Greg Salchow - Group Treasurer and Director, IR Daryl Adams - Chief Executive Officer Lori Wade - Chief Financial Officer.

Rhem Wood - BB&T Capital Markets Leigh Pressman - Global Hunter Securities.

Good morning and welcome to the Spartan Motors’ First Quarter 2015 Conference Call. All participants will be in a listen-only mode until the question-and-answer session of the conference call. This call is being recorded at the request of Spartan Motors. If anyone has any objections, you may disconnect at this time.

I would now like to introduce Greg Salchow, Group Treasurer and Director of Investor Relations for Spartan Motors. Mr. Salchow, you may proceed..

Thank you and good morning everyone and welcome to Spartan Motors’ first quarter 2015 earnings call. I am Greg Salchow and I am joined on the call today by Daryl Adams, President and Chief Executive Officer and Lori Wade, Chief Financial Officer.

Before we start today’s call, please be aware that certain statements made during today’s conference call, which may include management’s current outlook, viewpoint, predictions and projections regarding Spartan Motors and its operations maybe 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 our management believes could materially affect the results are identified in our Forms 10-K and 10-Q filed with the SEC.

However, there maybe other risks that we cannot anticipate. Now, I am pleased to turn the call over to Daryl Adams for his opening remarks..

Thank you, Greg. Good morning, everyone, and thank you for joining us on Spartan Motors’ first quarter 2015 conference call. Results for the quarter were in line with guidance we provided earlier, with Spartan reporting a loss of $0.09 per share.

Both our delivery and service vehicles and specialty chassis and vehicle segments reported higher operating income compared to the first quarter of 2014, while the Emergency Response segment reported an operating loss, which included restructuring expenses, totaling $1.2 million.

The DSV and SCV business performed well during the first quarter, with both reporting growth in operating income versus the prior year. The first quarter of 2015 was the first full quarter of implementing the five focal points I shared with you last quarter. As you recall, our first focal point and top priority is to fix the ER business.

We made a good deal of progress during the quarter. Although progress made on the production floor takes time to flow through to the income statement, we are in an investment period in the ER business and we will continue to be for some time.

We stated previously that fixing the ER business is a multi-year task, but that we will make continuous improvement and progress toward our goal. During the first quarter, we made progress in reducing the number of bottlenecks in our production processes.

One example is our pump module assembly cell at Brandon, which in the past typically required working over time to meet the production schedule. This was the first area our continuous improvement team concentrated on in 2015.

The result was that by the end of the quarter, the area had eliminated overtime and was typically ahead of schedule with a pump module assembled and waiting for the truck. Efforts to reduce the number of production bottlenecks are still in its early stages, but resulted in a few wins in the first quarter.

Production rose throughout the quarter with ER’s March shipments more than doubling the number shipped in January. This demonstrates that our efforts are making a difference. We made other changes in the ER segment to improve the way we do business.

We recently held a preconstruction meeting with a very important customer to finalize order details before the fire truck entered the production line.

One of the major changes is meeting with the customer to determine their needs and specify the features and options on the truck rather than leaving the process as more open ended with multiple changes requested before production begins.

By following this new procedure we can better meet customer needs with minimum of redesign work and substantially reduce time to delivery. In this case, we expect to reduce the delivery time by 20% from our normal apparatus delivery time.

We made progress on the quality front during the first quarter reflecting the attention devoted to continuous improvement on the shop floor. I mentioned earlier that we removed some of the production bottlenecks. This has made the process run more smoothly with less rework and improved quality.

During the first quarter of 2015, we have reduced the number of quality issues or a cabin chassis from over 30 to less than five. Five is still high of course, but it’s a great start, it’s also a substantial reduction in the amount of rework required and it should lead to lower labor and warranty costs over time.

Improved quality is a great example of how executing on our five focal points will drive better operating results over time. We made some personnel and structural changes during the first quarter, including a new General Manager at Brandon.

We also brought in some quality and continuous improvement specialists into the Spartan organization to support our efforts on these critical fronts. Changes were made to streamline the ER segment’s structure, to align our cabin chassis and complete fire apparatus operations more closely as part of our One Spartan initiative.

An example of how we are changing the ER segment structure is our display area at the FDIC Show held last month in Indianapolis. For the first time, Spartan ER presented said as one entity rather than Spartan Chassis and Spartan ERV. Our display area and our messaging presented a single integrated Spartan ER entity.

I believe this integration will make a business with a strong brand and identity even stronger. Some observations from FDIC illustrate the strength of our brand and our potential going forward. At the FDIC Show, a Spartan cabin chassis was featured on nearly 34% of the total custom cabin chassis displayed at the show.

This includes both Spartan branded apparatus and those sold by our OEM partners. In terms of sales for the period, from fourth quarter 2013 through third quarter of 2014, Spartan’s share of the custom cabin chassis market was 26.3%. We have further to go in the complete fire apparatus portion of the market where Spartan has a smaller market share.

In this market segment, we are constrained by capacity and we have discussed in the past. We are limited in our ability to produce complete fire apparatus and deliver to customers on a timely fashion. As we reduced bottlenecks and add capacity, we expect to reduce delivery times and expand our market share in the complete fire apparatus.

