The Shyft Group, Inc.

Good morning and welcome to the SHIFT Group's fourth quarter and full year 2022 conference call and webcast. All participants will be in a listen-only mode until the question and answer session of the conference call. As a reminder, this call is being recorded at the request of the SHIFT Group, and if anyone has any objections, you may disconnect at this time. I would now like to introduce Randy Wilson, Vice President of Investor Relations and Treasury of the SHIFT Group. Mr. Wilson, you may proceed.

Good morning and welcome to the SHIFT Group's fourth quarter and full year 2022 earnings conference call. Joining me on the call today are Daryl Adams, President and Chief Executive Officer, and John Duyard, Chief Financial Officer. Their prepared remarks will be followed by a question and answer session. For today's call, we've included a presentation deck that's been filed with the SEC and is also available on our website. Before we start, please turn to slide two of the presentation for our Safe Harbor Statement. Today's conference call contains forward-looking statements, which are subject to risks that could cause actual results to be materially different from those expressed or implied. All known risks that management believes could materially affect our results are identified in our Forms 10-K N10Q, which are filed with the SEC. We will be discussing non-GAAP information and performance measures we believe are useful in evaluating the company's operating performance. In addition, the results discussed today will refer to continuing operations unless otherwise noted. During today's call, we will provide a business update before moving on to a more detailed review of the results and our 2023 outlook. We will then open the line for Q&A. Please turn to slide three and I'll turn it over to Daryl Adams.

Thank you, Randy. Good morning and thank you for joining us to review our fourth quarter and full year 2022 results. This past year presented numerous challenges in our supply chain that impacted our operations, but I'm proud of the team's ability to execute and close out the year on a high note with solid year-over-year growth in both sales and adjusted EBITDA in the fourth quarter. We've built agility and nimbleness in our approach to operations. Last year, we saw the benefit of this approach as our team effectively navigated in rapidly evolving operating environment to deliver value to our customers. Turning to slide four, I'll update you on our financial summary. The team generated a record $1 billion of sales in the year, up 4%. led by growth across our specialty vehicle portfolio. After a challenging first half, chassis supply stabilized and we saw significant sequential improvement in profitability as our teams were able to improve output. For the full year, profits declined as we made strategic investments in Blue Arc EV and managed through supply chain shortages that impacted operational efficiency. Overall, we achieved adjusted EBITDA of $71 million which included $27 million of EV-related expenses. Turning to slide five, I'm excited about our Blue Arc EV program. The team continues to make good progress and remains on track to our original development timeline. We continue to receive favorable customer feedback and positive results from our developmental testing, which gives us confidence that Blue Arc will help lead the evolution of commercial fleets toward zero-emission vehicles in the coming years. Let me update you on recent results of the Blue Arc team's efforts as we prepare to commence production in the second half of 2023. In January, we completed the acquisition of XL Fleet, which enhances our capabilities to accelerate further innovation at Blue Arc with the addition of a highly talented group of engineers and technical experts. We recently announced the selection of Charlotte, Michigan for the initial Blue Arc production site, which includes a planned investment of $12 million for Blue Arc production and $4 million for other campus enhancements to support future growth. We