Spartan Motors Inc (NASDAQ:SPAR)
Q4 2016 Earnings Conference Call
February 23, 2017, 10:00 AM ET
Juris Pagrabs - Group Treasurer and Director of Investor Relations
Daryl Adams - Chief Executive Officer and Director
Frederick Sohm - Chief Financial Officer and Treasurer
Steven Dyer - Craig-Hallum Capital Group, LLC
Matthew Koranda - ROTH Capital Partners
Michael Shlisky - Seaport Global Securities
Good day, everyone and welcome to the Fourth Quarter and Full-Year 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note the event is being recorded.
I would now like to turn the conference over to Juris Pagrabs, Group Treasurer and Director of Investor Relations. Please go ahead, sir.
Thank you, William, and good morning, everyone and welcome to the Spartan Motors' 2016 fourth quarter and full-year earnings call. I am Juris Pagrabs and joining me on the call today is Daryl Adams, our President and Chief Executive Officer and Rick Sohm, our Chief Financial Officer.
For today's call, we’ve included a presentation deck, which will be filed with the SEC and is also available on our website at spartanmotors.com. You may download the deck from the Investor Relations section of our website to follow along with our presentation during the call.
Before we start today's call, please turn to Page 2 of the presentation for our Safe Harbor statement. You should be aware that certain statements made during today's call, which may include management's current outlook, viewpoint, predictions and projections regarding Spartan Motors and its operations may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995.
I caution you that as with any prediction or projection, there are a number of factors that could cause Spartan's actual results to differ materially from projections. All known risks that management believes could materially affect the results are identified in our Forms 10-K and 10-Q filed with the SEC. However, there may be other risks that we cannot anticipate.
For today's call, Daryl will provide a review for the full-year as well as the business update including our recent acquisition of Smeal Fire Apparatus. Rick will review the fourth quarter results and our guidance provided for 2017. We’ll then return to Daryl for closing remarks before proceeding to the Q&A portion of the call.
At this time, I am pleased to turn the call over to our CEO, Daryl Adams, for his opening remarks which begin on Slide 3.
Thank you, Juris. Good morning, everyone. And thank you for joining us on Spartan Motors 2016 fourth quarter and full-year conference call. I would like to begin by saying how proud I am of the Spartan team's performance this year, as we clearly made significant strides in improving operational and financial performance across all of our business segments.
I am pleased to report a solid year of growth for Spartan Motors which exceeded our initial expectations and guidance. Revenues for 2016 grow 7.3% to $590.8 million from $540.4 million a year-ago. For the year, we reported net income of $8.6 million or $0.25 per share compared to a loss of $17 million or $0.50 per share last year [indiscernible] $25.6 million or 150.7% year-over-year.
2016 represents our most profitable year since 2009. I am particularly pleased and how quickly our Spartan team members have embraced our multi-year turnaround plan. The talent upgrades we've made are beginning to take hold and our past profitability is clear as lean initiatives and process improvements are driving significant operational improvements.
Our gross profit in 2016 improved 370 basis points to 12.3% of sales from 8.6% of sales last year, and operating income rose $21.1 million or 169.1% to $8.6 million. On an adjusted basis, operating income improved 222.1% to $14.5 million which excludes $0.9 million of acquisition related costs.
Now turning to Slide 4, let’s take a look at the full-year results of our three business segments. Our Fleet Vehicle and Services segment posted a 22.3% increase in revenue to $278.4 million year-over-year, and 97.9% increase in operating income to $28.7 million. FVS performance in 2016 was driven by higher volumes in our vehicle up-fit business located in Kansas City and Saltillo, Mexico, which I plan to cover in more detail a bit later in the presentation.
Our Specialty Chassis and Vehicle segment was essentially flat revenues year-over-year at $129.4 million disclosed flat sales, operating income rose 39.5% to $6.8 million. SCV segment operating results reflect higher volumes from contract manufacturing and a non-recurring defense order offset by decline in Motorhome sales due to a major customer adjusting inventories.
Our Emergency Response segment revenues declined 5.3% in 2016 to $183 million. It reflects fewer shipments year-over-year as a result of our deliberate effort to only accept profitable orders. We made significant progress in 2016 toward returning this business segment to profitability, which remains the top priority in our multi-year turnaround plan.
