Good morning and welcome to Spartan Motors First Quarter 2020 Conference Call and Webcast. [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..

Thank you, Brent. Good morning everyone and welcome to Spartan Motors First Quarter 2020 Earnings Call. I’m Juris Pagrabs and joining me on the call today are Daryl Adams, President and Chief Executive Officer; and Jon Douyard, our Chief Financial Officer.

Today’s call we’ve included a presentation deck, which will be filed with the SEC, and is also available on our website at spartmotors.com, you may download the deck from the Investor Relations section of the website to follow along with our presentation during the call.

Before we start, please turn to Slide 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 bitterly 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.

On the call today, we will provide a COVID-19 business update first quarter highlights and a summary of our growth strategy before moving on to a more detailed review of the first quarter results and our guidance update, which will then be followed by a Q&A session, I would like to remind everyone that with the divestiture of Emergency Response segment on February 1, 2020 the revenues and expenses associated with the AR Group as well as the assets and liabilities have been reclassified as discontinued operations for all periods presented, with this classification of the PR segment to discontinued operations, the results discussed today will refer to continuing operations unless otherwise noted.

At this time, I’m pleased to turn the call over to Daryl, which begins on slide 3..

Thank you, Juris. Good morning, everyone. Thank you for joining us to discuss our first quarter 2020 results. Please turn to Slide 3. The extent of this virus is unprecedented on our personal lives our businesses and our economies, are being impacted by events beyond our control.

Our leadership team is entrenched fully aligned controlling what we can and acutely focused on the unique challenges presented by this pandemic. But we didn’t begin to feel the effects of the pandemic until the end of the quarter, again we began mobilizing the COVID-19 task force that it’s been up and running since early March.

We have a meeting daily with the understanding that our highest priority remains the safety, health and will be in of our employees, their families and our communities.

We have an active centralized protocol for responding to operational issues as they develop and we established specialized sub-teams to manage proactive and responsive actions across our operations as we engage with our facilities on a daily basis.

To ensure the safety of our associates as well as to comply with various government restrictions for shelter in place or safer at home executive orders due to the end of the quarter we temporarily suspended operations at some of our plants.

Since that time, we have adjusted plan operations in response to government mandates and prevailing demand trends within our markets.

Each of our facilities that are operating, we are taking aggressive actions to safeguard employees, we are committed to meeting or exceeding the CDC and state and local health department guidelines across all campuses, we began by developing and implementing our COVID-19 standard operation guidelines at each of our plants, we measure each associates temperature upon entering the plant, provide personal protective equipment to reduce the potential of infection including masks, gloves and we are practicing social distancing protocols.

Our plants and offices we are conducting heightened hygiene and cleaning protocols to ensure a healthy working environment. Workers that may work remotely we have implemented procedures and technology to allow them to work from home, paying particular attention to IT security protocols.

One of the cybersecurity and infrastructure security agency CISA guidelines, the majority of Spartans products are considered essential. This is all us to continue to produce vehicles for our customers and dealers.

These vehicles are used in critical applications including shipping and delivery services, infrastructure maintenance and for federal, state and local governments. For example, we recently built vehicle for ideal use, whose customer was equipped systems, this vehicle directly to the pandemics U.S.

epicentre in New York and is being used to sterilize, used in sterilization efforts to help fight against over COVID-19 pandemic. We are also working with a linen company regarding the COVID-19 facility cleaning initiative that is a high demand as a result of the pandemic.

In this challenging environment, we recognize that we needed to move quickly to reduce cost and preserve cash across the organization.

Our actions included implementing temporary furloughs for both salary and hourly employees at select locations, instituted a company-wide hiring freeze, eliminating discretionary operating expenses, cancelling or deferring non-critical capital expenditures, and deferring wage increases and reducing executives and board compensation.

Additionally, we’ve been staying close to our customers to understand their needs and expected orders for the second half of the year. And lastly, to ensure continuity of supply, we began working proactively with our supply base to understand the constraints and chassis availability as it relates to our production schedule.

Please turn to Slide 4, and I’ll recap our operations by segment and product line. Given the essential nature of our business, heading into April we were operating at approximately 40% of our facilities.

With employee safety as our guiding principle, we continue to assess our order demand and supply base, made adjustments to our production levels on a plant by plant basis, which impacted our April operations.

