UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| OR |
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
THE SHYFT GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Registrant’s Telephone Number, Including Area Code: (
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
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.
| | ☒ | 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).
| | ☒ | 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.
| | ☒ | 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
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 October 20, 2023 |
| Common Stock | |
INDEX
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| Item 1. |
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| Condensed Consolidated Balance Sheets – September 30, 2023 and December 31, 2022 (Unaudited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| Item 1. | Legal Proceedings | 28 | ||
| Item 1A. |
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| Item 2. |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities |
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| Item 5. | Other Information | 28 | ||
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Item 6. |
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This Form 10-Q contains some statements that are not historical facts. These statements are called “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve important known and unknown risks, uncertainties and other factors and generally can be identified by phrases using “estimate,” “anticipate,” “believe,” “project,” “expect,” “intend,” “predict,” “potential,” “future,” “may,” “will,” “should” or similar expressions or words. The Shyft Group, Inc.'s (the “Company,” “we,” “us” or “our”) future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions (“Risk Factors”) that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements.
Risk Factors include the risk factors listed and more fully described in Item 1A – Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on February 23, 2023, subject to any changes and updates disclosed in Part II, Item 1A – Risk Factors below, “Risk Factors”, as well as risk factors that we have discussed in previous public reports and other documents filed with the Securities and Exchange Commission. Those risk factors include the primary risks our management believes could materially affect the potential results described by forward-looking statements contained in this Form 10-Q. However, these risks may not be the only risks we face. Our business, operations, and financial performance could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. In addition, new Risk Factors may emerge from time to time that may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, although we believe that the forward-looking statements contained in this Form 10-Q are reasonable, we cannot provide you with any guarantee that the results described in those forward-looking statements will be achieved. All forward-looking statements in this Form 10-Q are expressly qualified in their entirety by the cautionary statements contained in this section, and investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date this Form 10-Q is filed with the Securities and Exchange Commission.
Trademarks and Service Marks
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this Quarterly Report on Form 10-Q are listed without the ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this Quarterly Report on Form 10-Q are, to our knowledge, the property of their respective owners.
PART I. FINANCIAL INFORMATION
| Financial Statements |
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | | $ | |||||
| Accounts receivable, less allowance of $ and $ | ||||||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Other receivables – chassis pool agreements | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right of use assets – operating leases | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Net deferred tax assets | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued warranty | ||||||||
| Accrued compensation and related taxes | ||||||||
| Contract liabilities | ||||||||
| Operating lease liability | ||||||||
| Other current liabilities and accrued expenses | ||||||||
| Short-term debt – chassis pool agreements | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Long-term operating lease liability | ||||||||
| Long-term debt, less current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingent liabilities | ||||||||
| Shareholders' equity: | ||||||||
| Preferred stock, par value: shares authorized ( issued) | ||||||||
| Common stock, par value: shares authorized; and outstanding | ||||||||
| Retained earnings | ||||||||
| Total Shyft Group, Inc. shareholders’ equity | ||||||||
| Non-controlling interest | ||||||||
| Total shareholders' equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2023 |
2022 |
2023 |
2022 |
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| Sales |
$ | $ | $ | $ | ||||||||||||
| Cost of products sold |
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| Gross profit |
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| Operating expenses: |
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| Research and development |
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| Selling, general and administrative |
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| Total operating expenses |
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| Operating income |
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| Other income (expense) |
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| Interest expense |
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| Other income (expense) |
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| Total other expense |
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| Income before income taxes |
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| Income tax expense (benefit) |
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| Net income |
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| Less: net loss attributable to non-controlling interest |
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| Net income attributable to The Shyft Group Inc. |
$ | $ | $ | $ | ||||||||||||
| Basic earnings per share |
$ | $ | $ | $ | ||||||||||||
| Diluted earnings per share |
$ | $ | $ | $ | ||||||||||||
| Basic weighted average common shares outstanding |
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| Diluted weighted average common shares outstanding |
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See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
| Nine Months Ended September 30, |
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| 2023 | 2022 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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| Depreciation and amortization |
