The Shyft Group, Inc.

Good morning and welcome to the Shift Group's fourth quarter and full year 2024 conference call and webcast. All participants will be in 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 and Investor of Investor Relations and Treasury for the Shift Group. Please go ahead.

Good morning and thank you for joining us. Today you will hear from John Dunn, President and Chief Executive Officer, and Scott Ohalek, Interim Chief Financial Officer. Their prepared remarks will be followed by a question and answer session. Before we begin, please turn to slides 2 and 3 of the presentation for a 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. Reconciliation for these non-GAAP measures can be found in the conference call materials. We will begin with a business overview from John followed by Scott's review of 4th Quarter Financial Results and our 2025 Outlook. John will finish up our presentation with an update on our pending merger with Abby Schmidt. We will then open the line for Q&A. Please turn to slide 4 and I will turn it over to John who will begin today's prepared remarks.

Thank you, Randy, and good morning. Welcome to our earnings call and we appreciate your interest in the Shift Group. 2024 was an incredible year for our company. We made significant strides in advancing our strategy, delivered operational improvements, and achieved solid financial performance. In December, we announced a powerful next step in Shift's journey. Our proposed merger with Abby Schmidt, a leading global specialty vehicles company. Together, we will create a highly competitive specialty vehicles leader with enhanced scale, capabilities, and expertise, and deeper customer relationships as we combine the strengths of both companies. Let's kick off this morning with some highlights from the past year at the Shift Group. The talented Shift team has been highly engaged in implementing operational and commercial improvements throughout 2024 and we are seeing improved results. We consistently improved our financial performance driven by our intense focus on increasing operational and organizational efficiencies across our company. By leveraging a one shift mindset, we are streamlining our corporate structure and managing costs to deliver margin improvement. These efforts resulted in meaningful adjusted EBITDA growth for the company with margins of 6.2%, up 160 basis points year over year. Despite a soft parcel market, our fleet vehicles and services business expanded margins to 7.2%, up 160 basis points year over year by driving operational performance. This is a testament to our team's strategic approach to controlling what they can control. Specialty vehicles continued strong EBITDA margins were supported by focused execution and steady demand for infrastructure truck bodies. Our balance sheet remained solid with net leverage less than two times, allowing us flexibility to invest in strategic initiatives that support our growth going forward. This financial strength enables us to capture new opportunities and drive long-term success. Finally, we are pleased to bring Blue Art to production as we successfully shift EV trucks to FedEx, which is an exciting milestone for our entire Shift team. This achievement underscores our commitment to meeting the complex needs of our fleet partners and serving as their partner of choice as they transition to more sustainable fleet operations. Turning to slide five, we outline our operating framework, which has guided Shift in 2024 as we drove improvements across our business. Strengthening talent, improving leadership training, and ensuring safety with our Mission Zero initiative, we reduced workplace injuries by 40% in 2024. Lean manufacturing and efficiency initiatives lowered costs and improved competitiveness in the market. In summary, we are proud of the work we have done this year and I would like to thank our team. Without their dedication and skill sets, our accomplishments would not be possible. I would now like to welcome Scott Ohalek to his first Shift earnings call and he will provide a detailed review of our financial results and 2025 outlook.