Since then, we continue to ramp up production and are currently operating at approximately 80% of our facilities at full or modified production levels, which includes our three largest operations in Bristol, Indiana Carson, California and sherlock, Michigan. We expect to be back in full production by the end of the month.

With most of our vehicles, production is predicted on a availability of chassis from our OEM and component suppliers. While we are monitoring the situation closely, we are encouraged to hear that production and most OEM manufacturers will begin in the coming weeks.

Demand remains strong and the number of locations and we see it accelerating in some cases, particularly in parcel and food and beverage as consumers and retailers are being impacted by the stay at home orders. In fact, many of our customers are experiencing demand levels similar to the holiday peak season.

Even among essential businesses like grocery and home improvement stores, there is a strong trend toward ordering online. We believe, as do our customers, some of these short-term behaviours, consumers have adopted will continue and, in some cases, may become permanent.

A few of our other locations are projected to be flat or down primarily impacted by dealer shutdowns due to the stay at home orders. We do see this as only temporary and expect a modest rebound in the second half of the year. And while our motorhome backlog at the end of the quarter was up year-over-year.

It does not reflect what we are currently seeing in the market due to the pandemic. We are seeing orders beginning to moderate as our OEM customers evaluate demand and inventories based on when retail dealers began operations. As such, we do expect continued softness in the second half of the year.

Based on us getting back to normal production levels by the end of May, coupled with our strong backlog position, we feel we are in a good position to respond quickly to customer demand. With that, let me take a few moments to summarize our first quarter results on Slide 5.

We saw a strong start to the year and we have our results demonstrated the magnitude of our business transformation strategy, which is centred around high margin products offering offerings within our core markets and growing market share with our expanding geographic footprint.

Revenues from continuing operations for the quarter increased 3% to $177 million, up from $172 million a year ago. Although revenues increased $37.4 million or 26.8% excluding the $32.7 million of pass-through revenues from the one-time USPS truck body order in the prior year.

FES which now represent 75% of our total sales as a result of the AR divestiture, we’re driven by increased demand on delivery vehicles across all vehicle classes. As a result, FES posted sales of $136 million, which were up a 11% from the prior year.

Conversely SUV sales were down 20% primarily resulting from decreased luxury motor coach sales, which was partially offset by sales from the rear truck body acquisition.

Look into profitability, for the first quarter, income from continuing operations increased 143% to $12 million and EPS from continuing operations increased 154% to $0.33 per share, up from $0.13 in the same period last year.

These results included a $2.6 million or $0.08 per share income tax gain resulting from recognizing a loss carryback related to divestiture of VR and available under the newly enacted Cures Act. Let’s turn to Slide 6, I’ll provide an overview of our growth strategy. As we saw strong demand in vehicle classes one through seven in the first quarter.

As we said on our fourth quarter and full year 2019 earnings call, there is a trend towards consumer spending more online, which in turn creates higher demand for delivery vehicles across our entire product portfolio.

We’ve been talking about the long-term trends towards e-commerce and we believe some of the short-term behaviours consumers have adopted in relation to the pandemic will continue after the worst is over and, in some cases, may become permanent.

All of these recent shifts have been a boom to the airline retailers both large and small, drive an increased demand for the enhanced delivery options that our vehicles provide, with our expanded coast to coast flexible manufacturing capabilities, which effectively cover approximately 80% of the total US population.

We can better accommodate the growing demand for our vehicles, both now and in the future. I would now like to welcome our new CFO, Jon Douyard to his first quarterly conference call. I know for you personally Jon, time it isn’t the best with your family still in Seattle area. But I want you to know how pleased we are to have you on board.

With that I’d like to turn the call over to Jon to discuss Spartans financial results for the first quarter in more detail as well as provide an update on our 2020 outlook, beginning on Slide 7..

Thank you, Daryl and hello, everyone. Despite the difficult and challenging environment, we are operating in. I’m excited to be onboard and part of this team through my first 60 days of the strength of the team, the business commitment to the customer in the long-term growth prospects have become very apparent.

I look forward to partnering on this next stage of growth here at Spartan. And having said that, I also look forward to the time when I can meet all of you in person, which is hopefully in the near future. Please turn to Slide 8 and I’ll provide an overview of our financial results for the first quarter.