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| Non-cash stock based compensation expense |
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| Deferred income taxes | ( |
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| Loss on disposal of assets |
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| Changes in accounts receivable and contract assets |
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| Changes in inventories |
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| Changes in accounts payable |
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| Changes in accrued compensation and related taxes |
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| Changes in accrued warranty |
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| Change in other assets and liabilities |
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| Net cash provided by (used in) operating activities |
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| Cash flows from investing activities: |
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| Purchases of property, plant and equipment |
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| Proceeds from sale of property, plant and equipment | ||||||||
| Acquisition of business, net of cash acquired |
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| Net cash used in investing activities |
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| Cash flows from financing activities: |
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| Proceeds from long-term debt |
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| Payments on long-term debt |
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| Payment of dividends |
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| Purchase and retirement of common stock |
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| Exercise and vesting of stock incentive awards |
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| Net cash provided by (used in) financing activities |
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| Net decrease in cash and cash equivalents |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands)
| Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | ||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Purchase and retirement of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Issuance of restricted stock, net of cancellation | ||||||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net income (loss) | - | ( | ) | |||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ||||||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of restricted stock, net of cancellation | ( | ) | ( | ) | ||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ||||||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Purchase and retirement of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Issuance of restricted stock, net of cancellation | ||||||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Number of Shares | Common Stock | Retained Earnings | Non- Controlling Interest | Total Shareholders’ Equity | ||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Purchase and retirement of common stock | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Issuance of restricted stock, net of cancellation | ||||||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ( | ) | ( | ) | ||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of restricted stock, net of cancellation | ||||||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
| Issuance of common stock and tax impact of stock incentive plan | ||||||||||||||||||||
| Dividends declared ($ per share) | - | ( | ) | ( | ) | |||||||||||||||
| Issuance of restricted stock, net of cancellation | ( | ) | ||||||||||||||||||
| Non-cash stock based compensation expense | - | |||||||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
As used herein, the term “Company”, “we”, “us” or “our” refers to The Shyft Group, Inc. and its subsidiaries unless designated or identified otherwise.
Nature of Operations
We are a niche market leader in specialty vehicle manufacturing and assembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments) and recreational vehicle industries. Our products include walk-in vans and truck bodies used in e-commerce/parcel delivery, upfit equipment used in the mobile retail and utility trades, service and vocational truck bodies, luxury Class A diesel motorhome chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture as well as truck accessories.
The accompanying unaudited interim condensed consolidated financial statements reflect all normal and recurring adjustments that are necessary for the fair presentation of our financial position as of September 30, 2023, our results of operations for the three and nine months ended September 30, 2023 and our cash flows for the nine months ended September 30, 2023. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on February 23, 2023. The results of operations for the three and nine months ended September 30, 2023, are not necessarily indicative of the results expected for the full year.
For a description of key accounting policies followed, refer to the notes to The Shyft Group, Inc. consolidated financial statements for the year ended December 31, 2022, included in our Annual Report on Form 10-K.
Supplemental Disclosures of Cash Flow Information
Non-cash investing in the nine months ended September 30, 2023 and September 30, 2022 included $
NOTE 2 – INVENTORIES
Inventories are summarized as follows:
| September 30, 2023 |
December 31, |
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| Finished goods |
$ | $ | ||||||
| Work in process |
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| Raw materials and purchased components |
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| Total inventories |
$ | $ | ||||||
NOTE 3 – DEBT
Short-term debt consists of the following:
| September 30, | December 31, | |||||||
| Chassis pool agreements | $ | $ | ||||||
| Total short-term debt | $ | $ | ||||||
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 with receipt at our facilities dependent on manufacturer’s production schedules. The agreements generally state that the manufacturer will provide a supply of chassis to be maintained at the Company’s facilities with the condition that we will store such chassis and will not move, sell, or otherwise dispose of such chassis except under the terms of the agreement. In addition, the manufacturer typically retains the sole authority to authorize commencement of work on the chassis and to make certain other decisions with respect to the chassis including the terms and pricing of sales of the chassis to the manufacturer’s dealers. The manufacturer also does not transfer the certificate of origin to the Company nor permit the Company to sell or transfer the chassis to anyone other than the manufacturer (for ultimate resale to a dealer).