Our focus on remanufacturing principles and continuous process improvement resulted in a 42.4% or $10 million improvement in operating loss year-over-year, something we are particularly proud off as we work towards returning ER to profitability by the end of 2017. Our fourth quarter results at the business unit segment level were equally impressive, which Rick will provide further details during his comments.
Let’s turn to Slide 5, I’ll provide an update on some business highlights and developments. On a complete fire apparatus side 2016 brought to market, the S-180, currently in 11 pumper models, the S-180 was designed to provide the market with faster, order to delivery cycle times. In fact, we are able to design build and deliver S-180 pumpers in half the time of any competitor.
In conjunction with that effort were 43 cab and chassis OEM customers, we launched the Spartan Select program, which packaged timely ordered cab and chassis options eliminating unnecessary complexities, which means ordering Spartan cab and chassis easier for OEM partners and abbreviated build and delivery times.
To-date, we sold over a dozen S-180 pumpers and we are continually met with significant interest from dealers and departments alike. We showed five units in the fourth quarter of 2016 and five units in January. Our backlog is beginning to build with 20 units schedule for production through June of 2017. This is truly a game changer in the industry. As we believe 30% to 40% of the pumper market is addressable with the S-180 line of pumpers.
Please turn to Slide 6. In second quarter we announced the production of the first new Chevy N-Series medium duty gasoline-powered truck, a manufacturer in Chevrolet, in partnership with General Motors and Isuzu Commercial Truck of America. Building on the partnership with Isuzu, at last year’s NTEA Work Truck Show, we were named Isuzu’s manufacturing partner to the F-Series, a Class 6 on-highway cab-over diesel commercial truck.
And as previously announced we allocated capital with the construction of the new plant at our Charlotte campus. Exterior and Interior construction as well as tooling and equipment installation efforts are now completely. We are currently running small run pre-production unit, anticipate full production ramping up near the end of Q2.
Moving to Slide 7, lastly part of up-fit services, division of Utilimaster announced the launch for our newest facility in Kansas City, dedicated exclusively to provide tailored up-fits of cargo vans and other fleet vehicles, including those serve in utility, telecom, healthcare, construction, food and beverage, and parcel delivery market.
Spartan up-fits services, streamlines the fleet customization process before transit located adjacent the Ford’s Kansas City based, trend manufacturing facility, Spartan up-fits services, customers benefit from Ford’s ship-thru program, which delivers the vehicle to the customers dealership choice in addition to costs savings, Spartan up-fits services seeks to optimize speed of delivery for businesses waiting for their fleets by offering a combination of kids and days packages with customized up-fits services to a full range of cargo van manufactures.
Similarly, we’ve been operating 100,000 square foot facility directly adjacent to the [Chrysler DOT] trend plan in Saltillo, Mexico since 2014. The facility utilizes contract employees and as a capacity of 20,000 units. The facility up-fits primarily cargo vans and performs a variety of the delivery up-fits solutions including factory completions, fleet locations, MOPAR offerings and DOT completions.
Our Utilimaster brand is the long history of designing and building solutions for virtually every kind of fleet delivery and service business including some of largest fleet brands in world. Spartan up-fit services is born from that pedigree, and we believe the insight we garnered over the years will benefit all fleets, specifically those using cargo vans as last mile delivery solutions, become increasingly significant to the parcel market. We can add value through single point of release, one-time freight expense, and custom designs that meet the precise needs of individual fleet managers.
Please turn to Slide 8. When we talk U.S., we just announced that our FVS segments, which encompasses our Utilimaster and go-to-market brand was 106 vehicle manufacturers awarded a USPS prototype contract to build six next generation delivery vehicles. We share with you the award contract of $3.6 million with design to help offset the prototype build cost.
As you may have seen earlier in the week, we announced that we are seeking withdraw in the USPS next generation delivery vehicle program as a prime contactor, because we could not find a substitute commercial chassis supplier that will meet our minimum margin targets necessary to continue to pursue the project as a bodybuilder.
We will be continuing to support this project by partnering with a leading USPS contract award participants providing to cargo management solutions, specific for the USPS program. This will enable us to participate in the next generation delivery vehicle program as a cargo management supplier without related upfront development capital providing a better return on capital, which better service Spartan and our shareholders.
Please turn to Slide 9. As we previously announced, we completed the Smeal acquisition on January 1 for a total cash consideration of $32.5 million. Smeal is an industry leading innovator of manufacture of fire apparatus in North America and revenue in 2015 were approximately $70 million which excludes approximately $30 million of Spartan chassis sold to Smeal.