As Daryl mentioned the results, we will be discussing reflect continuing operations as the ER business has been classified as discontinued operations for all the periods presented. Our bottom-line results from continuing operations for the first quarter improved significantly over 2019.

For the quarter, adjusted EBITDA from continuing operations more than doubled from $8.4 million to $18.4 million, while as a percentage of sales adjusted EBITDA from continuing operations increased 550 basis points to 10.4% of sales compared to 4.9% of sales in the same period last year.

These increases can be attributed to sales volume, favorable product mix and rail truck body, which offset lower luxury motor coach chassis volume.

Adjusted net income from continuing operations grew 115% to $11.4 million, up from $5.3 million, which reflects favorable product mix, lower material and component costs productivity improvements, the impact of the pass-through revenues on the USPS order in the prior year, as well as the Royal acquisition.

Adjusted EPS from continuing operations also more than doubled $0.32 per share compared to $0.15 per share. At this time last year. Next, we’ll jump into results by operating segment. Let’s begin with fleet vehicles and services segment on slide 9.

FBS generated total revenues of $135.7 million, which was up 10.6% compared to $122.6 million in the first quarter of 2019. As a reminder, first quarter 2019 FBS revenues included 32.7 million of USPS pass-through revenue, so excluding the impact of that revenue FBS sales year-over-year increased $46 million or 51%.

FBS adjusted EBITDA more than tripled to $21.7 million from $7 million a year ago. Due to sales volume improved product mix, lower material and component costs and the impact of the pass-through revenue in the prior year. Adjusted EBITDA margin increased 10.3 percentage points to 16% of sales from 5.7% of sales last year.

FBS backlog totaled $302 million, up $187 million or 162% compared to $115 million at the end of the first quarter 2019 excluding the USPS truck body order. Please turn to Slide 10 for the Specialty Chassis and vehicle segment overview.

SUV revenue decreased $10.4 million to $41.3 million, which was primarily due to a $17.7 million decrease in luxury motor coach chassis sales along with lower contract manufacturing volume that was partially offset by revenues from the Royal truck body acquisition, with the lower sales FCB Adjusted EBITDA fell to $3.7 million or 9% of sales compared to $4.9 million or 9.6% of sales in the same period last year.

SUV backlog is up 46%, $42 million compared to $29 million at the end of the first quarter of 2019, primarily due to the Royal acquisition. Please turn to the liquidity and guidance update on Slide 11.

As Daryl touched on, as a result of COVID-19, we have taken a number of steps to enhance our liquidity including right-sizing our cost structure where possible to maximize our financial flexibility as we work through the uncertainties relating to the COVID-19 pandemic. We have been working closely with our banks to ensure cash availability.

At the end of the quarter, we took a conservative position on our cash balance by drawing down on our existing credit line. Ultimately, we ended Q1 with $41 million of cash on hand which is above our normal historical operating levels. We will continue to evaluate this cash position as we gain better visibility to the COVID-19 impact.

That said, we did pay down $14 million of debt in the quarter, resulting in a current leverage ratio of 1.1 times adjusted EBITDA. The cash on hand, coupled with $75 million of availability on our existing credit line provides us with sufficient liquidity to fund our working capital needs.

Turning to guidance, while we are very pleased by our first quarter results and remain confident in the long-term prospects of our core markets, we do need to acknowledge the severity of the market conditions we are operating in today. We do expect our second quarter results to be impacted by the headwinds related to the COVID-19 pandemic.

We currently anticipate returning to normal production levels by the end of May and expect to deliver solid growth for the balance of the year when excluding the USPS pass-through revenue from 2019.

We acted quickly to mitigate the financial impact of lower production in the near term and we are working diligently to maximize our operations on a go-forward basis.

Despite these plans and all our efforts to-date, production at any of our facilities maybe further impacted by potential disruptions in our supply chain or future government market or company actions in response to the COVID-19 outbreak that may be out of our control.

With this elevated level of uncertainty, including the unknown magnitude and duration of the impact, we are withdrawing our guidance for the full year 2020. We currently plan to provide an updated outlook once we have greater clarity regarding the implications of COVID19 on our business. Now, I’ll turn the call back to Daryl for closing remarks..

