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SHYFT GROUP, INC. - Quarter Report: 2023 June (Form 10-Q)

shyf20230630c_10q.htm
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 


 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023.

 

OR

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

 

Commission File Number 001-33582

 

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

 

Michigan
(State or Other Jurisdiction of 
Incorporation or Organization)

 

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

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

 


48375
(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (517) 543-6400

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

SHYF

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes

 

No

 

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

Yes

 

No

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller Reporting Company

Emerging Growth Company

   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2 of the Exchange Act).             Yes ☐       No ☒     

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

Outstanding at July 21, 2023

Common Stock

34,961,090 shares

 

 
 

THE SHYFT GROUP, INC.

 

INDEX
 


 

 

Page

 

   

FORWARD-LOOKING STATEMENTS

3

 

 

   

PART I.  FINANCIAL INFORMATION

   
 

 

 

   
 

Item 1.

Financial Statements:

   
         
   

Condensed Consolidated Balance Sheets – June 30, 2023 and December 31, 2022 (Unaudited)

4  
   

 

   
   

Condensed Consolidated Statements of Operations – Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

5  
   

 

   
   

Condensed Consolidated Statements of Cash Flows – Six Months Ended June 30, 2023 and 2022 (Unaudited)

6  
         
   

Condensed Consolidated Statement of Shareholders’ Equity – Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)

7  
   

 

   
   

Notes to Condensed Consolidated Financial Statements

8  
   

 

   
 

Item 2.

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

17  
 

 

 

   
 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26  
 

 

 

   
 

Item 4.

Controls and Procedures

27  
 

 

 

   

PART II.  OTHER INFORMATION

   
         
  Item 1. Legal Proceedings 28  
         
 

Item 1A.

Risk Factors

28  
         
 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28  
         
  Item 5. Other Information 28  
         

 

Item 6.

Exhibits

29  

 

 

 

   

SIGNATURES

30  

 

 

FORWARD-LOOKING STATEMENTS

 

This Form 10-Q contains some statements that are not historical facts. These statements are called “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, 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.

 

3

 

PART I.  FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

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

(In thousands) 

 

  

June 30,

  

December 31,

 
  2023  

2022

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $ 7,808  $11,548 

Accounts receivable, less allowance of $270 and $246

  93,442   115,742 

Contract assets

  41,230   86,993 

Inventories

  101,303   100,161 

Other receivables – chassis pool agreements

  9,312   19,544 

Other current assets

  7,078   11,779 

Total current assets

  260,173   345,767 

Property, plant and equipment, net

  77,393   70,753 

Right of use assets operating leases

  49,132   53,386 

Goodwill

  48,880   48,880 

Intangible assets, net

  47,173   49,078 

Net deferred tax assets

  10,390   10,390 

Other assets

  2,705   2,227 

TOTAL ASSETS

 $495,846  $580,481 
         

LIABILITIES AND SHAREHOLDERS' EQUITY

        

Current liabilities:

        

Accounts payable

 $85,733  $124,309 

Accrued warranty

  6,018   7,161 

Accrued compensation and related taxes

  14,770   14,434 

Contract liabilities

  4,198   5,255 

Operating lease liability

  11,378   10,888 

Other current liabilities and accrued expenses

  8,549   19,452 

Short-term debt – chassis pool agreements

  9,312   19,544 

Current portion of long-term debt

  179   189 

Total current liabilities

  140,137   201,232 

Other non-current liabilities

  9,826   10,033 

Long-term operating lease liability

  39,501   44,256 

Long-term debt, less current portion

  45,184   56,266 

Total liabilities

  234,648   311,787 

Commitments and contingent liabilities

          

Shareholders' equity:

        

Preferred stock, no par value: 2,000 shares authorized (none issued)

  -   - 

Common stock, no par value: 80,000 shares authorized; 34,956 and 35,066 outstanding

  90,606   92,982 

Retained earnings

  170,523   175,611 

Total Shyft Group, Inc. shareholders equity

  261,129   268,593 

Non-controlling interest

  69   101 

Total shareholders' equity

  261,198   268,694 

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 $495,846  $580,481 

 

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

June 30,

   

Six Months Ended

June 30,

 
   

2023

   

2022

   

2023

   

2022

 
                                 

Sales

  $ 225,101     $ 232,195     $ 468,540     $ 439,078  

Cost of products sold

    182,347       190,077       382,862       371,029  

Gross profit

    42,754       42,118       85,678       68,049  
                                 

Operating expenses:

                               

Research and development

    5,890       7,563       12,839       12,490  

Selling, general and administrative

    30,270       26,860       62,559       53,412  

Total operating expenses

    36,160       34,423       75,398       65,902  
                                 

Operating income

    6,594       7,695       10,280       2,147  
                                 

Other income (expense)

                               

Interest expense

    (1,477 )     (463 )     (3,125 )     (617 )

Other income (expense)

    124       (488 )     194       (523 )

Total other expense

    (1,353 )     (951 )     (2,931 )     (1,140 )
                                 

Income before income taxes

    5,241       6,744       7,349       1,007  

Income tax expense (benefit)

    556       1,461       986       (424 )

Net income

    4,685       5,283       6,363       1,431  

Less: net loss attributable to non-controlling interest

    -       -       32       -  
                                 

Net income attributable to The Shyft Group Inc.

  $ 4,685     $ 5,283     $ 6,395     $ 1,431  
                                 

Basic earnings per share

  $ 0.13     $ 0.15     $ 0.18     $ 0.04  

Diluted earnings per share

  $ 0.13     $ 0.15     $ 0.18     $ 0.04  
                                 

Basic weighted average common shares outstanding

    34,935       35,049       34,995       35,078  

Diluted weighted average common shares outstanding

    34,991       35,243       35,161       35,437  

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 

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

(In thousands)

 

   

Six Months Ended June 30,

 
    2023    

2022

 

Cash flows from operating activities:

               

Net income

  $ 6,363     $ 1,431  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation and amortization

    8,050       6,696  

Non-cash stock based compensation expense

    3,090       3,708  
Deferred income taxes     -       (432 )

Loss on disposal of assets

    128       481  

Changes in accounts receivable and contract assets

    68,064       (12,863 )

Changes in inventories

    (1,142 )     (34,826 )