Although the Company is party to related finance agreements with manufacturers, the Company has not historically settled related obligations in cash, except as required under our credit agreement. The obligation is usually settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. The Company has included this financing agreement on the Company’s Condensed Consolidated Balance Sheets within Other receivables – chassis pool agreements and Short-term debt – chassis pool agreements. Typically, chassis are converted and delivered to customers within 90 days of the receipt of the chassis by the Company. The chassis converter pool is a non-cash arrangement and is offsetting between Current assets and Current liabilities on the Company’s Condensed Consolidated Balance Sheets.
Long-term debt consists of the following:
| September 30, | December 31, | |||||||
| Line of credit revolver | $ | $ | ||||||
| Finance lease obligation | ||||||||
| Total debt | ||||||||
| Less current portion of long-term debt | ( | ) | ( | ) | ||||
| Total long-term debt | $ | $ | ||||||
Revolving Credit Facility
On November 30, 2021, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement") by and among us and certain of our subsidiaries as borrowers, Wells Fargo Bank, N.A., as administrative agent, and the lenders party thereto consisting of Wells Fargo, N.A., JPMorgan Chase Bank, N.A., PNC Bank, N.A. and Bank of America, N.A. (the "Lenders"). Certain of our other subsidiaries have executed guaranties guarantying the borrowers' obligations under the Credit Agreement.
On May 31, 2023, the Company amended the Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to the Secured Overnight Financing Rate ("SOFR"). Our interest expense is not expected to increase materially with this transition. 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.
Under the Credit Agreement, we may borrow up to $
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $
NOTE 4 – REVENUE
Changes in our contract assets and liabilities for the nine months ended September 30, 2023 and 2022 are summarized below:
| September 30, 2023 | September 30, 2022 | |||||||
| Contract Assets | ||||||||
| Contract assets, beginning of period | $ | $ | ||||||
| Reclassification of the beginning contract assets to receivables, as the result of rights to consideration becoming unconditional | ) | ( | ) | |||||
| Contract assets recognized, net of reclassification to receivables | ||||||||
| Contract assets, end of period | $ | $ | ||||||
| Contract Liabilities | ||||||||
| Contract liabilities, beginning of period | $ | $ | ||||||
| Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | ( | ) | ( | ) | ||||
| Cash received in advance and not recognized as revenue | ||||||||
| Contract liabilities, end of period | $ | $ | ||||||
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 $
In the following tables, revenue is disaggregated by primary geographical market and timing of revenue recognition. The tables also include a reconciliation of the disaggregated revenue within the reportable segments.
| Three Months Ended September 30, 2023 | ||||||||||||||||
| FVS | SV | Eliminations and Other | Total | |||||||||||||
| Primary geographical markets | ||||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||||
| Other | ||||||||||||||||
| Total sales | $ | $ | $ | $ | ||||||||||||
| Timing of revenue recognition | ||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Products and services transferred over time | ( | ) | ||||||||||||||
| Total sales | $ | $ | $ | $ | ||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
| Three Months Ended September 30, 2022 | ||||||||||||||||
| FVS | SV | Eliminations and Other | Total | |||||||||||||
| Primary geographical markets | ||||||||||||||||
| United States | $ | $ | $ | ( | ) | $ | ||||||||||
| Other | ||||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Timing of revenue recognition | ||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Products and services transferred over time | ( | ) | ||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Nine Months Ended | ||||||||||||||||
| September 30, 2023 | ||||||||||||||||
| FVS | SV | Eliminations and Other | Total | |||||||||||||
| Primary geographical markets | ||||||||||||||||
| United States | $ | $ | $ | ) | $ | |||||||||||
| Other | ||||||||||||||||
| Total sales | $ | $ | $ | ) | $ | |||||||||||
| Timing of revenue recognition | ||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Products and services transferred over time | ) | |||||||||||||||
| Total sales | $ | $ | $ | ) | $ | |||||||||||
| Nine Months Ended | ||||||||||||||||
| September 30, 2022 | ||||||||||||||||
| FVS | SV | Eliminations and Other | Total | |||||||||||||
| Primary geographical markets | ||||||||||||||||
| United States | $ | $ | $ | ( | ) | $ | ||||||||||
| Other | ||||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Timing of revenue recognition | ||||||||||||||||
| Products transferred at a point in time | $ | $ | $ | $ | ||||||||||||
| Products and services transferred over time | ( | ) | ||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classifications as follows:
| September 30, 2023 |
December 31, 2022 |
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| Land and improvements |
$ | $ | ||||||
| Buildings and improvements |
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| Plant machinery and equipment |
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| Furniture and fixtures |
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| Vehicles |
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| Construction in process |
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| Subtotal |
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| Accumulated depreciation |
( |
) | ( |
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| Total property, plant and equipment, net |
$ | $ | ||||||
We recorded depreciation expense of $
NOTE 6 – LEASES
We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of year to
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 | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating leases | $ | $ | $ | $ | ||||||||||||
| Short-term leases(1) | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
(1) Includes expenses for month-to-month equipment leases, which are classified as short-term as the Company is not reasonably certain to renew the lease term beyond one month.