A newly combined Spartan Emergency Response business unit was ranked one of the top four in North America fire apparatus manufactures and increasingly consolidating industry with its expanded geographic reach and industry leading innovation and operational excellence. The new company is well positioned to deliver a robust and respected portfolio of leading products, services and technologies to its broad range of customers including regional equipment manufacturers and dealers.
The addition of Smeal complements our own Spartan Emergency Response business unit. As we expect the transaction to accelerate this business units turnaround are also allowing us to provide an expanded innovative product offerings to new and existing customers.
The transaction greatly expands our geographic reach with 47 dealers in 44 states, 10 provinces and three territories. Response from both Spartan and Smeal dealers has been outstanding as they benefit all of our customers by expanding our product offerings and brings an additional portfolio of leading technology and expertise to the market.
The increased capacity utilization, the new company will double its apparatus production and leverage its strength to accelerate our ER business unit turnaround plan. We expect the transaction to be accretive in 2017 results on an adjusted basis, which Rick will cover in more detail.
With that, I’ll turn the call over to Rick to discuss Spartan’s financial results for the fourth quarter and outlook for 2017.
Thanks, Daryl. Please turn to Slide 11. As Daryl mentioned, we are pleased to report continued quarterly progress and a significant increase in net income for the fourth quarter of 2016. Our improvement includes a favorable impact of implementing lean manufacturing and continuous improvement initiatives across all our production facilities, while we closely manage overhead expenses.
Revenue for the quarter increased 3.7% to $145.9 million from $140.6 million in the prior year. Our gross margin improved 850 basis points to 12.3% sales from 3.8% a year ago. This is primarily due to a favorable product mix, which included a higher proportion of sales from van up-fits and contract manufacturing.
Fourth quarter operating income rose 109.6% to $1 million from a loss of $10 million in the prior year. Our increased earnings were due to operational improvements and a reduction in charges recorded in Q4 of 2016 compared to Q4 of 2015 which related to legacy product repair campaign reserves of $6.3 million, restructuring charges of $0.2 million, and joint venture wind-down costs of $1 million. Operating margin for the quarter improved 780 basis points to 0.7% from a negative 7.1% a year ago.
Moving over to Slide 12, our adjusted operating income improved by a 182.6% to $1.9 million from a loss of $2.3 million in the prior year. The prior year fourth quarter included adjustments of $6.3 million relating the product recall campaigns, joint venture wind-down costs of $1 million and $0.4 million in restructuring charges.
The current year fourth quarter included adjustments of $0.7 million or $0.02 per share relating to Smeal acquisition expenses and $0.2 million of restructuring charges. Adjusted net income grew 158.9% to $1.5 million or $0.04 per share compared to $0.6 million or $0.02 per share last year.
Now let’s take a look at our operating results by operating segment starting with FVS segment on Slide 13. FVS reported revenues of $67.3 million compared to $65.7 million last year, an increase of 2.4%. Revenue was driven by increased vehicle sales, primarily from Reach and the continued growth in our vehicle up-fit business.
Operating income rose 56.8% to $7.1 million or 10.5% of sales from $4.5 million or 6.9% of sales a year ago. The increase is largely due to higher up-fit volumes from fulfilling a large up-fit order that extend through November of 2016. While we expect this business and this customer to be an important part of FVS’s future growth, we do not currently have a follow-on order for 2017.
Q4 results for FVS also include approximately $0.4 million or $0.01 per share of USPS development costs, which we do not expect to incur going forward as a result of our withdrawal from the program that Daryl mentioned earlier. Our backlog remains strong at $89.5 million compared to $96.1 million last year. And subsequent to year-end, we’ve received $37 million in new orders during January that’s up 20% over new orders received in January of 2016.
We’ll now move to Slide 14 and the SCV segment. Fourth quarter 2016 revenue totaled $31.2 million, down $5.3 million from $32.9 million in the prior year. Motorhome chassis revenue declined 11.1% to $24.7 million from $27.8 million primarily due to lower unit shipments to one of our customer as they work through some dealer inventory adjustments. Lower Motorhome shipments were partially offset by increased levels of contract manufacturing. Our backlog year-over-year is up $1.6 million to $20 million from $18.4 million and remains consistent with our backlog at the end of Q3.