Changes in accounts payable

    (38,567 )     7,333  

Changes in accrued compensation and related taxes

    303       (6,146 )

Changes in accrued warranty

    (1,143 )     (379 )

Change in other assets and liabilities

    (9,525 )     (1,672 )

Net cash provided by (used in) operating activities

    35,621       (36,669 )
                 

Cash flows from investing activities:

               

Purchases of property, plant and equipment

    (10,963 )     (10,010 )
Proceeds from sale of property, plant and equipment     82       148  

Acquisition of business, net of cash acquired

    (500 )     -  

Net cash used in investing activities

    (11,381 )     (9,862 )
                 

Cash flows from financing activities:

               

Proceeds from long-term debt

    70,000       85,000  

Payments on long-term debt

    (81,000 )     (30,000 )

Payment of dividends

    (3,653 )     (3,640 )

Purchase and retirement of common stock

    (8,786 )     (26,789 )

Exercise and vesting of stock incentive awards

    (4,541 )     (8,591 )

Net cash provided by (used in) financing activities

    (27,980 )     15,980  
                 

Net decrease in cash and cash equivalents

    (3,740 )     (30,551 )

Cash and cash equivalents at beginning of period

    11,548       37,158  

Cash and cash equivalents at end of period

  $ 7,808     $ 6,607  

 

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

  35,066  $92,982  $175,611  $101  $268,694 

Issuance of common stock and tax impact of stock incentive plan

  5   (4,656)  -   -   (4,656)

Dividends declared ($0.05 per share)

  -   -   (1,820)  -   (1,820)

Purchase and retirement of common stock

  (349)  (893)  (7,872)  -   (8,765)

Issuance of restricted stock, net of cancellation

  193   -   -   -   - 

Non-cash stock based compensation expense

  -   1,827   -   -   1,827 

Net income (loss)

  -   -   1,710   (32)  1,678 

Balance at March 31, 2023

  34,915  $89,260  $167,629  $69  $256,958 
Issuance of common stock and tax impact of stock incentive plan  5   83   -   -   83 
Dividends declared ($0.05 per share)  -   -   (1,770)  -   (1,770)
Issuance of restricted stock, net of cancellation  36   -   (21)  -   (21)
Non-cash stock based compensation expense  -   1,263   -   -   1,263 
Net income  -   -   4,685   -   4,685 
Balance at June 30, 2023  34,956  $90,606  $170,523  $69  $261,198 

 

  

Number of

Shares

  

Common

Stock

  

Retained

Earnings

  

Non-

Controlling

Interest

  

Total

Shareholders

Equity

 

Balance at December 31, 2021

  35,416  $95,375  $171,379  $101  $266,855 

Issuance of common stock and tax impact of stock incentive plan

  3   (8,372)  -   -   (8,372)

Dividends declared ($0.05 per share)

  -   -   (1,794)  -   (1,794)

Purchase and retirement of common stock

  (607)  (1,598)  (25,191)  -   (26,789)

Issuance of restricted stock, net of cancellation

  215   -   -   -   - 

Non-cash stock based compensation expense

  -   1,648   -   -   1,648 

Net loss

  -   -   (3,852)  -   (3,852)

Balance at March 31, 2022

  35,027  $87,053  $140,542  $101  $227,696 
Issuance of common stock and tax impact of stock incentive plan  3   (219)  -   -   (219)
Dividends declared ($0.05 per share)  -   -   (1,784)  -   (1,784)
Issuance of restricted stock, net of cancellation  33   -   -   -   - 
Non-cash stock based compensation expense  -   2,060   -   -   2,060 
Net income  -   -   5,283   -   5,283 
Balance at June 30, 2022  35,063  $88,894  $144,041  $101  $233,036 

 

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 June 30, 2023, and our results of operations and cash flows for the three and six months ended June 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 six months ended June 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 six months ended June 30, 2023 and June 30, 2022 included $2,106 and $1,994 of capital expenditures, respectively. The Company has chassis pool agreements, where it participates in chassis converter pools that are non-cash arrangements and they are offsetting between current assets and current liabilities on the Company’s Consolidated Balance Sheets. See "Note 3 – Debt" for further information about the chassis pool agreements.

 

NOTE 2 – INVENTORIES

 

Inventories are summarized as follows:

 

   

June 30,

2023

   

December 31,
2022

 

Finished goods

  $ 13,430     $ 13,361  

Work in process

    3,150       5,200  

Raw materials and purchased components

    84,723       81,600  

Total inventories

  $ 101,303     $ 100,161  
 

NOTE 3 – DEBT

 

Short-term debt consists of the following:

 

  

June 30,
2023

  

December 31,
2022

 

Chassis pool agreements

 $9,312  $19,544 

Total short-term debt

 $9,312  $19,544 

 

8

 

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 any related obligations in cash, nor does it expect to do so in the future. Instead, the obligation is settled by the manufacturer upon reassignment of the chassis to an accepted dealer, and the dealer is invoiced for the chassis by the manufacturer. 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:

 

  

June 30,
2023

  

December 31,
2022

 

Line of credit revolver

 $45,000  $56,000 

Finance lease obligation

  363   455 

Total debt

  45,363   56,455 

Less current portion of long-term debt

  (179)  (189)

Total long-term debt

 $45,184  $56,266 

 

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. ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A., PNC Bank, National Association 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 $400,000 from the Lenders under a secured revolving credit facility which matures November 30, 2026. We may also request an increase in the facility of up to $200,000 in the aggregate, subject to customary conditions. The revolving credit facility is also available for the issuance of letters of credit of up to $20,000 and swing line loans of up to $10,000, subject to certain limitations and restrictions. The revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted SOFR plus 1.0%; or (ii) adjusted SOFR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The applicable borrowing rate including the margin was 6.27% (or one-month SOFR plus 1.00%) at June 30, 2023. The revolving credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At June 30, 2023 and December 31, 2022, we had outstanding letters of credit totaling $1,550 and $1,200, respectively, related to our workers’ compensation insurance.

 

9

 

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 $244,315 and $187,162 at June 30, 2023 and December 31, 2022, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial covenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales, all subject to certain exceptions and baskets. At June 30, 2023 and December 31, 2022, we were in compliance with all covenants in our Credit Agreement.

