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.
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.
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.
From a balance sheet perspective, we increased our cash balance by $17.2 million during the year to nearly $32 million at the end of 2011. We gained market share in emergency response, an important market for Spartan, one of great growth. And we did this despite a market that was depressed by 20% to 30%.
We significantly improved the operating income at Utilimaster. Our order backlog increased by 1.8% to $137 million at yearend. Especially notable is our backlog in the Delivery and Service segment, which nearly doubled to $47.7 million. Emergency response bodies also showed an increase in backlog by yearend, and emergency response orders picked up substantially around the end of the year and we moved into January as well. All of these are encouraging signs as we look to 2012.
The diversification of our revenue continued to move in the right direction with our focus on business to business and business to consumer sales. We now compromised 53.4% of our revenue and 46.6% is government dependent in the fourth quarter of '11 compared to 54% and 45% respectively for all of 2011. And again, it's a dramatic shift versus 2008 where in 2008 approximately 80% of our business was government dependent.
So it's interesting. Not only am I proud of the fact that we made money again in 2011, but when I look at how we've continued to diversify the business, transform the business, strengthen the balance sheet, more than doubled the backlog of an acquisition which we integrated less than two years ago, we've done a lot of things right, moving upon the right direction, which is why we're very focused on delivering greater income results in 2012.
Let's talk a few minutes about Utilimaster Bristol consolidation, of which there is a separate release on that today, an extremely exciting event. In earlier calls, Joe and I have had business with each one of you and at times you've all complemented us on the improvement of Utilimaster. We've all said that there is still much more improvement yet to be had, as there is tremendous opportunity.
Earlier today, we announced the third step in our strategic plan to meet these goals. The first step was to improve operations and profitability in the existing Wakarusa facility, a tact that we've accomplished and Joe is going to get into some of that detail. The second step was to bring the Reach van product to market. That was accomplished.
The third step was to look or develop the right facility operational map, and that is now in Bristol, Indiana. To give you some idea into this goal for the product and what it means, we signed a lease with Fruit Hills Investments today on the Bristol facility that will allow us to move from a sprawling 16-building campus which is over 700,000 square feet into a more modern an efficient 1-building under one roof that is about 13 years old and has about 425,000 square feet.
What's interesting is in Wakarusa, most of the buildings are more than 40 years old with the newest being 30 years old. And to give you just a little bit of perspective, if you ever went there and you just washed your car and you drove around the facility, visiting the different buildings and again 16 buildings, so when you think about the added indirect cost, the overhead, the operating expense, the inefficiencies et cetera, when you would come out of there with a really dirty car, and then you'd walk away and say, this is absolute madness, trying to build products within 16 buildings with the average age of 30 to 40 years old.
As the release noted and please take time to look at the release, we'll be reducing the non-value added process in material handling by over 80%. When you take a look at the length of line for a walk-in during the travel, it'll be going from 2.5 miles to less than 0.5 mile. It's huge simplification in the assembly process, also the ability to deliver a higher-quality product.
Third, the assembly lines in the new Bristol facility will be much more flexible. They will allow changes in the layout and equipment rather easily. It's our expectation that the new plan will not have any permanent fixtures in place that dictate how the assembly lines must be laid out.
What's interesting about the facility is when I first went in there, I didn't see very many columns and whoever built the building was extremely intelligent 13 years ago, because they have very few columns, very, very high ceilings, very strong support. So from a facility's perspective, it is ideal from a manufacturing point of view. And when I spoke about where we came from to where we're going, we're going from 106 acres to 26 acres.
The reality is facility's operations is no different than your house. If you have a large house, over time you're just going to buy a lot of stuff and you're probably not going to use it and you're going to accumulate it. You're not going to manage a personal sheet and cash very, very well. The same is true in a business. You go from 106 acres to 26 acres. I have no doubt our inventory turns will go up, our inventory will come down and we will see significant cash balance sheet improvement in the new Bristol facility. Why? Because you just have less space. So as we look forward, we're extremely excited.
Fourth, the working process from one plant to another, and as mentioned in the release, these changes should result in annual cost saving reductions of $4 million a year at a minimum. So when you look at Utilimaster and you've heard Joe and I talk over the last 12 months while you've complemented us on the rate of improvement, et cetera, this is the third step of the plan. And we have several steps yet to execute, but in 2012, we will be very focused on bringing horizon on line to ensure that we see the operational benefits late in the second half and throughout all of 2013.
From an RV perspective, one of the benefits of Bristol as well is we've talked about moving the RV business down to Bristol, Indiana, or I should say down to Northern Indiana. All the RV chassis will be built in the Bristol facility. So we'll now be within minutes of the RV marketplace, thus improving our competitive position in a substantial way.
At the same time, just to reiterate, when that happens, we will be moving the Reach van production from Indiana up to the Charlotte campus. So from an Isuzu partnership perspective, everything with and around Isuzu will be located in Charlotte, Michigan.
