Spartan Motors' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Spartan Motors Inc ( SPAR)

Q4 2011 Earnings Call

February 14, 2012 10:00 am ET

Executives

Greg Salchow - Director of IR and Treasury

John Sztykiel - President and CEO

Joe Nowicki - CFO

Analysts

Walt Liptak - Barrington Research

Rob Kosowsky - Sidoti

Joe Maxa - Dougherty & Company

Presentation

Operator

Good morning and welcome to the Spartan Motors' fourth quarter and full year 2011 conference call. (Operator Instructions) I would now like to introduce Mr. Greg Salchow, Director of Investor Relations and Treasury for Spartan Motors.

Greg Salchow

Thank you. Good morning everyone and welcome to the Spartan Motors fourth quarter and full year 2011 earnings call. I am joined on the call today by John Sztykiel, President and CEO of Spartan Motors; and Joe Nowicki, our Chief Financial Officer. I assume everyone has seen the company's earnings release this morning.

John and Joe will take a few minutes to discuss the results for the quarter. However, before we begin I need to inform you that certain statements made today during the conference call, which may include managements current outlook, viewpoint predictions and projections 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, our management beliefs could materially affect the results are identified in our Forms 10-K and 10-Q filed with the SEC. However, there may be other risk we face.

With that, I'll now turn the call over to John Sztykiel.

John Sztykiel

Alright. Greg, thank you very much, and good morning, to all and thank you for joining us today. First, I'm just going cover a quick overview, actually of the first half of 2012/2012, then discuss Q4 2011, full year 2011; followed by the operational plan, the growth agenda and the market overview.

Joe Nowicki, our CFO will then provide a more detailed review of the fourth quarter of 2011 and the full year financial results. We will then conclude with an update, our strategic direction followed by a Q&A session.

Just quickly, as I look at '12 and the interesting thing is that actually what makes me very comfortable in 2012, why I sit here today is that, when I look at '12, the backlog is up our cost base is reduced. We have several strategic initiatives in place from Reach horizon moving forward with several yet to come. And we look forward that 2012 getting up in a good way, a good start. And we're excited about this year much more so than we were last year at this time.

So I just wanted to give you a quick synopsis, because as we look at 2011, we did a lot of things right from the strategic perspective. We made money which was very positive. Did a lot of things right from a balance sheet perspective. However, when you look at the operating income, obviously, it was a challenging year for us and we look forward to 2012 being better.

In the fourth quarter, Spartan reported revenue of $111 million and net income of $0.02 per share. Our revenue for the quarter was down from $126.9 million in the prior year, while the net income per share in the fourth quarter of 2010 was $0.10 per diluted share. Most of the decline in revenue year-over-year was due to a large parts order in our defense business that we shipped in the fourth quarter 2010.

Due to CapEx and defense spending, this order was now repeated in '11 and it accounted for $12.5 million of the $15.7 million revenue decline in Q4 of '11 versus '10. And so as you see while the defense business is very, very challenged, the defense business was also very, very profitable for us and this is reflected in our financials.

The Deliver and Service segment posted higher revenue for the quarter, despite encountering a variety of manufacturing issues during the launch of the Reach van and an unrelated delay in the shipping of some current step in units. Revenue for the quarter was up, still nearly 7% to $41.9 million due to higher aftermarket part sales primarily of the keyless remote product.

During the first half of 2011, we talked about steps we had taken to reduce our cost structure. As demand in some of our business segments had weakened. These steps were reflected in a lower operating expense for the fourth quarter, which was down $1.3 million from the fourth quarter 2010. We will continue to watch cost closely in all areas of our businesses and remain dedicated to aligning our cost base with our expected revenue stream.

Do we expect to reduce our cost base in 2012 versus 2011, the answer is yes. As this is an area under control and we have some very disciplined plans in place and we look forward to executing those plans.

We ended the fourth quarter with net income of $0.02 per diluted share compared to $0.10 per diluted share in '10. Although, no one at Spartan was satisfied with our fourth quarter results, I am pleased with the progress we made during the challenging year, the execution of several strategic initiatives. And as I mentioned earlier, we're excited about the first half of 2012.

As I look at the year, some of our accomplishments for the year include starting the production of Reach. Although, we missed our targeted ship date, those vans are now in the hands of customers and we look forward to '12. And simply the reason we delayed to start shipment of the Reach and everything has been moved back by one quarter was the focus on quality.

A large portion of the Reach product will be going through the Isuzu distribution network. That distribution network of 280 dealers for the past 24 years in a row has delivered number one market share in the low-cab-forward business of Class 2 through 5.

Our desire over time is for the Reach to be number one in market share irrespective of market niche. And when you're number one in market share for 24 years in a row, you do a lot of things right whether it be in the quality, the performance and the price. And as we took a look at the Reach and the products which were coming up, and this was a joint effort between Isuzu's partnering Utilimaster, we got the quality with now what it needed to be and we made the right decision to delay things by approximately 30 to 45 days so we could deliver high-quality products, aesthetics and a number of other customers.

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