Spartan Motors, Inc. posted revenue of $470.6 million in 2012, an increase of 10.5% from 2011 revenue of $426 million.
The company reported a net loss of $2.5 million, or ($0.07) per diluted share compared to net income of $800,000, or $0.02 per diluted share in 2011. Results for 2012 include pre-tax restructuring charges of $9.1 million and an earn-out accrual of $2.9 million while for 2011 Spartan incurred pre-tax restructuring charges of $2.8 million and a $1 million earn-out accrual. On an adjusted basis, excluding restructuring charges and the Utilimaster earn-out, Spartan's 2012 earnings were $6.3 million, or $0.19 per diluted share compared to $3.6 million, or $0.11 per diluted share in 2011, an increase of 75.0%.
Revenues totaled $124.5 million compared to $111.2 million in the fourth quarter of 2011, an increase of 12.0%. Spartan reported a net loss of $2.5 million in the fourth quarter of 2012, or ($0.07) per diluted share compared to net income of $0.7 million, or $0.02 per diluted share in the fourth quarter of 2011. Excluding pre-tax restructuring charges of $1.4 million and a $1.9 million earn-out accrual related to the 2009 purchase of Utilimaster, Spartan posted an adjusted net income of $0.5 million, or $0.01 per diluted share in the fourth quarter of 2012.
"The fourth quarter and full year 2012 reflected Spartan's diversified growth strategy,” said John Sztykiel, Chief Executive Officer of Spartan Motors, Inc. “We also posted full-year adjusted earnings growth compared to 2011 and a total order backlog that increased 20.0% from year end 2011. Revenue growth was a result of Spartan's brand strength, new product initiatives and market recovery. In addition to generating revenue growth, we did a very good job of managing operating expenses and the balance sheet. Although we posted sales and adjusted earnings growth in 2012, our results also show that we have more work to do on improving operations, particularly the gross margin. We underestimated the scope and amount of time required to implement our operational/gross margin improvement efforts in 2012 and are dedicating more time and focus to achieve these goals in 2013.
“Our plan to improve the gross margin includes the following steps: increasing production efficiency, reducing the bill of materials to offset a shift to lower-priced products and further reductions in Reach start-up costs. We expect the plan to lead to improved margin performance in 2013 and beyond."
Joe Nowicki, Spartan's Chief Financial Officer, stated, "Spartan demonstrated its commitment to financial discipline during the fourth quarter by cutting adjusted operating expenses to 10.8% of sales compared to 12.2% of sales in the fourth quarter of 2011. We focused attention on cash collection and helped reduce our year end receivables balance by $2.9 million compared to the third quarter of 2012 despite 10%-plus revenue growth. Compared to the third quarter of 2012, we also reduced total inventory levels by $3.2 million.
"At the end of November, we renewed our private shelf and note purchase agreement with Prudential Investment Management, Inc. for an additional three-year period, through November 2015 and increased the authorized amount of the note purchase agreement by $5 million, to $50 million. This private shelf agreement provides Spartan with additional flexibility to support future acquisitions or other growth initiatives."
Fourth Quarter 2012 Summary:
- Net sales of $124.5 million (an increase of 12% from Q4 2011 sales of $111.2 million):
- Emergency Response (ER) sales totaled $44.9 million, an increase of 1.4% from $44.3 million in Q4 2011
- Delivery & Service Vehicle (DSV) sales totaled $52.6 million, an increase of 25.5% from $41.9 million in Q4 2011
- Specialty Vehicles (SV) sales rose 8.0% to $27.0 million from $25.0 million in Q4 2011
- GAAP results:
- Gross margin of 10.6% of sales, down from 13.1% in Q4 2011
- Operating loss of $2.8 million and operating margin of (2.2)%, compared to operating income of $1.0 million and operating margin of 0.9% in Q4 2011
- Net loss of $2.5 million, or ($0.07) per diluted share
- Adjusted operating results (non-GAAP, excluding restructuring charges and earn-out accrual):
- Adjusted gross margin of 11.2% of sales
- Adjusted operating income of $0.5 million, or 0.4 % of sales
- Adjusted net income of $0.5 million, or $0.01 per diluted share
- Restructuring charges (pre-tax) totaled $1.4 million, or $0.03 per diluted share in Q4 2012, mostly related to Utilimaster's move to Bristol, Ind.
