The Shyft Group, Inc. Price & Performance (SHYF)

John will finish up our presentation with an update on our pending merger with AbbVie We'll then open the line for Q and A. Please turn to Slide four and I'll turn it over to John. Who will begin today's prepared remarks. Thank you, Randy, and good morning. Welcome to our earnings call, and we appreciate your interest in the Shift Group. 2024 was an incredible year for our company. We made significant strides in advancing our strategy delivered operational improvements and achieved solid financial performance. In December, we announced a powerful next step in Shift's journey. Our proposed merger a leading global specialty vehicles company, Together, we will create a highly competitive specialty vehicles leader in capabilities and expertise, and deeper customer relationships as we combine the strengths of both companies. Let's kick off this morning with some highlights from the past year at the The Group.

The talented Shift team has been highly engaged in implementing operational and commercial improvements. Throughout 2024 and we are seeing improved results. We consistently improved our financial performance driven by our intense focus on increasing operational and organizational efficiencies across our company. By leveraging a one shift mindset, we are streamlining our corporate structure and managing costs to deliver margin improvement. These efforts resulted in meaningful adjusted EBITDA growth for the company with margins of 6.2% up 160 basis points year over year. Despite a soft parcel market, our fleet vehicles and services business expanded margins to 7.2% up 160 basis points year over year by driving operational performance. This is a testament to our team's strategic approach to controlling what they can control. Specialty Vehicles continued strong EBITDA margins were supported by focused execution and steady demand for infrastructure truck bodies. Our balance sheet remains solid with net leverage less than two times allowing us The flexibility to invest in strategic initiatives This financial strength enables us to capture new opportunities in and drive long term success. Finally, we are pleased to bring Blu Art to production as we successfully EV trucks to FedEx which is an exciting milestone for our entire shift team The achievement underscores our commitment to meeting the complex needs of our fleet partners and serving as their partner of choice as a transition to more sustainable fleet operations.

Turning to Slide five, we outline our operating framework which is guided shift in 2024 as we drove improvements across our business. Strengthening talent improving leadership training, ensuring safety with our Mission Zero initiative we reduced workplace injuries, by forty percent in 2024. Lean manufacturing and efficiency initiatives lowered costs and improved competitiveness In summary, we are proud of the work we have done this year and I would like to thank our team. Without their dedication and skill sets, our accomplishments I would now like to welcome Scott O'Hollick, to his First Shift earnings call. And Heath will provide a detailed review of our financial results and 2025 outlook. Thank you, John. First, I'd like to take a moment to introduce myself.

I have been with Shift for over five years serving as the company's Chief Accounting Officer and Corporate Controller.

I have over twenty five years of experience in the global automotive supply and specialty vehicle markets and I'm very excited to have the opportunity to be the Interim CFO here at Shift. I look forward to meeting many of you over the next several weeks. With that said, please turn to Slide seven I will start with an overview of our fourth quarter financial results.

Overall, our team delivered meaningful improvement profitability in the fourth quarter. Sales for the quarter were $201,400,000 down slightly from $202,300,000 in the prior year. Our GAAP net loss was $3,400,000 or $0.1 per share compared to a net loss of $4,400,000 or 0.13 per share the previous year.

The net loss for the quarter was negatively impacted by $8,500,000 of transaction costs related to the pending merger with Abby Schmidt. On an adjusted basis, EBITDA was $15,900,000 for the quarter or 7.9% of sales, up from $2,300,000 or 1.1% of sales in the fourth quarter of twenty twenty three. These results include a $5,800,000 of EV spend which is down from $9,300,000 in the prior year. Adjusted net income for the quarter was $5,000,000 adjusted EPS increased to $0.15 per share compared to a loss of $900,000 or a negative $0.03 per share in the fourth quarter of twenty twenty three. Please turn to Slide eight and I will walk through our results by operating segment. In the quarter, our The Vehicles and Service segment achieved sales $110,700,000 down 7% compared to $119,000,000 a year ago. Reflecting continued softness in walk in vans offset by higher volumes in heavy upfits. Adjusted EBITDA for the quarter was $12,100,000 versus The loss of $2,600,000 a year ago, with higher productivity offset by lower volume. Adjusted EBITDA margin improved to 10.9% of sales compared to a negative 2.2% in the fourth quarter of last year. This margin improvement speaks to the strength of our team The the operational achievements made throughout the year, despite the continued challenging environment.

For parcel demand, FVS backlog was 2 and $44,800,000 at year end, down 24.7% versus 2023. Reflecting continued softness in parcel on a positive note, we did achieve market share gains in our Walk In Band product line during these challenging times. Turning to Specialty Vehicles segment, our team closed out 2024 with profitability in line with prior year. As our infrastructure focused vocational truck businesses delivered solid results offsetting the ongoing market weakness in Motorhome.

