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.

Good morning and welcome to Spartan Motors’ 2017 First quarter 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 [Operator Instructions].

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

Hey, thank you, Ryan, and good morning, everyone. Welcome to the Spartan Motors' 2017 first quarter 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 and 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 conference 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 an overview of the first quarter and a business update and Rick will review the first quarter results and our 2017 guidance. We plan to then return to Daryl for closing remarks before proceeding to the question-and-answer 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 2017 first quarter conference call. I’m pleased to report another solid quarter growth and profit improvement on adjusted basis for Spartan Motors. We met our internal expectations and this marks our fifth profitable quarter in a row.

Revenues for the first quarter rose 24.9% to $167.1 million from $133.7 million a year-ago. The increase in sales was driven by the acquisition of Smeal, Apparatus which closed on January 1, 2017. Smeal contributed $35.2 million revenues during the first quarter including $5.5 million of Spartan inter-company chassis sales.

For the first quarter of 2017, we reported an adjusted net income of $1.3 million or $0.04 per share compared to $0.5 million, or $0.02 per share last year, adjusted net income increase of 142.1% year-over-year.

Our solid performance during the quarter was driven by the operational improvements we continue to make in labor and manufacturing productivity. As we told you, our delivery investment in manufacturing and best practices are starting to payoff.

We should be proud of all the Spartan team members, how quickly they have embraced our initiatives of improving and growing the business. We are starting to see the impact of implementing our Spartan production system, remanufacture and continuous improvement initiatives and positive momentum is building quarterly as we execute our plans.

Now turning to Slide 4 for an update on a few business highlights and developments. As we previously announced, we completed the Smeal acquisitions on January 1, and for the full-year, we expect Smeal to increase sales by $35 million to approximately $105 million revenues. That’s up from $70 million in 2016 including our Spartan chassis sold to Smeal.

The increase is a direct byproduct of an improved manufacturing processes and an increased level of interest from our dealer networking customers, as a result of having a more robust broaden product portfolio. I am pleased to report that our integration efforts are running ahead of schedule due to the well-disciplined focus and hard working team.

People exciting is that not only have we met our synergy goals, we’ve identified significant additional opportunities which we can credit to the application of our lean and continuous improvement initiatives which will accelerate the turnaround timeline of our Emergency Response business.

The newly combined Spartan Emergency Response business unit ranks as one of the top four North America Fire Apparatus manufactures and increasingly consolidating industry. As we work through the integration process, we are applying lessons learned and documenting the process as required to optimize future acquisitions.

Now please turn to Slide 5, for a brief update on the S-180 pumper. As you likely aware in 2016, we brought the market the S-180 truck line currently in 11 pumper models. As a reminder for those new on the call, the S-180 is designed to provide the market with faster order to delivery cycle times.

The S-180 truck offers several pre-engineered pumper models that are based on those timely ordered option packages. By reducing complexity, we are able to streamline the ordering, engineering and production processes thereby cutting delivery time to as little as 180 days.

The product line continues to gain momentum as our dealers are showing increased excitement and support. During the first quarter, we shipped 14 S-180 pumpers that’s up by 180% for the fourth quarter, while we shipped as five. In April, we shipped three units and our backlog is currently at 18 units through June 2017. We please turn to Slide 6.

Last week in conjunction with the annual Fire Department Instructors Conference, also known as FDIC, we launched Spartan Refurbishment Centers as it drugged outcome of listening to our customers and providing in MI cost-effective approach to repair out-of-service, damaged or worn trucks in a fraction of the time and costs of a new vehicle.

The Spartan Refurbishment Centers are designed to solve municipality back order issues and keep production service by improving safety, increased performance while ensure we stay within their budgets. Fire Departments across the country are battling aging fleets and trucks out-of-service.

The required emergency response vehicles to not only last longer, but to perform more reliably over a longer period of time.

Located at Spartan campuses primarily in the Midwest, we offer a complete range of services and refurbishment from light to full cab and chassis replacements, to the re-certifications of critical system for departments or municipalities looking for a cost-effective way to upgrade their prior trucks without the capital expense associated with purchasing a new vehicle.

