Q2 2024 Douglas Dynamics Inc Earnings Call

July 30, 2024

Good morning and welcome to the Douglas Dynamics second quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

Operator: for Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero.

Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I'd now like to turn the conference over to Nathan Elwell. Please go ahead. Thank you.

Operator: After today's remarks, there will be an opportunity to ask questions. Fasky question, you may press star then one on your touch-tone phone. To withdraw your question, please press star, then two.

After today's remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Nathan Elwell. Please go ahead.

Operator: Please note, this event is being recorded.

Nathan Elwell: I'd now like to turn the conference over to Nathan Elwell. Please go ahead.

Nathan Elwell: Thank you.

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 are 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 FBI.

Nathan Elwell: 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 we've 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 findings of the SEC.

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 were made during this conference call, including answers to your questions, will constitute forward-looking statements.

Nathan Elwell: 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.

Nathan Elwell: Joining me on the call today is Jim Jannick, Chairman and Interim President and CEO, and Sarah Lauber, Executive Vice President and CEO. Jim will provide an overview of our performance, followed by Sarah reviewing our financial results and guides.

Nathan Elwell: Joining me on the call today is Jim Janik, Chairman and Interim President and CEO, and Sarah Lauber, Executive Vice President and CEO. Jim will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that, we'll open the call for questions. With that, I'll hand the call over to Jim. Please go ahead.

Speaker Change: Joining me on the call today is Jim Janik, Chairman and Interim President and CEO , and Sarah Lauber, Executive Vice President and CFO .

Speaker Change: Jim will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that, we'll open the call for questions.

Nathan Elwell: After that, we'll open the call for questions.

Nathan Elwell: With that, I'll hand the call over to Jim. Please go ahead.

James L. Janik: Thank you, Nathan. I'm pleased to be back talking to you all today as interim president and CEO following Bob McCormick's retirement. On behalf of everyone at Douglas, I want to reiterate our gratitude to Bob for his dedicated service to the company over the past 20 years as CFO, COO, and, most recently, president and CEO. We wish him all the best in his retirement. Now, many of you may already know me, but here's a reminder about my background for those who don't.

James Janik: Thank you, Nathan.

Speaker Change: With that, I'll hand the call over to Jim. Please go ahead.

James Janik: I'm pleased to be back talking to you all today as Inter President and CEO, following Bob McCormick's retirement. On behalf of everyone at Douglas, I want to reiterate our gratitude to Bob for his dedicated service to the company over the past 20 years. As CEO, CEO, and most recently, President can see evil. We wish him all the best in his retirement.

Speaker Change: over the past 20 years as CFO , COO, and most recently President and CEO . We wish him all the best in his retirement.

James Janik: Now, many of you may already know me, but here's a reminder about my background for those who don't. I joined the company in 1992 as Director of Sales and served in several roles before becoming President and CEO in 2000. I led the company in that role for 18 years before retiring at the end of 2018. I joined the board in 2000 and became Chairman in 2014. As chairman, I've stayed very involved since I retired, and it's been quite straightforward to step back into the CEO role. In fact, it's been a pleasure to reconnect with some people and meet others.

Speaker Change: Now, many of you may already know me, but here's a reminder about my background for those who don't. I joined the company in 1992 as Director of Sales and served in several roles before becoming President and CEO in 2000.

James L. Janik: I joined the company in 1992 as director of sales and served in several roles before becoming president and CEO in 2000. I led the company in that role for 18 years before retiring at the end of 2018. I joined the board in 2000 and became chairman in 2014. As chairman, I've stayed very involved since I retired, and it's been quite straightforward to step back into the CEO role. In fact, it's been a pleasure to reconnect with some people and meet others.

Speaker Change: I led the company in that role for 18 years before retiring at the end of 2018. I joined the board in 2000 and became chairman in 2014.

Speaker Change: As Chairman, I've stayed very involved since I retired, and it's been quite straightforward to step back into the CEO role. In fact, it's been a pleasure to reconnect with some people and meet others.

James Janik: I've traveled around. Many of our locations have been invigorated by the quality of the people that I've talked to and the ideas being generated. I'm relishing the opportunities to collaborate with our role class team as we work to maximize our near-term performance. It's worth reiterating that I am committed to staying in this role while we find the next CEO to lead the company. We are not focused on a specific timeline, and everyone on the board agrees it is the most important to appoint the right person rather than complete a quick search. We are evaluating both internal and external candidates and are willing to take the time necessary to conduct the search to make sure we get the right person to lead Douglas into the future.

James L. Janik: I've traveled around; many of our locations have been invigorated by the quality of the people that I've talked to and the ideas being generated. I'm relishing the opportunities to collaborate with our world-class team as we work to maximize our near-term performance. It's worth reiterating that I am committed to staying in this role while we find the next CEO to lead the company. We are not focused on a specific timeline, and everyone on the board agrees it is most important to appoint the right person rather than complete a quick search.

Speaker Change: I've traveled around. Many of our locations have been invigorated by the quality of the people that I've talked to and the ideas being generated.

Speaker Change: I'm relishing the opportunities to collaborate with our world-class team as we work to maximize our near-term performance.

Speaker Change: It's worth reiterating that I am committed to staying in this role while we find the next CEO to lead the company. We are not focused on a specific timeline, and everyone on the board agrees it is most important to appoint the right person rather than complete a quick search.

James L. Janik: We are evaluating both internal and external candidates and are willing to take the time necessary to conduct the search to make sure we get the right person to lead Douglas into the future. With that said, let's talk about the second quarter.

Speaker Change: We are evaluating both internal and external candidates and are willing to take the time necessary to conduct the search to make sure we get the right person to lead Douglas into the future.