The weighted average remaining lease term and weighted average discount rate were as follows:
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| Weighted average remaining lease term of operating leases (in years) | ||||||||
| Weighted average discount rate of operating leases | % | % | ||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Supplemental cash flow information related to leases was as follows:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flow for operating leases | $ | $ | ||||||
| Right of use assets obtained in exchange for lease obligations: | ||||||||
| Operating leases | $ | $ | ||||||
| Finance leases | $ | $ | ||||||
Maturities of operating lease liabilities as of September 30, 2023 are as follows:
| Years ending December 31: | ||||
| 2023(1) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Imputed interest | ( | ) | ||
| Total lease liabilities | $ |
(1) Excluding the nine months ended September 30, 2023.
NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES
At September 30, 2023, 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.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Changes in our warranty liability are summarized below:
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Balance of accrued warranty at January 1 | $ | $ | ||||||
| Provisions for current period sales | ||||||||
| Changes in liability for pre-existing warranties | ( | ) | ||||||
| Cash settlements | ( | ) | ( | ) | ||||
| Balance of accrued warranty at September 30 | $ | $ | ||||||
Legal Proceedings Relating to Environmental Matters
As previously disclosed, in May 2020, the Company received an information request from the United States Environmental Protection Agency (“EPA”) requesting certain information regarding emissions labels on chassis, vocational vehicles, and vehicles that the Company manufactured or imported into the U.S. between January 1, 2017 to the date the Company received the request in May 2020. The Company responded to the EPA’s request and furnished the requested materials in the third quarter of 2020.
On April 6, 2022, the Company received a Notice of Violation from the EPA alleging a failure to secure certain certifications on manufactured chassis and a failure to comply with recordkeeping and reporting requirements related to supplier-provided chassis. The Company continues to investigate this matter, including potential defenses, and will continue discussions with the EPA regarding the allegations. At this time, it is not possible to estimate the potential fines or penalties that the Company may incur (if any) for this matter.
NOTE 8 – TAXES ON INCOME
Our effective income tax rate was a benefit of
Our effective income tax rate was a benefit of
NOTE 9 – 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 reportable segments: Fleet Vehicles and Services and Specialty Vehicles.
We evaluate the performance of our reportable segments based on Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and it is calculated by excluding items that we believe to be infrequent or not indicative of our underlying operating performance, as well as certain non-cash expenses. We define Adjusted EBITDA as income before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations.
Our FVS segment manufactures commercial vehicles used in the last mile/parcel delivery, beverage and grocery delivery, laundry and linen, mobile retail, and trades industries. Our commercial vehicles are marketed under the Utilimaster brand name, which serves a diverse customer base and sells aftermarket parts and accessories for walk-in vans and other delivery vehicles. We also provide vocation-specific equipment upfit services.
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
Our SV segment includes our Spartan RV chassis operations, Builtmore Contract Manufacturing operations, Royal Truck Body and DuraMag service body operations, vocation-specific equipment upfit services marketed under the Strobes-R-Us brand, and distribution of related aftermarket parts and accessories.