As we noted last year, we continue to see an increase in our market share as a result of becoming the sole chassis supplier for a major customer and being added to additional models at another major customer. Diesel Motorhome sales stabilized in Q3, but Q4 showed a reduction versus the first nine months of 2016 and end the year down 1% versus 2015. While backlog remains healthy at over $20 million, we expect some softness in Q1 demand versus 2016.
We will continue to watch the Class A diesel trends closely during the first quarter to see if this trend will continue further into 2017. Operating income in the fourth quarter increased $1.3 million to $1.4 million from $0.1 million in the prior year, driven by improved manufacturing productivity and from a more favorable product mix.
Let’s now move on to Slide 15 and ER segment. Revenue improved 12.7% to $47.3 million from $42 million due to the higher shipments of complete fire apparatus and custom cab and chassis compared to last year. Our operating loss for a quarter decreased $8.3 million to $3.8 million from $4.1 million in the prior year, included in our fourth quarter operating loss, our restructuring charges of $0.2 million.
Our adjusted operating loss improved $1.2 million to $3.5 million from an adjusted operating loss of $4.7 million a year ago. The operating loss for the prior year fourth quarter, includes product repair campaign reserves of $5.9 million, conventional wind down cost of $1 million and restructuring charges of $0.4 million as I mentioned earlier.
Our backlog remains strong at $139.9 million compared to $156.3 million for the prior year. You need to remember that included in our backlog a year-ago [indiscernible] order that did not repeat and 12 legacy classic units, which were discontinued from production in 2016 as these units were not profitable. And as we've said on previously, we're not necessarily looking to grow ER business or rather return to ER business to profitability.
Turning to our balance sheet on Slide 16, you will see our balance sheet continues to improve cash net of debt at year-end improved 16% to $32 million compared to $27.6 million in 2015. Cash on hand at year-end reflects approximately $6.4 million in CapEx for our new F series production facility for repayment of our $5 million in term debt and repurchase of approximately 422,000 shares at a price of set $4.74 per share on average for $2 million. Our total liquidity improved 75% or $44.2 million to $103.1 million from $50.9 million year-ago.
Working capital management and maximizing cash flow was to support future growth continued to be high priorities for our management team. On October 31, 2016, we entered into a new three-year $100 million revolving credit facility with essentially the same terms as our previous $70 million facility. In connection with our acquisition of Smeal, we drew down $32.8 million on this new facility as part of the cash consideration paid to shareholders.
Interest expense on these borrowings is expected to be approximately $1 million in 2017. We will continue with our disciplined approach to working capital management as well as being opportunistic as market conditions dictate to support both future growth and maximizing shareholder value.
Please turn to Slide 17, and I will discuss our outlook for 2017. As we move into 2017 our backlog remains strong, a $249.5 million at year-end. Smeal backlog on January 1, 2017 was a $140.9 million combined an excluding partner chassis orders for Smeal of $24.8 million our total company backlog at the beginning of the year was $365.6 million.
As a result of the Smeal acquisition our 2017 forecast adjust for certain acquisition related cost and inventory adjustments of $0.4 million net of tax and the impact from the one-time lag and recognizing sales in gross margins on chassis sales of $2.4 million net of tax that are now inter-company transactions. Of these adjustments, we expect the acquisition fees and inventory adjustment to occur largely in Q1. With our inter-company chassis adjustment, we expect approximately 75% to be recognized in Q1 and the remainder in Q2 and early Q3.
Our outlook for full-year 2017 is expected to be as follows, which includes the Smeal acquisition. Revenue in the range of $615 million to $685 million, acquisition related cost and the impact of inter-company chassis sales of $2.8 million net of tax will have adjusted EBITDA in a range of $25.1 million to $28.3 million, income tax expense of $1.7 million to $2.8 million, interest expense of approximately $1 million and adjusted earnings per share in a range of $0.30 to $0.36 per share, assuming approximately 34.8 million shares outstanding.
At this point, I’ll turn the call over to Daryl for his closing remarks.
Thanks, Rick. In summary, I’d like to emphasize that we are extremely pleased with the progress we have made to-date in our multi-year turnaround effort. Our results for 2016 was the strongest since 2009 in addition to having achieved four profitable quarters something that hasn’t an accomplished since 2008. We will continue to work hard on improving quality, reducing warranty expense and focus on delivering operational efficiencies and improved processes that continue to rollout of this Spartan production system across all of our campuses.