Just a quick update on Isuzu. The initial plan in 2011 was to be building or assembling 14 units of N-Series product per day with approximately 50 people in a 35,000 square foot building. Today we're assembling approximately 21 units per day with 49 people in a 50,000 square foot building, another great strategic and operational accomplishment for us in 2011.
We do expect to occur an asset impairment charge on the value of the Wakarusa campus, which will be offered up for sale, at prices we estimate that assets impairment charge to be in the range of $4 million to $6 million. Bristol is an important part of improving our operations, driving income in the right direction and positioning Utilimaster for the next step of growth as they move into the future from a Delivery and Service perspective.
To give you a couple of other updates on the Delivery and Service business just quickly, as we talked about, we continue to make progress on the front and that approximately 54% of all of our revenue in 2011 is coming from businesses that sell the consumers of businesses. On the Delivery and Service side, we posted a revenue gain of nearly 7% for Q4, and up 47% for the year and what's nice as we go into 2012, the backlog for Delivery and Service has more than doubled than where it was a year ago.
As we also mentioned earlier, keyless or aftermarket parts and assemblies has been a key part driving both sales and income growth. We look forward to taking advantage of the 125,000 plus Utilimaster units that are in the field. And so how do we get value on those units, as the year moves on.
Mentioned a little bit earlier about the Reach, I talked about the Reach as a market changing product. We're now moving forward with the market development of that product with the mega-fleet such as UPS, FedEx, (syntax) et cetera, very, very focused on working the Isuzu dealer and distribution network to go after the commercial parts of the marketplace.
Extremely excited about the Reach, but we will be very, very focused on quality. Because people look at this product in visually it is a very different product. It has excellent fuel economy. It has an Isuzu chassis and drivetrain. But they also expect the performance to be better than what they have ever received from the Utilimaster or any other step van or Delivery and Service manufacturing in the industry. And we are very, very focused on that.
As we look at 2012, we expect continued growth in the Delivery and Service business, the work side of it. I mentioned earlier about the backlog, and what's interesting is the backlog grew despite the expiration at the end of '11 of a tax provision allowing full depreciation for new vehicles placed into service during the year. And what that tell you, what that indicates to you is that the Delivery and Service of small things continues to go up.
Looking at potential long term growth drivers in this segment, you may have seen some articles in the media about how consumers are turning to online shopping especially during the Holidays. A New York Times article from January 4, reported that online sales in November and December rose 15% to $35 billion. E-commerce retailers up spur that growth with 92% offering free shipping between Thanksgiving and Christmas.
The interesting points are as society becomes more customer-centric, the delivery of small things and services and continues to grow and that's where Utilimaster comes in.
Now let's switch to markets. In this market, it's a bit challenged and it is our RV recreational and especially Chassis segment. Sales were down approximately 30% for the year to $77.9 million. As we progress through 2011, sales in this segment improved relative to 2010 especially in the RV market, but in the fourth quarter RV Chassis sales were down 8% to $17.5 million compared to $19.2 million a year ago.
And while the RV market is stabilizing, the reality is there has been a market shift from large class A's to smaller class A's and smaller class C's. On a positive side, we introduced some product concepts in December at the RV show, which were in lined with the market shift. We're now having discussions with a number of new customers OEMs et cetera and we look forward to some positive impact, but that impact will not take place till the second half of the year. That it's approximately a six-to-nine month cycle to go through the evaluation, the prototype design, the validation and then you bring the product to market.
So we're still excited about the RV business, but we have a lot of work to do, not just on the market development side. But honestly on reducing our operational cost base. Because it is the market shift, our products not only have to be attractive, but we have to ensure that we can deliver the right operating income per segment and we're not at that point yet. We're diligent, we have a podium. We're focused on getting there.
Let's move over to emergency response and that segment, which is naive showed signs of recovery in Q4 and as we look to 2012. With the year sales fell nearly 25% to $106 million, but in the fourth quarter sales were down only 4.1% to $30 million. And this compares favorably to an industry-wide decline of at least 20% in Q4.
Although our backlog at year end was $45.6 million, it was still below the backlog at the end of 2010. The pace of orders in Q4 was stronger than what it was in the precious three quarters, what's interesting is January was the best month for new orders since November of 2009.
And people have asked or if you're wondering why are we doing, what we're doing in emergency response? Why are we gaining share relative to the marketplace? One is: We're bringing competitive products. It's very innovative to the marketplace. Part of this, we have realigned our cost structure to make our products more attractive from a price perspective.
Second: There is some market uptick as the economy is approved as a whole and there is now a little bit of pent up demand in the marketplace because we're had number of cities and municipalities that have taken themselves out of the marketplace for last two or three years, but they are now in the market to buy trucks.
Third is the data point today. Over 60% of all your fire trucks in the marketplace are over 15 years old. They don't have certain standards, which we expect today in a passenger car like anti-lock breaks. And a gift to the point where just your maintenance cost become very, very high that a number of cities in municipal are just saying, okay, I've got a 20 to 30 year-old truck. I just physically can't get the parts anymore. It's difficult to be maintained. We're going to figure out how to generate the funds to buy one.