 

NOTE 4 – REVENUE

 

Changes in our contract assets and liabilities for the six months ended June 30, 2023 and 2022 are summarized below:

 

  

June 30,

2023

  

June 30,

2022

 

Contract Assets

        

Contract assets, beginning of period

 $86,993  $21,483 

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

   (83,470)  (20,777)

Contract assets recognized, net of reclassification to receivables

  37,707   41,662 

Contract assets, end of period

 $41,230  $42,368 
         

Contract Liabilities

        

Contract liabilities, beginning of period

 $5,255  $988 

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

  (4,912)  (988)

Cash received in advance and not recognized as revenue

  3,855   1,359 

Contract liabilities, end of period

 $4,198  $1,359 

 

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 $437,802 and $72,402, respectively.

 

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

June 30, 2023

 
  

FVS

  

SV

  

Eliminations and

Other

  

Total

 

Primary geographical markets

                

United States

 $124,463  $87,519  $(1,443) $210,539 

Other

  14,520   42   -   14,562 

Total sales

 $138,983  $87,561  $(1,443) $225,101 
                 

Timing of revenue recognition

                

Products transferred at a point in time

 $13,692  $38,118  $-  $51,810 

Products and services transferred over time

  125,291   49,443   (1,443)  173,291 

Total sales

 $138,983  $87,561  $(1,443) $225,101 

  

10

 

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

(Dollar amounts in thousands, except per share data)

 

  

Three Months Ended

June 30, 2022

 
  

FVS

  

SV

  

Eliminations and

Other

  

Total

 

Primary geographical markets

                

United States

 $133,861  $95,273  $-  $229,134 

Other

  3,036   25   -   3,061 

Total sales

 $136,897  $95,298  $-  $232,195 
                 

Timing of revenue recognition

                

Products transferred at a point in time

 $10,716  $51,488  $-  $62,204 

Products and services transferred over time

  126,181   43,810   -   169,991 

Total sales

 $136,897  $95,298  $-  $232,195 

 

  

Six Months Ended

 
  

June 30, 2023

 
  

FVS

  

SV

  

Eliminations and Other

  

Total

 

Primary geographical markets

                

United States

 $278,491  $174,703  $ (4,624)  $448,570 

Other

  19,925   45   -   19,970 

Total sales

 $298,416  $174,748  $ (4,624)  $468,540 
                 

Timing of revenue recognition

                

Products transferred at a point in time

 $25,846  $75,680  $-  $101,526 

Products and services transferred over time

  272,570   99,068    (4,624)   367,014 

Total sales

 $298,416  $174,748  $ (4,624)  $468,540 

 

  

Six Months Ended

 
  

June 30, 2022

 
  

FVS

  

SV

  

Eliminations and Other

  

Total

 

Primary geographical markets

                

United States

 $245,197  $189,456  $-  $434,653 

Other

  4,397   28   -   4,425 

Total sales

 $249,594  $189,484  $-  $439,078 
                 

Timing of revenue recognition

                

Products transferred at a point in time

 $20,271  $104,339  $-  $124,610 

Products and services transferred over time

  229,323   85,145   -   314,468 

Total sales

 $249,594  $189,484  $-  $439,078 

 

11

 

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:

 

   

June 30,

2023

   

December 31,

2022

 

Land and improvements

  $ 12,226     $ 12,314  

Buildings and improvements

    43,195       42,827  

Plant machinery and equipment

    58,810       55,969  

Furniture and fixtures

    19,415       18,334  

Vehicles

    2,008       2,083  

Construction in process

    15,367       9,946  

Subtotal

    151,021       141,473  

Accumulated depreciation

    (73,628 )     (70,720 )

Total property, plant and equipment, net

  $ 77,393     $ 70,753  

 

We recorded depreciation expense of $3,233 and $2,626 during the three months ended June 30, 2023 and 2022, respectively, and $6,145 and $4,751 during the six months ended June 30, 2023 and 2022, respectively.

 

NOTE 6 – LEASES

 

We have operating and finance leases for land, buildings and certain equipment. Our leases have remaining lease terms of one year to 17 years, some of which include options to extend the leases for up to 15 years. Our leases do not contain residual value guarantees. Assets recorded under finance leases were immaterial (See "Note 3 – Debt").

 

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

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2023

  

2022

  

2023

  

2022

 

Operating leases

 $2,983  $2,571  $5,947  $4,809 

Short-term leases(1)

  370   19   622   57 

Total lease expense

 $3,353  $2,590  $6,569  $4,866 

 

(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:

 

  

June 30,

 
  

2023

  

2022

 

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

  7.2   8.4 

Weighted average discount rate of operating leases

  2.8%  2.7

%

 

12

 

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:

 

  

Six Months Ended

June 30,

 
  

2023

  

2022

 

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

        

Operating cash flow for operating leases

 $5,622  $4,287 
         

Right of use assets obtained in exchange for lease obligations:

        

Operating leases

 $8,672  $15,331 
Finance leases $65  $202 

 

Maturities of operating lease liabilities as of June 30, 2023 are as follows:

 

Years ending December 31:

    

2023(1)

 $5,805 

2024

  10,770 

2025

  10,034 

2026

  7,867 

2027

  5,540 

Thereafter

  20,511 

Total lease payments

  60,527 

Imputed interest

  (9,648)

Total lease liabilities

 $50,879 

 

(1) Excluding the six months ended June 30, 2023.

 

NOTE 7 – COMMITMENTS AND CONTINGENT LIABILITIES

 

At June 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.

 

13

 

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:

 

  

Six Months Ended

June 30,

 
  

2023

  

2022

 

Balance of accrued warranty at January 1

 $7,161  $5,975 

Provisions for current period sales

  2,002   2,151 
Changes in liability for pre-existing warranties  (1,437)  (256)

Cash settlements

  (1,708)  (2,274)

Balance of accrued warranty at June 30

 $6,018  $5,596 

 

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 10.6% and 21.7% for the three months ended June 30, 2023 and 2022, respectively, compared to a tax expense of 13.4% and a tax benefit of 42.1% for the six months ended June 30, 2023 and 2022, respectively.