The Smeal acquisition, we are now a new realigned company with an increase footprint and scale. We have a deeper bench talent throughout the organization. We have expanded our industry-leading product portfolio and geographic reach. Our ER business together with Smeal remains on track to return to profitability on adjusted basis by the end of 2017. And while we made notable progress to date is only the top of the fourth innings which is really exciting as we know the significant opportunities still exists.
The Spartan management team is fully entrenched, our employees are embracing the progress and we are poised to continue our 2016 success into 2017. We are excited about the opportunities we see in front of us and we remain focused on holding our entire team accountable for executing our plans which increasing shareholder value.
Operator, we are ready to take questions.
We will now begin the question-and-answer session. [Operator Instructions] And the first questioner today is Steve Dyer with Craig-Hallum. Please go ahead.
Thank you. Good morning, guys.
Good morning, Steve.
You had mentioned suborders I think $37 million or something like that that fell into January, wondering if you've seen strength continue into February or any sort of additional color there.
Yes. I think we had a good month in January, Steve and the trends into February may not be as dramatic as they were in January, but our order intake continues to increase.
Steve, we think that the order we talked about was partially shift from December into January with some of our customers delaying the requests.
Okay. As it relates to the USPS sort of program or readjustment I guess, it sounds like most of those costs are behind you or what would have been the upfront costs. Anyway of sort of gauging the revenue potential if you can get some of the up-fit business and maybe timing on any of that or is that just too early to say?
Yes, it’s really too early to say because remember there were six players – withdrawal at least five and we are partnering with one of them, so the benefit to us would be that one is picked when it comes time to take the next supplier for the NGDV. So again it's sort of like when we were in it. We want to six now improving get anything at the end and spending all that upfront money that way and the decision as we talked about our chassis supplier. So it was very complicated if you will equation, but we think the partner that were picking is in a good position although there's no guarantees on whether they're going to get the not to build the trucks for the USPS.
Got it, okay. And then just looking at your guidance in the context of the wording, which is modest organic growth and then if you add in Smeal guidance with seem to be pretty far on the conservative side, do you agree with that assessment or is there sort of a missing piece here that I'm not following?
No see that I think I would tend to agree with your assessment. I think we’re less than 68 into the acquisition, still a lot of work we need to do. What we are focused on is integrating, the acquisition as quickly as we can something that maybe we haven’t done you know well in the past, so that we can harvest some of these synergies as soon as possible. So at this point where we are in the process we feel comfortable with our guidance.
Okay. Thank you.
The questioner today is Matt Koranda with ROTH Capital Partners. Please go ahead.
Hey, guys, thanks for taking my questions. Just wanted to cover in the Emergency Response segments maybe could you help us understand the sort of the cadence of operating margins through the year and the improvements you expect. And maybe is there still sort of a breakeven goal in that segment by the end of the year just help us understand kind of where things are shaking out and how that fits into your overall guidance?
Yes, Matt, I think it still consistent with what we’ve said previously, we originally discussed the Smeal acquisition that we would be profitable on a run rate basis in ER and we think now with Smeal it helps accelerate that process throughout the year and on an adjusted basis we expect ER to be profitable on EBITDA basis for 2017.
Got it. That's helpful. Just to breakout even more clearly maybe for us. Is there a way to kind of just quantify the EBITDA contribution you're expecting from Smeal in 2017?
I don’t know at this point Matt if we want to delineate the two pieces of ER business, but in our due diligence we’ve identified several million dollars worth of synergies and the faster we can integrate the businesses. The faster we can harvest them, but like I said on a combined basis the business we profitable on adjusted EBITDA level.
Got it. And synergy as you highlighted I think partly during the Smeal call the help, but maybe could you just go over those one more time for us in terms of kind of the buckets that those fit into and how much of those will you be recognizing in 2017 versus how much of those are sort of kind of longer-term in nature?
Yes, I think we will see some sales in the gross margin improvement as we offer our S-180 products to the Smeal dealers. They have a strong aerial business, so that should improve our mix over time, but there is other natural kind of savings, material cost savings, from leveraging the larger organization and then what I can manufacturing and operating efficiency as we put the two business as we gather.
All right that’s helpful and just maybe one more on the Fleet Vehicle segment. I think some of your packets delivery customers have highlighted some challenges around e-commerce deliveries in short of inefficiencies given last mile and efficiencies for them. So just wondering does that present an opportunity for you guys in 2017 and maybe even further out as well just talk a little bit about how you kind of enable greater efficiency and last mile deliveries given your high market share and the walk-in events?
