Q2 2020 Douglas Dynamics Inc Earnings Call

August 4, 2020

[music] good morning, ladies and gentlemen, and welcome to the Douglas dynamics second quarter 2020 earnings Conference call.

At this time all participants are in a listen only mode.

Later, we'll conduct a question and answer session and instructions will be given at that time.

I'd now like to trying to call over to Mr. <unk> Lowery, Chief Financial Officer of Douglas Dynamics. Please go ahead.

Thank you welcome everyone. Thank you for joining up on today's call.

Before we begin I'd like to remind you that some of the comments that will be made during this conference call, including answers to your questions will constitute forward looking statements.

These forward looking statements are subject to risks that could cause actual results to be materially different.

Those risks include among others matters that we have described in yesterday's press release and in our filings with the FCC.

Joining me on yet on the call today as Bob Mccormick, our President and Chief Executive Officer in a moment, Bob will provide an overview of our performance then I'll review our financial results. After that we'll open the call for your questions with that I'll hand, the call over to Bob.

Thanks, Sarah good morning, everyone.

To start with let's discuss the most important point of our call today.

Or 17, Hungary, Douglas employees are healthy and back at work.

After shutting down all of our US facilities in mid March we began a rigorous process of creating a safe returned to work environment.

Upon reopening all facilities in early May we had a 99% employee retention rate.

That is something I'm very pleased to state and something that every one of Douglas should be proud of because it took a real team effort to safely and successfully restart in may.

As we discussed on our last earnings call in early May we have and always will focus on protecting the health and safety of our teams first.

To date, we've only had a handful people test positive for Cobas 19 out of 1700 spread over 20 locations.

This is a testament to both our employees, making good choices plus the efforts of our teams to create and implement our shape returned to work plan.

Probability and data trends tell us to expect more cases in the future, but this situation was a good tests of our systems and protocols and everything to date has worked as intended.

Im extremely proud of the way our teams have collectively responded to the pandemic.

As an aside after building a robust playbook, we chose to share these resources with our industry, including the National truck equipment Association by providing tempt Blitz and examples of plans and procedures on our website, where people have downloaded customized for themselves.

The feedback has been nothing short of amazing.

Today, we've had over 2000 hits to the sites from nine different countries, including England, China and Australia.

We take pride in the fact that other companies are implementing the frameworks that we've developed and that we're doing our part to help everyone get back to work safely across the country.

With the Pandemics discussion complete, let's turn to our results for the quarter and more importantly, the future.

Given the fact, we were shut down for half the quarter and face additional external headwinds, we're generally pleased with our results.

As we noted in the earnings release, there were three main headwinds to navigate some familiar and some unique.

First and most familiar the impact of snowfall as expected we saw lower pre season orders in our attachment segment.

Followed by two consecutive years of below average snowfall in key markets, particularly the northeast.

Secondly, the impact of the pandemic from our shutdown to the impact on our OEM partners on the overall economy.

And finally ongoing chassis.

Jane.

Straight ongoing supply chain constraints in those solutions segment.

With that said, it's important to remember that our organization is primed to continually adapt to changing external conditions and we remain confident in our ability to maximize our performance focusing on the factored within our control.

Now I'll talk in more detail about the segments first attachments.

Following two years of below average snowfall in key markets, our pre season period unfolded essentially as we expected, albeit at lower volumes than last year.

As you would anticipate some of our dealers are more conservative with their ordering this year and are likely to rely on our industry industry, leading lead times, the turn orders as they come in when the snow flies in the fourth quarter.

In terms of dealer activity, it's encouraging to note that the approximate same percentage of dealers opted for cash terms. This year as they have in previous years, indicating both the general financial strength and confidence in the future of our dealer base.

At this point, our network seems to be holding up well in the midst of this challenging economic environment.

One of the positive things about our attachment segment is that because of the influence of weather for the past 70 plus years. This team has not only accustom to but actually thrives on the rigors of constantly changing business conditions.

Even prior to the emergence of the pandemic hour attachments team was expected to much tougher year than 2019 and had already pulled out the low snowfall playbook and began pulling levers to reduce costs and preserve cash.

While the lack of snowfall and the pen pandemic have occupied the spotlight. So far in 2020 I remain impressed with our attachment teams resilience and ability to remain focused on delivering on our long term initiatives, including rolling out our new product launches.

Our halftone V plow offerings.

Was well received in the market and we're very encouraged by the adoption in early order trends that we are seeing for this and other new products.

That brings us to work truck.

Solutions as you May know our facilities are located in the areas that were originally heavily impacted by the corona buyers throughout the northeast in mid Atlantic during the spring and summer.

Thankfully the situation has stabilized and improved and some of the areas, although nowhere near back to normal.

As I said before EBIT in the northeast, we were able to bring back 99% of our workforce in early may and our operating net near normal levels today.

The teams as agenda at Henderson have noted there appreciation of all of the safety initiatives that have been employees.

Overall, the restart is going according to plan and we are in constant communication with our OEM partners and component suppliers as they safe we begin to ramp up production.

Of course, each partner is going through their own specific startup plan and while we are encouraged to hear of their progress. So far we do expect there will be supply issues during the second half of the year.

The good news here is that we still receive more pool chassis than our competitors and we've not seen cancellation of orders.

In fact in June we saw a noticeable uptick in commercial orders at.

The Jana when compared to the same time last year. This is a positive sign that customers on the east coast or getting back to business and this bodes well for the long term prospects enthusiasts.

Despite endemic related challenges the municipal snow and ice control operations at Henderson, our making good headway. So far in 2020, we continue to have a strong order book and a healthy backlog both of which we have seen for quite some time.

Additionally, we have not seen any canceled orders despite the challenging economic environment and do not expect this to become a major issue given the recession resistant nature of snow and ice control budgets due to the importance of safety and maintaining commerce.

As Reclass seven and eight truck chassis piece, we began to see an increase in chassis availability in Q1 as expected.

Obviously, the pandemic driven Oems shutdowns will impact availability during the second half, but it's important to note.

We believe that went Oems complete their production ramp ups, our class seven and eight chassis supply will improve significantly and we'll see improved financial performance as a result.

Overall, we continue to work through these challenges we remain confident in the long term prospects for Henderson.

I will touch on a couple of financial items, which Sarah will cover in more detail later.

Importantly, we completed a $375 million debt refinancing near the ended the quarter.

Several and her team did a fantastic job navigating this process during a difficult time and needless to say, we're very pleased with the results of their hard work.

This refinancing fortifies, our already strong financial position.

Action item off of our to do less allowing us to focus on running the business and provides us with enhanced flexibility to continue to make necessary investments to support our long term profitable growth initiatives.

When it comes to our priorities for cash. Despite these difficult times, we remain fully committed to the dividends.

Which we paid as usual at the end of the quarter.