have received EP certifications and completed Air Resource Board or ARB testing with positive results and are awaiting final approval. We expect the final test results will demonstrate vehicle performance that exceeds the requirements of our customers and differentiates us from our competition. In the coming months, we expect to formally receive ARB certification, qualifying BlueArc for zero emission vehicle incentives. Continue to demonstrate, sorry, continue demonstrations of the BlueArc vehicle with key customers and deliver field testing vehicles to validate performance. Expand our national dealer and service network as we continue to have meaningful discussions with key partners as we look to support our fleet customers. And begin initial pilot and production builds. While the initial development efforts have focused on Class III, due to the enthusiasm around our vehicle, we have accelerated our product roadmap. As a result, we have made significant progress on developing a Class V cab chassis with flexible body options. The Class 5 cab chassis will be on display at the NTA Work Truck Week in March, and the Blue Arc team looks forward to showcasing this important product with you. Please turn to slide six. Remain confident in how we have strategically positioned the company in terms of the end markets that we serve. Given the dynamic operating environment, I wanted to provide additional perspective on how we are viewing these markets for each of our business segments. Starting with fleet vehicle and services business, long-term favorable demand trends for North America parcel remain intact as the secular shift to e-commerce continues. According to industry estimates, domestic parcel volumes will continue to drive demand for our delivery vans. As we sit here today, we are cautious in the near-term outlook as customer feedback and external announcements have been mixed given macroeconomic conditions, which may create uncertainty with fleet operators and influence their near-term capital spending plans. Over time, our expectations are aligned with broader industry reports that there is an increased level of long-term demand for last mile delivery vehicles, and we like how we are positioned. Entering 2023, our backlog provides good near-term visibility We are working through orders to reduce lead times toward more sustainable levels, and we will continue to flex our operations as appropriate. Turning to our specialty vehicle business, our strategy to invest in infrastructure related businesses continues to pay off as service body and contract manufacturing are performing well. As new construction projects get underway, contractors and service providers invest in their fleets to meet the demand of these projects. The success of our infrastructure strategy is evidenced by their strong 22 performance and improved backlog position entering 2023. Turning to our motorhome chassis business, the retail demand in Class A luxury motor coach space that we serve remains more stable than the broader RV market. But unfortunately, after years of robust retail growth, the broader RV industry slowed in 2022. This softening has resulted in elevated dealer inventory levels of smaller motorized and towable units, which has limited the ability of dealers to stock more expensive Class A luxury motor coaches. As a result, our motorhome chassis backlog has declined year over year. We remain excited about our competitive position as our market share increased again in 2022 to 33% in the greater than 400 horsepower diesel class, up two points year over year. This progress has been driven by continued investment in innovation and aftermarket parts and services, and has helped offset the slower industry market conditions. Overall, we have industry-leading brands that are positioned to win in the markets we serve. We remain confident in our team's ability to manage through uncertainty, but continue to remain cautious about the dynamic macro environment With that, I'll turn it over to John to discuss our financial results beginning on slide seven.

