Q1 2024 Douglas Dynamics Inc Earnings Call
Good day and welcome to the Douglas dynamics first quarter 'twenty 'twenty four earnings conference call.
All participants will be in a listen only mode.
Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions too.
To ask a question you May press Star then one on a touchtone phone.
To withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Nathan Elwell VP of IR. Please go ahead.
Nathan Elwell: Thank you welcome everyone and thank you for joining us on today's call before we begin I would 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.
Nathan Elwell: Those risks include among others matters that we have described in yesterday's press release and in our filings with the SEC.
Robert L. McCormick: Joining me on the call today is Bob Mccormick, President and CEO and several of our executive Vice President and CFO.
Robert L. McCormick: Bob will provide an overview of our performance followed by reviewing our financial results and guidance.
Nathan Elwell: That will open up the call to questions with that I'll hand, the call over to Paul. Please go ahead.
Paul: Thanks Nathan.
Paul: Our results for the first quarter of 2024 reflect the continuation of trends we saw last year.
Paul: For truck solutions continues to deliver improved results while work truck attachments is being hindered by unprecedented weather conditions.
Paul: Having said that we are pleased to report improved performance across the board this quarter compared to last year.
The performance of our solutions segment was again a highlight.
Nathan Elwell: This is the seventh consecutive quarter of improved performance versus the prior year same quarter.
Nathan Elwell: The think the solutions teams for their continued hard work.
Nathan Elwell: With chassis supply was at its worst they stayed focused on what they can control.
Nathan Elwell: <unk> just to get better every day.
Nathan Elwell: And then when chassis supply improved in exit stronger and more profitable great job.
Nathan Elwell: Now, let me run through our performance in each of them.
Nathan Elwell: Despite experiencing the second winter in a row with significantly below average snowfall all of our core markets. Our work truck attachments team still managed to deliver improved results compared to last year.
Nathan Elwell: Snowfall in the first quarter. This year was better than the fourth quarter of 2023 and down the east coast conditions were better than the previous winter.
Nathan Elwell: We were glad to break the record 700, plus day gap between measurable snowfall is the important cities along the I 95 corridor.
Nathan Elwell: However, after a positive start to snowfall in the first quarter with above average snowfall in many markets through January and the first nor Easter in two years in early February.
Nathan Elwell: There was a lack of snowfall through the rest of February and March.
Nathan Elwell: So the season ended as poorly as it began.
Speaker Change: I should reiterate we've never seen back to back seasons of this magnitude over the 75 plus years, we benefit.
Speaker Change: We are in uncharted territory to some extent.
Speaker Change: Our teams are committed to making the right decisions that will allow us to manage through this situation without compromising our ability to operate.
Speaker Change: Holly Hopper spreader.
Speaker Change: And a high hydraulic wing pusher plus which is sitting in every one of our major product categories.
Speaker Change: It's also worth remembering that we expect the merchant industry demand dynamics to continue.
Speaker Change: First customers are more demanding and willing to pay more for faster snow and ice removal.
Nathan Elwell: Winter weather continues to expand further.
Nathan Elwell: And third the landscapers need more equipment to get their job done faster and more efficiently and often with the same number of employees, which means they are expanding their fleets to include non truck equipment.
Nathan Elwell: These positive trends are creating opportunity that just didn't exist in our industry five years.
Nathan Elwell: Today, our broader a broader product offering covers virtually every aspect of commercial snow and ice control with the leading brands and new products and opportunities on the horizon.
Nathan Elwell: Listen there is no doubt it's been difficult recently for the attachments team, but as always and just like our solutions team with our focus on baseline profit improvements new product development, and Judy and must continue to improvement initiatives, we will exit stronger from this environment.
Nathan Elwell: Our team will be ready to drive profitable growth again with more normal weather conditions.
Nathan Elwell: The future possibilities for the attachments segment remained incredibly exciting.
Nathan Elwell: Now, let's talk about work truck solutions, where the recent results and outlook are very encouraging.
Nathan Elwell: After completing a strong finish to 2023. These solutions team continued to build upon that momentum delivering another strong quarter to start 2024.
Nathan Elwell: Or does Shannon Henderson teams are increasing the velocity of trucks through the Rockford centers, which is really key to us improving our baseline profitability.
Nathan Elwell: There are several positive trends, we are sheet, which collectively are help driving our improved results.
Nathan Elwell: Speaking about the Jana, it's clear that our OEM partners are more focused on fleet and dealer business today are.
Nathan Elwell: Our teams are adjusting our focus and business mix and match the industry trends driving improvements in the fleet business, where chassis are easier to come back today.