James Janik: With that said, let's talk about the second quarter. The story is straightforward and a continuation of the trends we've seen recently. Under the circumstances, we turned in a positive performance driven by fantastic improvement at Work-Press Solutions. The team said that Jana and Henderson did a great job of capitalizing on the opportunities and getting trucks through the facilities this quarter, producing our best second quarter results for the segment on record. The other important factor this quarter was the successful implementation of the 2024 cost savings program. The first half of the year, the team made difficult decisions to align our cost structure and attachments and in our corporate team in lay of the demand outlook.

James L. Janik: The story is straightforward and a continuation of the trends we've seen recently. Under the circumstances, we turned in a positive performance driven by fantastic improvement at WorkTruck Solutions. The teams at Dejana and Henderson did a great job of capitalizing on the opportunities and getting trucks through the facilities this quarter, producing our best second quarter results for this segment on record. The other important factor this quarter was the successful implementation of the 2024 Cost Savings Program. As a public company, we have a duty to our stakeholders, including our investors and employees, to make tough decisions when situations dictate them.

Speaker Change: With that said, let's talk about the second quarter. The story is straightforward and a continuation of the trends we've seen recently. Under the circumstances, we turned in a positive performance driven by fantastic improvement at WorkTruck Solutions.

Speaker Change: The teams at Dejana and Henderson did a great job of capitalizing on the opportunities and getting trucks through the facilities this quarter, producing our best second quarter results for this segment on record.

Speaker Change: The other important factor this quarter was the successful implementation of the 2024 Cost Savings Program.

Speaker Change: As a public company, we have a duty to our stakeholders, including our investors and employees, to make tough decisions when situations dictate.

James L. Janik: The 2024 Cost Savings Program is a great example of that. During the first half of the year, the team made difficult decisions to align our cost structure and attachments, and in our corporate team, in light of the demand outlook. The program, initially implemented in the first quarter and expanded in the second quarter, continues to prove its worth and is now expected to deliver $11 to $12 million in sustainable annual savings. This program is one of the main reasons we improved our profitability in the second quarter, despite lower net sales. Overall, results for the second quarter were approximately in line with the same period last year.

Speaker Change: The 2024 Cost Savings Program is a great example of that.

Speaker Change: During the first half of the year, the team made difficult decisions to align our cost structure at attachments and in our corporate team in light of the demand outlook.

James Janik: The program initially implemented in the first quarter and expanded in the second quarter continues to prove its worth and is now expected to deliver $11 to $12 million in sustainable annual savings. This program is one of the main reasons we improved our profitability in the second quarter, despite lower net sales. Overall, results for the second quarter were approximately in line with the same period last year. Adjusted EBITDA and margins increased, which highlights the recent improvements in throughput at solutions and the cost structure changes at attachments. And we maintained our 2024 full-year outlook, which Sarah will talk to later in the call.

Speaker Change: The program initially implemented in the first quarter and expanded in the second quarter continues to prove its worth and is now expected to deliver

Speaker Change: $11 to $12 million in sustainable annual savings.

Speaker Change: This program is one of the main reasons we improved our profitability in the second quarter despite lower net sales.

Speaker Change: Overall, results for the second quarter were approximately in line with the same period last year. Adjusted EBITDA and margins increased, which highlights the recent improvements in throughput at solutions and the cost structure changes at attachments.

James L. Janik: Adjusted EBITDA and margins increased, which highlights the recent improvements in throughput at solutions and the cost structure changes at attachment. And we maintained our 2024 full-year outlook, which Sarah will talk about later in the call. Now turning to the results in each segment, starting with the catch.

Speaker Change: and we maintained our 2024 full-year outlook which Sarah will talk to later in the call.

James Janik: Now turning to the results in each segment, starting with the catchments. Preseason orders were softer than expected, with results continuing to be impacted by two years in a row of significant below average snowfall in our core markets, particularly on the East Coast. The most recent snow season was approximately 40% below the 10-year average, which led to difficult operating conditions during the first half of 2024. Frankly, we've not seen back-to-back low snowfall seasons of this magnitude since the late 1980s and is certainly going to have an ongoing impact on demand. Despite lower net sales because of the successful implementation of the 2024 cost savings program, adjusted EBITDA margins were an impressive 30% for the second quarter and in line with the same period last year.

Sarah C. Lauber: Now turning to the results in each segment, starting with attachments.

James L. Janik: Preseason orders were softer than expected, with results continuing to be impacted by two years in a row of significant below-average snowfall in our core markets, particularly on the East Coast. The most recent snow season was approximately 40% below the 10-year average, which led to difficult operating conditions during the first half of 2024. Frankly, we've not seen back-to-back low snowfall seasons of this magnitude since the late 1980s, and it's certainly going to have an ongoing impact on demand.

Sarah C. Lauber: Preseason orders were softer than expected with results continuing to be impacted by two years in a row of significant below-average snowfall in our core markets, particularly on the East Coast.

Sarah C. Lauber: The most recent snow season was approximately 40% below the 10-year average, which led to difficult operating conditions during the first half of 2024.

Sarah C. Lauber: Frankly, we've not seen back-to-back low snowfall seasons of this magnitude since the late 1980s, and it's certainly going to have an ongoing impact on demand.

James L. Janik: Despite lower net sales because of the successful implementation of the 2024 Cost Savings Program, adjusted EBITDA margins were an impressive 30% for the second quarter and in line with the same period last year. It is worth noting that Martins was also positively impacted by the mix of the products this quarter. To be clear, we do not anticipate quite the same favorable mix in the third quarter. Based on second quarter shipments, the ratio of preseason shipments in 2024 will be closer to a 65-35 split between the second and third quarters, rather than the 55-45 that we had initially been expecting. Of course, the lack of snowfall in recent years negatively impacted preseason orders, as we predicted due to the equipment not being used as much.

Sarah C. Lauber: Despite lower net sales because of the successful implementation of the 2024 cost savings program, adjusted EBITDA margins were an impressive 30% for the second quarter and in line with the same period last year.