 

The effective tax rates of 10.6% and 21.7% for the three months ended June 30, 2023 and 2022, respectively, differ from the U.S. statutory tax rate of 21.0% primarily due to non-deductible executive compensation offset by the benefit of research credits. 

 

Our effective income tax rate was a tax expense of 13.4% in the first six months of 2023, compared to a tax benefit of 42.1% in the first six months of 2022 primarily because of a discrete tax benefit in 2022 related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting.

 

NOTE 9 – BUSINESS SEGMENTS

 

15

 

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

 

  

Six Months Ended

 
  

June 30, 2023

 
  

Segment

 
  

FVS

  

SV

  

Eliminations

and Other

  

Consolidated

 
                 

Fleet vehicle sales

 $272,570  $-  $-  $272,570 

Motorhome chassis sales

  -   58,059   -   58,059 

Other specialty vehicle sales

  -   106,349   (4,624)  101,725 

Aftermarket parts and accessories sales

  25,846   10,340   -   36,186 

Total sales

 $298,416  $174,748  $(4,624) $468,540 
                 

Depreciation and amortization expense

 $2,979  $3,379  $1,692  $8,050 

Adjusted EBITDA

  24,941   31,219   (29,505)  26,655 

Segment assets

  252,352   194,718   48,776   495,846 

Capital expenditures

  3,567   1,179   7,435   12,181 

 

  

Six Months Ended

 
  

June 30, 2022

 
  

Segment

 
  

FVS

  

SV

  

Eliminations

and Other

  

Consolidated

 
                 

Fleet vehicle sales

 $229,323  $-  $-  $229,323 

Motorhome chassis sales

  -   87,601   -   87,601 

Other specialty vehicle sales

  -   91,750   -   91,750 

Aftermarket parts and accessories sales

  20,271   10,133   -   30,404 

Total sales

 $249,594  $189,484  $-  $439,078 
                 

Depreciation and amortization expense

 $1,930  $3,614  $1,152  $6,696 

Adjusted EBITDA

  13,654   22,958   (23,566)  13,046 

Segment assets

  228,863   223,388   42,762   495,013 

Capital expenditures

  7,799   686   2,007   10,492 

 

16

 

Item 2.

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. Our growing opportunities that we have capitalized on in last mile delivery as a result of the rapidly changing e-commerce market is an excellent example of our ability to generate growth and profitability by quickly fulfilling customer needs.

 

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 $225.1 million for the second quarter of 2023, a decrease of 3.1% compared to $232.2 million for the second quarter of 2022.

 

Gross Margin of 19.0% for the second quarter of 2023, compared to 18.1% for the second quarter of 2022.

 

Operating expense of $36.2 million, or 16.1% of sales for the second quarter of 2023, compared to $34.4 million, or 14.8% of sales for the second quarter of 2022.

 

Operating income of $6.6 million for the second quarter of 2023, compared to $7.7 million for the second quarter of 2022.

 

Income tax expense of $0.6 million for the second quarter of 2023, compared to $1.5 million for the second quarter of 2022.

 

Net income of $4.7 million for the second quarter of 2023, compared to $5.3 million for the second quarter of 2022.

 

Diluted earnings per share of $0.13 for the second quarter of 2023, compared to $0.15 for the second quarter of 2022.

 

Order backlog of $510.2 million at June 30, 2023, a decrease of $625.0 million or 55.1% from our backlog of $1,135.2 million at June 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 is available in Class 3, 4 and 5 walk-in van configurations with body length options from 12 to 22 feet. Designed for high-frequency, last-mile delivery fleets, these vehicles are powered by lithium-ion battery packs with optional extended range packs available. 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.

 

 

 

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

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Sales

    100.0       100.0       100.0       100.0  

Cost of products sold

    81.0       81.9       81.7       84.5  

Gross profit

    19.0       18.1       18.3       15.5  

Operating expenses:

                               

Research and development

    2.6       3.3       2.7       2.8  

Selling, general and administrative

    13.4       11.6       13.4       12.2  

Operating income

    2.9       3.3       2.2       0.5  

Other expense

    (0.6 )     (0.4 )     (0.6 )     (0.3 )

Income before income taxes

    2.3       2.9       1.6       0.2  

Income tax expense (benefit)

    0.2       0.6       0.2       (0.1 )

Net income

    2.1       2.3       1.4       0.3  

Non-controlling interest

    -       -       -       -  

Net income attributable to The Shyft Group, Inc.

    2.1       2.3       1.4       0.3  

 

 

Three Months June 30, 2023 Compared to the Three Months Ended June 30, 2022

 

Sales

 

For the quarter ended June 30, 2023, we reported consolidated sales of $225.1 million, compared to $232.2 million for the second quarter of 2022, a decrease of $7.1 million or 3.1%. This decrease is primarily attributed to lower sales volumes in our Specialty Vehicles (“SV”) segment attributed to lower motorhome chassis sales, partially offset by increased sales in the Fleet Vehicles and Services (“FVS”) segment attributed to higher truck body sales, including $7.5 million in pass-through chassis sales.

   
Cost of Products Sold

 

Cost of products sold was $182.3 million in the second quarter of 2023, compared to $190.1 million for the second quarter of 2022, a decrease of $7.8 million or 4.1%. The decrease was due to $11.0 million lower volume and mix and $5.8 million due to higher productivity, partially offset by $7.5 million in pass-through chassis costs and $1.5 million higher material and labor inflation, and other costs.

 

Gross Profit

 

Gross profit was $42.8 million for the second quarter of 2023, compared to $42.1 million for the second quarter of 2022, an increase of $0.7 million or 1.5%. The increase was due to $5.8 million in higher productivity, partially offset by $3.6 million in lower volume and mix net of pricing and $1.5 million higher material, labor and other costs.

 

Operating Expenses

 

Operating expenses were $36.2 million for the second quarter of 2023, compared to $34.4 million for the second quarter of 2022, an increase of $1.8 million or 5.0%. Research and development expense for the second quarter of 2023 was $5.9 million, compared to $7.6 million in the second quarter of 2022, a decrease of $1.7 million, of which $1.4 million was related to electric vehicle development initiatives. Selling, general and administrative expense was $30.3 million for the second quarter of 2023, compared to $26.9 million for the second quarter of 2022, an increase of $3.4 million, primarily driven by $2.5 million of increased employee and administrative costs including CEO transition and severance related cost reduction initiatives, and in addition $0.9 million related to electric vehicle program costs.


