The Shyft (SHYF) - 2022 Q3 - Quarterly Report

Forward-Looking Statements The report includes forward-looking statements subject to risks and uncertainties, with actual results potentially differing materially from projections - This report contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially[11] - These statements are not guarantees of future performance and are qualified by the cautionary statements and risk factors disclosed in the company's SEC filings[12] PART I. FINANCIAL INFORMATION Financial Statements Unaudited financial statements reveal increased assets and liabilities, slight sales growth, but a significant net income decline due to higher costs Condensed Consolidated Balance Sheets Balance sheet shows cash decline to $2.9 million, with significant increases in inventories, contract assets, and long-term debt Key Balance Sheet Items (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $2,862 | $37,158 | ($34,296) | (92.3%) | | Inventories | $111,213 | $67,184 | $44,029 | 65.5% | | Contract assets | $87,099 | $21,483 | $65,616 | 305.4% | | Total Assets | $551,699 | $447,867 | $103,832 | 23.2% | | Long-term debt, less current portion | $65,222 | $738 | $64,484 | 8737.7% | | Total Liabilities | $301,901 | $181,012 | $120,889 | 66.8% | | Total Shareholders' Equity | $249,798 | $266,855 | ($17,057) | (6.4%) | Condensed Consolidated Statements of Operations Sales increased in Q3 and nine months, but operating income and diluted EPS significantly declined due to higher costs and R&D expenses Q3 and Nine Months Performance Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | YoY Change | Nine Months 2022 | Nine Months 2021 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Sales | $286,075 | $272,622 | 4.9% | $725,153 | $714,492 | 1.5% | | Gross Profit | $54,096 | $56,058 | (3.5%) | $122,145 | $147,950 | (17.4%) | | Operating Income | $22,012 | $28,108 | (21.7%) | $24,159 | $65,001 | (62.8%) | | Net Income Attributable to Shyft | $17,286 | $20,922 | (17.4%) | $18,717 | $48,461 | (61.4%) | | Diluted EPS | $0.49 | $0.58 | (15.5%) | $0.53 | $1.34 | (60.4%) | Condensed Consolidated Statements of Cash Flows Operating activities used $44.5 million cash, a reversal from prior year, due to lower net income and increased working capital, partially offset by financing Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash from operating activities | ($44,493) | $42,323 | | Net cash used in investing activities | ($14,080) | ($17,318) | | Net cash from financing activities | $24,277 | ($31,451) | | Net decrease in cash | ($34,296) | ($6,446) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue by segment, and debt structure, showing strong Specialty Vehicles growth offsetting Fleet Vehicles and Services decline - The company operates in two reportable segments: Fleet Vehicles and Services (FVS) and Specialty Vehicles (SV)[57][60][61] - FVS manufactures commercial vehicles for last-mile delivery, while SV includes RV chassis, service bodies, and contract manufacturing[57][60][61] Revenue by Segment (in thousands) | Segment | Q3 2022 Sales | Q3 2021 Sales | YoY Change | Nine Months 2022 Sales | Nine Months 2021 Sales | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fleet Vehicles and Services (FVS) | $184,494 | $191,387 | (3.6%) | $434,088 | $476,829 | (9.0%) | | Specialty Vehicles (SV) | $103,916 | $81,235 | 27.9% | $293,400 | $237,663 | 23.5% | Adjusted EBITDA by Segment (in thousands) | Segment | Q3 2022 Adj. EBITDA | Q3 2021 Adj. EBITDA | YoY Change | Nine Months 2022 Adj. EBITDA | Nine Months 2021 Adj. EBITDA | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fleet Vehicles and Services (FVS) | $24,361 | $36,393 | (33.1%) | $38,015 | $82,375 | (53.9%) | | Specialty Vehicles (SV) | $15,550 | $6,247 | 148.9% | $38,508 | $22,415 | 71.8% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q3 sales growth to Specialty Vehicles, offsetting FVS declines; gross margin fell due to inflation, R&D increased, and order backlog grew to $1.04 billion Results of Operations Q3 sales rose 4.9% to $286.1 million, but gross profit fell 3.5% due to higher costs and increased R&D for EV development, reducing income from continuing operations Q3 2022 vs Q3 2021 Performance Comparison (in millions) | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Sales | $286.1M | $272.6M | +4.9% | | Gross Profit | $54.1M | $56.1M | -3.5% | | Operating Expenses | $32.1M | $28.0M | +14.8% | | Income from Continuing Operations | $17.3M | $21.0M | -17.6% | | Adjusted EBITDA | $27.1M | $33.7M | -19.8% | - The increase in operating expenses was primarily driven by a $4.5 million rise in Research and Development costs related to electric vehicle (EV) development initiatives[78] Order Backlog (in thousands) | Segment | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Fleet Vehicles and Services | $915,135 | $749,731 | +22.1% | | Specialty Vehicles | $128,769 | $102,829 | +25.2% | | Total Consolidated | $1,043,904 | $852,560 | +22.4% | Segment Performance FVS segment Q3 sales and Adjusted EBITDA declined due to supply constraints, while Specialty Vehicles saw strong growth in sales and Adjusted EBITDA Fleet Vehicles and Services (FVS) Performance (Q3, in millions) | Metric | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $184.5M | $191.4M | (3.6%) | | Adjusted EBITDA | $24.4M | $36.4M | (33.1%) | Specialty Vehicles (SV) Performance (Q3, in millions) | Metric | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Sales | $103.9M | $81.2M | 27.9% | | Adjusted EBITDA | $15.6M | $6.2M | 148.9% | Liquidity and Capital Resources Liquidity tightened as cash decreased to $2.9 million, with operating activities using $44.5 million cash due to lower net income and working capital, partially offset by credit facility draws - Cash and cash equivalents decreased by $34.3 million since year-end 2021, primarily due to a $44.5 million use of cash from operating activities, driven by lower net income and a $56.6 million decrease in net working capital[113][114] - The company has a secured revolving credit facility of up to $400.0 million, with available borrowings of $165.4 million as of September 30, 2022[119][120] - In Q1 2022, the company repurchased 607,306 shares for $26.8 million under a $250.0 million authorization[121] - The quarterly dividend per share was increased to $0.050 in 2022 from $0.025 in 2021[122][123] Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate fluctuations on $65.0 million variable-rate debt and commodity price volatility, managed through sourcing strategies - The company is exposed to interest rate risk on its $65.0 million of variable-rate debt, where a 100 basis point increase would add $0.7 million to annual interest expense[126] - The company faces commodity risk from price fluctuations in steel and aluminum, mitigating this through strategic pre-buys and supply sourcing, not derivative instruments[128] - The company's credit facility is based on LIBOR, which is being phased out, but management does not expect a material impact on interest expense from the transition to a replacement rate like SOFR[127] Controls and Procedures Management concluded disclosure controls were effective, despite changes to internal controls due to a new ERP system implementation at the corporate location - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[132] - In August 2022, the company implemented a new ERP system at its corporate location, leading to changes in its internal control over financial reporting[133] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, including an EPA Notice of Violation, but management expects no material financial impact - The company is involved in legal proceedings in the normal course of business, which management believes will not have a material impact, with further details in Note 8 of the financial statements[137] - In April 2022, the company received a Notice of Violation from the EPA concerning vehicle certifications and recordkeeping, with potential fines currently unestimable[53] Risk Factors No material changes have occurred in the company's risk factors since the 2021 Form 10-K filing - No material changes have occurred in the company's risk factors since the filing of its 2021 Form 10-K[138] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased in Q3 2022 under the $250.0 million program, with $242.1 million remaining authorized, though some shares were delivered for tax obligations - No shares were repurchased during Q3 2022 under the company's authorized plan, with approximately $242.1 million remaining available for repurchase[139][140] Exhibits This section lists exhibits filed with the Form 10-Q, including bylaws, severance policy, CEO/CFO certifications, and XBRL data files