Thank you, Jon. Please turn to Slide 12. In closing, our strong first quarter results are major indicator that our business transformation efforts and strategies are working. We delivered revenue growth, significant increases in net income, EPS, adjusted EBITDA and margins.

We are monitoring the COVID situation closely and we’ll continue to make swift decisions to protect our employees, our business and long-term shareholder value. Our enhanced cash and liquidity position, access to funding and expected cash flows from operations will support us through the short-term headwinds of the pandemic.

Because of the actions we are taking now, we believe we will be a longer leaner company when we come out of this and have to speed, so you will have the speed and flexibility to generate long-term growth and profitability.

Additionally, we continue to have a watchful eye on the M&A front and plan to pursue strategic opportunities as they present themselves in light of this market. Finally, I want to also take a moment to thank all our employees who play a significant role in manufacturing and delivering the vehicles our customers need and expect.

We thank them for their commitment and tireless work ethic as we work together as a unified team to get through this difficult condition. With that operator, we are now ready for Q&A portion of the call..

[Operator Instructions] Our first question will come from Steve Dyer with Craig-Hallum. Please go ahead..

Thanks, guys, and nice execution here in a tough time..

Thanks, Steve..

As it relates to demand that clearly doesn’t seem to be the issue, but can you kind of give us maybe a little bit more color on what you’re seeing there, are you seeing new industries coming to you.

I know you were starting to get some food and beverage traction with the reefer products and so forth, but do you continue to get orders or do you sort of feel like you have what you have and everybody else is sort of unlocked down right now..

Good question.

As you mentioned over the last 18 months or so, we’ve been focused on refining our refrigeration in grocery delivery and we’re seeing some opportunities in that space, as well as the parcel space with typical last mile delivery customers, this is a very interesting time and I think we all are learning a whole lot more on how to order online and the hard part, Steve, that we can’t, I don’t think anybody understands is when are we going to be back to a 100% of what we would say was normal right back in January and February.

And I think that’s going to take some time and I think that time is going to continue to drive some growth in a lot of our segments that we operate in, we were actually little concerned about the linen and laundry just because offices are closed, but we’re seeing in hindsight that with the increased cleaning and everything going on that some of those guys have given us some calls to get some new orders.

Even with our backlog through, almost through the end of the year we’re still pumping our trucks in trying to increase capacity..

Got it. So, I guess you obviously supply and production is the bottleneck right now. I think you ancillary now 80% of your plants are at least somewhat operational.

Can you just sort of help us I guess maybe from a modeling perspective if for no other reason to help and think about out of a 100% all in the ones that are operational and the ones that aren’t sort of what percentage of capacity maybe you’re operating right now?.

Yes. So, when we went into this with the task force team looking at it as a segment level was not granular now. So, we broke it down into what we would call it 20 different locations and I’m getting all the way down to what is FES aftermarket parts doing what is SCV aftermarket parts and we brooked by each plant location.

So, at the end of the day, we had approximately 20 income streams. We were looking at managing those and we did mentioned in the script that the big plant, the Big 3 and our Big 3. I guess if you want to call that, which are Bristow, Carson and sherlock are all up and running, we didn’t run those dry on purpose, because it’s hard to restart.

But the Kansas City in Charleston, in Mexico shift through plants right now are not running because the OEMs aren’t running and are not built in Chassis, the Ram ProMaster the transit in the sprinter aren’t the factories aren’t pumping those out. So those three are down.

So, we just looked at it, not so much on a capacity, but out of the 20 by end of the month 80% would be running. Now that’s changing and it’s fluid I just soft up in this morning to kind of get Mexico opened by the middle of this month, which would be helpful, because we have heard is going to be later in the month.

So, it’s flexible and fluid, but the plants that are not up and running, would be the smaller ones that will be shipped through specifically Charleston, South Carolina in transit..

So, those are primarily outfit plants, I guess is the best way to think about it those are some of the lower revenue but higher margin plants generally speaking..

It’s probably lower revenue and obviously the margins vary based on how much content we put into it. And in the amount of outfit, but you can say that in general..

Got it. Okay, one more for me and then I’ll jump back in the queue. As it relates to your supply chain. I mean is it primarily Chassis that you’re waiting on. Are there, sort of once the Big 3, so to speak, get up and running again, do you expect Chassis fairly immediately or is there a long queue.