Other Income (Expense)

 

Interest expense was $1.5 million for the second quarter of 2023, compared to $0.5 million for the second quarter of 2022, driven by higher borrowing costs. Other income was $0.1 million for the second quarter of 2023, compared to $0.5 million expense for the second quarter of 2022.

 

Income Tax Expense (Benefit)

 

Our effective income tax rate was 10.6% for the second quarter of 2023, compared to 21.7% for the second quarter 2022, which reflects the impact of current statutory income tax rates on our income before income taxes combined with the tax expense related to non-deductible officer compensation offset by the benefit of research credits.

 

Net Income

 

Net income for the second quarter of 2023 decreased by $0.6 million to $4.7 million compared to $5.3 million for the second quarter of 2022. On a diluted per share basis, earnings decreased $0.02 to $0.13 for the second quarter of 2023 compared to $0.15 per share for the second quarter of 2022. Driving this decrease were the factors noted above.

 

Adjusted EBITDA

 

Our consolidated Adjusted EBITDA for the second quarter of 2023 was $15.9 million, compared to $13.7 million for the second quarter of 2022, an increase of $2.2 million.

 

 

The table below describes the changes in Adjusted EBITDA for the three months ended June 30, 2023 compared to the same period for 2022 (in millions):

 

Adjusted EBITDA three months ended June 30, 2022

  $ 13.7  
Sales volume and other     2.2  

Material and labor costs

    (0.9 )
EV development/program costs     0.5  

General and administrative costs and other

    0.4  

Adjusted EBITDA three months ended June 30, 2023

  $ 15.9  

 

Six Months June 30, 2023 Compared to the Six Months Ended June 30, 2022

 

Sales

 
For the six months ended June 30, 2023, we reported consolidated sales of $468.5 million, compared to $439.1 million for the first six months of 2022, an increase of $29.5 million or 6.7%. This increase was primarily attributable to increased sales volume driven by truck body sales in our FVS segment including $13.2 million in pass-through chassis sales and favorable pricing implemented to offset material and labor inflation, partially offset by lower sales volumes in our SV segment primarily attributable to lower motorhome chassis sales.

 

Cost of Products Sold

 

Cost of products sold was $382.9 million for the first six months of 2023, compared to $371.0 million for the first six months of 2022, an increase of $11.9 million or 3.2%. The increase was due to $12.2 million higher volume and mix and $3.5 million higher material and labor inflation and $13.2 million in pass-through chassis costs, partially offset by $17.0 million due to higher productivity.

 

Gross Profit

 

Gross profit was $85.7 million for the first six months of 2023, compared to $68.0 million for the first six months of 2022, an increase of $17.6 million or 25.9%. The increase was due to $4.1 million more favorable pricing net of lower volume and mix and $17.0 million in higher productivity, partially offset by $3.5 million due in higher material, labor and other costs.

 

Operating Expenses

 

Operating expenses were $75.4 million for the first six months of 2023, compared to $65.9 million for the first six months of 2022, an increase of $9.5 million or 14.4%. Research and development expense for the first six months of 2023 was $12.8 million, compared to $12.5 million in the first six months of 2022, an increase of $0.3 million, of which $1.0 million was related to electric vehicle development initiatives partially offset by a $0.7 million decrease related to other products. Selling, general and administrative expense was $62.6 million for the first six months of 2023, compared to $53.4 million for the first six months of 2022, an increase of $9.2 million, primarily driven by $6.6 million of increased employee and administrative costs including CEO transition and severance related to cost reduction initiatives and in addition $2.6 million of electric vehicle program costs.

 

Other Income (Expense)

 

Interest expense was $3.1 million for the first six months of 2023, compared to $0.6 million for the first six months of 2022, driven by higher borrowing costs. Other income was $0.2 million for the first six months of 2023, compared to $0.5 million expense for the first six months of 2022.

 

Income Tax Expense (Benefit)

 

Our effective income tax rate was 13.4% for the first six months of 2023, compared to a tax benefit of 42.1% for the first six months of 2022, which reflects the impact of current statutory income tax rates on our income before income taxes combined with a discrete tax benefit in 2022 related to the difference in stock compensation expense recognized for book purposes and tax purposes upon vesting.

 

Net Income

 

Net income for the first six months of 2023 increased by $5.0 million to $6.4 million compared to $1.4 million for the first six months of 2022. On a diluted per share basis, earnings increased $0.14 to $0.18 for the first six months of 2023 compared to $0.04 per share for the first six months of 2022. Driving this increase were the factors noted above.

 

 

Adjusted EBITDA

 

Our consolidated Adjusted EBITDA for the first quarter of 2023 was $26.7 million, compared to $13.0 million for the first quarter of 2022, an increase of $13.7 million.

 

The table below describes the changes in Adjusted EBITDA for the six months ended June 30, 2023 compared to the same period for 2022 (in millions):

 

Adjusted EBITDA six months ended June 30, 2022

  $ 13.0  
Sales volume and other     9.9  

Product pricing and mix

    8.1  

Material and labor costs

    (2.9 )
EV development/program costs     (3.6 )

General and administrative costs and other

    2.2  

Adjusted EBITDA six months ended June 30, 2023

  $ 26.7  

 

Order Backlog

 

Our order backlog by reportable segment is summarized in the following table (in thousands):

 

   

June 30,

2023

   

June 30,

2022

 

Fleet Vehicles and Services

  $ 437,802     $ 1,000,021  

Specialty Vehicles

    72,402       135,162  

Total consolidated

  $ 510,204     $ 1,135,183  

 

The consolidated backlog at June 30, 2023 totaled $510.2 million, a decrease of $625.0 million, or 55.1%, compared to $1,135.2 million at June 30, 2022.

 
Our FVS backlog decreased by $562.2 million, or 56.2%, primarily to vehicle sales and softening demand in delivery vans. Our SV segment backlog decreased by $62.8 million, or 46.4%, due to lower motorhome orders.

