Spartan Motors Inc ( SPAR)

Q3 2011 Earnings Conference Call

October 26, 2011 10:00 AM ET


John Sztykiel - President and CEO
Joe Nowicki - Chief Financial Officer
Jeff Lambert - Lambert, Edwards & Associates


Joseph Maxa - Dougherty & Company LLC
Ren Wood - BB&T Capital Markets
Walter Liptak - Barrington Research



Good morning and welcome to the Spartan Motors' third-quarter 2011 conference call. All participants will be in a listen-only mode until the question-and-answer session of the conference call begins. (Operator instructions).

I would like to introduce Jeff Lambert of Lambert, Edwards & Associates, Spartan’s Investor Relations Firm. Mr. Lambert, you may now proceed.

Jeff Lambert

Good morning everyone and welcome to this morning’s call. I am Jeff Lambert and I am joined on the call today by John Sztykiel - President and CEO, Spartan Motors and Joe Nowicki, Chief Financial Officer. I assume all of you saw the company’s earnings release on Newswire and Internet this morning.

John and Joe will 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 in 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, as with any prediction or projection, there are a number of factors that could cause Spartan's results to differ materially.

All known risks our management believes could materially affect the results are identified in our Forms 10-K and 10-Q filed with the SEC. However, there may be other risks we face.

With that, I would like to turn the call over to John Sztykiel, John.

John Sztykiel

Alright. Thank you Jeff. Good morning to those who are listening on today's call and those on the Internet.

First I will briefly review our Q3 financial highlights then covered by our operational plan, the growth agenda and market overview. Joe Nowicki, our CFO will then provide a detailed review of the quarterly financial results. We will conclude by sharing our strategic direction that will pave the way for future profitable growth followed by a Q&A section.

First, an overview of the third quarter results. On our second quarter call we indicated that the first half of 2011 would be challenging from a demand perspective, but that the second half would market turn for the better in terms of sales and profitability. Based on the results we delivered this morning, we started the second half even stronger than what we anticipated, with Utilimaster posting stellar results and proving the value of our diversified business model.

Our focus on our four-part operational plan resulted in sequential improvements in revenue and return to solid profitability in Q3. At this point before I go on, I wish to thank all the SMI associates for a strong step in the right direction which took place in the third quarter. It all happens by people working together focused on the right strategy working in alignment.

Our top line performance highlighted the strength of our diversified business lines as solid growth in Utilimaster drove outstanding results in delivery and service. The performance of Utilimaster helped to offset softness in the recreational vehicle, the emergency response and the defense markets. It also helped produce our exposure to government dependent revenue streams.

Our profits for the third quarter validate the restructuring actions we have taken over the last several months and demonstrate our ability to drive significant leverage to the bottom line. The third quarter also illustrates the power and the strength of our diversified growth strategy in action, as we saw vibrant growth offset softness in other markets.

As a data point, in the third quarter, 63% of our business was either B2B (business to business) or B2C (business to consumer) with the remaining third being business to government or B2G related. This is a major shift from just 3 years ago when only 12% of our business was B2B or B2C and sales were dominated by government vehicles, i.e. about 88%. It is amazing how we have changed in this area over the past two year. And honestly, that foresight has provided not just direction with opportunity but is evolving as to how we operate. Given the significant challenges in federal and defense spending, state municipal budgets, we had the foresight to change the way also how we approach our markets and we worked diligently over the past 2 to 3 years to broaden our revenue base.

The acquisition of Utilimaster, which serves the delivery and service market is benefitting from how society operates a shift, Internet shopping, increased home deliveries. Our market which is driven by fleet operators and business customers, which includes demand cycles, which typically improve before the ER and RV related markets and/or defense.

Our alliance with Isuzu as well is also a great example of our diversification strategy. As we leveraged our expertise in assembly to assist Isuzu in reintroducing the popular N-Series gas product line in an incredibly short time period, less than 12 months and I will talk a little bit more about that later on.

As we look at the fourth quarter in early 2012, we do expect short term challenges in a number of our markets given the current weakness among consumers, budgetary constraints at the federal state municipal levels and its seasonal softening in the demand for delivery and service products. However, we are focused on the fact is to drive profitable growth, specifically momentum in service and delivery vehicles, particularly the opportunities in other projects or field service solutions as we call them.

The recent stability in our emergency response chassis and body markets, the successful and full integration of Classic Fire, the launch of our new revolutionary commercial van product “The Reach” and the retooling of our operational structure, continued pursuit of additional profitable growth initiatives with Isuzu and diversification into one or two other markets through either acquisitions, alliances or organic. Really, those are seven major items which we are very very focused on which will not only direct us, but which will start to see dramatic change in the right direction as time moves on.

As I mentioned earlier, Joe will review the financials in detail shortly, but now I am going to get into a more of a strategic review.

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