James Janik: It is worth noting that margins were also positively impacted by the mix of the products this quarter. To be clear, we do not anticipate quite the same favorable mix in the third quarter. Based on second quarter shipments, the ratio of preseason shipments in 2024 will be closer to a 65-35 split between the second and third quarters rather than the 55-45 that we had initially been expecting. Of course, the lack of snowfall in recent years negatively impacted preseason orders, as we predicted, due to the equipment not being used as much. This lengthens the equipment replacement cycle and, rest assured, we will be paying careful attention to order activity and dealer inventory since the third quarter.

Speaker Change: It is worth noting that Martins were also positively impacted by the mix of the products this quarter.

Speaker Change: To be clear, we do not anticipate quite the same favorable mix in the third quarter.

Speaker Change: Based on second quarter shipments, the ratio of preseason shipments in 2024 will be closer to a 65-35 split between the second and third quarters, rather than the 55-45 that we had initially been expecting.

Speaker Change: Of course, the lack of snowfall in recent years negatively impacted preseason orders, as we predicted, due to the equipment not being used as much.

James L. Janik: This lengthens the equipment replacement cycle, and rest assured, we will be paying careful attention to order activity and dealer inventories in the third quarter. Given these circumstances, we are pleased with our operational performance and cost control efforts. We continue to focus on end-users in getting more jobs done faster. We're also focused on expanding our product line; our teams launched several innovative new products this year that have been well received by the dealers.

Speaker Change: This lengthens the equipment replacement cycle and rest assured we will be paying careful attention to order activity and dealer inventories in the third quarter.

James Janik: Schultz. Given these circumstances, we are pleased with our operational performance and cost control efforts.

Speaker Change: Given these circumstances, we are pleased with our operational performance and cost control efforts.

James Janik: With the continued focus from end users and getting more jobs done faster, we are also focused on expanding our product lines. Our teams launched several innovative new products this year that have been well received by the dealers. Today, our equipment offering covers virtually every aspect of commercial snow and ice control, with more exciting products in development. Finally, I am pleased to say that both dealers' sentiment and financial health also remain positive.

Speaker Change: With the continued focus from end-users in getting more jobs done faster, we are also focused on expanding our product lines.

Speaker Change: Our teams launched several innovative new products this year that have been well-received by the dealers.

James L. Janik: And today, our equipment offering covers virtually every aspect of commercial snow and ice control, with more exciting products in development. Finally, I'm pleased to say that both dealer sentiment and financial health also remain positive. Before going further, I want to briefly mention two new and interesting projects at Work Truck Attachments.

Speaker Change: And today, our equipment offering covers virtually every aspect of commercial snow and ice control with more exciting products in development.

Speaker Change: Finally, I'm pleased to say that both dealer sentiment and financial health also remain positive.

James Janik: Before going further, I want to briefly mention two new and interesting projects that were truck attachments. First, the expansion of our strategic alliance with John Deere, which marks an important milestone in the ongoing partnership that began four years ago. This agreement expands the strategic sales alliance to include tractors and industrial equipment. Through this partnership, John Deere can now offer Western products, plows, and spreaders for a wide range of deer vehicles, from the smallest UTVs to the largest tractors and wheel loaders, opening new sales channels and reinforcing the ongoing partnership efforts. But keep in mind, the traditional truck equipment dealer network remains the main focus of our distribution channels.

Speaker Change: Before going further, I want to briefly mention two new and interesting projects at Work Truck Attachments. First, the expansion of our strategic alliance with John Deere, which marks an important

James L. Janik: First, the expansion of our strategic alliance with John Deere, which marks an important milestone in the ongoing partnership that began four years ago. This agreement expands the Strategic Sales Alliance to include tractors and industrial equipment. Through this partnership, John Deere can now offer Western products, plows, and spreaders, for a wide range of Deere vehicles, from the smallest UTVs to the largest tractors and wheel loaders, opening new sales channels and reinforcing the ongoing partnership effort.

Speaker Change: milestone in the ongoing partnership that began four years ago.

Speaker Change: This agreement expands the Strategic Sales Alliance to include tractors and industrial equipment.

Speaker Change: Through this partnership, John Deere can now offer Western products, plows and spreaders for a wide range of Deere vehicles, from the smallest UTVs to the largest tractors and wheel loaders, opening new sales channels and reinforcing the ongoing partnership efforts.

James L. Janik: But keep in mind, the traditional truck equipment dealer network remains the main focus of our distribution channels, while this alliance allows us to reach different customer groups that don't currently have access to our equipment. I'm also pleased to report that we recently finalized a national partnership with a leading vehicle and equipment rental company, which designates Western Products as their preferred snow and ice partner. The primary goal of this collaboration is to equip our partner with our full line of snow and ice removal equipment for their network in the snow belt. This is a terrific job by our business development team at Attachments on securing these strategic partnerships. Okay, turning to ResultEd Solutions.

Speaker Change: But keep in mind the traditional truck equipment dealer network remains the main focus of our distribution channels. While this alliance allows us to reach different customer groups that don't currently have access to our equipment.

James Janik: While this alliance allows us to reach different customer groups that don't currently have access to our equipment.

James Janik: I'm also pleased to report that we also recently finalized the national partnership with the leading vehicle and equipment rental company, which designates Western products as their preferred snow and ice partner. The primary goal of this collaboration is to equip our partner with our full line of snow and ice removal equipment for their network in the snow belt. This is a terrific job by our business development team at Attachments for securing these strategic partnerships.

Speaker Change: I'm also pleased to report that we also recently finalized a national partnership with a leading vehicle and equipment rental company, which designates Western Products as their preferred snow and ice partner.

Speaker Change: The primary goal of this collaboration is to equip our partner with our full line of snow and ice removal equipment for their network in the snow belt.