 

Orders in the backlog are subject to modification, cancellation or rescheduling by customers. Although the backlog of unfilled orders is one of many indicators of market demand, several factors, such as changes in production rates, available capacity, new product introductions, supply of chassis, and competitive pricing actions, may affect actual sales. Accordingly, a comparison of backlog from period-to-period is not necessarily indicative of eventual actual shipments.

 

Reconciliation of Non-GAAP Financial Measures

 

This report presents Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which is a non-GAAP financial measure. This non-GAAP measure is calculated by excluding items that we believe to be infrequent or not indicative of our underlying operating performance, as well as certain non-cash expenses. We define Adjusted EBITDA as income from continuing operations before interest, income taxes, depreciation and amortization, as adjusted to eliminate the impact of restructuring charges, acquisition related expenses and adjustments, non-cash stock-based compensation expenses, and other gains and losses not reflective of our ongoing operations.

 

We present the non-GAAP measure Adjusted EBITDA because we consider it to be an important supplemental measure of our performance. The presentation of Adjusted EBITDA enables investors to better understand our operations by removing items that we believe are not representative of our continuing operations and may distort our longer-term operating trends. We believe this measure to be useful to improve the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not indicative of our continuing operating performance. We believe that presenting this non-GAAP measure is useful to investors because it permits investors to view performance using the same tools that management uses to budget, make operating and strategic decisions, and evaluate our historical performance. We believe that the presentation of this non-GAAP measure, when considered together with the corresponding GAAP financial measures and the reconciliations to that measure, provides investors with additional understanding of the factors and trends affecting our business than could be obtained in the absence of this disclosure.

  

 

We use Adjusted EBITDA to evaluate the performance of and allocate resources to our segments. Adjusted EBITDA is also used, along with other financial and non-financial measures, for purposes of determining annual incentive compensation for our management team and long-term incentive compensation for certain members of our management team.

 

The following table reconciles Income from continuing operations to Adjusted EBITDA for the periods indicated.

 

Financial Summary (Non-GAAP)

Consolidated

(In thousands, Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2023

   

2022

   

2023

   

2022

 

Net Income

  $ 4,685     $ 5,283     $ 6,363     $ 1,431  

Net loss attributable to non-controlling interest

    -       -       32       -  

Add (subtract):

                               

Interest expense

    1,477       463       3,125       617  

Depreciation and amortization expense

    4,186       3,727       8,050       6,696  

Income tax expense (benefit)

    556       1,461       986       (424 )

Restructuring and other related charges

    1,253       354       1,315       461  

Acquisition related expenses and adjustments

    -       341       291       557  

Non-cash stock based compensation expense

    1,263       2,060       3,090       3,708  

Legacy legal matters

    -       -       956       -  
Non-recurring professional fees      160       -       160       -  
CEO transition     2,287       -       2,287       -  

Adjusted EBITDA

  $ 15,867     $ 13,689     $ 26,655     $ 13,046  

 

Our Segments

 

We identify our reportable segments based on our management structure and the financial data utilized by our chief operating decision maker to assess segment performance and allocate resources among our operating units. We have two reportable segments: FVS and SV.

 

For certain financial information related to each segment, see "Note 9 – Business Segments," of the Notes to Condensed Consolidated Financial Statements appearing in Item 1 of this Form 10-Q.

 

Fleet Vehicles and Services

  

   

Financial Data

 
   

(Dollars in Thousands)

 
   

Three Months Ended

June 30,

 
   

2023

   

2022

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 
                                 

Sales

  $ 138,983       100.0 %   $ 136,897       100.0 %

Adjusted EBITDA

    12,468       9.0 %     14,525       10.6 %

 

Sales in our FVS segment were $139.0 million for the second quarter of 2023, compared to $136.9 million for the second quarter of 2022, an increase of $2.1 million or 1.5%. This increase was primarily attributable to increased truck body sales including $7.5 million in pass-through chassis sales partially offset by a softening in the delivery van markets.

 
Adjusted EBITDA in our FVS segment for the second quarter of 2023 was $12.5 million compared to $14.5 million for the second quarter of 2022, a decrease of $2.0 million. This decrease was attributable to $1.1 million lower volume and $6.6 million unfavorable mix net of pricing, partially offset by $3.2 million favorable productivity and $2.5 million favorable material, labor costs, and other costs.

 

 

   

Financial Data

 
   

(Dollars in Thousands)

 
   

Six Months Ended

 
   

June 30,

 
   

2023

   

2022

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 
                                 

Sales

  $ 298,416       100.0

%

  $ 249,594       100.0 %

Adjusted EBITDA

    24,941       8.4

%

    13,654       5.5

%

 

Sales in our FVS segment were $298.4 million for the first six months of 2023, compared to $249.6 million for the first six months of 2022, an increase of $48.8 million or 19.6%. This increase was primarily attributable to increased sales volume driven by truck body sales as well as easing of industry wide supply chain constraints.


Adjusted EBITDA in our FVS segment for the first six months of 2023 was $24.9 million compared to $13.7 million for the first six months of 2022, an increase of $11.2 million. This increase was attributable to $1.3 million favorable volume, $9.0 million favorable productivity and $4.3 million favorable material, labor costs, and other costs, partially offset by $3.4 million unfavorable mix net of pricing.

 

Specialty Vehicles

  

   

Financial Data

 
   

(Dollars in Thousands)

 
   

Three Months Ended

June 30,

 
   

2023

   

2022

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 
                                 

Sales

  $ 87,561       100.0 %   $ 95,298       100.0

%

Adjusted EBITDA

    17,367       19.8 %     12,859       13.5

%

 

Sales in our SV segment were $87.6 million in the second quarter of 2023, compared to $95.3 million for the second quarter of 2022, a decrease of $7.7 million or 8.1%. This decrease was primarily attributable to lower motorhome sales volumes, partially offset by higher service body sales.

 
Adjusted EBITDA for our SV segment for the second quarter of 2023 was $17.4 million, compared to $12.9 million for the second quarter of 2022, an increase of $4.5 million or 35.1%. This increase was primarily attributable to $6.7 million favorable pricing and mix and $2.5 million favorable productivity, partially offset by $2.4 million due to lower volume and $2.3 million due to material, labor, and other costs.