Now please turn to Slide 7. Last week at the National Association of Fleet Administrators Institute and Expo at the Tampa Bay, we also announced a new partnership with Ranger Design, a commercial van outfit manufacturer for mobile professionals.

The new partnership expands van outfit options for fleet customers that combined the custom engineering and deep industry expertise of Spartan Upfit Services with Ranger's real-world-tested standardized products. Ranger’s Spartan will offer an industry-leading portfolio of Work Truck Solutions with OEM Ship-Thru availability.

The partnership will also expand customer warranty support to over 300 locations in North America for Ranger components installed by Spartan Upfit Services.

Spartan Upfit Services is a cost-effective, modernized fleet upfit assembly operation dedicated to the customization of cargo vans and other midsize fleet vehicles serving the utility, telecom, healthcare, construction, food and beverage, parcel delivery and the last nine delivery market.

Spartan offers a combination of kits and location of packages with corresponding customized services. With that, I’ll now turn the call over to Rick for the first quarter and financial results, the first quarter and outlook for the remainder of 2017..

Thanks Daryl. Please turn to Slide 9. As Daryl mentioned, we are pleased to report a strong first quarter performance, which reflects a favorable impact of continued operational improvements, we remain in labor and manufacturing productivity.

As a result of implementing the Spartan Production System, lean manufacturing and continuous improvement initiatives across all our production facilities. Concurrent with the improvement to our base business, the Smeal integration is running ahead of schedule.

Revenue for the quarter increased 25% to $167.1 million from $133.7 million with the Smeal acquisition contributing $35.2 million to the topline increase for the quarter as Daryl mentioned earlier.

For the full-year, we expect Smeal’s are generating approximately $105 million of revenue, which excludes $20 million of Spartan inter-company chassis sales. For the first quarter, our adjusted EBITDA increased almost 46% to $4.2 million from $2.9 million.

Our adjusted EBITDA margin improved 40 basis points to 2.5% of sales from 2.1% of sales a year-ago. Operational improvements enabled by our Spartan Production System and lean manufacturing initiatives continue to drive year-over-year improvement.

Our adjusted EBITDA excludes the impact of $1.5 million of restructuring and acquisition related expenses and the impact from the one-time lag and recognizing sales in gross margins on chassis sales of $1.1 million that are now inter-company. This compares the 330,000 of restructuring expenses in the prior year.

Our backlog at quarter end remains strong at $351.3 million up from approximately $250 million at year-end and reflects $78.6 million in Smeal backlog as a result of our acquisition. Now let’s take a look at results by operating segment starting with FVS segment on Slide 10.

FVS reported revenues of $53.9 million compared to $59.3 million last year, a decrease of approximately 9%. This revenue decrease was due to lower per sales and upfit volumes and was partially offset by favorable vehicle product mix. Adjusted EBITDA decline 300,000 to $6.2 million from $6.5 million a year-ago largely due to the lower upfit volumes.

As we explain last quarter we expected difficult topline comparisons as we had a large upfit order last year. Despite the sales decline our EBITDA margin improved 70 basis points to 11.6% of sales from 10.9% a year-ago, which reflects our improved manufacturing and labor productivity.

Our backlog remains strong at $114 million compared to $89.5 million year-end an increase of 0.7%. Moving to Slide 11, and SCV segment, first quarter [2017] revenue totaled $33 million essentially flat year-over-year.

Despite being up against from difficult comparisons as the first quarter of last year included defense order that did not reoccur in 2017. Adjusted EBITDA for the first quarter declined 100,000 versus the prior year primarily due that defense order not we recurring.

Our SCV backlog also remains strong and increased 13.4% to $22.8 million compared to $20.1 million at year-end. Now let’s move to Slide 12 in our ER segment. Revenue was up just over 95% to $80.2 million from $41 million due to the $35.2 million in sales from the Smeal acquisition as I mentioned earlier.

This increase was offset by slightly lower shipments of complete fire apparatus and custom cab and chassis from our base business compared in the last year. As we continue to focus on profitable sales.