So as we look forward to 2012, we're gaining share, the economy is moving in the right direction a little bit. Plus you've got some pent-up demand, not just from people taking up the last two to three years. But the fact you've got a large number of trucks over 15 years old.
On the Emergency Response Body side, the business ended the year with a higher backlog. Again, a higher backlog in a market that was down 20% to 30%, a great statement to Crimson Fire, where their backlog ended up at $28.4 million versus $26 million. Sales for the quarter were down, however, at $19.4 million versus $21.9 million.
Sales in the fourth quarter of '11 also included the $1.9 million acquisition of Classic Fire. Our sales and profitability in the fourth quarter of 2011 were adversely impacted by the sale of some older stock unit that were sold at lower prices. In addition, our revenues mix in the fourth quarter at 2010 was unusually the favorable in 2010 versus 2011. Also hurting the fourth quarter of 2011 results, where a number of trucks, a small number that we shipped early in the first quarter of '12 due to some delays from an inspection perspective just prior to the holiday.
But as we look at Emergency Response, it's a great marketplace. One of growing demand where there is a call for help every 0.73 seconds. The backlog's moving in the right direction as we look at '12. We're focused on growth in sales and in income and we expect both of those to happen.
Let's switch over to aftermarket parts and assemblies and that group had a great 2010, due to some very large defense orders. Unfortunately, those orders did not happen in 2011. And the revenue in income dropped substantially. APA revenue felt $7.6 million in Q4 of '11 from $23 million in 2010.
As we look to the future, the defense business will be very challenging from an aftermarket parts and assembly perspective. However, when we look at the success of Utilimaster, the opportunity Motorhomes and the opportunity in Emergency Response, there is still significant growth in aftermarket parts and assemblies.
Now, Joe, I'll turn over to you.
Thanks, John. Good morning, everyone, and thank you for joining us on the call. The fourth quarter of 2011 proved to be a challenging and to a tough year. The main issue we faced in the fourth quarter was from a revenue standpoint. The non-recurrence of the defense orders and our aftermarket parts business, as John mentioned.
The absence of those orders in 2011 caused our fourth quarter revenue to decline by $12.5 million, which accounted for most of the $15.7 million revenue drop during the quarter. Despite this challenge, Spartan posted a small profit during the fourth quarter of $700,000 or $0.02 per share compared to $0.10 per share in the year-ago fourth quarter. Spartan's profit for the year was $800,000 or $0.02 a share versus $4.1 million or $0.13 per diluted share in 2010.
Our efforts to reduce cost throughout the organization earlier in the year paid off in the fourth quarter. Operating expense declined $1.3 million from the fourth quarter of 2010. We continuously monitored cost structure and are always looking for ways to operate more efficiently in a lower cost, while providing the best products and services to our customers.
Taking a deeper look at our income statement for the fourth quarter of 2011, sales totaled $111.2 million, a decline of $15.7 million from the fourth quarter of 2010. And again, most of that decline was due to defense parts sales in 2010 that were non-recurring. APA sales tend to be also some of our most profitable. The sizeable drop in this segment did have an impact on our operating results for the quarter as well.
Sales in Motorhome and bus chassis recovered somewhat in the fourth quarter of 2011, with revenue of $17.5 million, down just 8.8% from the $19.2 million in the same quarter of 2010. We believe this is a partial recovery, since sales were off to a lesser extent than they had been for the rest of the year.
Emergency Response chassis sales declined 4.1% in the quarter to $17.5 million. And also Emergency Response Bodies were also down in fourth quarter to $19.4 million from $21.9 million. The sales decline reflects the general trends in the Emergency Response industry and also a mixed shift to lower price, lower margin units in the fourth quarter of 2011 versus a more favorable mix that we saw in 2010. In addition to this shift, we sold some older stock units for lower prices. These sales had impact not only on revenue, but also on gross margin.
As John mentioned, the bright side, Delivery and Service revenue was up nearly 7% in the fourth quarter of '11, due to growth of the aftermarket part sales to $7.5 million from $4.3 million a year ago. Growth in the aftermarket sales more than offset a small decline in vehicle sales to $34.4 million from $34.9 million in the fourth quarter of 2010.
Gross margin for the quarter was 13.1% of sales versus 15.3% in the fourth quarter of 2010. In addition to the decline in APA sales, I just mentioned, other contributing factors were shift to lower price, lower margin Emergency Response products. Lower volume in all segment except Deliver and Service and the effects of the delayed shipments of the walk-in and Reach vans.
Our cost control efforts were reflected in decline in operating expense to $13.5 million from $14.8 in the fourth quarter of 2010, a reduction of $1.3 million. Due to lower revenue levels, the operating expense as a percent of sales was slightly higher in the fourth quarter at 12.1% of sales compared to 11.7% in the same quarter of 2010.