 

   

Financial Data

 
   

(Dollars in Thousands)

 
   

Six Months Ended

 
   

June 30,

 
   

2023

   

2022

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 
                                 

Sales

  $ 174,748       100.0

%

  $ 189,484       100.0

%

Adjusted EBITDA

    31,219       17.9

%

    22,958       12.1

%

 

Sales in our SV segment were $174.7 million in the first six months of 2023, compared to $189.5 million for the first six months of 2022, a decrease of $14.8 million or 7.8%. This decrease was primarily attributable to lower motorhome sales volumes, partially offset by higher service body sales.

 

Adjusted EBITDA for our SV segment for the first six months of 2023 was $31.2 million, compared to $23.0 million for the first six months of 2022, an increase of $8.2 million or 36.0%. This increase was primarily attributable to $14.2 million favorable pricing and mix and $3.0 million favorable productivity, partially offset by $4.7 million due to lower volume and $4.3 million due to material, labor, and other costs.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

Cash Flows

 

Cash and cash equivalents decreased by $3.7 million from December 31, 2022, to a balance of $7.8 million as of June 30, 2023. These funds, in addition to cash generated from future operations and availability under our existing credit facilities, are expected to be sufficient to finance our foreseeable liquidity and capital needs, including potential future acquisitions.

 

Cash Flow from Operating Activities

 

We generated $35.6 million of cash from operating activities during the six months ended June 30, 2023, an increase in cash provided of $72.3 million from $36.7 million of cash used in operating activities during the six months ended June 30, 2022. The $35.6 million of cash generated in the first six months of 2023 was driven by a $17.6 million net inflow related to income adjusted for non-cash charges to operations and by a $18.0 million net inflow related to the change in net working capital. The change in working capital in the first six months of 2023 was driven by a $68.1 million net inflow related to decreased receivables and contract assets primarily attributable to the completion of in process vehicles and a $0.3 million net inflow related to changes in accrued compensation and related taxes, partially offset by a $38.6 million net outflow related to decreased payables primarily attributable to timing of payments within the period, a $1.1 million net outflow related to increased inventories primarily attributable to increased raw material inventories, a $1.1 million net outflow related to changes in accrued warranty, and a $9.5 million net outflow related to changes in other assets and liabilities.

 

Cash Flow from Investing Activities

 

We used $11.4 million in investing activities during the six months ended June 30, 2023, an increase in cash used of $1.5 million from $9.9 million used during the six months ended June 30, 2022. The increase in cash used in investing activities is primarily due to a $1.0 million increase in the purchases of property, plant and equipment and a $0.5 million increase related to the acquisition of a business.

 

Cash Flow from Financing Activities

 

We used $28.0 million of cash through financing activities during the six months ended June 30, 2023, an increase in cash used of $44.0 million from $16.0 million generated during the six months ended June 30, 2022. The increase in cash used by financing activities is primarily attributable to $51.0 million of increased payments on long-term debt and $15.0 million of decreased proceeds from long-term debt, partially offset by an $18.0 million decrease in the purchase and retirement of common stock and a $4.1 million decrease in exercise and vesting of stock awards.

 

Debt

 

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. ("Wells Fargo"), as administrative agent, and the lenders party thereto consisting of Wells Fargo, JPMorgan Chase Bank, N.A., PNC Bank, National Association 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 $400.0 million from the Lenders under a secured revolving credit facility which matures November 30, 2026. We may also request an increase in the facility of up to $200.0 million in the aggregate, subject to customary conditions. The revolving credit facility is also available for the issuance of letters of credit of up to $20.0 million and swing line loans of up to $10.0 million, subject to certain limitations and restrictions. The revolving credit facility carries an interest rate of either (i) the highest of prime rate, the federal funds effective rate from time to time plus 0.5%, or the one month adjusted SOFR plus 1.0%; or (ii) adjusted SOFR, in each case plus a margin based upon our ratio of debt to earnings from time to time. The applicable borrowing rate including the margin was 6.27% (or one-month SOFR plus 1.00%) at June 30, 2023. The revolving credit facility is secured by security interests in, and liens on, all assets of the borrowers and guarantors, other than real property and certain other excluded assets. At June 30, 2023 and December 31, 2022, we had outstanding letters of credit totaling $1.2 million, related to our workers’ compensation insurance.

 

 

Under the terms of our Credit Agreement, available borrowings (exclusive of outstanding borrowings) totaled $244.3 million and $187.2 million at June 30, 2023 and December 31, 2022, respectively. The Credit Agreement requires us to maintain certain financial ratios and other financial covenants; prohibits us from incurring additional indebtedness; limits certain acquisitions, investments, advances or loans; limits our ability to pay dividends in certain circumstances; and restricts substantial asset sales, all subject to certain exceptions and baskets. At June 30, 2023 and December 31, 2022, we were in compliance with all covenants in our Credit Agreement.

 

Equity Securities

 

On February 17, 2022, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock in open market transactions. In the first quarter of 2023, we repurchased 348,705 shares for $8.8 million. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.

 

Dividends

 

The amounts or timing of any dividends are subject to earnings, financial condition, liquidity, capital requirements and such other factors as our Board of Directors deems relevant. We declared dividends on our outstanding common shares in 2023 and 2022 as shown in the table below.

 

Date dividend declared

 

Record date

 

Payment date

 

Dividend per share ($)

 
May 2, 2023   May 17, 2023   Jun. 20, 2023   $ 0.05  
Jan. 31, 2023   Feb. 17, 2023   Mar. 17, 2023   $ 0.05  
Nov. 1, 2022   Aug. 17, 2022   Sep. 16, 2022   $ 0.05  
Aug. 5, 2022   Aug. 17, 2022   Sep. 16, 2022   $ 0.05  
May 2, 2022   May 17, 2022   June 17, 2022   $ 0.05  
Feb. 16, 2022   Feb. 17, 2022   Mar. 17, 2022   $ 0.05  

   

Effect of Inflation

 

Inflation affects us in two principal ways. First, our revolving credit facility is generally tied to the prime and SOFR interest rates so that increases in those interest rates would be translated into additional interest expense. Second, general inflation impacts prices paid for labor, parts and supplies. Whenever possible, we attempt to cover increased costs of production and capital by adjusting the prices of our products. However, we generally do not attempt to negotiate inflation-based price adjustment provisions into our contracts. We have limited ability to pass on cost increases to our customers on a short-term basis. In addition, the markets we serve are competitive in nature, and competition limits our ability to pass through cost increases in many cases. We strive to minimize the effect of inflation through cost reductions and improved productivity. Refer to the Commodities Risk section in Item 3 of this Form 10-Q for further information regarding commodity cost fluctuations.

