0.2 million unfavorable mix.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows

 

Cash and cash equivalents decreased by $11.0 million to $10.0 million at March 31, 2021, compared to $21.0 million at December 31, 2020. These funds, in addition to cash generated from future operations and available 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 $1.3 million of cash for operating activities during the three months ended March 31, 2021, a decrease in cash used of $15.8 million from $17.1 million of cash used by operating activities during the three months ended March 31, 2020. Cash flow from operating activities increased due to a $26.3 million increase in the change in net working capital (primarily driven by the net change in payables and other assets and liabilities partially offset by the net change in receivables and contract assets, and inventories) partially offset by a $10.5 million decrease in net income adjusted for non-cash charges to operations.

 

Cash Flow from Investing Activities

 

We used $5.5 million of cash for investing activities during the three months ended March 31, 2021, an increase of cash used of $58.1 million from $52.6 million of cash provided by investing activities during the three months ended March 31, 2020. Cash flow from investing activities decreased primarily due to a $3.5 million increase in purchases of property, plant and equipment and a $55.0 million decrease in proceeds from the sale of the ERV business.

 

Cash Flow from Financing Activities

 

We used $4.1 million of cash for financing activities during the three months ended March 31, 2021, a decrease of cash used of $9.8 million from $13.9 million of cash used by financing activities during the three months ended March 31, 2020. Cash flow from financing activities increased primarily due to a $30.0 million decrease in payments on long-term debt, partially offset by a decrease of $16.0 million in proceeds from long-term debt and a $3.3 million increase in the purchase and retirement of common stock.

 

 

Contingent Obligations

 

Spartan-Gimaex Joint Venture

 

In February 2015, the Company and Gimaex Holding, Inc. mutually agreed to begin discussions regarding the dissolution of the Spartan-Gimaex joint venture. In June 2015, the Company and Gimaex Holding, Inc. entered into court proceedings to determine the terms of the dissolution. In February 2017, by agreement of the parties, the court proceeding was dismissed with prejudice and the judge entered an order to this effect as the parties agreed to seek a dissolution plan on their own. In late 2019, the Company initiated additional court proceedings to dissolve and liquidate the joint venture. In April of 2020, as a result of a default judgment, the Company was appointed as liquidating trustee of the Gimaex joint venture, but no dissolution terms have been determined as of the date of this Form 10-Q. Costs associated with the wind-down will be impacted by the final dissolution terms. In accordance with accounting guidance, the costs we have accrued so far represent the low end of the range of the estimated total charges that we believe we may incur related to the wind-down. While we are unable to determine the final cost of the wind-down with certainty at this time, we may incur additional charges, depending on the final terms of the dissolution. Such charges are not expected to be material to our future operating results.

 

EPA Information Request

 

In May 2020, the Company received a letter from the United States Environmental Protection Agency (“EPA”) requesting certain information as part of an EPA investigation regarding a potential failure to affix emissions labels on vehicles to determine the Company’s compliance with applicable laws and regulations. This information request pertains to 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. An estimate of possible penalties or loss, if any, cannot be made at this time.

 

Debt

 

On August 8, 2018, we entered into a Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A. and PNC Bank National Association (the "Lenders"). Subsequently, the Credit Agreement was amended on May 14, 2019, September 9, 2019 and September 25, 2019 and certain of our other subsidiaries executed guaranties guarantying the borrowers’ obligations under the Credit Agreement. Concurrent with the close of the sale of the ERV business and effective January 31, 2020, the Credit Agreement was further amended by a fourth amendment, which released certain of our subsidiaries that were sold as part of the ERV business. The substantive business terms of the Credit Agreement remain in place and were not changed by the fourth amendment.

 

As a result, at March 31, 2021, under the Credit Agreement, as amended, we may borrow up to $175.0 million from the Lenders under a secured revolving credit facility which matures August 8, 2023. We may also request an increase in the facility of up to $50.0 million in the aggregate, subject to customary conditions. The 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 $30.0 million subject to certain limitations and restrictions. This 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 margin was 1.38% (or one-month LIBOR plus 1.25%) at March 31, 2021. The 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 March 31, 2021 and December 31, 2020, we had outstanding letters of credit totaling $0.5 million related to our workers’ compensation insurance.

 

Effective April 20, 2021, the Credit Agreement was further amended by a fifth amendment, which increased the swing line loans availability to $40.0 million, subject to certain limitations and restrictions. The substantive business terms of the Credit Agreement remain in place and were not changed by the fifth amendment.