Turning to our other business segments, DSV and SCV, as you read in the press release, both segments reported improved results for the first quarter.

While DSV’s revenue declined from the first quarter of 2014, operating income increased due to the more favorable mix and improved operating performance, most of the USPS, 665 unit walk-in van order was produced and shipped during the quarter with the remainder expected to ship during the second quarter.

In March, DSV introduced the Velocity, an innovative delivery vehicle based on the new Ford Transit van. The Velocity features a curbside sliding door that reduces entry and exit time compared to a conventional delivery van. The Velocity offers diesel, gasoline and two alternative fuel options today, meeting the needs of any fleet operator.

One of Velocity’s more attractive attributes is its size, covering the gap between the Reach and a traditional walk-in van. It offers savings in fuel consumption, as well as purchase price making it an attractive offering in the delivery vehicle market. Initial customer feedback was favorable as were results of durability testing.

While the Velocity has just been introduced, we expect it to gain orders during 2015 and be an important part of our lineup in future years. Last but not least, the SCV segment reported operating income growth compared to the first quarter of 2014, mixing motor home and bus chassis improved with aftermarket parts and sales increasing from last year.

Later this year, Spartan Chassis will be available on more motor home chassis and we are in talks to expand our offering on more motor home platforms. That concludes my prepared remarks. Now, Lori Wade will discuss Spartan’s financial results for the first quarter of 2015..

Thank you, Daryl, and good morning everyone. Spartan reported a net loss of $2.9 million, or $0.09 per share for the first quarter of 2015 compared to a loss of $2.1 million, or $0.06 per share for the first quarter of 2014. Revenue increased to $128.4 million, up slightly from $128 million for the first quarter of 2014.

The ER and SCV segments reported revenue growth compared to last year, while DSV’s revenue declined due mainly to an abnormally high Reach shipments in the first quarter of 2014. Gross margin for the first quarter of 2015 improved to 10.7% from 10% a year ago due to a more favorable product mix in the DSV and SCV segments.

Gross margin improved despite the inclusion of a restructuring charge for the ER segment of $0.3 million. We reported an operating loss of $4.4 million in the first quarter of 2015 versus an operating loss of $3.5 million a year ago.

Included in this year’s operating loss is a restructuring charge totaling $1.2 million related to the turnaround efforts in the ER segment. The growth in the DSV and SCV segments operating income was not enough to offset the ER loss caused by the previously mentioned restructuring charges and other operating expenses and inefficiencies.

Now, as we look at the balance sheet, timing of shipments was weighed more heavily towards the end of the first quarter as shown by the growth in the accounts receivable [balance] [ph]. That AR balance at March 31 was $70.3 million, up over $20 million from year end 2014.

Inventory levels increased nearly $14 million as we prepare for higher rates of growth in the remainder of 2015 as well as the production of parts of a 21-unit export order, which is expected to be recognized as revenue early in the third quarter.

Inventory also included several ER chassis and finished goods that are expected to be shipped in the second quarter as well as a substantial increase in work in process.

Partially offsetting the increases in accounts receivable and inventory was an increase in accounts payable of $23.5 million due mainly to negotiated terms on the chassis portion of the 665 unit walk-in van order.

The net result of these changes in working capital and an operating loss for the quarter was a reduction in cash to $12 million at March 31. In addition, cash was also negatively impacted by the final earn-out payment related to the Utilimaster acquisition, totaling $1.5 million.

We expect this to be the low point for cash for the year and for balances to increase as we convert inventory and accounts receivable to cash. Turning now to our outlook for the rest of 2015, we continue to expect revenue growth in the mid single-digits over 2014.

The highest rates of revenue growth should occur in the second and third quarters, with the third quarter expected to be the highpoint for 2015. We expect a modest operating profit in the second quarter, with the third quarter expected to be more profitable.

For the year, we expect to book restructuring expenses for the ER segment of approximately $3.2 million. We expect operating performance for the year to show improvement from 2014 with a modest operating profit, including the restructuring expenses for the year. I will now turn it back over to Daryl Adams for his closing remarks..

Thanks, Lori. To sum up this morning, the first quarter was generally in line with expectations and the guidance we provided earlier. We are pleased that two of our operating segments are performing well and are working on the third unprofitable business, ER.

We are making progress on our production floor at Brandon and are starting production in Charlotte. We continued to invest in the business though improved output is not yet matched by cost reductions. This will happen over time since this is a multi-year project.

We expect to show some improvement in the ER segment’s operating results during the second half of 2015. As you can see from our inventory buildup, we are poised for higher revenue in the second and third quarters of 2015. We anticipate that the third quarter to be the high point of revenue this year and the most profitable.

We look forward to updating you on our progress next quarter. And thank you for your time and interest in Spartan Motors..

Okay. Operator, we are now ready to take questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Rhem Wood from BB&T Capital Markets. Please go ahead..

Hi, good morning..

Good morning..

Good morning Rhem..

So the first question, can you just maybe help us a little bit from a modeling perspective with your guidance in the back half of the year, I mean in Q3 do you think it will be around what you did last year, can you do better? And then will Q4 will that be profitable for you guys, just a little more color on that from a modeling perspective?.