The fact that we've been able to increase it 12 times over the past 10 years speaks to our ability to ride out a variety of challenges through different business cycles.

Finally, we are constantly monitoring the market for opportunities that will allow us to add important products and services to our portfolio and achieve our goal is continuing to expand our offerings and grow market share.

As always we will carefully assess each situation with our thoughtful and disciplined approach and kenai on valuations.

So all in all despite the typical challenges associated with a slower pre season and the unprecedented impacts of the pandemic. Our team continues to strive to put the company in the best possible position to succeed and achieve our long term goals.

Finally, I just want to reiterate how much we appreciate the time and energy that our team expended getting our facilities back up and running this spring.

We are very thankful to our workforce is healthy and then we have created a safe working environment for everybody to return to.

As I've said before.

I have no doubt that our organization will learn valuable insights from this experience and come out on the other side stronger than when we went down.

Before I finish I, just want to take a moment to mention something that we're very proud of.

We were recently recognized as a top workplace for the 11th consecutive year by the Milwaukee Journal Sentinel.

Only 10 other companies have been recognized every year since they started the program 11 years ago.

I want to extend a huge thank you to our entire team of outstanding employees for their continual focus on integrity teamwork and high performance, which has enabled us to create an ideal work environment for our employees that promotes engagement.

And personal growth.

A critical part of our such success Formula on this front is due to Linda Evans, our vice President of Human resources, who really is the driving force behind our programs.

When.

Employees are engaged in motivated.

Business partners continually sees the value in working with Douglas driving sustainable growth opportunities for everyone involved.

And talking of awards I also want to congratulate Sarah for recently being named CFO of the year by the Milwaukee business Journal.

This is a great achievement and very well deserved we are grateful to have said early in our finance group and being central such an integral part of our senior leadership team.

With that I'll pass the call onto.

The CFO was a year I kind of like how thats helpful. Thanks.

So the best part of that title as the recognition given to the entire Douglas finance team.

Certainly possible because of their heart March south.

Getting to the financials as Bob mentioned, just from a financial standpoint, we navigated through a quarter that included eight shutdown across all facilities a ramp up across all facilities.

Thank you then predicated on low snowfall and supply constraints within our solutions segment.

The impact of all of that is apparent and the quarterly results that we have successfully focused on what is within our control.

Further strengthened our balance sheet and we have remained focused on our long term growth prospects.

Im going to start with a more unusual items in the quarter as their worst overall and they're not necessarily indicative of our future operating results.

Our GAAP net loss of 103.9 million or negative $4.55 per diluted share was impacted by the following four items.

Items have been excluded for adjusted net income and adjusted earnings per share.

First we recorded a one time non cash goodwill impairment charge of 127.9 million on our solution segment. The impairment was triggered by the lower performance in the current year and projected future year as a result of the Kogan 19 pandemic and supply chain constraint.

This charge does not impact of strategic value that we have inherent in these businesses.

And we remain confident that we will navigate through these external factors successfully.

Second.

Due to the lower performance and solution, we reversed a potential earn out payment of 2 million.

This lowered our GAAP SGN excess.

Third as mentioned last quarter, the unprecedented drop and look forward LIBOR curve has made our interest rate swaps and effective. Therefore, we recorded a 1.6 million mark to market noncash interest expense.

Lastly, with the success of the refinance complete we incurred 3.2 million of debt modification expense related to the termination of our prior term loan.

Okay with that I'd now like to folk focus on our segment and consolidated results in the quarter.

Due to the combination of the three main factors snowfall pandemic and supply chain, our sales and gross profit declined versus last year.

We generated second quarter net sales of 120 million and gross profit of 32.1 million compared to net sales of 176.4 million and gross profit up 59.6 million.

Sales and margins were impacted significantly by the shutdown, which equated to almost half of the corridor.

In addition, lower volumes due to low snowfall and the pandemic impacted our operations upon returns.

At Cnf and those were 16.6 million 4.9 million lower than the second quarter of 2019.

After excluding the reversal of the potential earn out mentioned earlier the decline of 2.9 million was due to lower discretionary spending including travel advertising promotions all as a result of our income protection plan.

Interest expense was 5.7 million for the quarter, which was higher than the $4.2 million incurred in the same period last year.

After excluding the 1.6 million Mark to market adjustment mentioned earlier, a slight reduction is due to a lower principal balance.

The effective tax benefit was negative, 14.4%, which was lower than the effective tax rate of 24.6% for the second quarter 2019.

Due to the impairment of non deductible goodwill related to the municipal reporting unit.

On an adjusted basis, we generated net income of 7.6 million and 33 cents per diluted share.

Compared to adjusted net income of 26.5 million and one dollar and 14 cents per diluted share.

Similarly, we generated consolidated adjusted EBITDA of 20.3 million compared to 44.1 million and the corresponding period of the prior year.

I Echo Bob's comments, we are pleased with our execution in the quarter under these extenuating circumstances.

Now, let's turn to the earnings information for the two segments within our work truck attachment segment, we generated net sales of 73.8 million and adjusted EBITDA of 20.4 million during the second quarter compared to net sales of 112.2 million and adjusted EBITDA.

$38.5 million in the prior year.

The decline relates to lower preseason sales, which were impacted by two consecutive winters of below average snowfall in key markets, particularly in our core northeast region.

Similarly, the decrease in the segment profitability was mainly driven by lower volumes, coupled with the impacts of our shutdown.

As a reminder, our preseason order period started two weeks later in 2020 due to the emergence of the pandemic, but due to be efficient restart of our Phil facility. In May we were able to ship more products than originally expected in the second quarter.

That brings us to work truck solution, that's where we reported net sales of 46.2 million and adjusted EBITDA of negative 100000, compared to net sales of 64.1 million and adjusted EBITDA of 5.6 million and the same period last year.

The decline was primarily related to the impacts of the pandemic and the related shutdown of our facilities.

Coupled with the ongoing supply chain constraints, particularly for class four through six work truck chassis.

Lower segment profitability was again attributable to the cost of our shutdowns and reduced economic activity in our core markets on the east coast combined with the supply chain challenges and was partially offset by reduced discretionary spending.

Turning to the balance sheet and liquidity figures.

Net cash used in operating activities. During the first six months of 2020 was 6 million compared to cash usage of 300000 during the same period in the prior year.

While free cash flow for the first six months of 2020 was negative 11.1 million compared to negative 5.8 million.

During the same period in 2019.

The increase in cash used by operating activities and lower free cash flow overall are both primarily attributable to overhead costs incurred during the shutdown while volumes were low due to the pandemic.

Favorable changes in working capital, primarily due to lower volumes, partially offset these costs.

Accounts receivable at the ended the quarter were 76.8 million compared to 114.7 million in the second quarter of last year, primarily due to lower sales.

Inventory increased to $99.8 million at the end of second quarter compared to 93.9 million at the same point last year as we built up inventory in anticipation of supply chain constraints.