Thank you, Daryl, and good morning, everyone. Please turn to slide eight, and I'll provide an overview of our financial results for the fourth quarter of 2022. Overall, we are pleased with the improvement we experienced in the second half, as well as the performance to close out the year. Our team delivered strong results in the fourth quarter despite the continuation of supply chain delays, inflation pressures, and labor challenges, that impacted us in our industry throughout the year. Sales for the fourth quarter were $302 million, up 9% from the year ago quarter. Net income from continuing operations decreased 13% to $17.8 million, or 50 cents per share. The year-over-year comparison was impacted by increased EV spending, operational inefficiency driven by supply chain issues, and a favorable one-time tax item in 2021. Turning to our adjusted financial results on slide 9, in the fourth quarter, we improved adjusted EBITDA to $30.7 million, or 10.2% of sales, up from $26.6 million, or 9.6% of sales, in the fourth quarter of 2021. These results include EV spend of $7.6 million, up $3.6 million from the prior year. Excluding Blue Arc EV spend, adjusted EBITDA was 12.7%, up over a point and a half year over year. Adjusted net income improved to $20.5 million compared to $20.2 million in the year-ago quarter, while adjusted EPS rose to 58 cents per share from 56 cents per share last year. I'll now walk through our fourth quarter results by operating segment, beginning with fleet vehicles and services on slide 10. The FVF team delivered strong growth of 17% and adjusted EBITDA of 66% as more consistent chassis supply enabled improvements in production output. While overall chassis supply was stable in the second half, we continued to face component shortages which impacted our schedule, drove inefficiencies and rework in our operations, and pressured working capital. FES achieved sales of $212.9 million, up 17% compared to $182.6 million a year ago. marking solid sequential and year-over-year growth. FES adjusted EBITDA for the quarter was $27.7 million versus $26.2 million a year ago. Adjusted EBITDA margin was 13% of sales compared to 14.4% in the fourth quarter last year. Please turn to slide 11 for the specialty vehicle segment overview. SV capped off the year with another fantastic quarter. Our service body and contract manufacturing businesses remain strong and continue to perform well, but overall SV sales were impacted by a softening of demand for luxury motorhome chassis. Fourth quarter sales were $93.2 million, a 2% decrease versus the prior year. Adjusted EBITDA was $15.9 million, or 17.1% of sales, compared to $10.3 million, or 10.8% of sales in the same period last year. reflecting strong operational performance and the impact of pricing actions implemented earlier in the year to recover inflationary costs. Please turn to slide 12 for our 2023 outlook. As we look forward into 2023, we remain positive on the company's ability to perform, but want to be cautious given the potential impact of near-term macroeconomic headwinds across industries. That said, on the top line, we expect to exceed 2022's record year with continued growth in delivery and service body, offsetting softness and luxury motorhome. We expect to see strategic growth initiatives pay off with an exciting SV geographic expansion announcement in the coming weeks, as well as the first revenue from Blue Arc later in the year as we go into production. From a profitability perspective, we expect strong year-over-year growth despite incurring remaining Class III R&D investment, and initial startup costs to support the production launch of our BlueArk vehicle, as well as the incremental expenses driven by the XL fleet acquisition. Given these underlying drivers, our outlook for 2023 is as follows. Sales to be in the range of $1 billion to $1.2 billion, representing 7% year-over-year growth at the midpoint, Adjusted EBITDA of $70 to $100 million, representing 20% growth at the midpoint. Adjusted EPS of $0.97 per share to $1.59 per share, which includes an effective tax rate of approximately 25%, and shares outstanding of approximately $30 million. Capital expenditures are expected to be approximately $35 million. And free cash flow conversion as a percentage of net income is expected to be greater than 100% as we work down working capital. Please turn to the capital allocation update on slide 13. We remain disciplined in our approach to capital allocation with a focus on utilizing internally generated cash to fund our operations and growth initiatives. In the fourth quarter, we generated $19 million in free cash flow. We maintain a robust capital structure with net leverage ratio of just 0.93 times adjusted EBITDA at the end of the year. We also maintain a line of credit of $400 million giving us strong access to capital to invest in growth. As we have previously noted, our recent investment focus has been on attractive organic growth opportunities, including Blue Arc EV solutions. In addition, we continue to evaluate M&A opportunities and maintain an active funnel and a disciplined M&A evaluation process. We remain focused on pursuing efficient return of capital to our shareholders, including a consistent dividend payment and assessing share purchases as appropriate. In conclusion, we are committed to maintaining a strong balance sheet as a foundation to support strategic investments in our future, while taking a disciplined approach to efficiently return cash to our shareholders. Now I'll turn the call back to Daryl for closing remarks. Thank you, John.