Good morning, Rhem. This is Lori. As I like to look at the rest of the year, we talk about that we are going to have incremental improvements quarter – over 2014. I believe every quarter – the remaining quarters in 2015 will be that same cadence that we will see improved profitability over that same period from the prior year.

As always, fourth quarter is always our roughest quarter with our lowest demand, so we are not necessarily expecting it to be a profitable quarter, but we are expecting for the full year to have a slight profitability in total..

Okay. Thanks, that’s helpful. And then just to clarify, the restructuring expenses you are now expecting $3.2 million for ’15, I think it was $5 million which we are seeing previously, so did you just overstated last quarter or maybe are you delaying part of this restructuring and just to clarify, is all of this in the ER business? Thanks..

Rhem, it’s Lori, again. So of the $5 million that we talked about in Q3 of last year, we said that the majority of that would hit in 2015. We did have about $2.1 million hit in 2014.

And so this leaves – so we have changed our guidance slightly, so we believe it’s going to be about $3.4 million in 2015 and it is all isolated to the ER segment of the business..

Okay, great. And then can you give us a little help with Velocity, can you maybe help – quantify how big can this opportunity be for you guys. And then as part of that, maybe how many Reach vans did you sell in the quarter and do you expect that as Velocity grows, this will cannibalize some of the Reach sales? Thanks again..

Can you take that?.

Reach vans, you take it Daryl and I will chime in..

Hi, Rhem, this is Daryl. We sold six Reach units in the Q1. So that’s -- that answers I think your first part of the question. Second part of the question was Velocity. We haven’t started taking orders yet because we wanted to finish our durability testing, so we will start taking orders probably later in Q2, may be Q3.

But the feedback we received was that it was very, very neat product on a transit van with our sliding door basically in the same place that a normal door would be. So, we didn’t take anything away from the capacity of the box. So, right now, we don’t have any predictions on volume, but the feedback we are receiving from the market is favorable..

Hey, Rhem, this is Lori. I want to add just a little bit more color. So, on the Reach even though we did not sell very many in the Q1 that’s due to a timing issue, we do have an order for 600 units for Reach that we will build later on in 2015..

Okay, thanks. And then last one, I will turn it over. In the DSV segment, you mentioned in the press release the shortage in chassis and walk-in van components and is that – was that a temporary thing in the quarter, how long would that last, is that carried into the second quarter? Thanks again..

So, the chassis that we are referring to are more on the truck body side and they are from one of the big three, it’s from GM. They are having availability issues. And I don’t think it’s indicative just to us. I believe that it’s indicative to the industry.

There is just a shortage of that type of vehicle and so that will continue to pace our production for that product will be their availability of chassis..

Okay.

And then is there a component shortage as well that’s different?.

There was – I think what you are referring to is there was an issue with a component that was on the 665 unit walk-in van order. We have since resourced that and we are back up to speed. It was just a temporary delay, but I don’t foresee that being any factor in the future..

Great, thank you. I will get back in queue..

Thanks, Rhem..

And our next question comes from Mike Shlisky from Global Hunter Securities. Please go ahead..

Good morning. This is actually Leigh Pressman on the line for Mike Shlisky. I just have a couple of questions here.

Starting with the ER business turnaround plan, what part has been most challenging so far and do you expect that challenge to continue over the short-term or over the long-term?.

Hi, Leigh, this is Daryl. The biggest obstacle we had to be honest with you was the bottlenecks. And as we – in the continuous improvement world, as we eliminate one of the bottlenecks, right, then you move to the next one, that’s why we call it a 2-year plan.

By the time we work through all the bottlenecks and get the efficiency in the production to where we want it to be, we believe it’s going to take that long. So, we just continue to take the bottlenecks out of the system and look for the next one till we build up the production..

Okay..

Hey, Leigh, this is Lori. And be clear that the bottlenecks are not just strictly on the production floor. The bottlenecks are all the way through the value stream. If you go upstream, we have bottlenecks in our contract administration, in our engineering.

And so as we continue to take all the bottlenecks through the whole value stream, that’s where the length of the time will be..

Got it. That’s great.

Okay, how did the ramp up of the production in the Charlotte factory go? Were there any issues or lingering problems and are you guys currently running at full production now or do you still have a little ways to go?.

No, we continue to work through the ramp up that we had planned. Currently, finishing up the Sao Paulo orders and then continuing to work on the commercial cab builds that we moved up from Ocala. So, we are on plan and on schedule..

Okay, great. And then one more if I could.

Could you tell us about your expectations for operating profit by segment for Q2 whether it will be breakeven profit or loss?.

Hey, Leigh, we truly have – we do not provide segment level guidance, but we are more than happy – I mean we believe that overall what the pace you saw in the Q1 will continue for all of our segments..

Okay, great. Thanks guys. I will leave it there..

Thanks..

[Operator Instructions] And having no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Salchow for any closing remarks..

Okay. Well, thank you everyone for your time and interest. Feel free to reach out to me to if you have any follow-up questions and we will be happy to go over them with you. Thanks. And have a great day..

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