Fourth quarter sales were $87,500,000 a 5% increase from $83,400,000 in the prior year. Adjusted EBITDA was $16,600,000 or 19% of sales, compared to $19,000,000 or 22.8% of sales The the same period last year. The strong overall profitability was driven by the steady demand infrastructure related vocational trucks. SC backlog was $68,500,000 at the end of the year, down 18.8% versus 2023. This was driven primarily by a decrease in motor home orders. Please turn to Slide nine for our 2025 outlook. With our improved financial results, and continued margin expansion this quarter, we are poised to continue this momentum into 2025. Our focus remains on driving growth and profitability improvement. We do, however, remain cautious as we enter 2025 on near term demand for parcel and motor home vehicles we expect the softness to persist through midyear, we do anticipate a modest recovery in both the parcel and motorhome markets in the second half of the year. While continuing to be strong, we are also closely monitoring infrastructure spend and the potential impacts it may have on our vocational truck business. We expect year over year growth as Blue Ark production is underway and will reach near breakeven profitability for the full year.

Given these factors and outstanding further changes the operating environment, we are introducing our 2025 outlook as follows: We expect sales to be in the range of $870,000,000 This includes approximately $50,000,000 related to BlueArc.

Full year adjusted EBITDA in the range of $62,000,000 to $72,000,000 Consistent with historical patterns and seasonality, we expect a slow start to the year and anticipate the first quarter adjusted EBITDA to be in the low single digits. As we see a second half recovery in our markets, we expect around 70% of full year adjusted EBITDA to be delivered in the second half of the year. We expect adjusted EPS in the range of $69,000,000 to $92 per share and free cash flow of $25,000,000 to $30,000,000 up meaningfully on a year over year basis. This includes approximately $20,000,000 of transaction related cash expected to be paid during the year. We remain committed to driving further improvements in our financial performance as our end markets recover and we finalized the proposed merger with Abby Schmidt. With that, I will turn it back over to John to provide an update on the merger. Thanks, Scott. And please turn to Slide 11. This proposed [indiscernible] with Abby Schmidt presents a compelling opportunity for our shareholders, customers and employees. By bringing our businesses together, we are creating a differentiated leader in The the specialty vehicles [indiscernible] with a robust presence in the North American market, where approximately 75% of our revenues will be generated The strategic move positions us to capture growth opportunities in high margin end markets including commercial infrastructure.

For our customers, the merger will provide a highly complementary and expanded suite of products and services driven by our unwavering focus on customer centric innovation and deep customer relationships. For shareholders, the combined company will have a stronger financial profile and will drive value by capitalizing on synergies, expanding our product offerings and leveraging our teams expertise. Our people share a common commitment to operational excellence customer focus and innovation making us confident in our collective success We believe that this merger is in the best interest of our shareholders customers and team members, Now turn to Slide 12 and I will discuss the integration work which is well underway. Since announcing the transaction, we have made solid progress towards completing the actions needed to close In January, we provided data reinforcing the merger's value creation potential including additional information on Abby Schmidt's strong financial projections and market leadership we achieved HSR antitrust approval and are making progress in other regulatory and closing conditions. We are leveraging both Shift and Abby Schmidt's strong track records of successfully integrating businesses established a joint integration team.

Overall, the steps we are taking are preparing our two companies to integrate seamlessly and I look forward to providing more updates as we progress towards closing which we expect by mid-twenty twenty five, We are diligently working on integrating our business of the combined company and deliver enhanced value for our shareholders on day one. We are now ready to take your questions. Operator, please open the line. Please bear with me.

Matt, you're live. Operator, if you can please have Matt go live, please. Hey, guys. I can hear you. Can you hear me okay? Great. Thank you. You're good, Matt. Thank you.

Okay. There's been technical difficulties morning, but appreciate your patience. Sorry, didn't hear my cue there. That's okay. So wanted to talk about the 2025 outlook with respect to BlueArc. Sounds like you guys I think I heard correctly in the prepared remarks. $50,000,000 in sales embedded in the guide and you should approach breakeven on EBITDA. This year. Just wanted to hear you talk about do you have all orders in hand to deliver on the $50,000,000 The just talk about the cadence of delivery this year any progress update on sort of the vehicles in the field with FedEx or other customers? I'd love to hear a little bit more color on the program there. Great, Matt. This is John. I can give you an update on that. So we are in the production phase running vehicles a couple of day or coming off the line. To fulfill our contract with FedEx that was for 150 orders. So we're working through that order right now. The vehicles in the field continue to perform well. And meet expectations in addition to [indiscernible] Wonderful. Up in Canada, so experiencing The cold climate running performing well, meaning all our expectations. So we're excited about performance of the vehicle.

