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Spartan Motors, Inc Q1 2010 Earnings Call Transcript

Spartan Motors, Inc Q1 2010 Earnings Call Transcript

Spartan Motors, Inc (SPAR)

Q1 2010 Earnings Call

April 27, 2010 10:00 a.m. ET


Jeff Lambert - IR, Lambert, Edwards & Associates, Inc.

John Sztykiel - President & CEO

Joe Nowicki - CFO


[Mike Rigonella] - Barrington Research

Ned Borland - Hudson Securities

Jamie Wilen - Wilen Management

Joe Maxa - Dougherty & Company


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Good morning and welcome to the Spartan Motors first quarter 2010 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference. Today's conference is being recorded at the request of Spartan Motors. If anyone has any objections you may now disconnect. At this time I would like to introduce Mr. Jeff Lambert on behalf of Spartan Motors. Mr. Lambert, you may proceed.

Jeff Lambert

Thank you and good morning, everyone. Welcome to the first quarter 2010 conference call. I'm Jeff Lambert with Lambert, Edwards and Associates and I have with me today several members of Spartan's management team, including John Sztykiel, President and CEO and Joe Nowicki, CFO.

I assume all of you saw our earnings release on news wire and internet this morning. I'd like to take a few minutes to discuss the results for the quarter. However, before we do, it is my responsibility to inform you that certain predictions and projections made on today's conference call regarding Spartan Motors and its operations may be considered forward-looking statements under the Securities Laws.

As a result, I must caution you that, as with any prediction or projection, there are a number of factors that could cause Spartan's results to differ materially. These risk factors are identified in our Form 10-K filed with the SEC.

A quick word about the format of today's call, John Sztykiel will begin the call with a brief overview of the quarter and then go over the operational results for each business segment and conclude with a bit of an outlook followed by Joe Nowicki who will discuss the financial results for the quarter and will conclude with a Q&A session at which time the operator will instruct you on how to enter the queue.

I'd like to turn it over to John Sztykiel. John?

John Sztykiel

All right, Jeff. Good morning and thank you for all of you being here. The basis of our strategic and operational plans is really quite simple; number one, compelling products and services; number two, growth and profitable market share; three, cost structure management; and number four, balance sheet management.

While we've made some significant progress, we continue to face some challenges relative to the current economic client in our related markets. Grant it our profit line looks small for the quarter but it was a return to profitable results, especially in light of the investments we made in our future growth. That we feel great about.

On the balance sheet management side of life we also made some great strides in improving our operating cash flow, paying down all the incremental debt we incurred with the Utilimaster acquisition in the fourth quarter of last year. Joe will get into that in detail.

Cost structure management; we reduced our operating expenses to 13.8% of sales for the quarter from 14.5% in the prior year same quarter and from 15% in the fourth quarter of last year. We're not where we want to be yet but we're on the right track and the plans are in place to continue to work our cost structure down and that will happen.

Compelling products and services; the investment in our new 2010 emission compliance chassis is very, very complex, very, very large and over time will drive business, the new next generation commercial that we are developing with Isuzu, an exciting product.

Combined we invested $1.8 million in R&D in those two projects alone in the first quarter of this year. Although the elevated R&D had a short-term negative impact on our reported results the investment yielded some exciting new opportunities for our future growth. If one does not develop compelling products and services, the future growth in profitable market share will just not happen.

The next generation commercial vehicle that Utilimaster developed with Isuzu is the latest example of harnessing our R&D efforts to meet the demands of the marketplace, not just today but tomorrow as well.

The new vehicle offers the quality, durability and optimization of space that Utilimaster is known for in a package the offers consumers a compelling total cost of ownership from both an acquisition and operating cost perspective.

It is also a vehicle that offers weight rating and cargo capacity right in the sweet spot of currently unmet consumer demand as well as lower floors to allow for drivers to get in and out of, a taller interior height for increased cargo area and easier work maneuverability in the back of the vehicle and best-in-class view economy, all ideal features for the delivery and service marketplace.

While the primary focus of this next generation product will be the delivery and service market, over time this vehicle platform can and will probably be utilized in numerous other markets powering this next generation commercial vehicle will be Isuzu's 4J engine, a turbocharged intercooler three liter duel overhead [inaudible] injection four cylinder diesel engine that will generate approximately 150 horsepower, 280, two foot pounds of torque.

I know this is a lot of data but this engine is a commercial truck engine that has a V10 life rating and approximately 310,000 miles of useful life before a major overhaul. This is a big [ITCR] item important to the consumer as other competitive products utilize a passenger car type engine, which typically do not have that high of a durability cycle.

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