Spartan Motors Reports Third Quarter Net Income of $13.5 Million; Increases 391%, on 27% Sales Growth

CHARLOTTE, Mich., Nov. 1, 2017 /PRNewswire/ -- Spartan Motors, Inc. (NASDAQ: SPAR) ("Spartan" or the "Company") today reported operating results for the third quarter ending September 30, 2017.  The Company reported net income of $13.5 million, or $0.38 per share, compared to $2.7 million, or $0.08 per share, in the third quarter of 2016.

Third Quarter 2017 Highlights

For the third quarter of 2017 compared to the third quarter of 2016:

• Sales increased 27.3% to $189.2 million from $148.7 million.
• Gross margin improved 300 basis points, or 24.8%, to 15.1% of sales compared to 12.1% of sales.
• Net income rose $10.7 million, or 390.9%, to $13.5 million, or $0.38 per share, and reflects the release of a $6.3 million, or $0.18 per share, tax valuation allowance recorded in 2015, as a result of the Company's improved financial condition. This compares to net income of $2.7 million, or $0.08 per share, in the prior year.
• Adjusted EBITDA increased $5.5 million, or 74.9%, to $12.9 million, or 6.8% of sales, compared to $7.4 million, or 5.0% of sales.
• Adjusted net income rose 119.7% to $7.4 million, or $0.21 per share, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment. This compares to adjusted net income of $3.4 million, or $0.10 per share, in the prior year.
• Emergency Response segment was profitable on both a GAAP and an adjusted basis – achieving $2.5 million of adjusted EBITDA.
• Backlog was up 97.6% to $537.7 million at September 30, 2017, and reflects the recently announced $214 million USPS order and the acquisition of Smeal in January 2017. This compares to $272.1 million at September 30, 2016.

"We are very pleased with the strong operating results achieved for the quarter," said Daryl Adams, President and Chief Executive Officer of Spartan Motors.  "Not only does it represent, on an adjusted basis, our seventh profitable quarter in a row, it also highlights a significant milestone as our Emergency Response segment returned to profitability generating $2.5 million of adjusted EBITDA for the quarter – up $3.7 million from last year.  Our strong financial performance across all business segments reflects a continued focus on sales growth and operational performance by the entire Spartan team."   

Fleet Vehicles and Services (FVS) Third Quarter Results

FVS segment sales increased $0.6 million to $78.6 million from $78.0 million.

Adjusted EBITDA decreased $1.3 million to $8.8 million, or 11.2% of sales, from $10.1 million, or 13.0% of sales, a year ago, primarily due to a large upfit order that did not reoccur in 2017, offset by lean manufacturing activities and the continued implementation of the Spartan Production System.    

Segment backlog at September 30, 2017 totaled $292.5 million, up 186.2%, and reflects the recently announced $214 million USPS order.  This compares to $102.2 million at September 30, 2016. 

Specialty Chassis & Vehicles (SCV) Third Quarter Results

SCV segment revenue increased $18.2 million, or 59.0%, to $49.0 million from $30.8 million.  Sales of motorhome chassis increased 65.7% to $37.0 million from $22.3 million, due primarily to increased shipments as a result of market share gains.    

Adjusted EBITDA increased $3.8 million, or 287.1%, to $5.1 million, or 10.5% of sales, from $1.3 million, or 4.3% of sales, a year ago, primarily due to increased sales and improved operational performance. 

Segment backlog at September 30, 2017 totaled $31.9 million, up 58.4%, compared to $20.1 million at September 30, 2016.

Emergency Response (ER) Third Quarter Results

ER segment revenue increased $23.8 million, or 56.4%, to $65.9 million from $42.1 million.  Revenues from the Smeal acquisition contributed to $17.3 million of the increase, with the remaining increase due to increased shipments of complete fire apparatus. 

Adjusted EBITDA increased $3.7 million to $2.5 million, or 3.8% of sales, from a loss of $1.2 million a year ago.  The increase was primarily the result of increased sales, improved operational performance and warranty cost reduction.  Adjusted EBITDA loss in the 2016 third quarter included an adjustment of $1.7 million relating to a legacy product recall. 

Segment backlog at September 30, 2017 totaled $213.3 million, up 42.4%, compared to $149.8 million at September 30, 2016.

Acquisition Update

Smeal Fire Apparatus Co. ("Smeal"), which was acquired effective January 1, 2017, is expected to generate approximately $105 million in sales during 2017. 

"The tireless efforts of our Spartan integration team are inspiring as we continue to realize more synergies than originally anticipated," said Adams.  "The integration is running ahead of schedule and we will complete the process during the current fourth quarter.  We expect the entire Emergency Response segment to be profitable on both a GAAP and an adjusted basis in the fourth quarter of 2017, and it remains on track to return to profitability on an adjusted basis for full year 2017."  

Fourth Quarter and 2017 Outlook

"Looking ahead to the fourth quarter of 2017, which typically has lower sales volumes than the third quarter, we expect to see continued year-over-year sales growth and improved operational performance resulting in eight profitable quarters in a row, on an adjusted basis," said Rick Sohm, Chief Financial Officer of Spartan Motors.  

Based on the Company's improved earnings trend over the past seven quarters, the valuation allowance recorded in 2015 on certain deferred tax assets was reversed and, as a result, its effective tax rate going forward will be more closely aligned with the statutory rate.  This will impact the 2017 fourth quarter and, accordingly, our adjusted EPS guidance for the full year.