And are there any other components that could sort of sneak up and bite the outside of that. Thanks..

Yes. You’re welcome. I think you probably going back in some history back to 2018 with the tariff activity, this is a bit different you know, China’s back up and running where Mexico should be back up and running by the end of the month and we do see have good visibility for instance the chassis, we use for walk in vans.

We have very good visibility into the number of units on the ground and where they’re located. So, I think we can see that through the middle of June approximately.

So as long as they get up and running here in the next couple of weeks, we think it might take them a week to get us some Chassis and get running, but again I think they’re going to be probably at a percentage of output at their locations as well.

So that’s why there is some uncertainty here that we don’t know how it’s going to play out, but we are obviously staying close to it..

Great color. Thanks, guys and good luck..

Thank you..

Our next question will come from Mike Shlisky with Dougherty & Co. Please go ahead..

Hey guys, good morning..

Good morning, Mike..

So, I want to get a sense of the COVID-19 impact also in a little bit more detail. I guess I’m trying to figure out if, if there weren’t safety questions and some chassis supply issues, the, on the demand side. That really hasn’t changed for you.

Is that kind of fair to stay or are you seeing customers just aren’t open at this time and they are facing any orders when they, when they probably normally would. I’m trying to figure out whether the entire impact for you was on the cost side and on the demand side at this point..

So, I’ll take the demand side. And, so what we’re seeing, I’m going to try to split for you, Mike.

As I mentioned and Steve was asking, we have good visibility into the chassis that we need for a walk in vans, we can see those through like I said, the middle of June and as long as a backup and running, don’t see a problem and again that’s predicated on the OEM. So, let’s take Ford, for example.

Ron, I think it’s region plants up and running and they’re getting their component parts get into Detroit chassis and we’ll get, and what we’re seeing some of the impact is on the retail, if you will, dealer side, right, because a lot of the automotive dealers are closed and they’re just starting to reopen around here in Michigan. They’re opening.

They could do touchless transactions delivering car. So, they’re trying to figure out how to do that and we looked at it as a positive if you’re doing it for consumers, they’re going to be doing it for the retail space as well. The larger trucks, the 350’s and 450’s that we would get or the GM trucks as well.

So, some of those dealers open in the plants run they are going to fill that. So, there is some pipeline we didn’t run again all of Carson dry so there’s going to be, there is no problem.

We didn’t want to have a bubble going into this, we manage it very close so that once they start we can start almost within a week and we will get the chassis and we can produce from there..

I just want to follow-up on welcome event business. I know there aren’t that many competitors in this business. I don’t know how the other folks are doing, but I’m curious if you’ve captured in the new customers, because it’s going competition just isn’t producing at this at this time..

Yes, I mean, actually we have some increased opportunities here recently from different customers, some of that I’ll say is from our strategy right and different customers who want to go after. And I also say, some of it may have been driven by COVID and they came to us. So, it’s a mix.

I would say it’s more of the hard work of the Spartan team, trying to get into other locations. Especially, like I mentioned earlier, into the grocery delivery and refrigerated area..

All right. That’s why I was about the FBS margins too. There were a very impressive 15% and that’s with the impact. I’m sure at the end of the quarter, up from COVID-19.

So, probably some higher cost there, I’m kind of curious, there has been three straight quarters where you are in the kind of mid-teens, your margins, are you getting to a pattern of a new normal here or other individual contrast that are really pulling that upward not last forever?.

Yes, this is John. I would say a couple of things. We didn’t see a big cost impact at the end of March. So, wouldn’t expect to see, we were shut down, I think for maybe the last week of the month.

I would expect to see it to be a little bit worse from a productivity perspective as we get into Q2 and due to social distancing and those types of things, but I think it’s been very favorable margin story in FBS and I think part of that is really the volume, we’ve been able to leverage without adding significant capacity and to the extent that the volume continues, I think we have opportunity.

We always have a mix of contracts that can change at any point, we’ve got some productivity out of the aluminum pricing year-over-year which, if you think about a year ago from Q1 coming out of the tariffs, I think that was certainly an issue and I think the other piece that the team is really driven well is the lean focus in the operational improvements from that perspective.

