Spartan Motors Inc., a Charlotte, Mich.-based leader in specialty chassis and vehicle design, manufacturing and assembly, today (Feb. 23) reported operating results for the fourth quarter and full year periods ending Dec. 31, 2016.
Full Year 2016 Highlights
For the full year 2016 compared to the full year 2015:
- Sales increased $40.4 million, or 7.3%, to $590.8 million from $550.4 million
Gross profit margin improved 370 basis points to 12.3% of sales from 8.6% of sales
- Operating income rose $21.1 million, or 169.1%, to $8.6 million from an operating loss of $12.5 million
- Adjusted operating income increased 222.1 % to $14.5 million, or 2.5% of sales, from $4.5 million, or 0.8% of sales
- Net income improved $25.6 million, or 150.7%, to $8.6 million, or $0.25 per share, from a net loss of $17.0 million, or $0.50 per share
- Adjusted net income improved 68.3% to $11.1 million, or $0.32 per share, from $6.6 million, or $0.20 per share
- Cash, net of debt increased 15.9% to $32.0 million at Dec. 31, 2016 compared to $27.6 million at Dec. 31, 2015
Fourth Quarter 2016 Highlights
For the fourth quarter of 2016 compared to the fourth quarter of 2015:
- Sales increased 3.7% to $145.9 million from $140.6 million
Gross profit margin improved 850 basis points to 12.3% of sales from 3.8% of sales
- Operating income rose $11.0 million, or 109.6%, to $1.0 million from an operating loss of $10.0 million
- Adjusted operating income increased 182.6% to $1.9 million, or 1.3% of sales, from a loss of $2.3 million
- Net income improved $10.4 million, or 110.0%, to $0.9 million, or $0.03 per share, from a net loss of $9.5 million, or $0.28 per share
- Adjusted net income improved 158.9% to $1.5 million, or $0.04 per share from $0.6 million, or $0.02 per share
“Spartan closed 2016 on a high note with a profitable fourth quarter performance, our fourth profitable quarter in a row,” said Daryl Adams, president and chief executive officer. “While 2016 goes in the books as the strongest financial performance Spartan has had since 2009, we are most proud of the progress we have made to date, on behalf of our shareholders. Our performance in 2016 reflects great progress toward key operational milestones as the positive momentum we sparked and fanned in 2015 started to accelerate and deliver on our turnaround initiatives, some well ahead of schedule. Take a look at 2016, and you are looking at a company whose head is squarely in the game, and it is one we intend to win.”
Full Year 2016 Segment Results
For the full year 2016 compared to the full year 2015:
Fleet Vehicles and Services (FVS)
FVS segment sales increased 22.3% to $278.4 million from $227.7 million. Revenue growth was primarily due to a favorable revenue mix and higher volume at vehicle up-fit centers.
Operating income increased $14.2 million, or 97.9%, to $28.7 million, or 10.3% of sales, from $14.5 million, or 6.4% of sales, a year ago. Higher volume and favorable mix resulted in an increase in operating income compared to last year.
The segment backlog at Dec. 31, 2016, totaled $89.5 million, compared to $96.1 million at Dec. 31, 2015. In January, 2017, FVS received approximately $37 million in new orders, up approximately 20% over new orders received in January 2016.
Specialty Chassis & Vehicles (SCV)
SCV segment sales remained comparable at $129.4 million. Sales of motorhome chassis decreased to $98.0 million from $103.3 million, primarily due to lower shipments year-over-year. Other Specialty Vehicle revenue increased 52.2% to $21.1 million from $13.8 million, primarily due to increased contract manufacturing.
Operating income increased 39.5% to $6.8 million, or 5.3% of sales, from $4.9 million, or 3.8% of sales, a year ago. Favorable mix and increased contract manufacturing resulted in an increase in operating income compared to last year.
The segment backlog at Dec. 31, 2016, totaled $20 million, compared to $18.4 million at Dec. 31, 2015.