Net income for the fourth quarter was $700,000 compared to $3.4 million a year ago. The 2010 number is net of a loss from continued operations of $200,000. On a per share basis $0.02 per diluted share in the fourth quarter of '11 compared to $0.10 per diluted share in 2010. The 2010 figure is reported after a loss of $0.01 per diluted share from the discontinued operations as well.
Now, switching over to our balance sheet to take a look there. There were two stories to tell. First, we increased our cash balance to $31.7 million at the end of 2011, an increase of $1.2 million during the quarter. Second part is that we entered into an amended five-year credit agreement with Wells Fargo and JPMorgan Chase as of December 16, 2011.
We have a revolving credit facility up to $70 million and our request and subject to certain terms and conditions, we may also increased that by another $35 million, which is up from the $15 million that our previous credit facility allowed. In addition to our expanded credit facility we retained $40 million in availability on our private placement notes also with $30 million in cash. And our debt balance remains at only $5 million. This availability of funds is important to fund our future growth initiatives.
As we've mentioned in the past, we operate under a blended growth strategy of organic growth, acquisitions and alliances. We believe our combined cash and borrowing capability provide us with the resources necessary to support our growth strategy. We continue to evaluate opportunities as they arise and are committed to growing our business and are responsible strategic fashion.
Finally, looking on our backlog at yearend 2011. Our total backlog at the end of the fourth quarter of 2011 was $137 million, up 1.8% from the end of 2010. As John mentioned, the Delivery and Service segment had largest increase in backlog, nearly doubling $47.7 million from $23.9 million at the end of 2010. The Emergency Response Bodies segment also posted increase from backlog to $28.4 million at the end of '11 versus $26.7 million a year ago.
In closing, my remarks about the quarter. Spartan posted a modest profit in the fourth quarter of 2011, an environment that we characterized as challenging. Most of the markets are undergoing contraction due to, either governmental budget pressures or economic conditions in general. Given these pressures the results have been lower revenue based for the quarter.
We're pleased that our efforts still ended up with the modest profit, but we would not say that we're satisfied with Spartan's results for the quarter or for 2011 as a whole. We're continuing to focus on expanding our revenue base and product offerings, while we work to minimize cost.
In Service segment, we believe the tide is turning in our favor, with improving economic conditions and new enhanced products. Although, we're in the early days of 2012, we anticipate our revenue to increase in the low-to-mid single digits this year compared to 2011.
At this point, I'll turn the call over once again to John Sztykiel for his comments about 2012.
Alright, Joe, and thank you very much. As Joe just said, we are determined to improve Spartan's profitability in 2012 and this should start in the first half of the year. We expect to see recovery and growth in the markets in which we operate in. And we will continue to focus on improving our operating performance.
Over the past few years, we've taken several steps to diversify our revenue stream, to become less dependent on the government, federal, state and municipal money. As mentioned earlier, in 2008 government funding purchasers accounted for more than 80% of our business. Today it's approximately 46% or 54% was derived from the private sector.
Our blended growth strategy, a strategy of go-through acquisitions alliances in organic has paid great dividends. And what's exciting in 2012, there will be more. And this will start in April, the third week at FDIC, the largest emergency response show in North America and you'll see a little bit of off rate.
So as we look to 2012, and while we're excited about what we've accomplished over the past couple of years, we expect even greater opportunity or greater execution on the blended growth side of the business model position, not just for growth in '12, but for '13 and '14 as well.
As we've pointed out during past conference calls, we are guided by a four-point operational plan, develop compelling products, growth in profitable market share. The good news is we're taking market share in the Delivery and Service segments, in the Emergency Response segments.
But as I mentioned earlier, we've got work to do in the RV business. We've got a plan also from organic perspective and alliance perspective and reducing our cost base, but it won't take some time to execute that plan.
The other two tenants of the plan are to reduce our cost structure and manage our balance sheet and we've made great progress. But in 2012 there will be greater progress and our gross margins must improve. Our operating expense, both from a dollars perspective and percentage of sales must and will come down.
And in closing, each day we basically have two choices. We can either do things differently than our competitors or we can do the same things in a different way. And as we do that and execute, we will be known for differentiated leadership and we will have greater opportunities to control our destiny.
And as I looked at '11, the plan we've laid out over the last couple of years continues to move it in the right direction. And as I look at 2012, I expect our team to deliver better results across the entire company, growth in sales, growth in income we are simply driven to deliver.
Now, we're ready for questions. Thank you very much.
(Operator Instructions) And our first question comes from Walt Liptak from Barrington Research.
Walt Liptak - Barrington Research
Let me start with you, Joe, and just ask a couple of top down questions. You gave us a little bit of guidance on 2012, what's three to five or the low-to-mid single digit revenue growth. What do you think about on the EPS line, given the mix changing and some of those incremental cost this year for some relocations, can EPS be up 3% to 5%?