So, I wouldn’t say that 15%, 16% is sort of the new normal. But I think we are operating at a pretty good level there at this point..

All right. Maybe just one last one from me, squeeze one in here.

In SPV, I’m curious whether your contract manufacturing partner Zuzu, do you have the ability to kind of capture any inefficiencies or elevated costs if the truck assemblies are down substantially due to things that are out of your control?.

No, we do not, Mike. We view Zuzu like all of our customers as a partnership and we talk and we share throughout the different ups and downs of the industry and this is something way out of their control. But they do have products ready to go and as soon as Michigan opens back up.

That’s one of the plants that as we looked at it and we didn’t consider that it was critical and essential under the CIESA because we have inventory on our campus OEMs were done as well. So those vehicles we don’t they go to dealers and the dealers weren’t ready to accept them.

So as soon as the dealer is open up and the State opens back up that plant will be back up and running in. There should not be a supply issue..

Okay. Well, thanks so much for the help. I appreciate it..

Thank you..

Our next question will come from Steve O’Hara with Sidoti & Co. Please go ahead..

Hi, good morning. Thanks for taking the question..

Good morning, Steve..

Just curious in terms of the, let’s say recovery and in second half from 2Q. I mean, would you say it’s more I guess in the short term, obviously, is it more based on kind of the opening up of from COVID or is it. I mean it seems like it’s less impacted by kind of the economy currently or maybe going forward.

Is it just the fact that things are shut down and that’s hampering production, but you still have good demand and you expect that to be the case, at least in the short-term and then longer term, maybe if you could just talk about the impact of lower economic growth despite the fact that maybe you have improved penetration with e-commerce and things like that.

Thank you..

Yes, this is Jon. Maybe I’ll take the first part of that. I think as you look at the economy opening back up from COVID in those impacts.

I think it really is a supply side for us at this point if you think about our backlog of nearly $350 million, which is usually in the four to six-month range in terms of convertibility that gets us pretty comfortable with our factory capacity in those types of things here.

As we head into the second part of the quarter in the second half of the year. So, I think it really is on the demand side, on the supply side and the OEMs supplying the chassis and other components..

I will take second part of the demand side, I think as we mentioned in the couple of times in the script, there’s going to be some of this online ordering that’s going to, if you will stick. People are getting used to it. Steve, I think the, the question that we all have right is What is going to be the new normal.

For instance, we didn’t talk about it, but we’re investigating I have purchased a couple of different systems because we don’t think it’s efficient for us to measure someone’s temperature as they walk in, each person and visually, we’re going to looking at some sensing equipment thermal imaging sensing that will automatically check your temperature as they walk through and we’ll know if they should not go into the plant or not, right.

So some of this is going to stick is the new normal, and we think as and there could be a little bit of a resurgence too in some of these states or regions that COVID comes back in and we’re not sure exactly how the governor’s will react, and it may be some more time until things open up, but I also did mentioned one of our laundry and linen companies that are asking for more trucks because the new normal and office is going to be a lot more cleaning more laundry right maps and things.

So, we’re not sure exactly how much is going to be the new normal, but we see increased demand a longer-term on this new normal that we’re going to end up with..

Okay. That’s helpful. On the chassis side, for the RVs, I mean it seems like the shutdown in late March, you know, were starting to kind of open back up here. I mean what’s the sense on and that side of the business. I know you guys are on the higher end units from what I know.

I mean do you see that this is being less impacted given maybe the people buying those are economically less sensitive..

Yes, it’s a good question and I think you’re even here in-house listening to us because we’ve talked about that in the past what we do believe that the people that are buying the luxury motor coach are, have their wealth.

They’re not buying it if they can buy at their buying, because they want it, it’s a lifestyle and the backlog that increased year-over-year is because some of the new models that they’re are coming out our Chassis is underdrawn.

So we do have some more market share gains when the market comes back, we should see some more, because we are 100% underneath some of the new models coming out by both of the bigger customers numero and Integra, so to us, it’s just like I think we mentioned, it’s a matter of time, but we don’t know when and at what speed, but we’re qualitatively, we’re positioned well.

We think in the RV space as well as our other markets now without the ER segment..

Okay. And then, finally just with the sale of the ER business, Yes, I think at least some of the manufacturing was done in Sherock, is that facility acquired or is that space available for maybe manufacturing for either SCV or FES. Thanks..