Nathan Elwell: So both our fleet shrunk and cargo truck business are growing which we expect to be a trend that last throughout 2024.
Nathan Elwell: At Henderson I'm pleased to report that the low margin contracts, we have been battling through in recent years are virtually complete.
Nathan Elwell: There are no longer a drag on our profitability.
Nathan Elwell: Overall chassis supply stable.
Nathan Elwell: Starting to show signs of improvement in certain areas.
Nathan Elwell: Additionally, the dependable parts program, we launched last year has been well received by our customer base and continues to gain traction.
Nathan Elwell: We continue our focus on internal profit drivers as we do every year, including product redesigns sourcing improvements and Judy a mess initiatives.
Nathan Elwell: As you would expect the improved results, we are starting to eat into our backlog, but I'm pleased to see new order trends also remain positive.
Nathan Elwell: We still have a great backlog significantly higher than historical averages and of chassis supply improvements continue during the year, we're poised to move increased velocity each borrowers.
Nathan Elwell: Our recent performance bodes well for the coming year, especially as overall demand outlook and backlog remain positive.
Nathan Elwell: While the progress may not always be linear things are clearly moving in the right direction.
Nathan Elwell: In short, it's great to see the solutions group going from strength to strength.
Nathan Elwell: In closing, we continue to navigate through external headwinds in a logical and effective manner.
Nathan Elwell: I'm so proud of our teams worked together to find solutions to challenges, while making improvements to the factors that are within our control.
Nathan Elwell: Our culture of continuous improvement will not only she is through these tough times, but ensure we emerge in a better position stronger and smarter than before.
Nathan Elwell: I think the combination of our teams creativity collaboration and Ci mindset is a recipe for long term success and will be a key factor in driving progress towards our long term targets.
Nathan Elwell: With that I'd like to pass the call to Sarah to walk.
Sarah: Through our financials.
Sarah: Sure.
Sarah: Thanks, Bob I'm pleased to report that when compared to the first quarter of last year are resolved interest across all metrics.
Sarah: Net sales increased 16% from $95 7 million and gross profit increase.
Sarah: 3% to $18 9 million.
Robert L. McCormick: SG&A expenses decreased four 3% to 21 5 million compared to first quarter 2000.
Nathan Elwell: 23.
Nathan Elwell: The improvement was driven by higher volume and price realization at solutions and higher.
Nathan Elwell: Our parts and accessory.
Nathan Elwell: Attachment.
Nathan Elwell: In addition expenses came in lower based on the successful implementation of the 2024.
Nathan Elwell: Okay.
Nathan Elwell: This was partially offset by related to severance and impairment costs.
Nathan Elwell: In conjunction with the implementation of the 2020 for our cost savings program, we recorded restructuring and impairment charges of $2 5 million $2 1 million.
Nathan Elwell: Correct.
Nathan Elwell: Which was in line with our expectation.
Nathan Elwell: Interest expense was $3 5 million for the quarter compared to $2 9 million incurred in the same period last year.
Nathan Elwell: We reported a GAAP net loss for the quarter, which is typical.
Nathan Elwell: Given the seasonality.
Nathan Elwell: The net loss for the first quarter of 2024 was $8 4 million compared to a net loss of $13 1 million last year, an improvement of $4 7 million.
Nathan Elwell: On an EPS basis. This translates to a negative 37 eight.
Nathan Elwell: A significant improvement compared to negative eight.
Nathan Elwell: In 2023.
Nathan Elwell: On an adjusted basis, we generated net loss of $6 5 million or negative <unk> 29 cents per diluted share compared to an adjusted net loss of $12.
Nathan Elwell: I'm million or negative.
Nathan Elwell: Sure.
Nathan Elwell: Similarly, we generated consolidated adjusted EBITDA of one 5 million compared to negative seven 4 million in the corresponding period the prior year.
Nathan Elwell: Let's review results for the two segments.
Nathan Elwell: Work truck attachments results improved across the board compared to the prior year, despite ongoing weather issue.
Nathan Elwell: Net sales increased 23, 9% to $23 8 million and adjusted EBITDA increased 5.7 million to negative $4 5 million.
Nathan Elwell: The improvements were driven by increased sales of parts of it.
Nathan Elwell: That's real plus.
Nathan Elwell: The implementation of the 2020 for cost savings program.
Nathan Elwell: The above average snowfall in January led to record parts and accessories sales for that month.
Nathan Elwell: Now I'm pleased to report that our results at work truck solutions continued to improve.
Nathan Elwell: Net sales increased approximately 13% to 71 8 million compared to the same period last year based on higher volume improved chassis availability and increased price realization.