Please turn to slide 14. At the Schiff Group, we have created a compelling industrial growth company. Our priorities start with a culture of customer-focused innovation. We win by delivering market-leading solutions that address our customers' needs. Operational excellence drives efficiency in our operations, quality in our products, and differentiates us from our competition. Lastly, our financial strength provides us with the flexibility to invest in long-term growth and strive to deliver returns ahead of our peers. Looking ahead, we are excited about our growth prospects, especially with the beginning of the Blue Arc production later this year. with the right people and the right processes in place to execute on our strategy and deliver for our customers and shareholders. With that, operator, we are now ready for the Q&A portion of the call.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And our first question comes from Greg Lewis of BTIG. Please go ahead.

Yes. Hi. Thank you, and good morning, everybody, and thanks for taking my questions. You know, my first My first question was around margin progression and congratulations on the nice sequential gross margin increase in Q4. As we look at, as we think about your adjusted EBITDA range guidance for this year, how should we be maybe thinking about gross margins sequentially going forward and And is there any kind of impact as I guess we start delivering blue arcs later this year?

Yeah, Greg, thanks for the question. I think as we look at it, as we look at the overall operating environment, we're expecting something that resembles the second half of next year. And so we're not expecting any of the operational challenges you know, some of the inflation and inefficiencies that exist to, you know, perfectly right themselves as we begin the year here. And so, you know, we are expecting to see gross margin improvement. You'll see year over year we do have some margin expansion from an EBITDA perspective. But I think the operating environment is going to continue to remain challenging, you know, as we work through the first half of the year. I think that said, that is where our teams are focused in terms of you know, driving and fixing those inefficiencies and getting better flow through the supply base. And so we will see progression throughout the year, but it's, you know, we're not taking sort of an aggressive position here in the guidance on margin expansion.

Okay, great. Thank you for that. And then, yeah, I mean, I guess rolling out a Class 5 blue arc was always part of the plan, you know, since you embarked on, you know, the move into EVs. I guess as we think about that and I guess the rollout of that, given the existing footprint in Michigan, where that's where I believe we're building the blue arcs over the next few years, how should we think about that now that we have the Class 5 vehicle that I guess we plan on rolling out over the next year, year and a half?

Yeah, Greg, you broke up a little bit. This is Daryl. Um, the vehicle that will be shown at NTA was, um, was not part of the original plan. Part of the original plan was a class three and class five walk-in van. This is something different. It's a cab chassis. Um, so we haven't announced any type of production timing on that. Um, it's still early in the development phase, but, uh, We're thinking it's going to, I don't want to say steal the show, but be pretty exciting down at NTA once people see it and the opportunities that it would have for municipalities and other, you know, I would say city type trucks that might need it because it does have a flexible options on the back, whether it's a flatbed, a box truck, or even some type of a dump for landscaping. So This part wasn't in the original plan, but we're excited about the enthusiasm we're receiving from customers about it.

Okay, great. Thank you very much for the time.

Thank you.

The next question comes from Felix Ocean of Raymond James. Please go ahead.

Hey, good morning, everybody. Morning, Felix. Hey, you know, I just want to clear up a couple of things. So you reiterated a 2H production start for Blue Arc, and I just want to be crystal clear, and maybe I missed this, but is the associated EV revenue included in the guidance, and is it included in the backlog today?

Just in terms of the backlog, it is not included in the backlog today. I think in terms of the guidance, we're expecting 200, 250 units, which is consistent with what we previously talked about. And that is in the sales number.

Okay. And then, you know, what I'm trying to, I guess, better understand, John, is sort of the implied R&D cost for 2023. Can you maybe just walk us through how you're thinking about that bucket, you know, between the XL fleet, between the Class 3, and now it sounds like there might be some incremental R&D associated with the Class 5. Just trying to understand the buckets here, John.

Yeah. Yeah. And so I think if you go back in what we previously talked about was 30 million of spending last year, something in the 10 to 15 range this year, I would say we're trending towards the higher end of that 15, as well as having some carryover from 2022, just based on the, you know, the fact that we ended up spending about $27 million. And so that puts you in the $18 million range. And then, as we noted in the deck, you've got $8 million of incremental spending from the XL Fleet acquisition that is really cost that we contemplated adding throughout 23 and into 24. And so it's more of an acceleration of cost, but we saw that as a great opportunity for us to bring in a talented group of people to really stabilize that business as we like the opportunity. As we've talked about, you know, we view that as a very transformational project for us. So, you know, I think if you look at the overall impact of EV on us this year, it's in that $25 to $26 million range, with the biggest sort of variance being the additional VEXEL fleet versus what we previously talked about.

Okay. And then, you know, I think in the prepared remarks, you mentioned some startup costs associated with the ramp of the production phase. And I know at the EV day last year, we had talked about being, you know, sort of around break even all in. Can you update us on that? Would it be safe to assume the $8 million XL is an incremental hit to the break even? I'm just trying to kind of understand how you're thinking about that, you know, that earnings potential, you know, relative to what was originally stated last year.