Capital expenditures for the first half of 2020 totaled 5 million.

Slightly lower than the $5.5 million incurred in the first half of 2019.

Total liquidity has been increased substantially to 126.8 million at the end of the second quarter compared to liquidity of $77.4 million at the end of the second quarter of last year, we ended the quarter with $34.9 million in cash and $91.9 million and.

Under our revolver.

Our higher liquidity, we the late to the recent refinancing of our 375 million credit facility, consisting of a 275 million six years senior secured term loan B facility due June 2026, and a 100 million three year seniors.

Secured ABL revolving credit facility due June 2023.

The new refinancing allowed us to fortify our already strong financial position, while providing us with liquidity and flexibility to continue to operate and execute to our long term goal.

We're very comfortable with where we stand with our debt maintaining a net debt labor leverage ratio of 3.5 times and comparison to 2.6 times at the same time last year.

As we continue to navigate a challenging economic environment, we will continue to prioritize paying down debt at the most logical points in the years ahead.

Finally, as you probably saw on our earnings release, we're not providing quantitative guidance at this time.

It is clear that significant uncertainty still exists across the country and the economic landscape, which is limiting our visibility and ability to forecast with any sense of accuracy.

The exact operational and economic impact of the cobot 19 pandemic, coupled with supply chain disruption is still unclear.

However, we have weathered many economic storms over the years and while this situation is unique we believe that we are well equipped to manage through effectively and emerged stronger as conditions improve.

As we look to the rest of the year and beyond what I can say is this.

Our attachment segment, it's still mostly influenced by snowfall with the economy being the second tickets factor.

The preseason order period started two weeks later than normal, but our successful operational restart was executed effectively which allowed us to ship more products than originally planned during the second quarter.

That means we anticipate a 50 545 split for the pre season across the second and third quarters, respectively.

As we noted last quarter. The pre season is expected to account for a lower portion of the segment sales compared to the average year with an increased focus on the fourth quarter as dealers wait to see what the start of the retail season for snow and ice control brought products Springs.

For solutions the issue of chassis and component supply will continue but we are hopeful that it will begin to stabilize and improve.

We maintain a strong backlog and these businesses, which bodes well as the supply chain catches up.

We experienced sequential order improvement throughout the quarter with commercial orders, which is excellent news.

It will take some time to understand how quickly business will return.

Overall, we also still maintain that we are comfortable noting that our free cash flow is expected to exceed the amount necessary to fund our dividends for 2020.

With that.

I'd like to open up the call for questions operator.

At this time I would like to inform everyone. If you would like to ask a question. Please press star and the number one on your telephone keypad.

Your first question comes on line of Josh Chan with Baird.

Hi, good morning, bothered Sarah congrats on the successful restart and the external actually.

Good morning, Josh Thanks, Joe.

Good morning.

So I guess my question first question is on the attachments business.

Have you sort of fully caught up to your order book.

In terms of and by the end of the quarter I guess the reason I am asking this is.

As we look at the sales decline and the into business, how should we think about sort of the relative impact between how much of it was the production being shut down and how much of it was just because of the smell.

Yes, the way I would think about attachments, Josh our pre season period of Q2 Q3, we delayed the pre season.

But orders started coming in quickly after that delay I would say from the standpoint of us shifting more in the second quarter than we had originally anticipated that work or close to caught up on on where we expect to be for the pre season.

We do expect a third quarter to be less shipments than the second quarter with the 50 545 split. We also have a shutdown that we typically have every July.

In our attachments business.

So that has occurred.

So I think last long answer to your short question I would say, yes were caught up and we're comfortable about 50 545 fled the I would just I would just add something that both both Saran Diane mentioned was it just makes logical sense I mean typically that.

That that pre season order is 60% to 65% of whats a dealer things they need for the year or at least stock to shells in.

In this environment.

Dealers backed off a little bit because they're just not quite sure. So for the first time in a long time.

We're going to be looking at the fourth quarter and and it will be it'll it'll have a greater impact on our full year results than it normally does I mean, obviously snowfall dictate some of that.

But but just from a standpoint of we think dealers are going to go into the season, a little lighter on inventory, which quite frankly, we encourage in this economic environment.

Yes, that's definitely makes sense.

Is there any discussion of sort of.

This being a fairly healthy landscaping season, and maybe how they end user made may potentially have more more cash entering in Germany.

Yes, that's a that's a terrific coins and while we don't have any hard stats on that we can we can all remember when the economy we shutdown.

You still saw you still saw the landscape trucks out they're cutting grass and doing their trimming plus you also have seen.

Uh-huh significant investment in home improvement projects. So again logic tells you there that the landscapers were busier than new than they've been before and that will put a few extra dollars in their pocket come the come the snow season for sure. Yeah, I think I mentioned this on the last fall Josh.

Another thing that we look at is what our dealers choose for terms, whether they choose terms or they paid early on casket discount.

I was thinking that maybe that would shift a little bit this year in light of of the economic uncertainty. We did not see that we still had the same percentage of our dealers paying cash.

Which was which was good that fee.

All right.

I can ask about the solutions business.

You mentioned some improved order trends just I guess, just wondering how long that takes the so translated through it.

Revenue and.

And then on the margin front and the second half how should we think about that with the facilities being back online.

Thank you.

Yes, Alex I'll outpaced the the order trends piece of that.

Hendersons order book has continued to be strong.

Gosh for the last two and a half years.

As Dave navigated through the the class HFC supply constraints as I said, we were seeing that easy enough and improving in Q1, and we expect that when the class seven and eight Oems give back up to their pre pandemic production levels, we're going to start flushing.

Some of that backlog that we've built.

Through the income statement. So we're pretty excited about hendersons prospects now how much of that occurs in the second half will be.

Wait and see kind of an approach, but certainly as we get deeper into the second half a year and certainly the 2021, we think theres exciting things ahead from an agenda perspective.

The information is still.

This is still new okay as I as I mentioned they were the highest stock when this pandemic first anywhere on the east coast admitted Atlantic areas and we've been really encouraged in June both June and July.

That's the order books.

In the economy, you got turned back on quite frankly, we've had a nice increases year over year.

And so again, we're building a nice backlog position there the Oems are going through their sort of phases and quite frankly there.

Not very aggressive startup plans, but they are on track and again I think we're we're anticipating not to get every chassis, we need for the second half of the year, but to see some nice improvement as we turn the corner of the 2021.

Yes, and then I would add that that's what we would expect on the margin side too when you look at solutions in the second quarter. We were pleased to at the breakeven where we were for EBITDA with us the length of the shutdown that we had.

I expect that we will see sequential improvement each quarter through the end of the year.

The chassis constraints and or the ability to get the chassis is.

Really is what what will be the deciding factor on if we get back to.

Last year's margins I am not necessarily the demand as Bob said, we're seeing the demanded so it's really more on the supply side.