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Interest Rate Risk

 

We are exposed to market risks related to changes in interest rates and the effect of such a change on outstanding variable rate short-term and long-term debt. At June 30, 2023, we had $45.0 million debt outstanding under our revolving credit facility. An increase of 100 basis points in interest rates would result in $0.5 million of incremental interest expense on an annualized basis. We believe that we have sufficient financial resources to accommodate this hypothetical increase in interest rates. We do not enter into market-risk-sensitive instruments for trading or other purposes.

 

On May 31, 2023, the Company amended the Credit Agreement to effectuate the transition of the underlying variable interest rate from LIBOR to SOFR. The interest rate charged on our outstanding borrowings pursuant to our revolving credit facility is currently based on SOFR, as described in Part 1, Item 1, "Note 3 – Debt" of this Form 10-Q. 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.

 

Commodities Risk

 

We are also exposed to changes in the prices of raw materials, primarily steel and aluminum, along with components that are made from these raw materials. We generally do not enter into derivative instruments for the purpose of managing exposures associated with fluctuations in steel and aluminum prices. We do, from time to time, engage in pre-buys of components that are impacted by changes in steel, aluminum and other commodity prices in order to mitigate our exposure to such price increases and align our costs with prices quoted in specific customer orders. We also actively manage our material supply sourcing and may employ various methods to limit risk associated with commodity cost fluctuations due to normal market conditions and other factors including tariffs. See Management’s Discussion and Analysis of Financial Condition and Results of Operations included in Part 1, Item 2 of this Form 10-Q for information on the impacts of changes in input costs during the three months ended June 30, 2023.

 

We do not believe that there has been a material change in the nature or categories of the primary market risk exposures or in the particular markets that present our primary risk of loss. As of the date of this report, we do not know of or expect any material changes in the general nature of our primary market risk exposure in the near term. In this discussion, “near term” means a period of one year following the date of the most recent balance sheet contained in this report.

 

Prevailing interest rates, interest rate relationships and commodity costs are primarily determined by market factors that are beyond our control. All information provided in response to this item consists of forward-looking statements. Reference is made to the section captioned “Forward-Looking Statements” before Part I of this Quarterly Report on Form 10-Q for a discussion of the limitations on our responsibility for such statements.

 

 

Item 4.

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report. Based on the evaluation of our disclosure controls and procedures as of June 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.
 
Changes in Internal Control over Financial Reporting     

 

There have been no changes during the quarter ended June 30, 2023, in our internal control over financial reporting that have materially affected, or are likely to materially affect, our internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud. Effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements.

 

 

PART II.  OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

See “Note 7 – Commitments and Contingent Obligations,” included in Part I, Item 1, “Notes to Unaudited Consolidated Financial Statements,” within this quarterly report on Form 10-Q. 

 

Item 1A.

Risk Factors

 

We have included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, a description of certain risks and uncertainties that could affect our business, future performance or financial condition (the “Risk Factors”). There have been no material changes from the disclosure provided in the Form 10-K for the year ended December 31, 2022 with respect to the Risk Factors. Investors should consider the Risk Factors prior to making an investment decision with respect to our stock.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

Issuer Purchases of Equity Securities

 

On February 17, 2022, our Board of Directors authorized the repurchase of up to $250.0 million of our common stock in open market transactions. In the first quarter of 2023, we repurchased 348,705 shares for $8.8 million. We believe that we have sufficient resources to fund any potential stock buyback in which we may engage.

 

Period

 

Total
Number of
Shares
Purchased(1)

   

Average
Price Paid
per Share

   

Total Number

of
Shares

Purchased
as Part of

Publicly
Announced

Plans or
Programs

   

Approximate Dollar Value of Shares That
May Yet be Purchased Under Announced Plans or

Programs(2)

(In millions)

 

April 1 to April 30

    -     $ -       -     $ 233.3  

May 1 to May 31

    -       -       -       233.3  

June 1 to June 30

    3,010       23.19       -       233.3  

Total

    3,010               -          

 

(1) During the quarter ended June 30, 2023, 3,010 shares were delivered by employees in satisfaction of tax withholding obligations that occurred upon the vesting of restricted shares.

(2) This column reflects the number of shares that may yet be purchased pursuant to the February 17, 2022 Board of Directors authorization described above. 

 

Item 5.

Other Information

 

On May 1, 2023, Daryl Adams, President and Chief Executive Officer and a director, entered into a Rule 10b5-1 Trading Arrangement (as defined in Item 408 of Regulation S-K) for the sale of up to 240,000 shares of the Company’s common stock, which trading arrangement is scheduled to terminate no later than July 30, 2024.

 

 

 

Item 6.

Exhibits.

 

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

 

Exhibit No.

 

Document

     
10.1   Letter Agreement dated April 26, 2023 with Todd Heavin (incorporated by reference to Exhibit 10.1 of the
Current Report on Form 8-K filed on April 27, 2023). *
     
10.2   First Amendment to Amended and Restated Credit Agreement dated May 31, 2023 to Amended and
Restated Credit Agreement dated November 30, 2021 by and among the Company and its affiliates, Wells
Fargo Bank, National Association, as administrative agent, and the lenders party thereto.
     
10.3   Transition and Separation Agreement dated June 7, 2023 with Daryl M. Adams. *
     
10.4   The Shyft Group, Inc. Stock Incentive Plan (Amended and Restated Effective May 17, 2023) (incorporated
by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on May 18, 2023).
     

31.1

 

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

 

 

 

31.2

 

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

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. § 1350.

     

101.INS

  Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
     

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

     

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

     

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

     

101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document

     

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

     
104   Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)

 

*Management contract or compensatory plan or arrangement

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date: July 27, 2023

THE SHYFT GROUP, INC.

 

 

 

 

 

 

 

By

/s/ Jonathan C. Douyard

 

 

Jonathan C. Douyard
Chief Financial Officer

 

30