And getting into the phase now where we can give it to customers to really use it FedEx is deploying the vehicles we're making and continue The be very positive on it. If you're at LAX, for example, there's a couple out there right now. In service From an order standpoint, it is a dynamic market right now as people are sorting out what to do on the EV. Fortunately though, we see a lot of commitments from our key partners, the bigger fleets are still leaning into starting to transition to that more environmentally friendly solution of EVs. From an order standpoint, we're seeing a lot of activity confident it's The will continue to materialize The big enabler here is to get these vehicles out on the road and people really see how well they work. And so the more the more positive experiences people have, The expectation is The we'll continue to lead to more orders.

Okay. But in terms of the orders you have in hand, do you have enough fulfill the $50,000,000 without incremental orders this year? No, we need additional orders In that scenario, we're in Scott mentioned as well. We striving to get to that breakeven To do that, we need to be we can do it at under 500 orders and we're not there yet. We're hoping to have another announcement shortly But it's short of the full amount needed Okay, all right. Understood.

Thanks. Okay. And then on the fleet vehicle segment, just hear a little bit more about the what's embedded in the outlook for 2025. It sounds like you're assuming partial demand recovery in the back half of this year. I know that's kind of common fits and starts in terms of the prediction recovery in that market.

Maybe just talk about what gives you confidence that going to see a recovery in the parcel fleet demand this year? What are you hearing from customers, fleets in particular? Would love to hear an update on FES The.

We're staying very close for those key parcel customers. Making sure we understand exactly their needs and their plans. The good news is they're not changing the concept on how they're delivering parcel packages to homes. So they still want these large vehicles that we make So it's right in the wheelhouse. Because these vehicles are so robust, they're able to maintain them and kind of push it down some of those purchases or push out some of those purchases slightly.

But what we see is they've been pushing that out for about two years now.

Eventually, there's going to need to be a replacement cycle that kicks in. And it should be a nice one kicking in. It's just a matter of The. We're not seeing it yet. So that's what we're guiding and saying, well, seeing it in the second half of the year. But we're having good conversations with the customers understand when is that going to happen. And there's indication it's going to happen in that second half of this year. Okay, got it. And then just on Specialty Vehicle and then I'll turn it over to someone else. I guess The implied order flow was a little soft in Specialty Vehicle. Could you just speak to sort of what's driving that? Is that still motor home The, driving the bulk of the weakness in the implied order flow? You're getting in that segment? What are you seeing on sort of the core work truck piece of the business? Maybe if you just unpack The the order trends, especially vehicle, it would be helpful.

Yes, Matt, this is Scott. Thanks for the question. Question. You're right, we're continuing to see the weakness in the motor home market. That's really driving The the weakness there on that side of things. On the work truck side of our business, we're actually starting The been very steady. We're continuing to see strong orders there and especially here in the first part of twenty twenty five, we're continuing to see strong orders. So So we're expecting that to continue to be steady into 2025. So that's the main thing. On the motor home side, the dealers, their inventories are pre pandemic levels now and lower the pre pandemic levels. So So I think they've got their inventories in place and now they're I think just being a little more thoughtful on their planning on their inventory. So but we do anticipate the orders to pick up here as we move into the second half of the year on Motorhome as well.

Okay, got it. I'll turn it over to someone else.

Thanks, guys. Thanks, Matt. Operator, next question. Great. Thank you. Thanks, Matt. The next question is from Mike Schliske with D. A. Davidson.

Please go ahead.

Yes. Hi The. Good morning. Thanks for taking my questions. Want to start off [indiscernible] Your comments were about one of the drivers growth or better trends in 2025, sounds like an infrastructure If you're expecting to see some growth in infrastructure in 2020 by the Shift Group, Would it be fair to say that from what you know that Avi Schmidt will be growing its overall business as fast or faster than Shift Group.

Given The greater focus on infrastructure think that's thanks for the The. And I think that's one of The The key aspects of this merger bringing Abi Schmidt together with The shift We do have that upfit business infrastructure based we can really coordinate our activities, have a better footprint nationwide and access to a broader range of customers. So we see that's one of the key points that's going to accelerate our growth As to the specifics on what they're seeing right now because we're still in the early phase of the merger, not really sharing that information. But we know that they have to be seen. Similar activity. [indiscernible] Okay.