Speaker Change: This is a terrific job by our business development team at Attachments on securing these strategic partnerships.

James Janik: Okay, turning to resulted solutions. I'm pleased to confirm that the solutions team delivered a record second quarter results with 24% net sales growth and adjusted EBITDA margin of 9.7%. This is the eighth consecutive quarter of improved performance versus the prior year. This performance demonstrates that our long-term goals are very achievable when external circumstances allow. However, progress is not going to be linear, and we expect margins to be flat in the third and fourth quarters when compared to the previous year. Our team at the Janet continues to focus their attention to mesh the industry trends and driving improvements in the fleet business where the supply of chassis are currently the strongest.

James L. Janik: I'm pleased to confirm that the Solutions team delivered record second quarter results with 24% net sales growth and an EBITDA margin of 9.7%. This is the eighth consecutive quarter of improved performance versus the prior year. This performance demonstrates that our long-term goals are very achievable when external circumstances allow. However, progress is not going to be linear, and we expect margins to be flat in the third and fourth quarters when compared to the previous year.

Speaker Change: Okay, turning to results at Solutions. I'm pleased to confirm that the Solutions team delivered a record second quarter results with 24% net sales growth and just an EBITDA margin of 9.7%.

Speaker Change: This is the eighth consecutive quarter of improved performance versus the prior year. This performance demonstrates that our long-term goals are very achievable when external circumstances allow.

James L. Janik: Our team at JANA continues to focus its attention on matching industry trends and driving improvements in the fleet business, where the supply of chassis is currently the strongest. While customers are becoming more price conscious, demand remains positive, and we are working on new projects and initiatives to broaden our offering and drive sustainable long-term growth. While we still don't have great visibility into future trends, I'm glad to report that chassis availability no longer seems to be a major issue.

Speaker Change: and driving improvements in the fleet business where the supply of chassis are currently the strongest.

James Janik: While customers are becoming more price conscious, demand remains positive. We are working on new projects and initiatives to broaden our offering and drive sustainable long-term growth. While we still don't have great visibility into future trends, I'm glad to report chassis availability no longer seems to be a major issue. and Anderson. The low-margin contracts that have been to drag on our performance are virtually complete, which has definitely helped their profitability. Municipal demand remains positive, and despite increasing, the velocity of trucks being upbid, our backlog remains robust. These results both well for the future, and it's important to remember, in general, the supply of chassis is less constrained today than any point since the start of the pandemic.

James L. Janik: At Henderson, the low margin contracts that have been a drag on our performance are virtually complete, which has definitely helped our profitability. Municipal demand remains positive, and despite increasing the velocity of trucks being up to it, our backlog remains robust. These results bode well for the future, and it's important to remember that, in general, the supply of chassis is less constrained today than at any point since the start of the pandemic, while demand remains positive at both municipal and commercial customers.

Speaker Change: At Henderson, the low margin contracts that have been a drag on our performance are virtually complete, which has definitely helped our profitability. Municipal demand remains positive, and despite increasing the velocity of trucks being up-fit, our backlog remains robust.

Speaker Change: These results bode well for the future, and it's important to remember, in general, the supply of chassis is less constrained today than any point since the start of the pandemic.

James Janik: Demand remains positive at both municipal and commercial customers. We still have 12 months of backlog to work through, and in some cases, is growing due to order intake. And we continue to improve the efficiency of our operations. The goal of delivering improved the mid to high single-digit EBITDA margins for 2024 remains intact. However, we do expect to see some softness and profitability, with adjusted EBITDA margins expected to be lower in Q3 than the first half of 2024, and close to the same level as the third quarter 2023. All of this reinforces our confidence that we can achieve our longer-term growth profitability goals in the years ahead.

Speaker Change: Demand remains positive at both municipal and commercial customers.

James L. Janik: We still have 12 months of backlog to work through, and in some cases, it is growing due to order intake, and we continue to improve the efficiency of our operations. The goal of delivering improved mid-to-high single-digit EBITDA margins for 2024 remains intact. However, we do expect to see some softness in profitability with adjusted EBITDA margins expected to be lower in Q3 than in the first half of 2024 and close to the same levels as in Q3 2023.

Speaker Change: And we continue to improve the efficiency of our operations.

Speaker Change: The goal of delivering improved mid-to-high single-digit EBITDA margins for 2024 remains intact.

Speaker Change: However, we do expect to see some softness in profitability with adjusted EBITDA margins expected to be lower in Q3 than the first half of 2024 and close to the same levels as Q3 2023.

James L. Janik: All of this reinforces our confidence that we can achieve our longer-term growth and profitability goals in the years ahead. So, in closing, we're encouraged by the progress made by the solutions team over the past 12 months, and we see a positive future going forward. We're doing the things we need to do despite it being painful, but today we see a clear path forward. Carefully managing our manufacturing operations has allowed us to maintain our market position.

Speaker Change: All of this reinforces our confidence that we can achieve our longer-term growth and profitability goals in the years ahead.

James Janik: So, in closing, we're encouraged by the progress made by the solutions in over the past 12 months, and we see a positive future going forward. We're doing the things we need to do despite being painful, but today we see a clear path forward. Carefully managing our manufacturing operations is a long list to maintain our market position. While we manage through the current situation, we are always keeping an eye on the future. We will continue to address opportunities and challenges in a logical and effective manner, making the top decisions we have to, as well as choosing when to stay the course and when to double down.

Speaker Change: So in closing, we're encouraged by the progress made by the solutions team over the past 12 months and we see a positive future going forward. We're doing the things we need to do despite being painful, but today we see a clear path forward.

Speaker Change: Carefully managing our manufacturing operations has allowed us to maintain our market position. While we manage through the current situation, we are always keeping an eye on the future.