The accounting policies of the segments are the same as those described, or referred to, in “Note 1 – Nature of Operations and Basis of Presentation.” Assets and related depreciation expense in the column labeled “Eliminations and Other” pertain to capital assets maintained at the corporate level. Eliminations for inter-segment sales are shown in the column labeled “Eliminations and Other.” Adjusted EBITDA in the “Eliminations and Other” column contains corporate related expenses not allocable to the operating segments. Interest expense and Income tax expense are not included in the information utilized by the chief operating decision maker to assess segment performance and allocate resources, and accordingly, are excluded from the segment results presented below.
| Three Months Ended September 30, 2023 | ||||||||||||||||
| Segment | ||||||||||||||||
| FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
| Fleet vehicle sales | $ | $ | $ | $ | ||||||||||||
| Motorhome chassis sales | ||||||||||||||||
| Other specialty vehicle sales | ||||||||||||||||
| Aftermarket parts and accessories sales | ||||||||||||||||
| Total sales | $ | $ | $ | $ | ||||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | ||||||||||||
| Adjusted EBITDA | ( | ) | ||||||||||||||
| Segment assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Three Months Ended September 30, 2022 | ||||||||||||||||
| Segment | ||||||||||||||||
| FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
| Fleet vehicle sales | $ | $ | $ | $ | ||||||||||||
| Motorhome chassis sales | ||||||||||||||||
| Other specialty vehicle sales | ( | ) | ||||||||||||||
| Aftermarket parts and accessories sales | ||||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | ||||||||||||
| Adjusted EBITDA | ( | ) | ||||||||||||||
| Segment assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
THE SHYFT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, except per share data)
| Nine Months Ended | ||||||||||||||||
| September 30, 2023 | ||||||||||||||||
| Segment | ||||||||||||||||
| FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
| Fleet vehicle sales | $ | $ | $ | $ | ||||||||||||
| Motorhome chassis sales | ||||||||||||||||
| Other specialty vehicle sales | ( | ) | ||||||||||||||
| Aftermarket parts and accessories sales | ||||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | ||||||||||||
| Adjusted EBITDA | ( | ) | ||||||||||||||
| Segment assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Nine Months Ended | ||||||||||||||||
| September 30, 2022 | ||||||||||||||||
| Segment | ||||||||||||||||
| FVS | SV | Eliminations and Other | Consolidated | |||||||||||||
| Fleet vehicle sales | $ | $ | $ | $ | ||||||||||||
| Motorhome chassis sales | ||||||||||||||||
| Other specialty vehicle sales | ( | ) | ||||||||||||||
| Aftermarket parts and accessories sales | ||||||||||||||||
| Total sales | $ | $ | $ | ( | ) | $ | ||||||||||
| Depreciation and amortization expense | $ | $ | $ | $ | ||||||||||||
| Adjusted EBITDA | ( | ) | ||||||||||||||
| Segment assets | ||||||||||||||||
| Capital expenditures | ||||||||||||||||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
The Shyft Group, Inc. was organized as a Michigan corporation and is headquartered in Novi, Michigan. We are a niche market leader in specialty vehicle manufacturing and assembly for the commercial vehicle (including last-mile delivery, specialty service and vocation-specific upfit segments) and recreational vehicle industries. Our products include walk-in vans and truck bodies used in e-commerce/parcel delivery, upfit equipment used in the mobile retail and utility trades, service and vocational truck bodies, luxury Class A diesel motorhome chassis and contract manufacturing and assembly services. We also supply replacement parts and offer repair, maintenance, field service and refurbishment services for the vehicles that we manufacture as well as truck accessories.
Our vehicles, parts and services are sold to commercial users, original equipment manufacturers (OEMs), dealers, individual end users, and municipalities and other governmental entities. Our diversification across several sectors provides numerous opportunities while reducing overall risk as the various markets we serve tend to have different cyclicality. We have an innovative team focused on building lasting relationships with our customers by designing and delivering market leading specialty vehicles, vehicle components, and services. Additionally, our business structure is agile and able to quickly respond to market needs, take advantage of strategic opportunities when they arise and correctly size and scale operations to ensure stability and growth.
We believe we can best carry out our long-term business plan and obtain optimal financial flexibility by using a combination of borrowings under our credit facilities, as well as internally or externally generated equity capital, as sources of expansion capital.