Also, I just wanted to talk about the FBS margin results in the quarter. Pretty good swing there. We're talking fourteen, fifteen points from a negative to a positive. Over the prior year in the fourth quarter.

How sustainable is that like 11% EBITDA margin run rate at $110,000,000 of sales? Is that on the aware FES is currently running.

Yes. I think we're certainly seeing improvements in the FPS margins. We had some great operational efficiencies that we drove. So that's what you're seeing year over year to get to The low double digit margins. And I think that's also consistent with where we've talked about getting those margins over the last several quarters. So So yes, so we do expect to be able to to maintain that low double digits in that space. And again, it's really high focus on on operational efficiencies in that space. It's been helped us get there.

Got it.

Maybe one last one for me. [indiscernible] I have one other question. [indiscernible] Oh, sure.

I just want to ask about tariff income. Yes, we are. Yes. [indiscernible] Yes, I wanted to ask you a little bit about what we should be thinking about at this stage as far as tariffs. I know it's still a bit of a fluid situation. But there are some aluminum tariffs out there you have surcharges planned or any other potential change to your pricing and are there still kind of more flexible pricing arrangement as the tariff situation changes here. In the first part of twenty twenty five, the mining patcher business?

Yes, Mike, this is Scott. Let me start off there. So yes, certainly, we've been evaluating the various scenarios relating to the tariffs and of what's been put in place and the multiple other threats that are still out The. We implemented a supply chain strategy over the last couple of years that are really focused on helping us mitigate this risk. It includes the strategy of North American supply alternatives, right? So we do have plans in place to mitigate the impact both through our partnerships our suppliers, as well as plans to increase prices where appropriate to help offset these impacts. But it is a very fluid situation [indiscernible] to be able to understand The impacts, but it is a little early as things are continuing to move quickly day to day.

The next question is from Tyler DiMatteo with BTG. Please go ahead.

Hey guys, good morning. Thanks for taking the questions. Appreciate the time.

One The the follow-up on The forward outlook for this year. Wanted to follow-up real quick on the outlook here.

I know the comments surrounding seasonality in the Q1. I guess Maybe the magnitude of that? I mean is it going to be similar to Pass? I know you're kind of pointed to that Halo single digit EBITDA and then 70% in the back half of the year.

I guess I'm just curious The degree of the seasonality and then I have a follow-up. Sure. Yes, I think it's going to be consistent with prior year. So if you look at 2024, we had a similar slow start to ramping up and a much stronger second half of the year. We're expecting that similar type of progression here this year. We do expect The benefit of our IQ acquisition as well as just the continued strength of The The truck space. We have talked about the fact that Bulwark moved into production now, which is going to help us from a an overall cost spend perspective.

But in this first quarter specifically, we are still seeing the weakness in the walk in van and the motor home space, which is which is going to be a little challenge for us The quarter. And I think while you're seeing that comment on The single digit low single digits in Q1. Got it. Thank you.

And then my follow-up here, really surrounding maybe the service work and the upfitting piece of the business, versus the core product, if you will. I guess in terms of the service piece and the infrastructure, I guess, has that I guess how has the approach to kind of service work from you guys and maybe going to customers, how has that strategy evolved as you go to win orders? I know obviously from a profitability perspective, you guys have done a really nice job of keeping that margin profile. But I guess from a as you think about the your strategy and kind of how has that evolved over The? And I guess maybe how much is it same? How do you kind of think about that in terms of 2025?

Specifically around those service bodies, our strategy continues to be to get that nationwide coverage. And so as the Royal is much more on the West Coast, Durham and Aluminum is on the East Coast, we're bringing that together. You see that in our new Nashville area facility where we sell both products there. And so it's getting that nationwide coverage And then through our new partners, ITU, for example, they now use either a Royal or DuraMag service body. So we're more vertically integrated The. And as we roll into The merger with The Schmidt, there's just more opportunities there. To get that vertical integration, really drive the overall sales of the service body business that's one of the key pieces that makes us excited about it. And in that merger, we've identified synergies A lot of that synergies and opportunities is coming together in that space for the outfit business.

Supporting infrastructure.

Awesome. Thanks, guys. Appreciate the time. I'll turn it back to This concludes the question and answer session. Mr. Wilson, I would like to turn the floor back over to you for closing comments.

Thank you, operator. I'd like to thank everyone for joining today's call. Management look forward to connecting with the investment community at the NTA Work Truck Week on March in Indianapolis at the ROTH Conference in Dana Point, California on March. As always, please reach out to me if you have any follow-up questions. With that, operator, please disconnect the call.

The conference has been concluded. Thank you for attending today's presentation. You may now disconnect.