Yeah, I mean, I think when you look at that approximately break-even number, I think, you know, again, we're probably at the higher end of that R&D range versus what we originally contemplated. You've got some carryover investment, again, the $3 million, which isn't incremental to the program, but is incremental to 2023. And then you have the XL fleet cost on top of that. And so that's how I would bridge that. I think to, you know, we had always contemplated startup costs. probably coming in a little bit higher than we expected as well as you know there is some call it incremental r d costs associated with uh with some of the class 5 activity that daryl talked about but you know the big drivers are our excel fleet and then just the development being closer to the higher end of the range okay got it and then can we just talk about the strategic rationale behind the excel fleet deal i'm just trying to understand sort of um

you know, how it fits in. It sounds like a bit of an acceleration, but I'm curious if there's any capabilities that you brought in-house that you didn't have before, just kind of trying to understand that, that'd be a little bit better.

Yeah, maybe I'll start, Felix. Daryl can jump in. You know, again, I think we looked at this as, you know, a talented group of engineers, both on the electrical side, on the battery side, on the telematics and software side, that we were building internally and also using some third parties to support. And so this was really an opportunistic play for us to accelerate talent into the organization that will help us not only get through sort of the last development phase here, but also, again, provide that stable information for us as we move forward.

Yeah, Felix, good question. The only thing I would add to what John mentioned is Bringing in engineers that aren't familiar with EV, which they're hard to find, right? Because it's new technology that everybody's bringing on. To grab people, engineers that have that talent already is going to help us leapfrog others in the market, in our opinion. And we thought it was a great opportunity. And I'll tell you what, so far, It's absolutely amazing the progress they've made and how they've helped. So we're really excited about where it's going to take us throughout the year. And like John said, it's accelerated, but we thought the cost benefit was worth it and, you know, instead of trying to bring in new people. So it's, in our opinion, it's paying off right now. And we're excited about it.

Okay. Got it. And then just my last one, if I could, and maybe this is better for John, but I appreciate the capital allocation update. You know, I think you noted that your free cash flow conversion as a percent of that income should be higher than 100% this year. I imagine a working capital plays into that. But I'm just curious in the guide, it doesn't seem like, you know, you're accounting for necessarily any decreases in share count or even interest expense for that matter. So I'm just curious, is there anything baked in from a capital allocation perspective in the guide, and how would you think about deploying that incremental free cash flow?

Yeah. No, I think it's a good question. I think, you know, certainly we have not contemplated any repurchase activity in the share count that we put forward. But given the flexibility we have, we've got $242 million under authorization at this point, which – you know, we'll continue to remain flexible on that. I think from an interest expense standpoint, or from a debt standpoint in general, you know, we are, you know, levered under a turn. We're obviously very comfortable with being in that range. And so we'll balance sort of debt pay down with other deployment options. I think, you know, the interest expense in general, I think, is a bit elevated versus where we ended 2022, just based on really interest rate changes. But, again, we've got flexibility and we've got a strong balance sheet to be able to deploy it appropriately.

Got it. I'll pass it on. Thanks for the time. Thanks, Felix.

The next question comes from Steve Dyer of Craig Hallam. Please go ahead.

Thanks. Good morning, everybody. You had talked, as it relates to the backlog, you sort of talked about how you anticipated that sort of coming back down to more normalized levels, maybe a couple quarters versus a year plus. Sort of near term, are you seeing any change? Are you seeing any sort of move outs later into the backlog or cancellations? Or would you say sort of the burndown right now is just less order intake for four or five quarters from now?

Yeah, I think, I mean, the biggest impact, I would say, is the less order intake with also, you know, when chassis supply freed up in the second half of the year, obviously allowing us to produce at an accelerated rate. And so I'd say those are the two main drivers. I think, you know, as Daryl noted in his comments, there is a ton of uncertainty out there in the environment. You know, we, you know, we're definitely having this, I would say we're having concerns favorable discussions with customers about opportunities from an ordering perspective. And there's some really attractive sort of fleet buys out there. And then we're having conversations with dealers or dealers and customers as well about potentially delaying or moving on orders just given some of the either floor plan or interest rate dynamics that are out there in the marketplace. And so As we look at that collectively, we do remain optimistic, certainly to the upside of where we are from a midpoint perspective, but we do want to be cautious just because there is so much uncertainty out there in the environment.