Alright, great. Thank you both.

Thanks, Joe had next what.

Next question comes from the line of Ryan Macdonald with rig counts capital.

Good morning, guys. Thanks for taking my questions.

Good morning right.

Okay.

First just on the the impairment charge in the quarter are you able to breakout kind of how much that related to Henderson versus the agenda and then any detail on what kind of the biggest assumption changes were in the long term model there.

Yes, absolutely I can say that we would not be talking about that had not been for comment 19.

That was a significant shift in our expectations for solutions for the year.

And certainly not the uncertainty.

With that supply going forward.

Really is the trigger for that in total.

That's split between the two is it's almost 50 million for Henderson, an 80 million for does Jana.

And I have to say Doesnt change any of our thoughts on the strategy of the acquisition. This is the growth platform for us.

And so it does not change how we're thinking about the long term.

Gold and.

And runway that we have with those businesses.

Good.

Then on solutions I think I heard me say that orders were up year over year at both June and July.

Confirm that and then I guess, how does the orders translate into sales I know, there's some chassis constraints et cetera, but obviously as we think about kind of the topline about segment for the back half of the year.

You are correct and we did see orders increased in June and July.

We have a healthy backlog.

In both of those businesses.

So a little bit hard to translate those order rate today to exactly when they'll turn into to sales I can just say that for the back half of a year, it's really more inhibited by.

US getting all the supply.

Coordinated after after they've all been shut down than it is.

Than it is demand right now as I think the other is the other thing I would add too to service comments.

And this is.

Looking at each of the future the vehicle classes separately.

In the class serving the needs where the over over the road demand for the past two and a half years is going through the roof because of government.

Mandated changes in how the vehicles operate.

That was actually leveling off and.

Allocations to the municipal side of those class seven NHS use was starting to pick up and so when these research.

Guess.

Completed during the second half of the year, we fully expect to be able to get access to all of the chassis is we need on the on the Henderson side.

When you go to the commercial side the genocide, we've talked in the past the vote.

Capacity to be allocated to FCB, because consumer demand was so strong and the margins are greater on issues and they are on work truck chassis, some things along those lines and so in a.

Strange way, we will benefit.

From a little bit of dip in the economic cycle.

Because we believe capacity will be reallocated.

Next to the work trucks that we need because take little wild horse to flush out.

But obviously, obviously, there's going to be economic softening that we're going to field for quite some time, and we think that bodes well for improved chassis availability on their class four through six site.

Great and just one last one for me and then I'll hop back in the Q.

It sounds like most of the workers are back down 9%. So maybe not a lot of cost savings there, but as you think about kind of the cold bid and the cost cuts. You made are you able to quantify how much or if any are permanent kind of run rate going forward improvement thanks, and good luck.

Yes, absolutely.

We've been talking about our income protection plan.

And the fact that from an attachment side they already had their playbook starred entity for coated.

They will flex up and down on their spending every year based on snowfall. So I would not say that anything that they're doing is permanent nor do we wanted to feed permanent.

On the solution side I would say.

In that quarter.

We have some furloughing of employees as we were shut down.

We certainly we're very prudent on all of our discretionary spending.

I would say that I would not I would expect a small portion of that to be.

Permanent in nature.

It's really more timing tightening tightening the purse strings I'd say.

Until we navigate through that.

But the team did a great job.

Of doing that on the solution side I think you you saw the detriment was.

In the Thirtyth, which which is great for a.

Group of individuals that have not had to use the income protection plan.

Historically, because they've been growing.

Great, but that create thanks guys. Good luck.

Thank you.

Your next question comes on line of Chris Mcginnis with Sidoti and company.

Lessons.

The next quarter and.

Congrats on the award.

Thanks, Chris.

I was wondering we could start up maybe just maybe a little bit more granularity around the increase in the orders on dissolved and Dejana you saw on the month over month for our year over year.

In June July and maybe any end market for any customers there may be stronger.

Just one of those anymore granularity in that strength you're seeing.

No.

It's with the positive there Chris is that it wasn't one or two significant orders you know, we didnt land, a whale kind of thing and Thats what drove the numbers what I'm most encouraged by.

Is that sales team for Louisiana, and this goes back a year ago.

We have a new vice president sales and marketing.

We have it we have we have a new president coming into that job and pretty short order and they have embarked on what I would call more of a strategic selling proposition.

We're certainly going out in getting quotes and that's sort of thing is is what they do but a bunch more disciplined approach to look at opportunities look for gaffes capitalize on our shrinks.

Fill those gaps we where we think we can do better in certain markets and that takes a long time for us to take hold and I think right about the time that the pandemic. If there were starting to generate some momentum there. So I'm going to suggest this is more of an across the board.

Increase, which which makes me feel better about the sustainability of it longer term.

I appreciate that.

Since then.

I can you maybe just comment on the competitive landscape probably more so on the.

Dejana side, but it just has there been any change given.

For the pandemic the impact on.

You know nothing nothing that we've we've CES sooner and I would just talking before the call today.

Typically when you go through cycles like this the strongest stronger and a week fall off to the side. So certainly.

There will be some smaller competitors.

Our either less competitive or maybe.

You may not make is longer longer term.

But we haven't seen much of that.

To date and I'm again, I also think that that in these uncertain environment.

When customers here things like 99% of your employees are back and we're safe work environments. It just reinforces why they do business with the Jana or new business with Douglas and if they're going to place a best in these uncertain times.

We're we're a good fell in place to do that.

Great.

And then just two more quick ones.

Just just given the change I know, it's a screens two years and road low snowfall, but if there's.

Pent up demand to some degree or.

Just reaction to maybe of the stronger snow season, Q4, how does that play out or how could that play out in 2021 in terms of quarter.

So I was just wondering if that changes anything just given the pushback and maybe timing of time. Thanks.

Well Thats us that's that's interesting we've got snowfall history that goes back.

Longer than I had been alive.

Which is in a short amount of time anyway [laughter].

And this is it is historically rare.

For there to be three below average snowfall is in a row not to say it can happen.

And we expect it to come back.

And when it comes back there will be some pent up demand.

Without a doubt as we were talking earlier.

Though land scrapers, even in this environment.

Probably have a few more dollars in their pocket than most and users and so if we just get a little bit of held for mother nature.

Started in the fourth quarter I think you could see a really nice rebound on the attachments site next year.

Great.

And then just one quick one just any update on the vertical integration.

Yes.

We had a board meeting last week.

And showed off the progress we're making on the brand new facility. We've got equipment coming in designs are gone on certain products prototypes have been built.

Everything is proceeding according to plan.

You should start seeing production coming out of that that operation in the first quarter of 2021, and again I want to I want to say a couple of things. There are number one I want to congratulate the entire team of folks that is working on this important project, but also just to reiterate.

