The Shyft Group, Inc.

Good morning and welcome to the SHIFT Group's third quarter 2023 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. I would now like to introduce Randy Wilson, Vice President, Investor Relations and Treasury of the SHIFT Group. Mr. Wilson, you may proceed.

Thank you for joining this morning's call. As you may have already seen this morning, we issued a press release announcing the appointment of John Dunn as the SHIFT Group's next President and Chief Executive Officer. He will succeed Darryl Adams effective today as part of our previously announced leadership transition plan. On today's call, I'm joined by Darryl Adams, outgoing President and Chief Executive Officer, John Dunn, and John Duyard, Chief Financial Officer. Before we begin, please turn a slide to 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. Primary risks that management believes can materially affect our results are identified in our Forms 10-K and 10-Q filed with the SEC. We will be discussing non-GAAP information and performance measures, which we believe are useful in evaluating the company's operating performance. For today's call, we've included a presentation deck that's been filed with the SEC and is also available on our website. We will provide a business update before moving on to a more detailed review of the results and our updated 2023 outlook. We'll then open the line for Q&A. Please turn to slide three, and I'll turn it over to John Duyard, who will lead today's prepared remarks.

Good morning, and thank you for joining us to review our third quarter 2023 results. Overall, our team delivered third quarter performance that was in line with our expectations as our vocational and infrastructure related businesses continued to perform well, leading to another quarter of record profitability in specialty vehicles. We remain focused on driving operational and commercial execution, as well as generating cashflow to enable long-term investment in the company. For the third quarter, the company delivered solid operating cashflow of $9.2 million. invested in the Blue Arc electric vehicle program, and repurchased $10.3 million in shares. In addition to our third quarter financial highlights, we were pleased to release our second annual sustainability report, highlighting the progress we've made on environmental, social, and governance initiatives to benefit our team members, communities, and other stakeholders. In summary, we continue to make good progress on key strategic initiatives, and we are committed to driving improved execution in a challenging macro environment. Turning to our market commentary on slide four. The long-term fundamentals for our key last-mile delivery and infrastructure end markets remain strong. As we laid out in our July earnings call, the markets continue to be fluid, driven by higher dealer inventory levels in both last-mile delivery and motorhome, as well as fleet strategy initiatives and mixed parcel volume reports that have limited recent order activity. Throughout the third quarter, we were able to gain some clarity on these items, including the depth of OEM chassis production cuts, but additional items, including the auto worker strike that started in September, continue to drive uncertainty across the market. Fortunately, our infrastructure related truck businesses continue to see strong demand and the impact of the strike on those products has been minimal to date. We continue to stay close to our customers and monitor market drivers. while focusing on execution to ensure we respond appropriately, both commercially and operationally. Turning to slide five, I will provide an update on our Blue Arc EV program and key milestones that relate to the product, production readiness, and dealer network. On our last earnings call, we discussed a field test that was in process with a large parcel customer. We subsequently completed that test and the feedback was overwhelmingly positive. The vehicle performance exceeded expectation and easily met the customer's daily needs, giving us confidence that our BlueArk vehicle will meet the daily rigor demanded by our customers. From a commercial perspective, we made further progress on building out our BlueArk dealer network by adding Rush Enterprises, the operator of the largest commercial vehicle dealer network in North America. In addition to Randy Marion, the dealer we announced in the fall of 2022, Rush expands our geographic reach and will be a fantastic representative of the Blue Arc brand. As we communicated earlier in the quarter, we experienced an increase in quality issues related to production batteries from a key supplier. Our goal is and has always has been to provide customers high quality products that will meet their daily needs. And unfortunately, due to these battery issues, we have had to delay customer deliveries into 2024. We continue to work with the supplier to resolve these issues. Overall customer interest remains high, and we are incredibly excited about our Blue Arc electric vehicle program. Please turn to slide seven and I'll provide an overview of our third quarter 2023 financial results. We delivered earnings that were in line with our expectations, despite facing market pressures that impacted our year over year sales and margin performance. Sales for the third quarter were $201.3 million. down 29.6% from the year-ago quarter. Net income was $4.5 million, or 13 cents per share, compared to net income of $17.3 million, or 49 cents per share in the previous year. Third quarter 2023 net income includes a tax benefit of $2 million, primarily driven by favorable adjustments for R&D tax credits. In the third quarter, adjusted EBITDA was $11 million, or 5.5% of sales, down from $27.1 million or 9.5% of sales in the third quarter of 2022. These results include EV program spend of $7.6 million, consistent with the prior year. Excluding these expenses, adjusted EBITDA was 9.2% of sales. Adjusted net income was $6.7 million compared to $18.6 million in the year-ago quarter, while adjusted EPS decreased to 19 cents per share from 53 cents per share last year. I'll now walk you through our third quarter results by operating segment on slide eight. In the quarter, fleet vehicles and services achieved sales of $124.3 million, down 32.6% compared to $184.5 million a year ago, with strong truck body and aftermarket sales partially offsetting softness and walk-in van. Adjusted EBITDA for the quarter was $8 million versus $24.4 million a year ago. Adjusted EBITDA margin was 6.4% of sales compared to 13.2% in the third quarter last year. Turning to specialty vehicles, our team delivered another great quarter with record margin performance. Third quarter sales were $76.6 million, a 26.3% decrease from $103.9 million in the prior year, driven by lower motorhome market demand. Adjusted EBITDA was $16 million, or 20.9% of sales, compared to $15.6 million, or 15% of sales in the same period last year. Please turn to slide nine for our 2023 outlook. Throughout the year, we have remained cautious regarding our outlook as there was uncertainty across our key markets driven by broader economic headwinds. Entering the third quarter, we expected uncertainty to remain given overall market conditions, and in the quarter, while we saw a sequential uptick in FES orders, we continued to experience slower demand versus historical levels. We also gained further visibility to the severity of reduced OEM chassis supply for key parcel products, and the OEM autoworker strike began. While the strike impact has been minimal for us to date, it has created uncertainty across the industry. Given these factors, we have narrowed our 2023 outlook, notwithstanding further changes in the operating environment as follows. Sales to be in the range of $850 to $900 million, adjusted EBITDA of $40 to $45 million. We expect positive operating cash flow for the year and additional working capital reductions in the fourth quarter. And we continue to take additional cost actions given the current environment and will manage the business aggressively as we close out the year. Please turn to the capital allocations update on slide 10. CHIP's balance sheet remains a competitive advantage. In the third quarter, we generated $9.2 million in operating cash flow, reflecting significant improvement over the prior year. The company's capital structure remains strong, with a net leverage ratio of approximately one turn and a $400 million revolver, which provides us solid access to capital. We continue to fund organic growth initiatives, focused primarily on BlueArk EV and market expansion in our SV business. We maintain a healthy M&A pipeline and remain active in cultivating opportunities to accelerate growth. In the quarter, we repurchased $10.3 million of shares, as we believe the company represents an attractive value. We have now repurchased $19.1 million of shares in 2023, leaving $223 million remaining on our share repurchase authorization. Please turn to slide 11. The SHIFT Group is a compelling industrial growth story with robust long-term market fundamentals. We are confident in our long-term strategy, the strength of our balance sheet, and we are focused on driving execution across the business. Before turning the call over to Daryl and John Dunn for closing remarks, on behalf of the SHIFT management team and all our team members, I would like to take the opportunity to thank Daryl for his vision, leadership, and partnership during his tenure with Spartan Motors and the SHIFT Group. While I was not here in 2024 when he started, I'm confident in saying that the company looks different and is much stronger today because of his leadership. He has left a great foundation for us as we move forward. With that, I will turn the call to Daryl.