Yes, I guess even looking when you normalize this year for XL fleet, those costs and sort of the incremental blue arc costs, the guidance doesn't to my math, sort of implies that the core business is maybe even a little softer in 2023 than it was in the second half of 22. So, I mean, is that just sort of conservatism on your part, given all the moving parts, or are you seeing something, you know, in specific sort of customer conversations recently that gives you pause?

I would say the one piece that is softer than what we would have expected in the fourth quarter is on the motorhome side of the business. And then I would say on the rest of the portfolio, we remained, particularly on the fleet side, we remained sort of balanced as we monitored the markets. You know, like we talked about in the prepared remarks, the service body business as well as contract manufacturing continues to be fantastic growth for us. And so, you know, we do feel like we're balanced, but again, cautious as we look at all the, we'll call it noise that's out there in the system right now.

Yeah, I guess along those lines, we've been talking about supply chain disruption for so long. Are we kind of at the point where, you know, I guess near-term maybe demand uncertainty is a little bit more of the challenge right now, or is supply chain still less than ideal?

I mean, I think it's a little bit of both. But I think, you know, I think there's – you know, 12 months ago, I don't think we – we would have been talking about sort of demand problems. So I think, you know, some of it just might be, you know, some of the headlines and those types of things that are out there that people are in, you know, customers and industries reacting to in general. But, you know, I'd say demand is maybe a little bit more prevalent than it was a year ago. But, you know, again, we've always said that we'd like being, we like the markets that we're playing in. We know growth is in a straight line. But we think over the long term, we're positioned very well to meet the needs of our customers.

Okay. I'll pass it along. Thanks, guys. Thanks, Steve.

The next question comes from Mike Schliske of DA Davidson. Please go ahead.

Good morning, and thanks for taking my questions. I wanted to start off – hey, guys. I want to start off with a question on FBS. Maybe I wanted to hone in on two details of some of your comments and outlook there. I guess first is on the pricing. Do you anticipate having a positive price year over year in 2023? And then secondly, I mean, it feels to me like FBS was already behind on its replacement and growth schedule before the pandemic even started. And of course, it only got more and more dire during the pandemic itself and given what happened in 22, I don't think we've caught up on what fleets are looking to put on the road. So I'm curious if this is not the strongest year here in 23, is it just because the fleets are kind of pushing out the inevitable and there will be all these new trucks on the road eventually, if not this year, then probably 24? Thanks.

Yeah, Mike, I think you answered your question. I think we had it in prepared remarks, right? We're still, like where we're at, positioned. We just think it's the macroeconomic issues, to your point. We have not caught up on the vehicles, but I think it's just maybe, I don't want to say a pause, but there's a slip out. We still see the demands. We see parcel packages moving in the right direction. I think it's just being cautious on the macroeconomic issues that everyone's talking about. You know, FedEx, UPS, they all had their earnings out, and we're reading those and talking with them. So, you know, unless something changes, I think you're right. It's going to be pushed out a little bit, but it's still a great business to be in.

And I think just on price comment, I think. Yeah. Sorry, go ahead.

Yeah, on the price question, please.

Yeah, just on price. I mean, our expectation right now is, you know, we've taken, you know, solid pricing over the last 18 months as inflation came through. Our expectations will be positive from a pricing standpoint in 23.

Okay, great. Moving on to the other kinds of EVs, we saw some announcements that there's going to be an eSprinter coming out at some point in 2023. That's a class two, actually nothing to do with the Blue Arc main products there, but curious whether you're ready from an upfit perspective When that comes to your facilities, do you have the design and people in place to start upgrading the eSprinter going forward?