The Company is maintaining its previously stated 2017 revenue and adjusted EBITDA mid-point guidance and modifying the income tax expense and adjusted earnings per share guidance as follows:

• Revenue of $690.0 - $710.0 million.
• Adjusted EBITDA of $29.3 - $30.3 million.
• A tax benefit of $3.7 million recorded in the 2017 third quarter and an expected effective tax rate of approximately 35% in the 2017 fourth quarter. 
• Adjusted earnings per share of $0.40 to $0.42, which excludes the $6.3 million, or $0.18 per share, tax valuation allowance adjustment recorded in the 2017 third quarter and includes the impact of the expected fourth quarter income tax expense.

Conference Call, Webcast, Investor Presentation and Investor Information
Spartan Motors will host a conference call for analysts and portfolio managers at 10 a.m. ET today to discuss these results and current business trends.  The conference call and webcast will be available via:

Webcast: www.spartanmotors.com (Click on "Investor Relations" then "Webcasts")
Conference Call: 1-844-868-8845 (domestic) or 412-317-6591 (international); passcode: 10113640

For more information about Spartan, please visit www.spartanmotors.com. 

About Spartan Motors 
Spartan Motors, Inc. is a leading designer, engineer, manufacturer and marketer of a broad range of specialty vehicles, specialty chassis, vehicle bodies and parts for the fleet and delivery, recreational vehicle (RV), emergency response, defense forces and contract assembly (light/medium duty truck) markets. The Company's brand names — Spartan Motors, Spartan Specialty Vehicles, Spartan Emergency Response, Spartan Parts and Accessories, Smeal and its family of brands, including Ladder Tower™ and UST®; and Utilimaster®, a Spartan Motors Company — are known for quality, durability, performance, customer service and first-to-market innovation. The Company employs approximately 2,200 associates, and operates facilities in Michigan, Indiana, Pennsylvania, Missouri, Wisconsin, Nebraska, South Dakota; Saltillo, Mexico; and Lima, Peru. Spartan reported sales of $591 million in 2016. Visit Spartan Motors at www.spartanmotors.com.

This release contains several forward-looking statements that are not historical facts, including statements concerning our business, strategic position, financial projections, financial strength, future plans, objectives, and the performance of our products and operations.  These statements can be identified by words such as "believe," "expect," "intend," "potential," "future," "may," "will," "should," and similar expressions regarding future expectations.  These forward-looking statements involve various known and unknown risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, and likelihood.  Therefore, actual performance and results may materially differ from what may be expressed or forecasted in such forward-looking statements. Factors that could contribute to these differences include operational and other complications that may arise affecting the implementation of our plans and business objectives; continued pressures caused by economic conditions and the pace and extent of the economic recovery; challenges that may arise in connection with the integration of new businesses or assets we acquire or the disposition of assets; restructuring of our operations, and/or our expansion into new geographic markets; issues unique to government contracting, such as competitive bidding processes, qualification requirements, and delays or changes in funding; disruptions within our dealer network; changes in our relationships with major customers, suppliers, or other business partners, including Isuzu; changes in the demand or supply of products within our markets or raw materials needed to manufacture those products; and changes in laws and regulations affecting our business.  Other factors that could affect outcomes are set forth in our Annual Report on Form 10-K and other filings we make with the Securities and Exchange Commission (SEC), which are available at www.sec.gov or our website.  All forward-looking statements in this release are qualified by this paragraph.  Investors should not place undue reliance on forward-looking statements as a prediction of actual results.  We undertake no obligation to publicly update or revise any forward-looking statements in this release, whether as a result of new information, future events, or otherwise.

Reconciliation of Non-GAAP Financial Measures

This release contains Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), adjusted net income, adjusted earnings per share, forecasted Adjusted EBITDA, and forecasted adjusted earnings per share, which are all Non-GAAP financial measures.  Our management uses Adjusted EBITDA to evaluate the performance of and allocate resources to our segments. These non-GAAP measures are calculated by excluding items that we believe to be infrequent or not indicative of our operating performance. For the periods covered by this release such items consist of expenses associated with restructuring actions taken to improve the efficiency and profitability of certain of our manufacturing operations, expenses related to a recent business acquisition, the impact of the step-up in inventory value associated with the recent business acquisition, and the impact of the business acquisition on the timing of chassis revenue recognition. We present these adjusted Non-GAAP measures because we consider them to be important supplemental measures of our performance and believe them to be useful to improve the comparability of our results from period to period and with our competitors, as well as to show ongoing results from operations distinct from items that are infrequent or not indicative of our operating performance. 

The adjusted Non-GAAP measures are not measurements of our financial performance under GAAP and should not be considered as an alternative to net income or earnings per share under GAAP. These adjusted Non-GAAP measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating the adjusted Non-GAAP measures, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation, despite our assessment that such expenses are infrequent or not indicative of our operating performance.  Our presentation of the adjusted Non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using adjusted Non-GAAP measures only as a supplement.

The following tables reconcile net income to Adjusted EBITDA, net income to adjusted net income, earnings per share to adjusted earnings per share, forecasted net income to Adjusted EBITDA and forecasted earnings per share to adjusted earnings per share for the periods indicated.

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SOURCE Spartan Motors, Inc.