Cerro services earlier Douglas is used to seeing headwinds Douglas is used to having to call articles and one of the things we make sure of when we're pulling the levers to cut costs and conserve cash we make sure long term investment projects, you'll get funded and this was one of them so even when we.

We're shuts down from Middle of March the first part of made we still had progress being made.

In that in that.

Endeavor. So we did we did not miss a miss a beat its going to be an exciting part of our future and we'll look forward to share more details on the specific products that are coming out of that building when we're a little closer to launching 2021.

Great great. Thanks for taking my questions and delivering superior.

Thanks, Chris Thank you.

Once again, if you will find to ask a question. Please press Star then the number one on your telephone keypad.

The positive momentum from having been a roster.

And at this time there are no further questions I would like to turn the call back over to Mr., Bob Mccormick, President and CEO.

Thank you and thank you for your time today, we sincerely hope that you are all staying healthy and are adapting well to all the new situations, we are facing and as always we appreciate your ongoing interest in Douglas dynamics of a terrific date.

This concludes today's conference you may now disconnect.

[music].

Good morning, ladies and gentlemen, and welcome to the Douglas dynamics second quarter 2020 earnings Conference call.

At this time all participants are in a listen only mode.

Later, we'll conduct a question and answer session and instructions will be given at that time.

I'd now like to trying to call over to Mr., <unk> Lowery, Chief Financial Officer Douglas Dynamics. Please go ahead.

Thank you welcome everyone. Thank you for joining up on today's call.

Before we begin I'd like to remind you that some of the comments that will be made during this conference call, including answers to your question well constitute forward looking statements.

These forward looking statements are subject to risks that could cause actual results to be materially different.

Those risks include among other matters that we have described in yesterday's press release and in our filings with the F.B.C.

Joining me on yet on the call today as Bob Mccormicks, our President and Chief Executive Officer in a moment, Bob will provide an overview of our performance that I'll review our financial results.

After that well open the call for your question.

That I'll hand, the call over to Bob.

Thanks, Sarah good morning, everyone.

To start with let's discuss the most important point of our call today.

Or 17, Hungary, Douglas employees are healthy and back at work.

After shutting down all of our you watched facilities in mid March we began a rigorous process of creating a safe returned to work environment.

Upon reopening it all facilities in early May we had a 99% employee retention rate.

That is something I'm very pleased to state and something that everyone is dealt with should be proud of because it took a real team effort to safely and successfully restarted anyway.

As we discussed on our last earnings call in early May we have as always we'll.

Focus on protecting the health and safety argues for.

To date, we've only had a handful people test positive for cobot 19 out of 1700 spread over 20 locations.

This is a testament to both our employees, making good choices plus the efforts of our teams to create and implement our safe returned to work with them.

Probability and data trends tell us to expect more cases in the future. What this situation was a good test of our systems and protocols and everything to date has worked as intended.

I'm extremely proud of the way our teams have collected we responded to the pandemic.

As an aside after building a robust playbook, we chose to share these resources with our industry, including the National truck equipment Association by providing supports and examples of plans and procedures on our website, where people have downloaded customized for themselves.

The feedback has been nothing short of amazing.

Today, we've had over 2000 hits to the site from nine different countries, including England, China and Australia.

We take pride in the fact that other companies are implementing the frameworks that we've developed.

We are doing our part to help everyone get back to work safely across the country.

With the pandemic discussion complete let's turn to our results for the quarter and more importantly, the future.

Given the fact, we were shut down for half the quarter and faced additional external headwinds. We are generally pleased with how results.

As we noted in the earnings release, there were three main headwinds to navigate some familiar and some unique.

First and most familiar the impact of snowfall as expected we saw lower pre season orders in our attachment segment.

Followed by two consecutive years of below average snowfall in key markets, particularly the northeast.

Because of the impact of the pandemic from our shutdown to the impact on our OEM partners on the overall economy.

And finally ongoing chassis.

Jane.

Straight ongoing supply chain constraints in the solution segment.

Now I'll talk in more detail about the segments first attachments.

Well a few years of below average snowfall in key markets, our pre season period unfolded essentially as we expected, albeit at lower volumes than last year.

At this point, our network seems to be holding up well in the mix of this challenging economic environment.

One of the positive things about our attachment segment is that because of the influence of weather for the past 70 plus years. This team has not only a custom too, but actually thrives on the rigors of constantly changing business conditions.

Even prior to the emergence of the pandemic our attachments team was expected to much tougher year than 2019 and had already pulled out the low snowfall playbook and began pulling levers to reduce costs and preserve cash.

While the lack of snowfall and the pad pandemic have occupied the spotlight. So far in 2020 I remain impressed with our attachment teams resilience and ability to remain focused on delivering on our long term initiatives, including rolling out our new product launches.

Our helped on V plow offerings.

Was well received in the market and we're very encouraged by the adoption in early order trends that we are seeing for this and other new products.

That brings us to work truck.

Solutions as you May know our facilities are located in the areas that were originally heavily impacted by the Corona virus throughout the northeast admitted Atlantic during the spring and summer.

Thankfully the situation has stabilized and improved in some of the areas, although nowhere near back to normal.

As I said before even in the northeast we were able to bring back 99% of our workforce in early may and our operating at near normal levels today.

The teams Epogen at Henderson have noted there appreciation of all of the safety initiatives that have been employee.

Overall, the restart is going according to plan and we're in constant communication with our OEM partners and component suppliers as they say, we begin to ramp up production.

The good news here is that we still receive more pool chassis than our competitors and we've not seen cancellation of orders.

In fact in June we saw a noticeable uptick in commercial orders that.

The agenda when compared to the same time last year. This is a positive sign that customers on the east coast or getting back to business and this bodes well for the long term prospects apps as yet.

Despite endemic related challenges the municipal snow and ice control operations at Hendrickson, our making good headway so far in 2012.

We continue to have a strong order book and a healthy backlog both of which we have seen for quite some time.

Additionally, we have not seen a canceled orders despite the challenging economic environment and do not expect this to become a major issue given the recession resistant nature of snow and ice control budgets due to the importance of safety and maintaining commerce.

As for class seven and eight truck chassis is we began to see an increase in chassis availability in Q1 as expected.

Obviously, the pandemic driven Oems shutdowns will impact availability during the second half, but it's important to note.

We believe that what Oems complete their production ramp ups, our quest seven and eight chassis supply will improve significantly and we'll see improved financial performance as a result.

Overall, we continue to work through these challenges we remain confident in the long term prospects for hunters.

I will touch on a couple of financial items, which Sarah will cover in more detail later.

Importantly, we completed the 375 million dollar debt refinancing near the end of the court.

Several Andrew team did a fantastic job navigating this process during a difficult time and needless to say, we're very pleased with the results of their hard work.

This refinancing fortifies, our already strong financial position.

That's an item off of our to do less allowing us to focus on running the business and provides us with enhanced flexibility to continue to make necessary investments to support our long term profitable growth initiatives.

