ASV Holdings, Inc. (NASDAQ:ASV) Q4 2018 Earnings Conference Call - Final Transcript

Mar 14, 2019 • 04:30 pm ET

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ASV Holdings, Inc. (NASDAQ:ASV) Q4 2018 Earnings Conference Call - Final Transcript

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Executive
Andrew M. Rooke

are gaining traction. As our dealer and rental location counts is expanded to 286 at the end of the year, we are increasingly shifting our focus to dealer management, and taking steps to facilitate higher rates of sell through from our current dealers who sell ASV products, as opposed to the recent dealer appointment objective, which we have focused on in past year since relaunching the brand. I'll return to this later.

Another key point when discussing sales for the quarter is, that as we had previously announced, we received our first orders of approximately $0.7 million from a new rental account for us, a larger independent rental company, and they shipped in the quarter. We are hopeful this is the start of a relationship that grows as they order more of our products in both quantity and type.

The principal negative key items from our fourth quarter relate to the industry supply chain and input costs. With elevated levels of market demand, comes some strain on the supply chain particularly for critical components such as engines, and this shortage has a direct impact in the quarter. In addition to the restrictive constraints of having allocations for engines from several manufacturers, engines we had expected to receive in the fourth quarter were delayed by the manufacturers. And as already discussed, this resulted in $3 million of orders not being shipped, no booked revenues. With the shortages, we determined it was necessary to reduce our manufacturing daily production schedule and to close production for several days in the quarter. This helps to reduce our labor expenses but impacts the absorption of costs and increases the cost of inefficiencies in manufacturing, in turn affecting profitability.

From our discussions with the manufacturers and the visibility of our allocations and delivery schedules, we expect the engine availability to be largely resolved in the second quarter of 2019. Also in the quarter, we anticipate reporting an adjustment of approximately $0.7 million to resist the slow moving inventory, mainly aftermarket parts, for which we're better able to assess usage and rights of sale following the move of the distribution center earlier in the year. Input costs and in particular the price of US sourced steel and imported components rose sharply during the year. And despite some price increases and cost reduction activities, the expected net cost to us after pricing recovery is $0.5 million in the quarter. As I discussed earlier, in line with our key competitors, we have increased prices from the start of the year to reflect the higher cost of materials.

In addition, our targeted activities are aggressively seeking to reduce our material costs through product design optimization, selectively insourcing fabrication manufacture, and resourcing to lower cost suppliers, from which we expect approximately $2 million in margin recovery in 2019. However, the items above contributed to what we expect to be a GAAP loss for the quarter as we announced in the press release. For the full year, the turns I just discussed