Our adjusted EBITDA loss from a quarter improved $1.8 million to $1.3 million from an adjusted EBITDA loss of $3.1 million a year-ago driven by improved vehicle mix increasingly our manufacturing productivity, material efficiencies and warranty costs. Backlog is up significantly reflecting an additional $78.6 million from the Smeal acquisition.

Backlog at the quarter end was $250 million compared to a $140 million at year-end. Turning to Slide 13, you will our balance sheet continues to improve. Cash on hand was up almost 11% to just over $35 million compared to $32 million at year-end.

Inventory at the end of the first quarter was a $109 million of just over $50 million compared to our year-end balance. As our first quarter includes $44 million of inventory due to the Smeal acquisition, the Smeal inventory at quarter end is down nearly $20 million or 32% from $63 million as of the acquisition closing date on January 1.

Producing Smeal inventory continues to be a high priority as we believe the cash generated will fund a significant portion of the acquisition cost. Given the strength of our balance sheet we have initiated a $10 million payment on our revolver which will reduce our debt level to approximately $23 million.

We will continue our disciplined approach to working capital management and we will continue to be opportunistic as market conditions dictate to support both future growth and maximize shareholder value. Please turn to Slide 14, and we will discuss our outlook for 2017.

As we look at the remainder of the year, we expect our strong first quarter performance to continue to reflect the favorable impact of successfully implementing our lean manufacturing and continuous improvement initiatives across all production facilities.

We expect to see continued year-over-year operational improvements and additional synergies to be realized from the Smeal acquisition. This together with the Smeal acquisition and integration running ahead of schedule gives us comfort in raising the 2017 guidance as follows.

We now expect revenue in the range of $650 million to $700 million from our previous guidance of $615 million to $685 million. Our restructuring, acquisition costs and inter-company chassis impact of approximately $3.2 million up from $2.8 million previously.

We expect adjusted EBITDA in a range of $26.5 million to $29 million, up from the previous range of just over $25 million to $28.3 million. The income tax expense to be in the range of $1.5 million to $2.3 million, down from our previous guidance of a range of $1.7 million to $2.8 million.

Our interest expense to be approximately $800,000 million, down from our previous guidance of $1million. And we now expect adjusted earnings per share of $0.36 to $0.41, up from our previous guidance of $0.30 to $0.36, and this assumes approximately 35 million shares outstanding.

And finally, as a reminder our forecast for the remainder of the year includes the impact from the one-time lag and recognizing the Smeal sales and gross margin on chassis sales are now inter-company. Approximately $1.1 million on related margin deferral still remains which will impact the second quarter of 2017.

At this point, I would like to turn the call back over to Daryl for his closing remarks..

Thanks, Rick. Please turn to Slide 15. Our first quarter 2017 results marks our fifth profitable quarter in a row and assures us that we will be profitable in all four quarter again in 2017 on an adjusted basis. To say that we are pleased with the progress we have made to date is understatement.

Not only do we have the right people and the right seats across the organization, our bench strength is building. Acquisitions and verticals that comes along with them are not easy to accommodate.

The fact that the Spartan team has not only been able to assimilate and integrate Smeal and its brand while improving and simultaneously growing our core business is a testament to how dedicated and frankly powerful this team is. Our thanks go out to the team and to our shareholders for their continued confidence.

We are incredibly proud of this and we are incredibly proud of the power and capabilities of this team and this is just the beginning. I intended on closing this call by telling you the momentum is building and become intangible. There is more than that going on here. This literally a cultural shift.

There is an appetite for more challenge, higher standards and [higher goals], there is no coincidence than that as Spartan Production System is improving significant, improvements in labor and manufacturing productivity across campuses.

The Smeal integration is well ahead of schedule and we are well positioned to take on other strategic acquisition opportunities as they present themselves The ER segment will return to profitability on an adjusted basis in 2017. Earnings are accelerating. We have increased our midpoint EPS guidance by 80% for 2017.