Emergency Response (ER)
ER segment sales decreased 5.3% to $183.0 million from $193.2 million. Lower revenue resulted from fewer shipments of complete fire apparatus and custom cab and chassis compared to a year ago.
Operating loss improved $10.1 million, or 42.4%, to $13.7 million from $23.7 million a year ago. The improvement was primarily the result of improved operating efficiencies and a reduction in charges recorded in 2016, compared to 2015, relating to asset impairment ($1.8 million), restructuring ($1.8 million), product repair campaign and warranty reserves ($1.6 million), and a non-recurring NHTSA fine ($0.7 million).
Adjusted operating loss improved $0.9 million, or 9.8%, to $8.7 million from $9.6 million last year.
The segment backlog at Dec. 31, 2016, totaled $139.9 million, compared to $156.3 million at Dec. 31, 2015.
As previously announced, the company completed the acquisition of Smeal Fire Apparatus Co. and its subsidiaries effective Jan. 1, 2017. Smeal, an industry-leading innovator and manufacturer of fire apparatus in North America, generated 2016 revenues of approximately $70 million, which excludes revenues associated with Smeal’s sale of approximately $30 million of chassis purchased from Spartan. In connection with the transaction, the cash consideration paid of approximately $32.5 million was funded primarily through borrowings from the Company’s existing $100 million line of credit.
The company results for the fourth quarter and full year ended Dec. 31, 2016, include approximately $0.7 million, or $0.02 per share, and $0.9 million, or $0.03 per share, respectively, of acquisition related expenses.
“As Spartan shared from the beginning, we expect the transaction to be accretive to 2017 earnings and to further accelerate the turnaround of the Spartan Emergency Response business unit. What we could not measure at the beginning of the acquisition were the benefits we would see from a reinvigorated dealer channel and a motivated workforce,” continued Adams. “We understood immediately how important integrating Smeal and its Ladder Tower and UST brands was going to be for the success of our combined Company. Today, we are happy to report that our dealer channel is excited about our increasingly expanding product portfolio, and our combined employees are happy and optimistic about the expanded employment opportunities a larger publically traded company brings.”
“Our balance sheet at year end, with essentially zero long-term debt, remains strong,” said Rick Sohm, chief financial officer of Spartan Motors. “Cash, net of debt, improved $4.4 million year-over-year to end at $32.0 million. Our strong operating results continued to generate cash in excess of our working capital requirements, which enabled us to repay our $5 million senior note and repurchase approximately 422,000 shares at an average price of $4.74 per share, or $2.0 million in the aggregate, during 2016.
“As we move into 2017,” Sohm continued, “we will continue with a disciplined working capital management approach, as well as being opportunistic as market conditions dictate, to support future growth and maximize shareholder value. As a result of the Smeal acquisition, our 2017 forecast was adjusted for certain acquisition related costs and adjustments ($0.4 million, net of tax) and the impact from the one-time lag in recognizing sales and gross margin on chassis sales ($2.4 million, net of tax) that are now inter-company.”
Outlook for full year 2017 is expected to be as follows (which includes the Smeal acquisition):
- Revenue to be in the range of $615.0 – $685.0 million
- Acquisition costs and inter-company chassis impact of approximately $2.8 million, net of tax
- Adjusted EBITDA of $25.1 – $28.3 million
- Income tax expense of $1.7 – $2.8 million
- Interest expense of approximately $1.0 million
- Adjusted earnings per share of $0.30 – $0.36, assuming approximately 34.8 million shares outstanding
“Progress like Spartan has experienced in such a short amount of time took a great deal of hard work and a commitment to excellence, across the organization. Implementing key process improvement methodologies and keenly focusing on enhancing our products has gone a long way to help us ensure this success will continue. That said, we are incredibly optimistic that 2017 will bring increasingly positive outcomes to shareholders and customers alike,” Adams concluded.