Nathan Elwell: This led to adjusted EBITDA margin, increasing to eight 4%, which is at the highest point in any first quarter since 2019.
Nathan Elwell: Well some component supply issues linger you overall situation continues to stabilize and slowly improve.
Nathan Elwell: With demand and backlog remaining positive we're pleased to see the improvements we've worked hard for start to show up in our financial.
Nathan Elwell: While we still have a ways to go to reach our goal things are moving in the right direction at solutions.
Nathan Elwell: Which segment results covered I'll turn to the balance sheet liquidity.
Nathan Elwell: Net cash used in operating activities improved by 62% to 21 6 million for the quarter and free cash flow for first quarter 2024 was negative $22 9 million, an increase of $36 8 million compared to negative 50.
Nathan Elwell: $9 7 million in the same quarter last year.
Nathan Elwell: The improvement was primarily due to favorable changes in working capital.
Nathan Elwell: Including a decrease in cash used in accounts payable and inventory and improved operating results.
Nathan Elwell: Inventory at the end of the quarter of $174 8 million was five 3% lower than the $184 6 million at the end of first quarter 2023, and we have less finished goods at attachment this year compared to last.
Nathan Elwell: Inventory typically rose in the first quarter as attachments built inventory in advance of preseason activity and this year. We are keenly focused on adjusting our manufacturing as needed to flex inventory.
Nathan Elwell: Accounts receivable at the end of the quarter.
Nathan Elwell: $8 6 million compared to $48 2 million at the end of the first quarter of 2023.
Nathan Elwell: The increase compared to last year as a holdover from the elevated level at the end of 2023 and the current number is now much lower than the $83 8 billion at year end.
Nathan Elwell: Capital expenditure in the first quarter were $1 3 million as expected, which is about half of the $2 7 million incurred in the same quarter last year as we continue to curtail our spending as part of our 2020 for a cost saving program.
Nathan Elwell: We expect to be on the low end of our targeted range of capex of 2% to 3% revenue and we will be prudent with the timing of the investment.
Nathan Elwell: Turning to capital allocation, our priorities remain consistent.
Nathan Elwell: As always we paid our quarterly cash dividend of 29 and half cents per share at the end of March.
Nathan Elwell: The dividend remains our top priority.
Nathan Elwell: And we expect to produce enough free cash flow during the year to cover the cost of the dividend, which is approximately $27 million.
Nathan Elwell: The effective tax rate was 16% for the quarter compared to 21, 1% in the first part of last year.
Nathan Elwell: Both rates are lower than typical based on discrete tax expense related to excess tax from stock compensation.
Nathan Elwell: At the end of the first quarter, we had a net debt leverage ratio of three three times a couple of points lower than the three five times at the end of 2023.
Nathan Elwell: The amended credit facility, providing us greater financial flexibility with a higher leverage ratio right.
Nathan Elwell: Ratio Covenant at four times until June 30 of 2020 for returning to three and a half times at September 32020.
Nathan Elwell: We are well positioned to manage through this temporary situation.
Nathan Elwell: Finally, I'll walk through our updated guidance.
Nathan Elwell: Sure.
Speaker Change: I'd like to read the comments I made last quarter.
Nathan Elwell: I noted that the largest assumption in our 2024 guidance what is that approximately half of the weather driven volume decline in 2023 would be recovered in 2024.
Nathan Elwell: As you saw in our earnings release, we are tightening our guidance ranges.
Nathan Elwell: Following the conclusion of the 2023 24 snow season, and early indications of the preseason and attachment.
Nathan Elwell: We've lowered our expectations for preseason orders.
Nathan Elwell: Although we are early in our preseason ordering period, we are tracking to our revised lower forecast.
Nathan Elwell: We now expect 2020 for volume to be similar to 2023.
Nathan Elwell: However, we're expecting pre season to be closer to historical shipments of 850 545 split between Q2 and Q3, well last year pre season, what was closer to 65 35.
Nathan Elwell: This means we expect Q2 volumes to be lower than 2023.
Nathan Elwell: We have also found opportunities to expand in 2020 for cost savings program, which is now expected to yield annual pretax savings of more than 10 million.
Nathan Elwell: We still like to recognize approximately 75% that'd be expanded cost savings amount this year, which equates to $8 million to $9 million.
Nathan Elwell: The outlook for solutions has not changed for the year and they remain on track to deliver improved top and bottom line full year results for the third year in a row.
Nathan Elwell: With stronger improvement in the first half of this year when compared to last year with the back half of the year looking similar to 2023.