We really don't give specific guidance, going down to the bottomline, Walt. As you know, we keep it pretty much as a topline perspective from an income point of view. As we've said, we're continuing down the path that we've set out last year. We're not waivering it all from our direction around 17%, 11%, and 6%; 17% gross margins, 11% operating expenses and 6% operating income. That mission is going to have some change. We've made progress on it and we're going to continue too in the current year as well too.
Walt Liptak - Barrington Research
But you're not saying that you're going to get there this year?
Correct. And I think we never did.
Walt Liptak - Barrington Research
The 2012 tax rate?
Yes, estimates probably in that 37% range.
Walt Liptak - Barrington Research
And thinking about EPS and the mix of business, I'm just looking at the revenue in your other products, which is APA. It looks like revenue is going to be down in that, which is a high margin and up in other things. Is there going to be a continued pressure on your grow margin?
Sure, let me give you maybe what might help is, if I talk a little bit about 2012 from the various kind of segments and markets that we operate in and give a little bit of more direction in that regards, maybe that will help with some of your question. So as we look at the Emergency Response marketplace, we see that is kind of a slight growth, so we don't see a significant bounce back in Emergency Response. But I think most of the industry stands there, talk about again probably a consistent, what we said in total of a low-to-mid single digit growth rate in Emergency Response business.
If you look at the defense business, including our defense and also the defense parts business as in our APA, certainly those will continue to be constraint. So you'll see those decline next year. That's for certain, so you're correct there. We think the Motorhome marketplace has stabilized, so we don't think we'll see a decline next year. But we think it'll be pretty much stable year-over-year.
We'll continue to have great growth in some of our specialty vehicles, so the work that we do at Isuzu that would begin and continue to grow pretty significantly year-over-year as that volume just started last year in '11, so in '12 we'll see great growth. And the DSV business, as you know had tremendous growth last year, as John described. Well, we think that marketplace still has a lot of growth. And we think next year it'll be probably also in that low-to-mid single digit perspective. We think that market will have another solid year again in 2012. I hope that helps you provide a little bit more guidance for you.
Walt Liptak - Barrington Research
And then maybe if we could just focus a little bit on some of the relocation. And I guess the first question I have is you've talked about $4 million of overhead savings. Is that the same as where you mentioned non-value add efforts reduced by 80%, is that the same number?
Yes, it is. And you said overhead, it's really a combination of what would be manufacturing overhead cost, but there is also elements of cost there in SG&A as well too. So both of those two will see some improvement, which is where we get to the, as John had described, a minimum of $4 million in operating savings.
Walt Liptak - Barrington Research
And when you get this new plant up and running, there should be better gross margin, better efficiency and better returns I guess out of the new plant. Is that right?
Absolutely. And that again while we've got certain metrics inside, we don't have that encapsulated, Walt. This is John Sztykiel into that $4 million, which is why we use the term minimum. And I think you've been to that facility or some of your team has. And just in vision there and if you get a chance that encourage you to take the two hour drive to the new facility, even though you see a clean footprint in Q3 of this year, you'll see something not only from an operational perspective that will improve the gross margin, but also it will help the topline. Because one of the things Utilimaster has been struggling with is, while their sales growth has been fantastic their backlog I should say or their delivery time, you get it ordered from when you deliver the product has stretched out some.
And so one of the things what's interesting is if you take a look at the last page of our earnings release, one thing you should know is you see how the delivery time or the order-to-bill cycle has come down substantially as Spartan Chassis, okay. Chassis is one of things that if we accomplish that in Utilimaster, I have no doubt in '13 we'll see above double-digit or I should say you'll see greater than single-digit sales growth in 2013, because we will gain market share. Because we'll be able to deliver product faster.
Walt Liptak - Barrington Research
Presumably, you will get your target gross margin in 2013 too with a new operation launched?
That's going to help us get there absolutely.
And that's one of the reasons, when we look at purchasing Utilimaster in 2009, we knew the operational footprint had to be changed. But we also knew that there was tremendous operating income, but also topline growth from a facility that could deliver a higher quality product at a lower cost base, both from a gross margin perspective and from an operating expense perspective, but also topline growth, as we would shorten up substantially the delivery cycle from when we took an order to when we delivered it.
Walt Liptak - Barrington Research
What about any move cost in the next couple of quarters? Are you planning on putting any relocation cost as a one-time charge or you're going to put those through the income statement? As they go through the income statement do we get loss EPS numbers for couple of quarters?
Well, there obviously definitely will be some. We will call them out separately on the P&L. So you'll all have visibility what that number is. In regards to the specifics right now, they'll start occurring in second quarter, but most of them being in the third and the fourth quarter that's when the bulk of the move is going to occur. I don't have the detailed numbers for you at this point. So I'll be pulling the rest of that information together.
And as we go to the current quarter, we'll have that information all set to give you a sense of what it means there. It will not have an impact on the first quarter. There will be some little impact on the second quarter, but most will occur in third and fourth. We'll call them out separate for you.