Good question and in Sherlock, we have a number of buildings and with the sale three of the buildings went to the Rail Group and those three buildings were mainly two of them were 100% will actually one was 100% one was 50% and one was 60% utilized by ER, so that those did go with them, but there is still capacity and two of our plants.

One, we’re running truck body and when we remove the motorhome business over to, because I think on our last call, we had, we mentioned we opened a new aftermarket parts building in the Bristol area. So, we moved out aftermarket parts to free up space in Sherlock for the motor home..

Okay. Thank you very much for taking my questions..

Have a good day..

You too..

Our next question will come from Matt Koranda with ROTH Capital. Please go ahead..

Hi guys, hope everyone’s well and thanks for taking my questions..

Welcome back..

Thank you. So Daryl maybe I’ll start out with a question, On Slide 4 thought it was helpful to you guys kind of broke out your views on sort of some of the Fleet demand by parcels in beverage utility et cetera.

I was curious if maybe you could speak to kind of historically what the mix of revenue has been in the Fleet Vehicles business between those, the sources of demand, and then where is the biggest opportunity in terms of order book maybe in the coming couple of quarters, And are there any margin implications to fallout from that?.

Yes, we figure so was going to ask the question, I think we’re going to stick with our standard answers. We don’t break it out by location. We tried to put this in and I’m glad you thought it was helpful. This was a big change for us to put it in it was actually John’s idea and we’ve jointly put it back in.

Only his guidance we wanted to give everyone some help on what it looks like and where we see the growth opportunities.

As you know in the past when we had three segments., it was a little confusing to understand it, how much was the ER, how much was motorhome and so we felt now that we were in the two segments in majority of, is Fleet, it was important to identify that on the slide.

So, I don’t know if you have anything you want to add, Jon?.

I would just add that, historically it’s been more weighted towards the pocket band side, but we haven’t really broken out the details..

Got it. Okay, that’s fair. And then one other one for you Daryl, just in terms of the M&A front; I know you mentioned it briefly in the prepared remarks, but what are you looking at in terms of macro signals or maybe just market base signals within Fleet Vehicles to get more aggressive on the M&A front. I know you guys have done some stuff last year.

But going forward, it seems like there are potentially some opportunities that will present themselves with valuation multiples may be coming in over the next couple of quarters, but what are you seeing on that front. And is there anything to kind of report back on so far..

Yes, good question, I think. With everyone working at home and most of the M&A activity down, we received a lot of calls from a number of different bankers over the last month or so. We were involved with a number of opportunities going into the shutdown period.

We’re still working them and I do believe to your point, there is going to be some other opportunities. We have seen a couple, I’ll say bolt-ons that we’re looking at nothing significant but it’s going to be interesting to see what happens over the next quarter or two when people are stressed.

And I think we’ve talked before, we’ve had the question right what leverage, are we comfortable with and I think the position we’re in today is only because we watch right and we want to make sure that we don’t get too over-levered. And we work hard to integrate and take out cost, where we can to make sure that we move that leverage ratio down.

It’s going to be how we operate going forward. We’ve seen a lot of it back in a way to 2019. We saw some in 2018 and I think we’re going to see some more shake out of the industry here through due to this COVID-19 epidemic. We’re ready, we have good liquidity, the banks very in tune to what we’re doing in our strategy.

So, we’re just going to continue to watch and figure out the opportunities. We have a real good market, if you will, in the larger fleet customers, we’re working on the more if you will.

Some of the regional retail space that we haven’t a whole lot of business in and that’s our some of our strategy going forward along with continuing to work on larger fleets. But with the 80% of the US population now within 300 miles of our – each of our plants; that’s the future strategy is to build out those regional locations..

Got it. Very helpful. I’ll leave it there. Thanks, guys..

Thanks, Matt..

This concludes our question-and-answer session. I’d like to turn the conference back over to Juris Pagrabs closing remarks..

Thanks everyone for joining. We look forward to keeping you updated as we move forward in this unchartered water here, we are going to do several virtual conferences here over the next month or so, I think Craig-Hallum at the end of the month, and then UBS, the first week of June. So of course, that’d be virtual; so we will keep you updated.

Thanks for joining and have a great day..