Nathan Elwell: And finally, it's worth reiterating the dividend remains our top capital allocation priority.
Nathan Elwell: So just to confirm the detail our updated 2024 financial outlook is as follows net.
Nathan Elwell: Net sales are now expected to be between 600 and $640 million.
Nathan Elwell: Compared to the previous range of $600 million to $660 million.
Nathan Elwell: Adjusted EBITDA is now predicted to range from 70 million to $90 million.
Nathan Elwell: Since the previous range of 70 to 100 million.
Nathan Elwell: And adjusted earnings per share is now expected to be in the range of $1 20 per share to $1 70 per share compared to the previous range of $1 20 to two tenants.
Nathan Elwell: The effective tax rate is expected to be approximately 24 and 25%.
Nathan Elwell: It's worth noting our outlook includes underlying assumptions such as relatively stable economic conditions stable to slightly improving supply of chassis getting components and our core markets will experience average snowfall in the fourth quarter of 2024.
Nathan Elwell: However, looking longer term our segment financial targets.
Nathan Elwell: Targets remain consistent.
Nathan Elwell: Our attachment we believe we can deliver low to mid single digit sales growth and adjusted EBITDA margin in the mid to high 20.
Nathan Elwell: First of all Lucia, we expect to maintain mid to high single digit sales growth.
Nathan Elwell: Language continued improvement towards double digit EBITDA margin.
Nathan Elwell: In 2020 for both.
Nathan Elwell: Segments are expected to improve over 2023.
Nathan Elwell: Due to continued success on baseline profit improvement and greater price realization.
Nathan Elwell: These actions keep us on the path toward both segments, achieving their margin profile over the longer term.
Speaker Change: With that we'd like to open up the call for questions.
Speaker Change: Operator.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: The first question today comes from Robert Shultz with Baird. Please go ahead.
Robert Schultz: Hey, guys good morning.
Robert Schultz: Good morning.
Robert Schultz: So it's now been about two seasons now with lower snowfall totals and attachments I just wanted to ask during the past two seasons here have you noticed any changes in the competitive environment or anything you'd call out from that perspective.
Robert Schultz: No.
Robert Schultz: Terrific terrific question, we do.
Speaker Change: We do formal market share surveys with our dealer base every year as you as you know, we've got 50% to 60% market share and our our market share is holding very solid.
Speaker Change: Our growth in some of our non truck segments.
Speaker Change: As you know, adding some market share in those areas. So we think that the competitive landscape is fairly stable Bobby.
Speaker Change: Even in this environment.
Speaker Change: Got it.
Speaker Change: And then on the solutions side I think last quarter, you guys had called out some expected impact from the UAW strike, where are you guys able to quantify the impact on Q1, and maybe could have solutions performance, even been a little bit better. This quarter had you not seen any impact.
Speaker Change: Yeah, we actually saw very little impact from.
Speaker Change: The UAW strike I think from the standpoint of maybe some delayed chassis those types of things. The teams, we're really creative and yeah, we have enough backlog to work around some of those interruptions we experience.
Speaker Change: It probably was no different than some of the other chassis delay.
Speaker Change: The latest that we experienced prior to the strike, which which was good yeah, I think I think to serve as a serious point.
Speaker Change: Certainly we saw some.
Speaker Change: Chassis delays now the Oems were not.
Speaker Change: Jumping up and saying here's exactly the impact but.
Speaker Change: But hats off to the team for four moving some other chassis and re prioritizing the mix so that we could still get.
Speaker Change: Get decent fluids Europe. Good centers. So we're we're pleased that the impact in total was what it was pretty negligible and now appears to be behind us.
Speaker Change: Got it that's good to hear.
Speaker Change: And then one last one for me solutions margins were pretty strong this quarter.
Speaker Change: Does it change at all your expectations from that segment perspective for the remainder of the year and I guess, how do you kind of see the margin playing out for the rest of the year.
Speaker Change: Yeah, no. It does not change our expectations for the year. So I still expect full year margins for solutions will improve over 2023, making progress towards the double digit long term margin profile.
Speaker Change: But the front half of the year I expect to be better than the prior year, whereas in the back half of the year those are a little bit tougher comps I expect those margins to be a little more flat to last year.
Speaker Change: Got it thanks, guys I'll leave it there.
Speaker Change: Okay.
Speaker Change: The next question comes from Mike <unk> with D. A Davidson. Please go ahead.
Speaker Change: Sure.
Speaker Change: Before Mike. Thank you Paul I didn't go to ask questions. So my first question is can you give us some thoughts from the MTA. So what were some customer reaction to some of your new products and what do you think there are do you think there any growth tailwind this year from those.