While we made notable progress to date, I want to be clear it’s only on the top of the fourth innings. Our Spartan team is energized, confident and determined on improving and growing the business. I can’t wait for you to see what winnings at Spartan. Operator, we are now ready to take some questions..

And we will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Steve Dyer with Craig-Hallum. Please go ahead..

Thanks. Good morning, guys..

Hi Steve..

Good morning, Steve..

With respect to Smeal, it looks like you’re calling for $105 million in revenue, which was up from previous expectations to $70 million that was done last year.

Is that just the inter-company or is it something else change there?.

No Steve, I think it reflects that we’ll have higher volumes in 2017 versus our prior year. So there is a healthy backlog there. And as we’ve improved the manufacturing productivity, I think our expectation for the number of units will be able to deliver – has increased since the day-to-day acquisition..

Got it, okay. Jumping over to FVS, you guys obviously have a tough comp and then a big upfit order from last year.

Any sort of visibility or further color on potentially for large orders there over the next quarter or two?.

I don’t know that we expect orders to that same magnitude Steve. What we feel, we have nice order backlog now. And I think that we’ve talked previously about our new facility is Kansas City, where we do upfit business of the Ford Transit platform and we see that ramping nicely as we head into the second half of the year..

Okay, great. And then Daryl, you touched on M&A at the end.

Smeal looks to be going well, is that – could we see another deal this year or you still thinking maybe a little bit of a slower pace from that?.

I mean we want to make sure we close that one out integrated, getting into our systems as we also stated, right. We want to be optimistic. That’s we were on the Smeal acquisition.

So I’m not comfortable to tell you that we have these things scheduled and locked in certain dates, but if something comes along it will definitely makes sense and it can be accretive. We will take the opportunity..

Great. Thanks guys..

Thank you..

The next question today comes from Matt Koranda with ROTH Capital. Please go ahead..

Hey guys..

Hey, Matt..

Hey, Matt..

Just on the guidance, it looks like the primary driver of the topline increase is really 100% related to Smeal.

So could you just confirm that’s the case? And then maybe could you provide a little more color on sort of what you’ve done on the production side that enables you to focus revenue by that amount at Smeal?.

Yes. I think Matt, the improvements we’re seeing in the Smeal business and the confidence we have there has been the driver, a lot of the topline increase in guidance and also I think the continued momentum for seeing their S-180 program..

Matt I’ll take the second half of your question about the operation. So January 1, we hired a new VP of Operations and automotive style individual understands our Spartan Production System. He jumped on it. We have hired another couple individuals in the operational side.

So along with implementing the [indiscernible], we’re also doing the number of kaizen events that are very truthful for us. It will be sustainable as we move forward..

Okay, that’s helpful guys. And then just sticking with the Emergency Response segment, it looks like the way that the cadence is playing out for the S-180 that you guys are implying that you could be shipping close to 20 units in the second quarter here, which would imply a nice ramp.

Is that the case and then also should we expect that sort of cadence through the remainder of the year or we kind of fulfilling demand early in the year and then we take a pause before you look at other orders?.

No, it’s very good question. So what we did, I think we mentioned at previously, we want to make sure, we don’t get out over our skews out of and delivery timing of 180 days. So we’re fits in time last year after we announce the 180. We worked on design and our dealers in, made some changes. After those changes, we are implemented by engineering.

We built number of demo units. And I think that’s what you’ve seen the increase, and demo units throughout on the road. Our new Smeal dealers are excited as we’ve mentioned and we are picking up orders, but we are going to manage it, so that we do say within 180 days, which is our commitment to our customers..

Okay, got it. And then on the refurb side, could you just help us understand sort of how that refurb business fits in with your OEM business? I guess just a pace value, it looks like it maybe kind of complementary and drive some stickiness with customers, but just one of the year kind of the rational in [indiscernible]..

You mailed it, exactly what our approach is. We continue to hear from these guys at the tire weight for the trucks that’s what I said about the S-180. And we pulled in the past that the S-180 isn’t for everybody.

So this is complementary initiative that we have pick up additional, as you said customers that can get binding trucks maybe they don’t have the money. Also it’s going to help us keep that customer going forward since we are working with them on their current products..

