Spartan Motors, Inc. ( SPAR)

Q4 2010 Earnings Conference Call

February 15, 2011, 10:00 am ET

Executives

Paula Droste – Director, IR and Treasury

John Sztykiel – CEO

Joe Nowicki – CFO and Chief Compliance Officer

Analysts

Joe Maxa – Dougherty & Company

Ned Borland – Hudson Securities

Mike Ruggirello – Barrington Research

Presentation

Operator

Good morning, and welcome to Spartan Motors fourth quarter and full year 2010 conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Spartan Motors. If anyone has any objections, you may now disconnect at this time. I would now like to introduce Ms. Paula Droste, Director of Investor Relations and Treasury for Spartan Motors. Ms. Droste, you may proceed.

Paula Droste

Good morning, everyone, and welcome to Spartan Motors fourth quarter and full year 2010 earnings call. I'm Paula Droste, Director of Investor Relations and Treasury for Spartan Motors. And I’m joined in the call today by John Sztykiel, President and CEO, and Joe Nowicki, our Chief Financial Officer.

I assume all of you saw the company's earnings release on the news wire and Internet this morning. John and Joe would 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. All known risks or management beliefs could materially affect the results identified in our Form 10-K and 10-Q filed with the SEC. However, there may be other risks.

With that, I’d like to turn the call over to our CEO, John Sztykiel.

John Sztykiel

Thank you, Paula. And good morning to those listening in on today's call and those on the Internet. Today we will share an overview of our operational and strategic achievements and highlights of our Q4 results. We will also give you an update on current market conditions, their impact on 2011 and beyond. We will conclude by sharing our strategic direction that will pave the way for future Spartan opportunities followed by Q&A. And again, as usual, Joe will get into a deep dive on the financials and some of the impacts going on from an operational perspective within each one of our business segments.

A year ago we shared our top two priorities; reducing our cost structure, an operational focus; and investing in profitable growth, a strategic focus. While our work is not done, we are proud of our progress on both of these fronts. During 2010, we rounded out our initiatives to include balance sheet management and developing compelling products and services. And again we’ve made large strides in both of these initiatives that will position us for future growth, but also help to deliver results as 2011 moves on.

Moving on to key milestones. And again, there are a lot of accomplishments in Q4, some of which have been noted in the release, some of which will cover as well on the call, including continued growth in our top line, reduction in our operating expense as a percent of our sales, a strengthened balance sheet with significantly lower debt and working capital. Our biggest challenge is the backlog, and we will discuss that in more detail later in the call.

Utilimaster was acquired just over a year ago, and the work to integrate the business into the Spartan system was completed during 2010. As a result, service and delivery sales are now the largest portion of our sales mix at about 31% for the last quarter. This market also contributed to our operating income in the second half of the year, fulfilling our goal of investing in profitable growth. We must still make improvements in gross margins and ensure that strategic initiatives are implemented, and the good news is we are making progress on both fronts.

During the fourth quarter, we also completed the sale of Road Rescue and finished all related transitional services. This sale hit three or four areas of focus as resources supporting that effort are redirected towards other activities aligned with our operational and strategic plan. In reality, the pure ambulance market was not the right strategic fit for us, plus we struggled operationally. Although difficult, it was the right decision. Simply, if we cannot be a market leader within a reasonable timeframe at an acceptable investment, we will not be in that particular market.

The significant Spartan transformation that’s important to mention is the added depth of talent and wisdom to our Board and leadership team. This talent top grading continues today and includes personnel from other industries and specific functions. We also have a lot of very, very good people within SMI as we work to both rotate and move them up from a leadership responsibility perspective, but those added talents broadened to include expertise in global commerce, lean manufacturing, innovative processes, acquisition and alliance formation. We are fortunate to have their leadership caliber from a Board or operational perspective, and all stakeholders will continue to benefit from them.

When I look at the SMI brands of Spartan Chassis, Crimson Fire and Utilimaster, all have delivered a number of innovations over the years that compel the marketplace to buy our products and services. Today we have 13 active or pending patents. As time goes on, I have no doubt we will have more and we will continue to develop new products that will ensure competitive advantage, i.e., compel the marketplace to buy from us that are difficult to replicate. A significant achievement supporting our pursuit of profitable growth opportunities was our alliance with Isuzu announced early last year in the April timeframe.

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