Walt Liptak - Barrington Research
And when you mean call them out, you mean you'll have a separate line item in the income statement?
Walt Liptak - Barrington Research
In the special charge?
Yes. We'll probably list them on a separate charge or restructure line or something in that extent. Certainly, in all the details of press release and the conference call script, we'll make you aware of them.
Walt Liptak - Barrington Research
Just a couple more real quick ones. Just 2012 D&A in CapEx?
Yes. There shouldn't be a big change in the D&A numbers or the CapEx. The only big CapEx increase this year will be related to the Bristol facility. So there will be some additional capital as we move into that facility. Again, I have all the detailed numbers what it is, how much. There are some facility improvements we need to do the new leased environment. I have all that stuff kind of rolled up for you as we get into the first quarter here.
Our next question comes from Rob Kosowsky from Sidoti.
Rob Kosowsky - Sidoti
I was just wondering if you go back over the delay that you saw for the walk-in vans and kind of what the regulatory change was and kind of what the financial impact was as well from lost revenue or higher cost?
I'll talk about the lost revenue piece and then I'll let John get into some of the specific issues about the vehicles at that time. So from a revenue perspective, really it's a delay and there were two delays. One of them from walk-in and the second one from the Reach product delayed.
So in the fourth quarter on the walk-in vans, there was somewhere between the $2 million to $3 million delay in shipments from walk-in vans, that we didn't ship out during the quarter. And there's probably about another $2 million delay in the Reach the product that we didn't ship out during the quarter as well too.
So you had somewhere between $4 million to $5 million of delayed revenue shipments at Utilimaster that didn't occur in Q4. But both of those two items were resolved and they did ship out, actually already this year in January. So you'll see them in the first quarter.
Rob Kosowsky - Sidoti
Do you have any idea what the gross profit impact was and maybe just some of the other cost you needed to do to kind of retrofit or make those vehicles ready to go?
There's two elements to it. So if we were to talk about that revenue drove lost gross margin right. And I think as we've described, I won't get into the specifics by product, but as we described in Utilimaster business, our gross margins tend to be in that lower than our average margins, right. I think we've described our Utilimaster margins being less than our average growth margins. So that will give you a sense of the margin loss, which is one element to the financial impact.
The other element that I think John described, as we had some operating efficiencies during inefficiencies that Utilimaster during the quarter as well too. This was due to some part shortages and some of the issues that John described around taking the products off the line for these delay and putting them aside. So the operating efficiencies probably causes upwards about $1 million in a combination of overtime and fixed overhead that we didn't absorb as a result of it. That will give you a sense for the second part. I hope that helped.
Rob Kosowsky - Sidoti
And also the nature of the product and how the supply chain is looking right now and everything?
As you take a look at the Reach, as I mentioned earlier on the call. As we were building the units in November and December, one of the things is both, Isuzu, Spartan and Utilimaster spent time together, we simply were not satisfied with where the quality was going, because this product, a key part of its success is our sales through the Isuzu distribution network. Never before in the history of Utilimaster or Spartan have we sold product to a distribution network. And Isuzu has approximately 280 dealers nationwide. So as Joe, mentioned, one, we've shifted everything back about a quarter and with simply a focus on quality.
We're working with a partner that's been the market leader for the last 24 years straight. We understand the standards of excellence. We agree with those standards of excellence. So basically, we aligned our business processes et cetera, and with the supply base are focused on delivering the best Delivery and Service vehicle out there today.
Now, once that done from a forecast perspective as we look at 2012, previously you've heard us talk about a 1,000 to 2,000 units for the Reach in 2012. Now that range is shifted back of about 750 to 1,500 units. And I know that's a large swing, but the reality is for the Reach product line, when you look at some of the customers we do business with, you can get an order for 300 to 400 to 500 units. And again, they will want delivery of those units within three months to four months.
But as we look at 2012 and we look at our financial plan, which took us down like to the mid-single digits when we talked about topline growth. A part of that is realigning the Reach business model with 750 to 1,500 units next year. On the normal current walk-in van business, production is now at an accelerated rate. The demand for that product is extremely good. The current delivery sequence for that product is five months or less, and that is simply too long.
Again, if you look at the last page of our release, something I want to bring up and this relates to Delivery and Service. On the last page of the release, we note the backlog of like Emergency Response chassis bodies, Motorhome, Delivery and Service, et cetera. And while the backlog led down 15% for Emergency Response chassis, the throughput improved 28%.
If you took a look at the Q3 release, it would have said, delivery for Emergency Response chassis seven months. Now it says five months. This facility we're going to be moving into in Bristol, Indiana, will enable us to reduce that lead time from five months to four months to three months, bring it down substantially. So then we can also accelerate the growth in sales and income on just the current walk-in van product.