When it comes through our priorities for cash. Despite these difficult times, we remain fully committed to the dividends.

Which we paid as usual at the ended the quarter.

The fact that we've been able to increase it 12 times over the past 10 years speaks to our ability to ride out a variety of challenges through different business cycles.

Finally, we are constantly monitoring the market for opportunities that will allow us to add important products and services to our portfolio and achieve our goal of continuing to expand our offering and grow market share.

As always we will carefully assess each situation with our thoughtful and disciplined approach and kenai and valuation.

Succeed and achieve our long term goals.

Finally, I just want to reiterate how much we appreciate the time and energy that our team expended getting our facilities back up and running this spring.

We are very thankful that our workforce is healthy and that we've created a safe working environment for everybody to return to.

As I've said before.

I have no doubt that our organization will learn valuable insights from this experience and come out on the other side stronger than when we went down.

Before I finish I, just want to take a moment to mention something that we're very proud.

We were recently recognized at the top workplace for the 11th consecutive year by the Milwaukee Journal Sentinel.

We have 10 other companies have been recognized every year since they started the program 11 years ago.

I want to extended huge thank you to our entire team of outstanding employees for their continual focus on integrity teamwork and high performance, which has enabled us to create an ideal work environment for our employees that promotes engagement.

And personal growth.

A critical part of our.

Success Formula on this front the due to Linda Evans, our Vice President Human resources, who really is the driving force behind our programs.

When.

Employees engaged motivated.

Just as partners continually see the value in working with Douglas driving sustainable growth opportunities for everyone involved.

And talking of awards I also want to congratulate Sarah recently being named CFO of the year by the Milwaukee business Journal.

This is a great achievement and very well deserved.

We are grateful to have several leading our finance group and being central such an integral part of our senior leadership team.

With that ill pass the call onto.

The CFO of the year I kind of like how that sounds good. Thanks.

So the best part of that title is the recognition given to the entire Douglas financing.

Certainly possible because of their hard work.

Yep.

Turning to the financials as Bob mentioned, just from a financial standpoint, we navigated through a corner that included a shutdown across all facilities a ramp up across all facilities.

You see that predicated on low snowfall and supply constraints within our solutions segment.

The impact of all of this is apparent in the quarterly results, but we have successfully focused on what is within our control.

Further strengthened our balance sheet and we have remained focused on our long term growth prospects.

Going to start with the more unusual items in the quarter as their worst overall and they're not necessarily indicative of our future operating results.

Our GAAP net loss of 103.9 million or negative $4.55 per diluted share was impacted by the following four items.

These items have been.

Loaded for adjusted net income and adjusted earnings per share.

First we recorded a one time non cash goodwill impairment charge of 127.9 million on our solution segment.

The impairment was triggered by the lower performance and the current year and projected future here as a result of the Kogan 19 pandemic and supply chain constraint.

This charge does not impact of strategic value that we have inherent in these businesses.

Yes, we remain confident that we will navigate through the external factors successfully.

Second due to the lower performance on solution, we reversed a potential earn out payment of 2 million.

This lowered our GAAP SGN aspect.

Third as mentioned last quarter, the unprecedented drop and look forward LIBOR curve has made our interest rate swap in effective. Therefore, we recorded a 1.6 million mark to market noncash interest expense.

Lastly, with the success of the refinance complete we incurred 3.2 million of debt modification expense related to the termination of our prior term loan.

Okay with that I'd now like to folk focus on our segment and consolidated results in the quarter.

Due to the combination of the three main factors snowfall pandemic and supply chain.

Our sales and gross profit declined versus last year.

We generated second quarter net sales of 120 million and gross profit of 32.1 million compared to net sales of 176.4 million and gross profit of 59.6 million.

Sales and margins were impacted significantly by the shutdown, which equated to almost half of the quarter.

In addition, lower volumes due to low snowfall and the pandemic impacted our operations upon returns.

Actually an extensive were 16.6 million 4.9 million lower than the second quarter of 2019.

Interest expense was 5.7 million for the quarter, which was higher than the 4.2 million incurred in the same period last year.

After excluding the 1.6 million Mark to market adjustment mentioned earlier, the slight reduction is due to a lower principal balance.

The effective tax benefit was negative, 14.4%, which was lower than the effective tax rate of 24.6% for the second quarter 2019.

Due to the impairment of non deductible goodwill related to the municipal reporting Ana.

On an adjusted basis, we generated net income of 7.6 million and 33 cents per diluted share.

Parents to adjusted net income of 26.5 million and $1.14 cents per diluted share.

Similarly, we generated consolidated adjusted EBITDA of 20.3 million compared to 44.1 million and the corresponding carried over the prior year.

I Echo Bob's comments, we are pleased with our execution in the quarter underneath extenuating circumstances.

38.5 million in the prior year.

The decline relates to lower pre season sales, which were impacted by two consecutive winters are below average snowfall in key markets, particularly in our core northeast region.

Similarly, the decrease in the segment profitability was mainly driven by lower volumes, coupled with the impacts of our shutdown.

That brings us to work truck solutions, where we reported net sales of 46.2 million and adjusted EBITDA of negative 100000, compared to net sales of 64.1 million and adjusted EBITDA of 5.6 million in the same period last year.

The decline was primarily related to the impacts of the pandemic and the related shutdown of our facilities.

Coupled with the ongoing supply chain constrain, particularly for class four through six work truck chassis.

Turning to the balance sheet and liquidity figures.

Net cash used in operating activities. During the first six months of 2000 26 million compared to cash usage of 300000 during the same period in the prior year.

While free cash flow for the first six months of 2020 was negative 11.1 million compared to negative 5.8 million.

During the same period in 2019.

Favorable changes in working capital, primarily due to lower volumes, partially offset these costs.

Accounts receivable at the end of the quarter were 76.8 million compared to 114.7 million in the second quarter of last year, primarily due to lower sales.

Inventory increased to $99.8 million at the end of the second quarter compared to 93.9 million at the same point last year as we've built up inventory in anticipation of supply chain constraints.

Capital expenditures for the first half of 2020 totaled 5 million.

Slightly lower than the 5.5 million incurred in the first half of 2019.

Total liquidity has been increased substantially to 126.8 million at the end of the second quarter compared to liquidity at $77.4 million. The under the second quarter of last year. We ended the quarter with 34.9 million in cash and 91.9 million in borrowing capacity.

Under our revolver.

Our higher liquidity, we've leased to the recent refinancing of our 375 million credit facility, consisting of a 275 million six years senior secured term loan B facility due June 2026, and a 100 million three year seniors.

Secured.

Revolving credit facility due June 2023.

The new refinancing allowed us to fortify our already strong financial position, while providing us with liquidity and flexibility to continue to operate and execute to our long term goal.

We're very comfortable with where we stand with our debt maintaining a net debt leverage ratio of 3.5 times and comparison to 2.6 times at the same time last year.