Yeah, Mike, I think, you know, like any EV vehicle, we're always working with our customers, whether it's, in this case, Mercedes, whether it's Stellantis, right, or Ford. We're working with all of them on packages. We like the outfit business. And if our customers, whether it's direct to them or through a fleet management company, we are prepared to build the vehicles and obviously, right, quote those orders and try to win the business. So, yes, like the transit, e-transit, and like the BEV out of Stellantis, to us this is just another opportunity to gain some more up-fit business. Okay. Got it.

We just may touch on some more detail on the guidance here, John, on the cadence. Do you feel well-supplied in chassis for the first quarter? And you just mentioned some challenges in the first quarter on margins. Just some cadence as to how things might play out just at the very start of the year here would be appreciated.

Yeah, I think, you know, as you know, Q1 is typically seasonally low for us, just given some of the model year changes from the chassis supply perspective. We would expect, you know, Q1 is probably in the low to mid-single-digit range from a margin perspective before ramping up, you know, in mid-year like we typically do. So, you know, obviously we're not guiding quarters here, but it's probably something like 30% in the first half as you look at the full year guide.

Got it. Guys, thanks so much. I appreciate the call. Thanks, Mike. Thanks, Mike.

The next question comes from Matt Caranda of Roth MKM. Please go ahead.

Hey, guys. So, I just want to make sure I understand the EBITDA bridge embedded in the guidance from versus last year. So, take the 71 million from 22. Roughly 15 million unwinds from blue arc spend but then you got 8 million of incremental spent from Excel The 78 million would be embedded in the guidance Excluding any benefit from the segment growth, so maybe 7 million of sort of segment growth contribution Embedded in the guidance just curious is SV adding to growth or is that a headwind? I just want to understand the moving pieces in the segment underneath the the overall guidance

I think as you look at the SV business, we do expect to see positive growth in that business year over year. I think you obviously do have some motorhome headwinds that we talked about that need to be offset, but the opportunities that we have from a service body and contract manufacturing perspective will offset those. So probably growing at a slower pace operationally, but still growth year over year.

Okay. All right. That makes sense. And then just digging into the SES backlog a bit more. So obviously you guys have talked about sort of reticence among fleet customers, maybe a little bit of caution around the macro. But one thing that we found in speaking with some dealers is that chassis order books seem like they're closed this year. And so how much is the implied order flow, the weakness there is just given that fleets can't really get chassis for the rest of this year. And they're, you know, they just essentially be indicating for new vehicles kind of early to middle of next year if they're going to put an order in. So that longer lead time just throttles back their ordering behavior versus like macro reticence. I'm just curious if you guys have any sense for that.

Yeah, I mean, I think I'm not sure if You know, we're specifically hearing the same thing. I think as you look at some of the class two vehicles, I think they, you know, as the OEMs allocate those vehicles historically, you know, the commercial capacity has been absorbed pretty quickly. And so, you know, there's certainly that aspect. I'm not sure we're hearing anything.

Yeah, I would agree with John, man. I think it's more in the class two because what we've heard is Ford is now allocating quarterly So that might be some of the adjustment that people are trying to understand and make. In the past, they would let you book for the whole year. And now they're forcing you to book quarterly. So it has shortened up some of the view in the Class 2 space. But I'm with John. We're not hearing any of that in the Class 3 and above.

Okay. All right. That's helpful. The rest of them might have been asked and answered. So thanks, guys.

All right. Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Randy Wilson for any closing remarks.

I'd like to thank you for participating in today's conference call. As Daryl and John mentioned in their prepared remarks, we look forward to hosting investors at the NTA Work Truck Week taking place in Indianapolis on March 7th through 9th. In addition, we will be hosting one-on-one investor meetings and fireside chats in March at the Raymond James Institutional Investor Conference on March 6th and the 35th Annual Roth Capital Conference on March 13th and 14th. We thank you for your interest in the SHIFT Group. And with that, operator, please disconnect the call.

Conference is now concluded. Thank you for attending today's presentation and you may now disconnect.