- The Utilimaster earn-out accrual totaled $1.9 million, or $0.05 per share in Q4 2012
- Earnings before interest, taxes, depreciation and amortization (EBITDA) excluding restructuring items and the earn-out accrual was $2.6 million in Q4 2012 versus $3.5 million in Q4 2011
- Ending consolidated backlog was $164.4 million at Dec. 31, 2012 versus $137.0 million at Dec. 31, 2011. Backlog at the end of 2012 increased 20.0% from the end of 2011
- Cash balance of $21.7 million at Dec. 31, 2012 compared to $31.7 million at Dec. 31, 2011
- Spartan invested $2.8 million in capital during the fourth quarter of 2012, most of which was related to Utilimaster's relocation project. During the quarter the Company also purchased $9.6 million in transitional 2010-spec diesel engines
Revenue Growth and Operating Expense Control Offset by Material and Manufacturing Cost Pressure
- All of Spartan's operating segments posted revenue growth in the fourth quarter of 2012, with the DSV group showing a 25.5% growth rate over the year-ago fourth quarter. DSV posted fourth quarter 2012 revenue of $52.6 million compared to $41.9 million in the fourth quarter of 2011. Growth in the DSV segment was due to increased demand for walk-in vans and truck bodies. At the end of the fourth quarter of 2012, DSV backlog stood at $39.7 million, down from $47.7 million at the end of 2011.
- The SV segment generated revenue of $27 million in the fourth quarter of 2012, an increase of 8.0% from $25.0 million in the year-ago fourth quarter. Most of the revenue gain came from higher sales of recreational vehicle chassis in the fourth quarter of 2012 compared to the fourth quarter of 2011. Demand for custom RV chassis increased during the fourth quarter of 2012, more than offsetting the impact of the departure of a major customer earlier in the year. Orders increased dramatically throughout 2012, with the backlog at year end standing at $26.6 million compared to $15.3 million at the end of 2011, an increase of 73.9%.
- The ER segment reported fourth quarter 2012 revenue of $44.9 million versus $44.3 million in the year-ago fourth quarter. Sales of fire trucks, including two large aerials, rose during the fourth quarter of 2012, more than offsetting a small decline in the number of custom fire chassis sold during the quarter. ER orders increased throughout the year, with the backlog at December 31, 2012 standing at $98.1 million, up 32.6% from $74.0 million at year end 2011.
- Spartan's gross margin was adversely impacted by several issues during the fourth quarter. The company posted a gross margin of 10.6% in the fourth quarter of 2012 compared to 13.1% in the fourth quarter of 2011. Excluding restructuring charges of $800,000, the adjusted gross margin in the fourth quarter of 2012 was 11.2% of sales. The gross margin was negatively impacted by higher-than-projected labor costs at DSV due to the relocation to Bristol and higher Emergency Response Vehicles labor costs incurred as production increased rapidly in the fourth quarter of 2012. Product mix in Emergency Response Vehicles during the quarter resulted in a higher material content as a percentage of sales, thereby reducing gross margin. The gross margin at ER was also reduced by recurring commercial chassis shortages that required last-minute production schedule changes and additional labor and material handling.
- Operating expenses in the fourth quarter of 2012 rose to $15.9 million, or 12.8% of sales, compared to $13.5 million, or 12.1% of sales, in the fourth quarter of 2011. Excluding restructuring charges of $0.6 million, or 0.5% of sales, and the earn-out expense of $1.9 million, or 1.5% of sales, adjusted operating expenses for the fourth quarter of 2012 amounted to $13.4 million, or 10.8% of sales.
Bristol Move Accelerating
- Utilimaster's relocation to Bristol, Ind., continues, with most of the physical move to be completed by the end of the first quarter of 2013. Production of walk-in vans is expected to begin at the end of Q1 2013 with the move substantially completed during Q2 2013. While the move is underway, costs are expected to be higher than normal while production will be reduced, negatively impacting Q1 2013 results. As the relocation process nears completion, management expects costs to be significantly reduced.
- Spartan closed the sale on 15 of the 16 buildings at its Wakarusa, Ind., complex. The Company retains one building at Wakarusa, currently held for sale.