Executive Overview
| ● |
Sales of $201.3 million for the third quarter of 2023, a decrease of 29.6% compared to $286.1 million for the third quarter of 2022. |
| ● |
Gross margin of 18.3% for the third quarter of 2023, compared to 18.9% for the third quarter of 2022. |
| ● |
Operating expense of $32.6 million, or 16.2% of sales for the third quarter of 2023, compared to $32.1 million, or 11.2% of sales for the third quarter of 2022. |
| ● |
Operating income of $4.1 million for the third quarter of 2023, compared to $22.0 million for the third quarter of 2022. |
| ● |
Income tax benefit of $2.0 million for the third quarter of 2023, compared to $3.8 million of expense for the third quarter of 2022. |
| ● |
Net income of $4.5 million for the third quarter of 2023, compared to $17.3 million for the third quarter of 2022. |
|
|
|
● |
Diluted earnings per share of $0.13 for the third quarter of 2023, compared to $0.49 for the third quarter of 2022. |
| ● |
Order backlog of $464.4 million at September 30, 2023, a decrease of $579.5 million or 55.5% from our backlog of $1,043.9 million at September 30, 2022. |
We believe we are well positioned to take advantage of long-term opportunities and continue our efforts to bring product innovations to each of the markets that we serve. Some of our recent innovations, strategic developments and strengths include:
| ● |
In March 2022, we announced Blue Arc™ Electric Vehicle ("EV") Solutions, a new go-to-market brand alongside a trio of initial product offerings—an industry-first commercial grade purpose-built EV chassis; a fully reimagined from the ground up all-electric delivery walk-in van; and a fully portable, remote-controlled charging station, the Power Cube™. |
| ○ |
The proprietary battery-powered chassis features customizable length and wheelbase, making it well-suited to serve a wide range of medium-duty trucks and end uses. The chassis’ modular design will accommodate multiple weight ratings and classifications, based on build-out and usage. |
| ○ |
Leveraging a scalable design, the full Blue Arc EV portfolio covers Class 3, 4 and 5 walk-in van configurations with body length options from 12 to 22 feet. With these options, Shyft customers can maximize productivity and minimize cost of ownership, including fuel and maintenance costs. |
| ○ |
In March 2023, we completed testing and received certification from the United States Environmental Protection Agency (EPA) for the Company’s Blue Arc EV Solutions Class 3, 4 and 5 electric delivery vehicles. In April 2023, we completed testing and received an executive order of compliance from the California Air Resources Board (CARB) for the Company’s Blue Arc EV Solutions Class 3, 4 and 5 electric delivery vehicles. Testing for CARB demonstrated Class 3 delivery vehicle performance at a 225-mile city driving range. |
| ○ |
In October 2023, we announced an agreement with Rush Enterprises, which operates the largest network of commercial vehicle dealerships in North America, to sell and service Blue Arc Class 3, 4 and 5 all-electric delivery vehicles. |
| ● |
The Velocity lineup of last-mile delivery vehicles span Gross Vehicle Weight Rating class sizes 2 and 3 and are available on Ford Transit, Mercedes Sprinter, and RAM Promaster chassis. The Velocity combines fuel efficiency, comfort, and maneuverability with the cargo space, access, and load capacity similar to a traditional walk-in van. |
| ● |
Royal Truck Body’s new Severe Duty body, built to fit General Motors’ medium-duty truck class and Ford's Super Duty truck class, includes more standard features than any other service body on the market. With its fortress five-point lock system, 10-gauge steel box tops treated with a protective Polyurea coating and 3/8″ tread plate steel floors, this work truck is built to last and is ideal for contractors and business owners that need heavy-duty work trucks. |
| ● |
In March 2023, we debuted the all-new steel Royal XP Service Body, precision engineered to eliminate water, salt and chemical traps and featuring a proprietary high-endurance coating for a glossy, high-edge finish to seal out weather and wear. The body is third party tested to live up to its promise on the punishing proving grounds of a leading commercial testing facility and is performance-rated for 250,000 miles. |
| ● |
The K3 and K4 motorhome chassis are equipped with the Spartan® RV Chassis Connected Coach®, featuring the new 15-inch anti-glare digital dash that is custom designed for the RV customer to meet their specific display or operational needs. Integrating with the digital dash is the new Tri-Pod Steering Wheel, which places driving features and instrumentation right at the driver's fingertips, enabling a more effortless engagement with driving features and controls. |
| ● |
The strength of our balance sheet and access to working capital through our revolving line of credit. |