James L. Janik: While we manage through the current situation, we are always keeping an eye on the future. We will continue to address opportunities and challenges in a logical and effective manner, making the tough decisions when we have to, as well as choosing when to stay the course and when to double down. I look forward to leading the company through this period until the new CEO is ready to take the reins. And with that, I'd like to pass the call to Sarah to walk you through our financials.

Speaker Change: We will continue to address opportunities and challenges in a logical and effective manner, making the tough decisions when we have to, as well as choosing when to stay the course and when to double down.

James Janik: I look forward to leading the company through this period until the new CEO is ready to take the reins, and with that, I'd like to pass the call to Sarah to walk through our financials.

Speaker Change: I look forward to leading the company through this period until the new CEO is ready to take the reins. And with that, I'd like to pass the call to Sarah to walk through our financials.

Sarah C. Lauber: Thank you, Jim. I will jump right in and point out the two main takeaways from this quarter. One, the hard work over the last few years in our solutions segment is paying off, as evidenced by the record second quarter results with significant top and bottom line growth. And two, the tough decisions made earlier this year to adjust our cost structure were important for us to be able to maintain our strong financial position.

Sarah Lauber: Thank you, Jim.

Sarah Lauber: I will jump right in and point out the two main takeaways from this quarter. One, the hard work over the last few years in our solution segment is paying off, and evidenced by the record second quarter results with significant top and bottom line growth. And two, the top decision made earlier this year to adjust our cost structure was important for us to be able to maintain our strong financial position. During the second quarter, we saw profitability improve on lower net sales, based on the management of fruit pricing realization and the successful implementation of the 2024 cost savings program.

Sarah C. Lauber: Thank you, Jim. I will jump right in and point out the two main takeaways from this quarter. One, the hard work over the last few years in our solution segment is paying off.

Sarah C. Lauber: as evidenced by the record second quarter results with significant top and bottom line growth.

Sarah C. Lauber: And two, the tough decisions made earlier this year to adjust our cost structure were important for us to be able to maintain our strong financial position.

Sarah C. Lauber: During the second quarter, we saw profitability improve on lower net sales based on the management of throughput, pricing realization, and the successful implementation of the 2024 cost savings program. Overall, our consolidated results for the second quarter were approximately in line with the same period last year across all metrics. Net sales were $199.9 million for the second quarter of 2024, a slight decrease compared to the same period last year due to the lack of snowfall leading to lower volumes at attachments, which was largely offset by strong shipments at Solutions. The 2024 Cost Savings Program is now expected to deliver $11 to $12 million in sustainable annualized savings, $9 million of which is expected to be realized in 2024.

Sarah Lauber: Overall, our consolidated results for the second quarter were approximately in line with the same period last year across all metrics. Net sales were 199.9 million for the second quarter, 2024, a slight decrease compared to the same period last year due to lack of snowfall leading to lower volumes that attachment, which was largely offset by strong shipments at solutions. The 2022 cost savings program is now expected to deliver 11 to 12 million in sustainable annualized savings, 9 million of which has expected to be realized in 2024. S-GNA expenses, including intangibles amortization, decreased 6.7 percent to 25 million compared to the second quarter of 2023, primarily due to the 2024 cost savings program, plus lower intangibles amortization, as well as lower stock and incentive-based compensation.

Sarah C. Lauber: SG&A expenses, including intangibles amortization, decreased 6.7% to $25 million compared to second quarter 2023, primarily due to the 2024 cost savings program plus lower intangibles amortization as well as lower stock and incentive-based compensation. Interest expense increased slightly to $4.1 million from $3.7 million. Gap net income for the second quarter of 2024 was $24.3 million or $1.02 per diluted share, approximately in line with the same period last year.

Sarah C. Lauber: Overall, our consolidated results for the second quarter were approximately in line with the same period last year across all metrics.

Sarah C. Lauber: Net sales were $199.9 million for the second quarter of 2024, a slight decrease compared to the same period last year due to lack of snowfall leading to lower volumes at attachments, which was largely offset by strong shipments at solutions.

Sarah C. Lauber: The 2024 Cost Savings Program is now expected to deliver $11 to $12 million in sustainable annualized savings, $9 million of which is expected to be realized in 2024.

Sarah C. Lauber: SG&A expenses, including intangibles amortization, decreased 6.7%.

Sarah C. Lauber: to $25 million compared to second quarter 2023, primarily due to the 2024 cost savings program, plus lower intangibles, amortization, as well as lower stock and incentive-based compensation.

Sarah Lauber: Interest expense increased lately to 4.1 million from 3.7 million. Gap net income for the second quarter of 2024 was $24.3 million, or $1.02 per diluted share, approximately in line with the same period last year. Adjusted EBITDA for the quarter increased to 43.7 million when compared to 43.3 million in for the second quarter of 2023. Adjusted EBITDA margin increased 100 basis points to 21.9 percent, highlighting the improved throughput solutions and cost structure changes at Attachment. The effective tax rate was 24.2 percent and 22 percent for the second quarter of 2024 and 23, respectively. The effective tax rate was higher than the prior year due to the establishment of reserves for uncertain tax positions of 900,000.

Sarah C. Lauber: Interest expense increased slightly to $4.1 million from $3.7 million.

Sarah C. Lauber: GAAP's net income for the second quarter of 2024 was $24.3 million, or $1.02 per diluted share, approximately in line with the same period last year.

Sarah C. Lauber: Adjusted EBITDA for the quarter increased to $43.7 million when compared to $43.3 million for the second quarter of 2023. Adjusted EBITDA margin increased 100 basis points to 21.9%, highlighting the improved throughput at solutions and cost structure changes at attachments. The effective tax rate was 24.2% and 22% for the second quarter of 2024 and 23, respectively.

Sarah C. Lauber: Adjusted EBITDA for the quarter increased to $43.7 million when compared to $43.3 million for the second quarter of 2023.