Hey, Matt. This is Daryl. A very good question, so the answer is, yes. We believe we're going to be the solution. We work with the large company fleets and helping then to be efficient with their delivery cycles. And this last month delivery if you’ve followed it, right, the big guys are not going to own their own trucks right now. That’s not what they're looking at. So they're contracting to third-party delivery firms, so we’re contacting those people.
We have a couple process units right now to help them understand how they can final the efficiencies and delivery. Right now we follow some of them in the back of the truck that is grown in with these packages and we believe with our van up-fit and our experience from the larger parcel delivery customers and companies that we can show them the efficiency they can gain with some of our interior van up-fit product.
So we're working with them right now. There is – as I say two trucks out prototypes to show them and we have engineers right along with them with stopwatches showing the benefit. So we believe that industry is very much an infant stage right now as it continues to grow and mature. We're going to be able to see the benefits in future years with the van up-fit at FVS.
Got it. Very helpful. I’ll jump back in queue guys. Thanks.
The next questioner today is Mike Shlisky with Seaport Global. Please go ahead.
Good morning, guys.
Good morning, Mike.
Good morning, Mike.
Hi, just wanted to start here with a few thoughts from the previously asked questions. First, on the USPS deal and the changes being made there, in partnering with somebody else, will you still have to have expenses to develop your contribution to their prototype and their product? And will any of the minder they might be getting for their prototype be reimbursed to you going forward?
Mike, good question. I mean we should have explained that better in the script. We're going to be paid as we design the product for them. So we're going to be basically a design house if you will, get paid on hourly rate. And in terms of that we're in line to be competitive with them to build a product that if they would have win that would go inside the…
Okay. That makes sense. I'm sorry, but give us a little more color on some of the organic growth guidance you put out there. I don’t want to get into the details too much, but just wanted to see if you can see your sales increasing on organic basis double digits in SCV this year, given some of the new products ramps or is that probably too aggressive given RV business?
I think that’s a good question, Mike. I think double digits is too aggressive. I think we picked our market share, but we've also seen some softness and one of our customers is going through a couple stages of dealer inventory adjustments, so I think double-digits is probably a little too far.
Okay, understood. I also wanted to make sure I got a feel for the mix in the current backlog for SCV, kind of curious as to whether the mix has been there now is sort of in line with what we’re seeing in the previous years from a margin standpoint, we feel like what you're getting signed more recently is going to be a better margin mix than we’ve seen in the past?
Yes, Mike. I think I would expect to see the margin mix perhaps a little better in 2017, as we gain some more manufacturing productivity. The one thing we're looking at right now is when we exactly anticipate the launch of the F-Series. It’s probably lagged slightly behind our original expectations, but once that gets up and running, we believe that’s accretive to division margins.
Okay. And then going on to your Kansas City facility, is the intention there solely could be serving Ford and their vehicles or is the centralized location really for anybody that the last delivery is so closed to the center of the U.S.?
To your second point, Mike it’s not strictly for Ford transit. It's for any up-fitter in the area we've been contacted by some people already to your point that centralized United States. We believe it’s in a good spot not only for transit, but probably customers I think we mentioned in the script.
All right. One last one from me, I just wanted to get a sense for Smeal in 2017, so you had mentioned that having Smeal obviously pull forward the breakeven through a timing, but at this point in prior - you are always saying we get breakeven in 2017, so I mean are you looking at maybe rather than the fourth quarter or maybe getting to zero in the third quarter or is it going to start out very, very profitable from the first or second quarter here?
Yes. I think what we said previously, Mike is that we would be profitable in 2017 on a run rate basis, so the difference here on the adjusted EBITDA basis it will be an absolute level of profitability, but I would say those improvements are still second half weighted as we try to integrate the two businesses.
Are you saying on EBITDA basis, non-EBIT basis you’ll be profitable at some point in 2017?
On an adjusted EBITDA basis, that’s correct.
Okay. Appreciate the help guys.
End of Q&A
There are no further questions. So this will conclude our question-and-answer session. I would like to turn the conference back over to Juris Pagrabs for any closing remarks.
Thank you, everyone for participating. We look forward to talking to you next quarter and give you additional updates and progress as we go on. Thank you.
The conference call is now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.
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