Okay and then impact of margin on that business, I mean I would assume it’s more or like aftermarket type margins, but could you help us understand that..

Yes, Matt, I think your spot on, your characterization of it, it is good margin business, like aftermarket and we certainly be accretive to the businesses margins..

Got it, okay. Maybe one last one on the ER side, just in terms of the competitive environment that you guys are seeing obviously there has been some additional consolidation activity happening in the recent week so.

Could you maybe talk about if you are seeing any impact to kind of order flow pricing or other elements of the business related to kind of industry consolidation?.

Yes, I will take that. I think that last acquisition that you are talking about little early to see an outcome of it. But I think its part of the strategy or the industry consolidated we talk about a number of quarters. We are seeing it and we actually we’re involved in it.

So I think it’s actually helping the industry move its short on up it delivery cycles that well below year, but as we get the capacity and the other three companies ahead of us have very good processes as we are put in place. I think is going to be done [indiscernible] going forward..

Okay, got it.

And then lastly on SCV, just any update or change in cadence to the ramp up in the F-Series and how that’s factoring in the overall guidance for the year?.

No, we are on schedule. We actually starting to do some slow ramp up right now in production units, but we will see that the impact start to move up in the second quarter..

Okay, got it. I’ll jump on queue guys. Thank you, nice quarter..

Thank you..

Thanks Matt..

And our next question comes from [indiscernible] with Seaport Global. Please go ahead..

Hey, good morning..

Good morning, Ram..

Good morning, Ram..

To the first quarter – I wondered you mentioned that you are in the fourth inning was that referring to the lean implementation.

Maybe just some more color on that like where you seeing the most improvement and where do you start work there to do?.

Yes, let me clarify that for you Ram. We talk before about where the company stands right were since 2015 when we start build on new team. So reference at fourth inning was in association with the new team the company – the company act in its transformation.

And then to your second question, initially when you start to put in SVS by process so lean [indiscernible] continues improvement – as you pick it on wall hanging fruit.

We see that also maybe the fourth inning maybe even earlier than that is a lot of runway left on both of those initiatives and that’s why we are pretty – we are confident we’ll be profitable given all four quarters this year..

Okay, great.

And then can you talk about – I want to go back to the M&A, can you talk about your pipeline there, what kind of multiples you are seeing? And then as you think about – do you see more opportunities in M&A or in additional partnerships?.

I think we ultimately see additional M&A opportunity, why I think if I look at the balance sheet and our liquidity, our ability to generate cash, we certainly have that the dry powder if you will.

I think Daryl sum that up pretty well earlier that I don’t know that we have in cadence our timeline, but I would say based on the success of what we see with Smeal so far is certainly looking more actively going forward..

Okay, great. And then can you just talk – just a couple modeling questions, you’ve given the tax range, but can you talk about what rate to use and seems like share count maybe just help with the cadence there. And the last one just the EPS, can you help us what the first half versus second half cadence, how you expect the EPS to play out? Thank you..

Yes. If I look at the first half versus second half I think it is definitely more weighted to the second half from – we have some continued headwinds heading into the second quarter as the additional headwinds in the second quarter comes from defense orders that didn’t reoccur. So the waiting is certainly back half weighted..

Okay. And then one last one, just on the ER business it sounds like that your improvement is going well there, I mean could we be profitable in the second quarter or is it still kind of the end of the year thing? Thanks for the time..

Thank you. I think what gives us confidence in taking our guidance up is like we said before the Smeal acquisition will accelerate the turnaround of the ER business and I’m not ready I think to say what specific quarter, it will return to the profitability, but we have a lot more confidence sitting here today than we did back in early February.

End of Q&A.

And this concludes our question-and-answer session. I would like to turn the conference back over to Spartan Motors for any closing remarks..

Thank you, everyone for joining today’s call. We look forward to continuing to provide you updates on our progress as well as our next earnings call which will be in first week of August. Thanks and have a great day..

Ladies and gentlemen, this concludes our conference. Thank you for attending today's presentation. You may now disconnect..