Sarah C. Lauber: Adjusted EBITDA margin increased 100 basis points to 21.9%, highlighting the improved throughput at solutions and cost structure changes at attachments.

Sarah C. Lauber: The effective tax rate was 24.2% and 22% for the second quarters of 2024 and 2023 respectively.

Sarah C. Lauber: The effective tax rate was higher than the prior year due to the establishment of reserves for uncertain tax positions of $900,000.

Sarah Lauber: With that said, let's look at results in our two segments. First, attachment net sales were $118.1 million compared to $141.2 million in the second quarter of last year. Precies and orders were down after two years in a row significantly below average snowfall on our core markets, particularly on the East Coast. Due to the successful implementation of the 2024 cost savings program and favorable product mix, adjusted EBITDA margins were robust at 30.3 percent for the quarter, in line with the same period last year. Based on the second quarter, we now expect pre-season to be more heavily weighted toward the second quarter, and we anticipate an approximate 65-35 ratio between second and third quarter pre-season shipments compared to the range of 55-45 that we originally expected.

Sarah C. Lauber: The effective tax rate was higher than the prior year due to the establishment of reserves for uncertain tax positions of $900,000. With that said, let's look at results in our two segments. First, attachments net sales were $118.1 million in the quarter compared to $141.2 million in the second quarter of last year. Preseason orders were down after two years in a row, significantly below average snowfall in our core markets, particularly on the East Coast.

Sarah C. Lauber: With that said, let's look at results in our two segments.

Sarah C. Lauber: First, attachments net sales were $118.1 million in the quarter compared to $141.2 million in the second quarter of last year.

Speaker Change: Preseason orders were down after two years in a row, significantly below average snowfall in our core markets, particularly on the East Coast.

Sarah C. Lauber: Due to the successful implementation of the 2024 Cost Savings Program and favorable product mix, adjusted EBITDA margins were robust at 30.3% for the quarter, in line with the same period last year. Based on the second quarter, we now expect preseason to be more heavily weighted toward the second quarter, and we anticipate an approximate 65 to 35 ratio between second and third quarter preseason shipments, compared to the range of 55 to 45 that we originally expected.

Speaker Change: Due to the successful implementation of the 2024 Cost Savings Program and favorable product mix, adjusted EBITDA margins were robust at 30.3% for the quarter, in line with the same period last year.

Speaker Change: Based on the second quarter, we now expect preseason to be more heavily weighted toward the second quarter, and we anticipate an approximate 65 to 35 ratio between second and third quarter preseason shipments.

Speaker Change: compared to the range of 55 to 45 that we originally expected.

Sarah Lauber: While our margins were great this quarter, we know some of the strengths means orders have been pulled forward from the third and fourth quarters. In addition, it's worth noting that we expect third quarter EBITDA margins to be closer to the third quarter of last year, which were 16.2 percent. The main reasons for this are expected lower production volumes based on reducing production days and less profitable product mix in the third quarter of this year. Overall, the impact of unprecedented weather and recent winters is having the impact we expected, but our efforts to align our cost structure are working as we intended.

Sarah C. Lauber: While our margins were great this quarter, we know some of the strengths mean orders have been pulled forward from the third and fourth quarters. In addition, it's worth noting that we expect third-quarter EBITDA margins to be closer to the third quarter of last year, which was 16.2%. The main reasons for this are expected lower production volumes based on reducing production days and a less profitable product mix in the third quarter of this year.

Speaker Change: While our margins were great this quarter, we know some of the strengths means orders have been pulled forward from the 3rd and 4th quarters.

Speaker Change: In addition, it's worth noting that we expect third quarter EBITDA margins to be closer to the third quarter of last year, which were 16.2%.

Speaker Change: The main reasons for this are expected lower production volumes based on reducing production days and less profitable product mix in the third quarter of this year.

Sarah C. Lauber: Overall, the impact of unprecedented weather and recent winters is having the impact we expected, but our efforts to align our cost structure are working as we intended. Taking a look at Work Truck Solutions, where the team delivered a very strong performance across the board this quarter with record second quarter results. Net sales increased 23.8% to $81.8 million compared to the same period last year, based on higher volumes, unimproved throughput, and price increase realization. Adjusted EBITDA increased dramatically from $1 million in the second quarter last year to $7.9 million this quarter.

Speaker Change: Overall, the impact of unprecedented weather and recent winters is having the impact we expected, but our efforts to align our cost structure are working as we intended.

Sarah Lauber: Taking a look at work truck solutions where the team delivered a very strong performance across the board this quarter with record second quarter results. Net sales increased 23.8% to 81.8 million compared to the same period last year, based on higher volumes, unimproved throughput, and price increase realization. Adjusted EBITDA increased dramatically from 1 million in the second quarter last year to 7.9 million this quarter. This produced adjusted EBITDA margin of 9.7%. The improvements were based on higher volumes and pricing increase realization, as well as improved operating efficiencies and positive product mix. The good news is it was a straightforward quarter for both Dejana and Henderson, and both still maintain a very strong backlog and a positive demand outlook.

Sarah C. Lauber: This produced an adjusted EBITDA margin of 9.7%. The improvements were based on higher volumes and price increase realization, as well as improved operating efficiencies and positive product mix. The good news is, it was a straightforward quarter for both Dejana and Henderson, and both still maintain a very strong backlog and a positive demand outlook. With improved operating conditions, our teams remain fully focused on maximizing velocity in the coming quarter. Turning to the balance sheet liquidity figure, for the first six months of the year, net cash used in operating activities decreased 71% to negative $19.1 million compared to the same period last year.

Speaker Change: Taking a look at Work Truck Solutions, where the team delivered a very strong performance across the board this quarter with record second quarter results.

Speaker Change: Net sales increased 23.8% to $81.8 million compared to the same period last year, based on higher volumes, unimproved throughput, and price increase realization.