The following section provides a narrative discussion about our financial condition and results of operations. Certain amounts in the narrative may not sum due to rounding. The comments should be read in conjunction with our Condensed Consolidated Financial Statements and related Notes thereto included in Item 1 of this Form 10-Q and in conjunction with our 2022 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2023.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the components of the Company’s Condensed Consolidated Statements of Operations as a percentage of sales (percentages may not sum due to rounding):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| September 30, |
September 30, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Sales |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
| Cost of products sold |
81.7 | 81.1 | 81.7 | 83.2 | ||||||||||||
| Gross profit |
18.3 | 18.9 | 18.3 | 16.8 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
2.6 | 2.5 | 2.7 | 2.7 | ||||||||||||
| Selling, general and administrative |
13.6 | 8.8 | 13.4 | 10.8 | ||||||||||||
| Operating income |
2.0 | 7.7 | 2.2 | 3.3 | ||||||||||||
| Other expense |
(0.8 | ) | (0.3 | ) | (0.7 | ) | (0.3 | ) | ||||||||
| Income before income taxes |
1.3 | 7.4 | 1.5 | 3.0 | ||||||||||||
| Income tax expense (benefit) |
(1.0 | ) | 1.3 | (0.1 | ) | 0.5 | ||||||||||
| Net income |
2.2 | 6.0 | 1.6 | 2.6 | ||||||||||||
| Non-controlling interest |
- | - | - | - | ||||||||||||
| Net income attributable to The Shyft Group, Inc. |
2.2 | 6.0 | 1.6 | 2.6 | ||||||||||||
Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022
Sales
For the three months ended September 30, 2023, we reported consolidated sales of $201.3 million, compared to $286.1 million for the third quarter of 2022, a decrease of $84.8 million or 29.6%. This decrease is driven by lower sales volumes in our Specialty Vehicles (“SV”) segment attributed to lower motorhome chassis market demand, and lower sales in the Fleet Vehicles and Services (“FVS”) segment attributed to lower sales volumes of walk-in vans partially offset by higher truck body sales, including $6.0 million in pass-through chassis sales.
Cost of Products Sold
Cost of products sold was $164.6 million in the third quarter of 2023, compared to $232.0 million for the third quarter of 2022, a decrease of $67.4 million or 29.1%. The decrease was due to $74.5 million in lower volume and mix and $1.5 million due to higher productivity, partially offset by $6.0 million in pass-through chassis costs and $2.6 million higher material and labor inflation, and other costs.
Gross Profit
Gross profit was $36.8 million for the third quarter of 2023, compared to $54.1 million for the third quarter of 2022, a decrease of $17.3 million or 32.0%. The decrease was due to $16.2 million in lower volume and mix net of favorable pricing, and $2.6 million in higher material, labor and other costs, partially offset by $1.5 million in higher productivity.
Operating Expenses
Operating expenses were $32.6 million for the third quarter of 2023, compared to $32.1 million for the third quarter of 2022, an increase of $0.5 million or 1.7%. Research and development expense for the third quarter of 2023 was $5.2 million, compared to $7.1 million in the third quarter of 2022, a decrease of $1.9 million, of which $1.5 million was related to electric vehicle development initiatives as the program moves closer to production. Selling, general and administrative expense was $27.4 million for the third quarter of 2023, compared to $25.0 million for the third quarter of 2022, an increase of $2.4 million, primarily driven by increased employee and administrative costs.
Other Income (Expense)
Other expense was $1.6 million for the third quarter of 2023, compared to $1.0 million for the third quarter of 2022, driven by higher borrowing costs.
Income Tax Expense (Benefit)
Our effective income tax rate was a benefit of 76.0% for the third quarter of 2023, compared to an expense of 17.9% for the third quarter 2022, which reflects the impact of current statutory income tax rates on our income before income taxes combined with the tax expense of non-deductible officer compensation offset by the benefit of research credits combined with a discrete tax benefit in 2023 related to the 2022 tax return-to-provision adjustment for the research credit.
Net Income
Net income for the third quarter of 2023 decreased by $12.8 million to $4.5 million compared to $17.3 million for the third quarter of 2022. On a diluted per share basis, earnings decreased $0.36 to $0.13 for the third quarter of 2023 compared to $0.49 per share for the third quarter of 2022. Driving this decrease were the factors noted above.
Adjusted EBITDA
Our consolidated Adjusted EBITDA for the third quarter of 2023 was $11.0 million, compared to $27.1 million for the third quarter of 2022, a decrease of $16.1 million.