As we continue to navigate the challenging economic environment, we will continue to prioritize paying down debt at the most logical points in the years ahead.

Finally, as you probably saw on our earnings release, we're not providing quantitative guidance at this time.

It is clear that significant uncertainty still in the across the country and the economic landscape, which is limiting our visibility and ability to forecast with any sense of accuracy.

The exact operational and economic impact of the Kobin 19 pandemic, coupled with supply chain disruption is still unclear.

However, we have weathered many economic storms over the years and while this situation is unique we believe that we are well equipped to manage through effectively and emerge stronger as conditions improve.

As we look to the rest of the year and beyond what I can say is this.

Our attachment segment is still mostly influenced by snowfall with the economy being the second because factor.

The preseason order period started two weeks later than normal, but our successful operational we start was executed effectively which allowed us to ship more products than originally planned during the second quarter.

That means we anticipate a 50 545 split for the pre season across the second and third quarters, respectively.

For solution with the issue of chassis and component supply will continue but we are hopeful that it will begin to stabilize and improve.

We maintained a strong backlog and these businesses, which bodes well as the supply chain catches up.

We experienced sequential order improvement throughout the quarter, what's commercial orders, which is excellent news.

It will take some time to understand how quickly business will return.

Overall, we also still maintain that we are comfortable noting that our free cash flow is expected to exceed the amount necessary to find our dividends for 2020.

With that.

I'd like to open up the call for questions.

Operator.

At this time I would like to inform everyone. If you would like to ask a question. Please press Star then the number one on your telephone keypad.

Your first question comes from the line of Josh Shanker with Baird.

Hi, good morning, bothered Sarah Congrats on a successful restart and the external actuate.

Good morning, Josh Thanks, Joe.

Good morning.

Well I guess my question first question is on the attachments business.

Have you sort of fully caught up to your order book on base in terms of by the ended the quarter I guess the reason I'm asking this is.

As we look at the sales declined in the in the business how should we think about sort of the relative impact between how much of it was the production being shut down and how much of it was just because of the smell.

Yes, the way I would think about attachments, Josh are increasing and then period of Q2 Q3.

We we delayed the pre season.

But order started coming and quickly after that delay I would say from the standpoint of us shifting more and the second quarter than we had originally anticipated that work or close to caught up on on where we expect to be for the pre season.

We do expect a third quarter to be.

Shipments than the second quarter with the 50 545 split.

We also have a shutdown that we typically have every July.

In our attachments business.

So that has occurred.

So I think.

Long answer to your short question I would say, yes were caught up and we're comfortable about 50 545.

Yes, I would just I would just add something that both both Sarah and I mentioned in this just makes logical sense I mean, typically that that that that pre season order.

Is 60% to 65% of what a dealer thinks they need for the year at least stock the shelves in.

In this environment.

Dealers backed off a little bit because theyre, just not quite sure. So for the first time in a long time.

We're going to be look you thats, a fourth quarter and and it'll be it'll it'll have a greater impact on our full year results than it normally does I mean, obviously snowfall dictate some of that.

But but just from a standpoint of we think dealers are going to go into the season, a little lighter on inventory, which quite frankly, we encourage and this economic environment.

All right now that definitely makes sense.

Is there any discussion of sort of but is this being a fairly healthy landscaping season, and maybe how they end user may or may potentially have more more cash entering.

Uh huh.

Yes, that's a that's a terrific points and while we don't have any hard stats on that we can we can all remember when the economy was shutdown.

You still saw you still saw the landscape trucks out they're cutting grass and doing their trimming plus you also have seen.

A significant investment in home improvement.

Projects. So again logic tells you there that the landscapers were busier than new than they've been before and that will put a few extra dollars in their pocket come the come the snow season for sure. Yeah, I think I mentioned this on the lab Paul Josh.

Another thing that we look at is what our dealers choose for terms, whether they choose terms or are they paid early on cash but the discount.

I was thinking that maybe that would shift a little bit this year in light of of the economic uncertainty we did not see that.

The same percentage of our dealers paying cash.

Which was which was good fee.

All right.

I can ask about the solutions business.

You mentioned some improved order trends just I guess, just wondering how long that takes the.

Translates through it.

Revenue and.

And then on the margin front and the second half how should we think about that looked at facilities being back on line.

Thank you.

Yes, Alex I'll I'll I'll take the.

The order trends piece of that.

Hendersons order book has continued to be strong.

Gosh for the last two and a half years.

You know as Dave navigated through those the class eight chassis supply constraint as I said, we were seeing that easy enough and improving in Q1, and we expect that when the class seven and eight Oems get back up to their pre pandemic production levels, we're going to start flushing.

Some of that backlog that we've built.

Through the income statement, so we're pretty excited about.

Hendersons prospects now how much of that occurs in the second half will be.

Wait and see kind of an approach, but certainly as we get deeper into the second half a year and certainly the 2021, we think there's exciting things ahead from an agenda perspective.

The information is still.

This is still new okay as I as I mentioned they were the hot spot when this pandemic first it anywhere on the east coast in mid Atlantic areas.

And we've been really to encourage in June both June and July.

That's the order books.

In the economy, you got turned back on quite frankly, we have had nice increases year over year.

And so again, we're building a nice backlog position there the Oems are going through their startup phases and quite frankly there.

Not very aggressive startup plans, but they are on track and again I think we're anticipating.

Not to get every chassis, we for the second half of the year, but the see some nice improvement as we turn the corner of the 2021.

Yes, and then I would add that's what we would expect on the margin side too when you look at solutions in the second quarter. We were pleased to at the breakeven where we were for EBITDA with does the length of the shutdown that we had.

I expect that we will see sequential improvement each quarter through the end of the year.

The chassis constraints and or the ability to get the chassis is.

Really is what what will be the deciding factor on if we get back to.

Last year's margin.

Not necessarily the demand as Bob said, we're seeing the demanded.

It's really more on the supply side.

Alright, great. Thank you both.

Thanks, John next what the next question comes from the line of Ryan Macdonald with rig count capital.

Good morning, guys. Thanks for taking my question.

Good morning right.

First just on the the impairment charge in the quarter are you able to break out kind of how much that related to Henderson versus Jana and then any detail on what kind of the biggest assumption changes were in the long term model.

Yes, absolutely I can say that we would not be talking about the had not been for cobot 19.

That was a significant shift in our expectations for solutions for the year.

And certainly the uncertainty.

With that supply going forward.

Really is the trigger for that in total.

That's split between the two is it's almost 50 million for Henderson, an 80 million for does Jana.

And I have to say Doug change any of our thoughts on the strategy of the acquisition. This is the growth platform for us.

So it does not change how we're thinking about the long term.

Goal and.

And runway that we have with those businesses.

Good.

Then on solution I think I heard you say that orders were up year over year at both June and July.