Speaker Change: Adjusted EBITDA increased dramatically from $1 million in the second quarter last year to $7.9 million this quarter.

Speaker Change: This produced adjusted EBITDA margin of 9.7%.

Speaker Change: The improvements were based on higher volumes and price increase realization, as well as improved operating efficiencies and positive product mix.

Speaker Change: The good news is, it was a straightforward quarter for both Dejana and Henderson, and both still maintain a very strong backlog and a positive demand outlook.

Sarah Lauber: With improved operating conditions, our teams remain fully focused on maximizing velocity in the coming quarter.

Speaker Change: With improved operating conditions, our teams remain fully focused on maximizing velocity in the coming quarters.

Sarah C. Lauber: The improvement was due to favorable changes in working capital of $40.1 million related to inventory and account payable improvement. Free cash flow for the six months ended June 30, 2024, was negative $21.9 million, compared to negative $71.5 million in the corresponding period in 2023, an increase of $49.6 million. At the end of the second quarter, we maintained $90.7 million of total liquidity, comprised of $4.2 million in cash and $86.5 million of capacity on the revolver, compared to $126.7 million of total liquidity at the end of 2023.

Sarah Lauber: Turning to the balance sheet liquidity figures. For the first six months of the year, net cash used in operating activities decreased 71 percent to negative 19.1 million compared to the same period last year. The improvement was due to favorable changes in working capital of 40.1 million related to inventory and account payable improvement. Free cash flow for the six months ended June 30, 2024, was negative 21.9 million compared to negative 71.5 million in the corresponding period in 2023, an increase of 49.6 million. At the end of the second quarter, we maintained 90.7 million of total liquidity, comprised of 4.2 million in cash, 86.5 million of capacity on the revolver, compared to 126.7 million in total liquidity at the end of 2023.

Speaker Change: Turning to the balance sheet liquidity figures.

Speaker Change: For the first six months of the year, net cash used in operating activities decreased 71% to negative $19.1 million compared to the same period last year.

Speaker Change: The improvement was due to favorable changes in working capital of $40.1 million related to inventory and account payable improvements.

Speaker Change: Free cash flow for the six months ended June 30, 2024 was negative $21.9 million, compared to negative $71.5 million in the corresponding period in 2023, an increase of $49.6 million.

Speaker Change: At the end of the second quarter, we maintained $90.7 million of total liquidity, comprised of $4.2 million in cash, $86.5 million of capacity on the revolver, compared to $126.7 million in total liquidity at the end of 2023.

Sarah Lauber: The change is primarily due to the seasonality of our business as well as reductions in spending. Inventory at the end of the quarter was 139.4 million lower than the 148.9 million at the end of the second quarter of 2023. Accounts receivable at the end of the quarter were 140.2 million, right in line with the 139.4 million recorded at the end of the second quarter of 2023. Capital expenditures in the first half of this year were 2.8 million, close to half of the 5.3 million in the same period last year and in line with our expectations.

Sarah C. Lauber: The change is primarily due to the seasonality of our business, as well as reductions in spending. Inventory at the end of the quarter was $139.4 million, lower than the $148.9 million at the end of the second quarter of 2023. Accounts receivable at the end of the quarter were $140.2 million, right in line with the $139.4 million recorded at the end of the second quarter of 2023.

Speaker Change: The change is primarily due to the seasonality of our business, as well as reductions in spending.

Speaker Change: Inventory at the end of the quarter was $139.4 million, lower than the $148.9 million at the end of the second quarter of 2023.

Speaker Change: Accounts receivable at the end of the quarter were $140.2 million, right in line with the $139.4 million recorded at the end of the second quarter, 2023.

Sarah C. Lauber: Capital expenditures in the first half of this year were $2.8 million, close to half of the $5.3 million in the same period last year and in line with our expectations. We continue to expect total CapEx for the year to be on the left end of our targeted range of 2-3% of net sales based on our curtailed overall spending. As usual, we paid a dividend of $0.295 per share at the end of the second quarter.

Speaker Change: Capital expenditures in the first half of this year were $2.8 million, close to half of the $5.3 million in the same period last year, and in line with our expectations.

Sarah Lauber: We continue to expect total capex for the year to be on the land of our targeted range of 2-3% of net sales based on our curtailed overall spending. As usual, we paid the dividends of $29.5 per share at the end of the second quarter. We expect to produce enough free cash flows during the year to cover the total cost of the dividend, which remains our top priority. Finally, our leverage ratio at June 30 was $3.3 times, which is within the covenant of our net agreement and a couple points lower than the 3.5 times at the end of 2023.

Speaker Change: We continue to expect total CapEx for the year to be on the low end of our targeted range of 2-3% of net sales based on our curtailed overall spending.

Speaker Change: As usual, we paid the dividend of $0.295 per share at the end of the second quarter. We expect to produce enough free cash flow during the year to cover the total cost of the dividend, which remains our top priority.

Sarah C. Lauber: We expect to produce enough free cash flow during the year to cover the total cost of the dividend, which remains our top priority. Finally, our leverage ratio at June 30th was 3.3 times, which is within the covenant of our debt agreement and a couple points lower than 3.5 times at the end of 2023. Over the medium term, we expect the leverage ratio to return to our target ratio range of 1.5 to 3 times. Now, let's turn to the outlook for the rest of the year. As I noted in the earnings release, preseason orders at attachments came in softer than we originally expected.

Speaker Change: Finally, our leverage ratio at June 30th was 3.3 times, which is within the covenant of our debt agreement and a couple points lower than the 3.5 times at the end of 2023.

Sarah Lauber: Over the medium term, we expect leverage ratios to return to our target ratio range of 1.5 to 3 times.

Speaker Change: Over the medium term, we expect the leverage ratio to return to our target ratio range of 1.5 to 3 times.