 

Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $126.0 million and $125.8 million at March 31, 2021 and December 31, 2020, 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 March 31, 2021 and December 31, 2020, we were in compliance with all covenants in our Credit Agreement.

 

 

Equity Securities

 

On April 28, 2016, our Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock in open market transactions. At March 31, 2021 there were 0.4 million shares remaining under this repurchase authorization. If we were to repurchase the remaining 0.4 million shares of stock under the repurchase program, it would cost us approximately $14.5 million based on the closing price of our stock on April 30, 2021. 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. In August 2020, the Board of Directors approved the change of the frequency of dividend payments from semi-annual to quarterly. We declared dividends on our outstanding common shares in 2020 and 2021 as shown in the table below.

 

Date dividend declared

 

Record date

 

Payment date

 

Dividend per share ($)

 
Feb. 15, 2021 Feb. 25, 2021 Mar .25, 2021 $0.025 
Nov. 6, 2020 Nov. 18, 2020 Dec. 18, 2020 $0.025 
Aug. 6, 2020 Aug. 18, 2020 Sep. 18, 2020 $0.025 
May 8, 2020 May 18, 2020 Jun. 18, 2020 $0.050 

  

EFFECT OF INFLATION

 

Inflation affects us in two principal ways. First, our revolving credit agreement 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. Since order lead times can be as much as nine months, 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.

 

Item 3.

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 March 31, 2021, we had $22.4 million in debt outstanding under our variable rate short-term and long-term debt agreements. An increase of 100 basis points in interest rates would result in additional interest expense of $0.2 million 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 credit facility is currently based on LIBOR, as described in Part 1, Item 1, "Note 5 – 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 credit facility provides for the transition to a replacement for LIBOR, and it also provides for an alternative to LIBOR, as described in Part 1, Item 1, "Note 5 – Debt" of this Form 10-Q. If LIBOR ceases to exist, our interest expense may increase. 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 months ended March 31, 2021.

 

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.

 

Item 4.

Controls and Procedures.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March 31, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective due to a material weakness in our internal control over financial reporting that was disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020.
 
Notwithstanding the identified material weakness, management has concluded that the condensed consolidated financial statements included in this Form 10-Q fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in accordance with U.S. generally accepted accounting principles.

 

Remediation 
 
We are executing against the remediation plan previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020. The material weakness will not be considered remediated until the applicable control operates for a sufficient period of time and management has concluded, through testing, that the control objective is achieved. We are currently tracking to our action plan for remediation of this material weakness prior to the end of fiscal 2021. 
 
Changes in Internal Control over Financial Reporting 
 
Other than the remediation efforts discussed above, there have been no changes in our internal control over financial reporting that occurred during the first quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

Item 1A.

Risk Factors

 

We have included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, 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, 2020 with respect to the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to our stock.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities

 

On April 28, 2016, our Board of Directors authorized the repurchase of up to 1.0 million shares of our common stock in open market transactions. During the quarter ended March 31, 2021, 0.1 million shares were repurchased under this authorization.

 

Period

 

Total
Number of
Shares
Purchased

  

Average
Price Paid
per Share

  

Total Number

of
Shares

Purchased
as Part of

Publicly
Announced

Plans or
Programs

  

Number of

Shares

that
May Yet Be

Purchased
Under the

Plans or

Programs(1)

 

January 1 to January 31

  -  $-   -   508,994 

February 1 to February 28

  45,496   32.76   45,000   463,994 

March 1 to March 31

  120,184   35.03   55,000   408,994 

Total

  165,680       100,000   408,994 

 

(1)This column reflects the number of shares that may yet be purchased pursuant to the April 28, 2016 Board of Directors authorization described above.

 

During the quarter ended March 31, 2021, 65,680 shares were delivered by associates in satisfaction of tax withholding obligations that occurred upon the vesting of restricted shares.

 

 

Item 6.

Exhibits.

 

      (a)      Exhibits.  The following exhibits are filed as a part of this report on Form 10-Q:

 

Exhibit No.

 

Document

 

 

 

31.1

 

Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

 

 

 

32

 

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)

 

 

SIGNATURES

 

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: May 6, 2021

THE SHYFT GROUP, INC.

 

 

 

 

 

 

 

By

/s/ Jonathan C. Douyard

 

 

Jonathan C. Douyard
Chief Financial Officer

 

32