Rob Kosowsky - Sidoti
And then how you look at the cost cuts, I guess, what you have maybe $2 million of cost cuts that are suppose to hit this year from a legacy program. And then the $4 million that's going to hit that's basically going to be maybe fourth quarter into 2012 or 2013. I mean, is that the kind of the way we're looking at the cadence?
Correct. On the first part, we did roughly around $4 million of annualized kind of SG&A savings that we did in the middle part of the year. So half of that you'll see still going through this year, correct. The second part on the move to the Bristol facility, really you'll see some of that in fourth quarter. But it's going to take us third and fourth quarter, working really hard to get all those things moved in there. You're going to see the bulk of those improvements right after current 2013. So I would give that more towards first quarter of 2013, when we'll start to see that $4 million annualized saving from the move to the Bristol facility.
Rob Kosowsky - Sidoti
And then, just any commentary on what the best way to model, I guess the part side of the business on both, within specialty vehicles and also the Service and Delivery? It's volatile not prior inherent in the business. Looking at average of this year, is that kind of a good proxy for going forward on a quarterly basis recognizing there could be some volatility? Is that kind of a good way looking at it or any kind of help on that?
It's a good question, because there is a lot of volatility to it an issue in a way, that's a big impact on our income as well too, because we usually do quite well there. So maybe the best way is to break it into pieces. If you look at our aftermarket parts and assembly business on the specialty vehicle side that $28.3 million that we did in 2011 that breaks down to pretty much almost 60%, 40%; where 40% of that is the Motorhome and fire truck business and 60% of that is the defense parts that we do.
The Motorhome and fire truck business that one, we have seen great growth last year and we're going to see great growth next on as well too. So that will be the high single-to-low double digit kind of growth on that part of it. That we continue to see as demand on some of the new vehicles has waned and you have aging products that the demand on parts like this has increased. So we've been doing a great job there.
The defense piece of that business is 60%. That's the one that continues to decline. So we'll see that one have a continue decline kind of next year as we go through it as well too. So that's all correlated to the MRAP sales for the product that's now kind of older and we're no longer really servicing as much and other folks are doing some of that service as well too, but that one you'll see decline.
So you'll see the APA business on the specialty vehicle business come down year-over-year on the Delivery and Service part. So that $46.7 million that they did last year, that a great year, a couple of great programs that they ran through it. But there are going to be a lot of those good programs in place for this year as well too.
But on year-over-year basis on the Delivery and Service part, I don't think you'll see a significant change. They really try to align their business model around driving more of that type of work through where they're adding extra value to the end customer be it the products like keyless or extra shelving units or all kind of things that enhance the value besides the additional truck. That's been a strategic shift that I think you'll see continue.
Rob Kosowsky - Sidoti
So $46 million, for lack of anything more sophisticated just divide that by four and kind of that's a good proxy understand that omitted kind of jump around a little bit.
Reasonable certainly. Again if you saw that change on the upside there is a lot of defense coding quoting of parts going on and that continues to happen. The reality is until the budget gets determine and the defense really understand that the department how much they're going to get from a dollars perspective. The quoting is actually very, very good. Hope we some decision will be made in 2012 relative to MRAP refurbishment parts et cetera wherein 2011 a lot of it was just basically put on hold.
Rob Kosowsky - Sidoti
Just one last question. I was wondering if you can talk about just a competitive landscape on the fire side and just what do you see with the market outlook? And do you see some stress competitors right now as pricing pressure heating up or do you think you're going to pick up share, how does that kind of lush out?.
First, one, we're seeing very good growth. Spartan's got one of the strongest brains in the business. In 2012 we are very, very focused on leveraging the global strength of the Spartan brand. There is some stress at the competitive level. One of the things which I take pride in and that what I look at how we adjusted our cost structure two and three years ago and even last year in emergency response. It put us in a position, to move forward and remain profitable but also improve the efficiencies of the business.
So there are competitors that are stressed out there. And I think the reality is, one, their innovation at the marketplace has not been what it should have been over the last couple of years, but also they're not going through some of the difficult decisions we went through two and three years ago.
When we look at this year, as I said earlier, expect the market to be up maybe 3% to 5% just because we've got some improvements in the economy. We've also got the fact that over 60% of all that fire trucks out there or over 15 years old. So there is some pent up demand as well from other departments coming into the marketplace. And last, we've got some innovative products which are taking share. And what's interesting is that FDIC which comes at third week of April, we will be showcasing more innovative products from an emergency response perspective this year at FDIC that what we've ever done in last five to 10 years.
So got a great brand, moving into right direction from a sales and an income perspective, but also have some great strategic and operational plans which will be rolling out the third week of April. So obviously, we'll make competition swift.
(Operator Instructions) Our next question comes from Joe Maxa from Dougherty & Company.
Joe Maxa - Dougherty & Company
John, you've talked about or you sounded pretty excited about a good start to the first half of 2012. And I'm just wondering if you can give us a little more color on what you mean by that. Are you anticipating revenue to be up sequentially from 4Q as well? I'm assuming as well as profitability exiting without the impairment charge?
