Spartan Motors Inc., Charlotte, Mich., announced today (April 27) break-even results for its 2010 first quarter that ended March 31 which were underscored by the company’s relentless focus to strengthen its balance sheet while continuing to make new product investments that will enhance the long-term growth and profitability of the business, according to a press release.
First-quarter highlights include:
- Net sales of $122.5 million, up 6.1% from Q1 2009.
- Gross margin of 14%.
- R&D cost of $5.3 million, which included $1.8 million for two major product introductions.
- Operating expenses of $16.9 million, 13.8% of sales.
- Break-even results with net income of $3,000, or $0.00 per diluted share.
- Ending cash balance of $4.4 million.
- Ending long-term debt balance of $12.2 million, a $23 million reduction from year-end.
- Consolidated backlog of $218.9 million.
”While demand in the first quarter was challenging in a number of our markets, the current economic climate has not diminished our long-term view of the business,” said John Sztykiel, Spartan Motors president and CEO. “During the quarter, we saw continued improvement in motorhomes and emergency response, which was offset by soft sales in aftermarket parts and assemblies and defense.
”While this shift in revenue mix had a negative impact on our gross margins, we remained steadfast in managing our operating costs, which enabled us to break even while improving our balance sheet and our long-term prospects for growth as we expensed $1.8 million for two major R&D projects. Looking out over the longer term, we are encouraged by the many growth opportunities for Spartan, including our recent agreement with Isuzu to assemble chassis and jointly develop our next-generation commercial vehicle, which will provide a platform for future growth in a number of markets.”
Consolidated net sales for the quarter were $122.5 million, up 6.1% from last year due to incremental Utilimaster sales, higher sales of motorhome chassis and an increase in sales at EVTeam. On a sequential basis, net sales rose 22% from the fourth quarter of 2009, due mainly to the strength of motorhome chassis sales, improvement at EVTeam and the addition of a full quarter of Utilimaster sales. Spartan’s EVTeam operating segment, which consists of its Crimson Fire, Crimson Fire Aerials and Road Rescue subsidiaries, reported a 22.9% year-over-year increase in sales for the 2010 first quarter.
Sales of fire truck chassis in the quarter also increased 13.4% compared to the same period in 2009. Spartan’s chassis sales to the Class A diesel motorhome market increased by $24.3 million, driven by recent improvements in the overall recreational vehicle market. These gains in first-quarter sales were offset by a decrease of $48.5 million in other product sales, which consist primarily of APA and defense vehicle sales.
Given the significant shift in revenue mix away from APA and defense sales toward lower-margin products, gross margin in the first quarter of 2010 fell to 14% of sales from 22.6% in the first quarter of 2009. On a sequential basis, gross margins declined modestly, from 14.9% in the fourth quarter, due primarily to the continued shift in mix from APA and defense to motorhome and service and delivery vehicles.
Operating expenses for the 2010 first quarter increased by $0.1 million, or 0.8% compared to the same period last year. Spartan attributed the increase to the incremental operating expenses of Utilimaster, offset by the cost-reduction efforts put in place in the prior year. The company also spent $1.8 million on R&D-related costs for two major product introductions — the recently announced next-generation commercial vehicle being developed in conjunction with Isuzu and the development of a new cab and chassis related to the 2010 emissions standards.
Total operating expenses in the quarter were $16.9 million, up from $16.8 million in the same period last year. On a sequential basis, operating expenses increased from $15.0 million in the fourth quarter, primarily due to the additional incremental operating expenses from a full quarter of Utilimaster results, compared with the one month included in the final quarter of 2009.
Net income for the quarter was $3,000, or $0.00 per diluted share, compared with net income of $6.1 million, or $0.19 per diluted share in the prior year’s first quarter.
CFO Joe Nowicki said: “Some of our major accomplishments for the quarter lie within our balance sheet. We continued to work down receivables and were able to generate sufficient cash to repay all the incremental borrowings from our acquisition of Utilimaster. Despite this great progress in our working capital, we still have room for further improvement on our inventory levels. We also have additional potential to enhance efficiency and lower our operating costs. Over the next several months, we will continue to execute on the cost-reduction initiatives we put in place last year and seek out opportunities for additional improvement. We will look to implement processes that will enhance our manufacturing efficiencies and better flex our costs and operations with our current level and mix of revenue.”
Consolidated backlog at March 31 increased to $218.9 million from $217.5 million at March 31, 2009. Compared with the same period last year, backlogs of fire truck and motorhome chassis increased by a combined $16.1 million and specialty vehicle backlog increased by $7.3 million. In addition, the ending backlog includes $35.1 million from the acquisition of Utilimaster in December 2009. These improvements were more than offset by a $39.9 million decrease in APA backlog and a $16.8 million decrease in EVTeam backlog.
Spartan reported operating cash flow of $10.2 million in the first three months of the year, due primarily to reduced working capital requirements. The company ended the first quarter with $4.4 million in cash and cash equivalents, and $12.2 million in long-term debt, an improvement from long-term debt of $35.2 million at Dec. 31, 2009 as Spartan utilized operating cash flow and existing cash balances to eliminate the incremental borrowings following the acquisition of Utilimaster in the fourth quarter of 2009. During the first quarter, Spartan maintained its reduced receivable levels from the end of 2009 while inventory levels improved by approximately $2.2 million from year-end.
Sztykiel concluded: “The first quarter marked a number of key accomplishments for Spartan, both strategically and operationally. As we complete the integration of Utilimaster, we continue to identify and exploit new opportunities to drive our growth. The ability of our flexible operations to adjust to changing market conditions, reduce costs and preserve cash flow, combined with our strong balance sheet, provide Spartan the ability to take advantage of new opportunities as they arise.
”These strengths strategically position Spartan for many future opportunities, as experienced with the recent agreement with Isuzu, whereby the N-Series gasoline chassis and the new commercial walk-in van are key market products with significant future opportunity. We view this new relationship as a starting point in our long-term vision to strategically enter new market niches that fit well with Spartan’s core strengths. In addition, ACT research is forecasting medium-duty vehicle (classes 5-7) production, which is largely tied to health of the housing and construction industries, is expected to see a more steady and gradual increase in production, growing 19% in 2010 and 32% in 2011. This is considered a leading economic indicator that positions Spartan well in the next two years in light of these product launches. 2009 was a year of transformation; 2010 will be a year of implementation.”
Spartan Motors hosted a conference call for analysts and portfolio managers today (April 27) to discuss these results and current business trends. To listen to a live webcast of the call, please visit www.spartanmotors.com click on “Shareholders,” and then on “Webcasts.”
Spartan also will update the financial information on its Roadcast “digital roadshow” for investors. To launch the Spartan Motors Roadcast, please visit www.spartanmotors.com and look for the “Virtual Road Show” link on the right side of the page.
About Spartan Motors
Spartan Motors Inc. designs, engineers and manufactures specialty chassis, specialty vehicles and truck bodies and aftermarket parts for the outdoor recreation/RV, emergency-response, defense, government services, delivery and service markets. The company’s brand names – Spartan, Crimson Fire, Crimson Fire Aerials, Road Rescue and Utilimaster – are known for quality, value, service and being the first to market with innovative products. The company employs approximately 1,600 at facilities in Michigan, Pennsylvania, South Carolina, South Dakota, Indiana and Texas. Spartan reported sales of $430 million in 2009 and is focused on becoming a global leader in the manufacture of specialty vehicles and chassis.