Thank you, John. First, I would like to take a moment to introduce myself. I have been with Shift for over five years, serving as the company's Chief Accounting Officer and Corporate Controller. I have over 25 years of experience in the global automotive supply and specialty vehicle markets and I'm very excited to have the opportunity to be the Interim CFO here at Shift. I look forward to meeting many of you over the next several weeks. With that said, please turn to slide seven and I will start with an overview of our fourth quarter financial results. Overall, our team delivered meaningful improvement and profitability in the fourth quarter. Sales for the quarter were $201.4 million, down slightly from $202.3 million in the prior year. Our gap net loss was $3.4 million or $0.10 per share compared to a net loss of $4.4 million or $0.13 per share in the previous year. The net loss for the quarter was negatively impacted by $8.5 million of transaction costs related to the pending merger with Abby Schmidt. On an adjusted basis EBITDA was $15.9 million for the quarter or .9% of sales, up from $2.3 million or .1% of sales in the fourth quarter of 2023. These results include a $5.8 million of EV spend, which is down from $9.3 million in the prior year. Adjusted net income for the quarter was $5 million and adjusted EPS increased to $0.15 per share compared to a loss of $900,000 or a negative $0.03 per share in the fourth quarter of 2023. Please turn to slide eight and I will walk through our results by operating segment. In the quarter, our fleet vehicles and service segment achieved sales of $110.7 million, down 7% compared to $119 million a year ago, reflecting continued softness in walk-in vans offset by higher volumes and heavy up-fits. Adjusted EBITDA for the quarter was $12.1 million versus a loss of $2.6 million a year ago with higher productivity offset by lower volume. Adjusted EBITDA margin improved to .9% of sales compared to a negative .2% in the fourth quarter of last year. This margin improvement speaks to the strength of our team and the operational achievements made throughout the year, despite the continued challenging environment for parcel demand. FDS backlog was $244.8 million at year end, down .7% versus 2023, reflecting continued softness in parcel, but on a positive note, we did achieve market share gains in our walk-in van product line during these challenging times. Turning to the special vehicles segment, our team closed out 2024 with profitability in line with prior year, as our infrastructure-focused locational truck businesses delivered solid results offsetting the ongoing market weakness in motorhomes. Fourth quarter sales were $87.5 million, a 5% increase from $83.4 million in the prior year. Adjusted EBITDA was $16.6 million, or 19% of sales, compared to $19 million, or .8% of sales in the same period last year. This strong overall profitability was driven by the steady demand for infrastructure-related locational trucks. SB backlog was $68.5 million at the end of the year, down .8% versus 2023. This was driven primarily by a decrease in motorhome orders. Please turn to slide 9 for our 2025 outlook. With our improved financial results and continued margin expansion this quarter, we are poised to continue this momentum into 2025. Our focus remains on driving growth and profitability improvement. We do, however, remain cautious as we enter 2025 on near-term demand for parcel and motorhome vehicles as we expect the softness to persist through mid-year. We do anticipate a modest recovery in both the parcel and motorhome markets in the second half of the year. While continuing to be strong, we are also closely monitoring infrastructure spend and the potential impacts it may have on our vocational truck business. We expect -over-year growth as blue arc production is underway and will reach -brake-even profitability for the full year. Given these factors and notwithstanding further changes in the operating environment, we are introducing our 2025 outlook as follows. We expect sales to be in the range of $870 to $970 million. This includes approximately $50 million related to blue arc. Full year adjusted EBITDA in the range of $62 to $72 million. Consistent with historical patterns and seasonality, we expect a slow start to the year and anticipate the first quarter adjusted EBITDA to be in the low single digits. As we see a second half recovery in our markets, we expect around 70% of full year adjusted EBITDA to be delivered in the second half of the year. We expect adjusted EPS in the range of $69 to $92 per share and free cash flow of $25 to $30 million meaningfully on a -over-year basis. This includes approximately $20 million of transaction related cash expected to be paid during the year. We remain committed to driving further improvements in our financial performance as our end markets recover and we finalize the proposed merger with Abbe Schmidt. With that, I will turn it back over to John to provide an update on the merger. Thanks, Scott.

And please turn to slide 11. This proposed merger with Abbe Schmidt presents a compelling opportunity for our shareholders, customers and employees. By bringing our businesses together, we are creating a differentiated leader in the specialty vehicles space with a robust presence in the North American market where approximately 75% of our revenues will be generated. This strategic move positions us to capture growth opportunities in high margin end markets including commercial infrastructure. For our customers, the merger will provide a highly complementary and expanded suite of products and services driven by our unwavering focus on customer-centric innovation and deep customer relationships. For shareholders, the combined company will have a stronger financial profile and will drive value by capitalizing on synergies, expanding our product offerings and leveraging our team's expertise. Our people share a common commitment to operational excellence, customer focus and innovation, making us confident in our collective success. We believe that this merger is in the best interest of our shareholders, customers and team members. Now turn to slide 12 and I will discuss the integration work which is well underway. Since announcing the transaction, we have made solid progress towards completing the actions needed to close. In January, we provided data reinforcing the merger's value creation potential including additional information on Abby Schmidt's strong financial projections and market leadership. We achieved HSR antitrust approval and are making progress in other regulatory and closing conditions. We are leveraging both SHIFT and Abby Schmidt's strong track records of successfully integrating businesses and have established a joint integration team. Overall, the steps we are taking are preparing our two companies to integrate seamlessly and I look forward to providing more updates as we progress towards closing, which we expect by mid-2025. We are diligently working on integrating our businesses to capture the full potential of the combined company and deliver enhanced value for our shareholders on day one. We are now ready to take your questions. Operator, please open the line.

We will open up the lines for questions in a moment. Please bear with me.