I think we're going to move forward from a sales and an income perspective but probably I'd like to really ask in a financial question, so I'd like to differ over to Joe, because I'm positive but I'd like Joe to jump in.
I think as John described, towards the end of fourth quarter as we saw in some of the numbers you saw, our backlogs, kind of jump up a bit which was good in some of our sectors and John described in January that continued as well till we talked about some of the strength that we've seen in emergency response part which has been great. Some of the strongest orders as you've described since 2009. So that's what we're seeing, Joe, which is pretty positive as we start the year out.
And from a year-over-year perspective, as we look at our current forecast we see growth every quarter, quarter-over-quarter what it was in the prior year. So for first quarter of 2012, we'll be up over first quarter 2011. Absolutely, it looks like and we see that all the way through the year as well too.
And we do, even to answer your question specifically, in the first quarter from a revenue perspective looks like it could exceed where we from the fourth quarter as well too.
So, Joe, what John just said, a year ago at this time our plan did not reflect the year-over-year growth each quarter from a top line perspective then working to drive the bottom line. So I think he quantified why a more upbeat in February at 2012 then where I was in February 2011.
The part that I would add, Joe, is just one around stability. Part of what we're seeing is more stability in all of our markets. If you look back 2010 versus 2011 results and total by these segments. We saw some pretty major swings, you saw Emergency Response chassis sales down 25%, you saw Motorhome chassis sales down 26%, you saw the defense vehicle segment down 49%.
On the other hand you saw Service and Delivery vehicles up 46%. So there were no little moves in our segment. They're up to pretty dramatic moves from 2010 to 2011. And what we're seeing this year is more stability that's going through the segments for us, which is good.
I think one of the quick things, just to note, Joe as well. And there was a simple release done back in early January, where we've got a new individual leading Emergency Response at Crimson Fire, Dennis Schneider. He was the ex-Chief Operating Officer at Bobcat couple of years ago. Then he spent a couple of years in private equity.
A very, very talented individual, tremendous resume and background, has tremendous experience on the operation side of light, the distribution side of light, and also the global side of light. So when we look at Emergency Response, while we had a good team, honestly I think we've upgraded the people part of our team from a leadership perspective in a huge way with Dennis Schneider coming on board.
Joe Maxa - Dougherty & Company
I just wanted to get back on the revenue expectations. You know you do expect potentially even Q1 to be flattish with Q4, that's pretty strong year-over-year growth. And it means quarter's is going to be up, that suggest you might be in the double digits versus your maybe perhaps more conservative low-to-mid single-digits year-over-year?
Yes, I think in total. Joe, we're still gearing toward being in total for the full year in that load of that mid-single digits range.
Joe Maxa - Dougherty & Company
And on the gross margin front, these low margin Emergency Response units have those work through the system? Will we see more of those or should we expect that to basically be gone and gross margin should benefit?
Yes, a lot of work we did, Joe, and tried to get some things out of inventory, some stock and demo use that we had that had been around for a while. So our impression is to continue to clean-up that balance sheet, right. We've made great improvements on receivables and inventory. And some of that inventory was from finished good that we had. So we wanted to get those sold and pushed out. What that did is we took some lower prices and moved them out. So certainly we should see that not recurring as we get into 2012.
Joe Maxa - Dougherty & Company
And lastly, with the increase in credit line, are you anticipating to be more aggressive on the acquisition front?
Joe, and again, I've been here since 1985, the leadership here made a number of acquisitions. In the 97's, we got into school buses, then we did some things in Emergency Response. Today I believe we've got a very disciplined approach. We've had two very good acquisitions in Utilimaster, Classic. Some are going to be very disciplined from a strategic perspective discipline, from a capital perspective discipline, from an integration perspective and a post-integration perspective. So I don't like to term aggressive, we will be disciplined. I think as whatever we do, we will do it right and we will execute it well.
And I think we've demonstrated that in some of the result so far. If you look at Utilimaster, as John was describing, look at that segment, we went in from 2010 that we saw where that business was, it's around $100 million in revenue, $113 million in revenue. And in 2010, as you have saw from our numbers, we lost about $1.4 million there.
We put a lot of focus on that in shifting that business and turning around. We went to revenues this year 2011 of $165 million, up 46%. And we turned the operating loss in an operating profit of $6.4 million. So we went from $1.4 million loss to $6.4 million of profit. That's the discipline that John's describing that we'll continue to utilize.
Alright. And this is John speaking on behalf of Greg, Joe Nowicki. I want to say thanks to all the Spartan associates for their performance. And we look out to see for better performance and improved performance, especially from an income perspective in 2012.
We're excited as we look forward to 2012 and especially in the first half. I think we're in a good position. But also really do appreciate your time, as you've got a lot of companies to take a look at, but we appreciate your partnership and the time which you spend with us. Thank you very much.
And with that, that concludes today's conference call. We do thank you for attending. You may now disconnect your telephone lines.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!