Confirmed that and then I guess, how does the orders translate into sales I know, there's some chassis constraints et cetera, but just as we think about kind of the topline in that segment for the back half of the year.

You are correct, we did see orders increased in June and July.

We have a healthy backlog.

In both of those businesses.

So a little bit hard to translate those order rate today, so exactly when they'll turn into to sales I can just paying up for the back half of in here, it's really more inhibited by.

Getting all the supply.

Coordinated after after they've all been shut down than it is.

Than it is demand right now as I think the other the other thing I would add too to service comments.

This is.

Looking at each of the future the vehicle classes separately.

In the class seven and eight where the over over the road demand for the past two and a half years, it's been through the roof because of government.

Mandated changes in how the vehicles operates.

That was actually leveling off and.

Allocations for the municipal side of those clients seven and eight chassis is we're starting to pick up and so when these research.

Yes.

Fleeted during the second half of the year, we fully expect to be able to get access to all of the chassis is we need on the on those Henderson side.

When you go to the commercial side the Shadow side, we've talked in the past about.

Capacities be allocated to FCB, because consumer demand will show strong and the margins are greater I noticed you view than they are on work truck chassis, some things along those lines.

And so in a.

Stranger way, we will benefit.

From a little bit of but different the economic cycle.

Because we believe capacity will be reallocated back to their work trucks that we need because take little while fourth the flush out.

But obviously you obviously, there's going to be economic softening that we're going to field for quite some time.

We think that bodes well for improved chassis availability on their class four through six site.

Great and just one last one for me and then I'll hop back in the Q.

It sounds like most of the workers are back down 9%. So maybe not a lot of cost savings there, but as you think about kind of the coal bid and the cost cuts. You made are you able to quantify how much or if any are permanent at a run rate going forward improvement thanks and good luck.

Yes, absolutely.

We've been talking about our income protection plan.

And the fact that from an attachment side they already had their playbook started before co bed.

They will flex up and down on their spending every year based on snowfall. So I would not say that anything that they're doing is permanent nor do we want it to be permanent.

On the solution side I would say.

In the quarter.

We had furloughing of employees as we were shut down.

We certainly we're very prudent on all of our discretionary spending.

I would say that I would not I would expect a small portion of that can be.

Permanent in nature.

It's really more timing tightening tightening purse strings I'd say.

Until we navigate through that.

But the team did a great job.

Doing that on the solution side I think you saw the deck for man was.

In the Thirtyth, which which is great for a.

Group of individuals that have not had to use the income protection plan.

Historically, because they've been growing.

Great. Thanks, guys. Good luck.

Thank you.

Your next question comes from the line of Chris Mcginnis with Sidoti and company.

Questions.

Nice quarter and.

Congrats on the award.

Thanks, Chris.

I was wondering we can start up maybe just maybe a little bit more granularity around the increase in the orders on dissolved and Dejana you saw on the month over month for our year over year.

During July and maybe any end market for any customers that are much stronger.

Just one of those any more granularity in that strength you're seeing.

No.

It's the positive there Chris is that it wasn't one or two significant orders you know, we didnt land, a whale kind of thing and Thats what drove the numbers what I'm most encouraged by.

Is that sales team for their Jana and this goes back a year ago.

But we have a new vice president of sales and marketing.

We have what we have we have a new president coming into that job and pretty short order and they have embarked on what I would call more of a strategic selling proposition.

We're certainly going to help them getting quotes and that's sort of thing is is what they do what a bunch more disciplined approach to look at opportunities look for gas capitalize on our strengths.

Fill those gaps we where we think we can do better in certain markets and that takes a long time for it would take hold and I think right about the time that the pandemic. If there were starting to generate some momentum there. So I'm going to suggest this is more of it across the board.

The increase which which makes me feel better about the sustainability of it longer term.

I appreciate that.

Thanks.

Can you maybe just comment on the competitive landscape probably more so on the.

Dejana side, but just has there been any change given.

For the pandemic the impact on.

Yeah, you know nothing nothing that we've we've seen yet server and I would just talking before the call today.

Typically when you go through cycles like this the strongest stronger and a week fall off to the side. So certainly.

There will be some smaller competitors.

Our either less competitive or maybe.

May not make us longer longer term.

But we havent seen much of that.

To date and I'm again, I also think that that in these uncertain environment.

When customers here things like 99% of your employees are back at work safe work environments. It just reinforces why they do business with the Jana or do business with Douglas and if they're going to place the bad news uncertain times.

We're we're a good sell in place to do that.

Great.

And then just two more quick ones.

Just just given the change I know, it's a screens to your own low snowfall, but if there's.

Pent up demand to some degree or.

Just reactions maybe of the stronger snow season, Q4, how does that play out or how could that play out in 2021 in terms of quarter.

So I was just wondering if that changes anything just given the pushback and maybe timing and fine. Thanks.

Well you know that's that's that's that's interesting we've got snowfall history that goes back.

Longer than I had been alive.

Which is in a short amount of time anyway [laughter].

And this is it is historically rare.

For there to be three below average snowfall in a row not to say it can happen.

And we expect it to come back.

And when it comes back there will be some pent up demand.

Without a doubt as we were talking earlier.

The land scrapers, even in this environment.

Probably have a few more dollars in their pocket than most and users and so if we just get a little bit of held for mother nature.

Started in the fourth quarter I think you could see a really nice rebound on the attachments side next year.

Great.

And then just one quick one just any update on the vertical integration.

Yes.

We had a board meeting last week.

And and showed off the progress we're making on the brand new facility. We've got equipment coming in designs are down on certain products prototypes have been built.

Everything is proceeding according to plan.

You should start seeing production coming out of that.

Operation in the first quarter 2021, and again I want to I want to say a couple of things. There are number one I want to congratulate the entire team of folks that is working on this important project what also.

Just to reiterate.

Sarah Sarasota earlier Douglas is used to seeing headwinds Douglas as used to having the call audibles and one of the things we make sure we're pulling the levers to cut costs and conserve cash we make sure long term investment projects, you'll get funded and this was one of those so even when the.

We were shut down from middle of March the first part of made we still had progress being made.

In that in that.

However, so we did we did not miss a miss a beat its going to be an exciting part of our future and we'll look forward to share more details on the specific products that are coming out of that building, what a little closer to launching 2021.

Great great. Thanks for taking my questions and looking for.

Thanks, Fred Thank you.

Once again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Posh just a moment ago have you any roster.

And at this time there are no further questions I would like to turn the call back over to Mr., Bob Mccormick, President and CEO.

Thank you Andy. Thank you for your time today, we sincerely hope that Youre Allstate unhealthy and are adapting well to all the new situations, we are facing and as always we appreciate your ongoing interest in Douglas dynamics have a terrific date.

This concludes today's conference you may now disconnect.

Q2 2020 Douglas Dynamics Inc Earnings Call

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