Speaker Change: Oh yeah.
Paul: Absolutely in my in my in my comments I made reference to a number of new product launches that we had probably the one that sticks out most for me is the hydraulic pusher plow a product that we launched which rounds out our new pusher plow a line a very very positive dealer sentiment there.
Speaker Change: This will turn out to be the most productive efficient.
Speaker Change: Pusher ploughing the industry.
Speaker Change: So we've got we've got lots of excitement. There now you know we have to temper that a little bit in this calendar year, because with the two back to back historic low snowfalls and still some elevated retail inventories, it's going to take some of our dealers a little bit of time to work through existing inventory before they grab our new product lines.
Speaker Change: But the long term prospects there are just terrific.
Speaker Change: Great. That's good to hear and then Oh that what are you hearing from dealers about the financial health of end users have you like multiple years of low snowfall affected their ability to buy equipment or have some of their businesses other businesses like <unk>.
Speaker Change: Keeping supported cash flow and that's a that it doesn't seem like maybe the Oh, Sam Hough financial distress.
Speaker Change: Yeah, I would say the reaction this year similar to last year, we meet our partnered with very strong dealers and what they are.
Speaker Change: Theory, I'm, saying I guess from from their end users has has not changed dramatically in the last couple of years, we've not had a lot of.
Speaker Change: I got dealer input to us that would be negative because of the weather pattern.
Speaker Change: Okay. Thank you for the color there and then last question is.
Speaker Change: What has been the order cadence designed Oh <expletive> close our backlogs increased so far this year.
Speaker Change: Yeah, I can speak to solutions and total solutions in total our orders have been very strong and our backlog is still very high it really has only come down about 10% from its record high.
Speaker Change: So we have we have not seen softening of demand.
Speaker Change: Got it and then my last question and it's not the most likely outcome, but if it doesn't snow next winter how do you think your balance sheet and a touch French segments are positioned and what's your view on solutions.
Speaker Change: Okay, do you have enough backlog or visibility that it could be an upset next year.
Speaker Change: Yeah, well, if we look to another here that.
Speaker Change: That would be similar to last year, there's a lot of things that have changed in the business that would be I would say tailwind for us.
Speaker Change: One you mentioned I mean, we have backlog in solutions and our backlog in solutions still is.
Speaker Change: A year and possibly a little bit greater than a year.
Speaker Change: And then when you look at the cost savings program that we implemented a 10 million plus.
Speaker Change: Savings.
Speaker Change: A year in addition to other baseline profit improvements that we've made so from that standpoint, I mean at this point I do not have any concerns on the ability for our free cash flow.
Speaker Change: A similar year to copper.
Speaker Change: Copper our dividend like it will this year.
Speaker Change: That's great. Thank you for your time today.
Speaker Change: Yeah.
Speaker Change: As a reminder, if you would like to ask a question. Please press star one to enter the question queue.
Speaker Change: Yeah.
Robert L. McCormick: This concludes our question and answer session I would like to turn the conference back over to Bob Mccormick for any closing remarks.
Robert L. McCormick: Thanks.
Robert L. McCormick: Thank you for your continued interest in Douglas dynamics, Let me, let me finish with a few brief thoughts.
Robert L. McCormick: We are encouraged by our positions in all the markets, we serve today and our long term growth prospects remain intact.
Robert L. McCormick: We're confident that our continuous improvement mindset will allow us to thrive as the external headwinds subside.
Robert L. McCormick: We continue to execute effectively manage through the weather uncertainty and focus on factors within our control.
Robert L. McCormick: Yes.
Robert L. McCormick: For those of you that have been around us.
Robert L. McCormick: Quite a while.
Robert L. McCormick: You know that we're focused on continuous improvement.
Robert L. McCormick: We havent get better everyday mentality.
Robert L. McCormick: We're also a weather driven.
Robert L. McCormick: Right and and this weather challenged we're navigating through well we've never seen something like this before remember it is short term.
Robert L. McCormick: Whether we'll come back.
Robert L. McCormick: And our attachments group will come back stronger when it was weather conditions come back do solutions group is showing ongoing continuous improvement in terms of results I I see all of that just to remind everybody of two things.
Robert L. McCormick: Number one.
Robert L. McCormick: Our dividend remains our top priority and always will be and we will generate enough free cash flow to cover that dividend in 2024 and number two when these weather headwinds subside our long term financial targets are still clearly within our reach.
Robert L. McCormick: So with that.
Speaker Change: Thank you for your support and we look forward to speaking with you soon.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yes.
Robert L. McCormick: [music].