Sarah C. Lauber: There will probably be tough year-over-year comparisons at attachments in the third quarter. We will continue to closely monitor reorder activity and dealer inventory, but we believe our aggressive efforts to reduce production plans will pay off as we navigate the elongated replacement cycle. As always, we're planning for average snowfall in the fourth quarter. But given the elongated replacement cycle, average snowfall is unlikely to produce average volume.

Sarah Lauber: Let's turn to the outlook for the rest of the year. As I noted in the earnings release, preseason orders and attachments came in softer than we originally expected. There will probably be tough year-over-year comparisons and attachments in the third quarter. We will continue to closely monitor, reorder activity, and dealer inventory. But we believe our aggressive efforts to reduce production plans will pay off as we navigate the elongated replacement cycles. As always, we're planning for average snowfall in the fourth quarter, but given the elongated replacement cycle, average snowfall is unlikely to produce average volumes. The solution segment produced strong year-over-year improvements in the first half of the year.

Speaker Change: Let's turn to the Outlook for the rest of the year.

Speaker Change: As I noted in the earnings release, preseason orders at attachments came in softer than we originally expected. There will probably be tough year-over-year comparisons at attachments in the third quarter.

Speaker Change: We will continue to closely monitor reorder activity and dealer inventory. But we believe our aggressive efforts to reduce production plans will pay off as we navigate the elongated replacement cycle.

Speaker Change: As always, we're planning for average snowfall in the fourth quarter, but given the elongated replacement cycle, average snowfall is unlikely to produce average volumes.

Sarah C. Lauber: The solutions segment produced strong year-over-year improvements in the first half of the year, and as we previously noted, we expect the second half of 2024 to be similar to the second half of 2023. The tougher comparisons in the second half of the year are based on product mix and the timing of certain shipments.

Speaker Change: The solutions segment produced strong year-over-year improvements in the first half of the year. And as we previously noted, we expect the second half of 2024 to be similar to the second half of 2023.

Sarah Lauber: And as we previously noted, we expect the second half of 2024 to be similar to the second half of 2023. The tougher comparisons in the second half of the year are based on product mix and the timing of certain shipments. And for the year, we still expect our adjusted EBITDA margins and solutions to be in the mid-to-high single-digit. And please to say, solution still has a strong backlog and solid demand and remains on track to deliver improved full-year results for the third year in a row. Therefore, we are comfortable maintaining our 2024 guidance ranges based on the strong performance of solutions and the success of our 2024 cost savings program.

Speaker Change: The tougher comparisons in the second half of the year are based on product mix and the timing of certain shipments. And for the year, we still expect our adjusted EBITDA margins in solutions to be in the mid to high single digits.

Sarah C. Lauber: And for the year, we still expect our adjusted EBITDA margins in solutions to be in the mid to high single digits. I'm pleased to say Solutions still has a strong backlog and solid demand and remains on track to deliver improved full-year results for the third year in a row. Therefore, we are comfortable maintaining our 2024 guidance ranges based on the strong performance of solutions and the success of our 2024 cost savings program.

Speaker Change: I'm pleased to say Solutions still has a strong backlog and solid demand, and remains on track to deliver improved full-year results for the third year in a row.

Speaker Change: Therefore, we are comfortable maintaining our 2024 guidance ranges based on the strong performance of solutions and the success of our 2024 cost savings program.

Sarah Lauber: Just to reiterate, our 2024 financial outlook indicates net sales between 600 million and 640 million, with adjusted EBITDA predicted to range from 70 million to 90 million, delivering adjusted earnings per share in the range of $1.20 per share to $1.70 per share. Finally, the effective tax rate is expected to be approximately 24% to 25%, and it's worth reiterating the three assumptions behind this outlook. One, relatively stable economic condition, two, stable to slightly improving supply of chassis and components, and finally, net core markets will experience average no fall in the fourth quarter of 2024. We firmly believe the ongoing improvements as solutions and the tough work implementing the 2024 cost savings program mean we are well positioned for the future and will yield improved earnings power in the long term.

Sarah C. Lauber: Just to reiterate, our 2024 financial outlook indicates net sales between $600 million and $640 million, with adjusted EBITDA predicted to range from $70 million to $90 million, delivering adjusted earnings per share in the range of $1.20 per share to $1.70 per share. Finally, the effective tax rate is expected to be approximately 24 to 25 percent.

Speaker Change: Just to reiterate, our 2024 financial outlook indicates net sales between $600 million and $640 million.

Speaker Change: with adjusted EBITDA predicted to range from $70 million to $90 million.

Speaker Change: Delivering adjusted earnings per share in the range of $1.20 per share to $1.70 per share.

Speaker Change: Finally, the effective tax rate is expected to be approximately 24 to 25 percent.

Sarah C. Lauber: And it's worth reiterating the three assumptions behind this outlook. One is relatively stable economic conditions. Two, the stable to slightly improving supply of chassis and components. And finally, that core markets will experience average snowfall in the fourth quarter of 2024. We firmly believe the ongoing improvements at Solutions and the tough work implementing the 2024 cost savings program mean we are well-positioned for the future and will yield improved earnings power over the long term. With that, we'd like to open up the call to questions.

Speaker Change: And it's worth reiterating the three assumptions behind this outlook.

Speaker Change: 1, Relatively Stable Economic Conditions

Speaker Change: 2. Stable to slightly improving supply of chassis and components 3. Core markets will experience average snowfall in the fourth quarter of 2024

Speaker Change: We firmly believe the ongoing improvements at Solutions and the tough work implementing the 2024 Cost Savings Program mean we are well positioned for the future and will yield improved earnings power over the long term.

Nathan Elwell: With that, we'd like to open up the call for questions.

Operator: Operator. Thank you. We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you're using a speaker phone, please pick up your answer for pressing the keys. To withdraw your question, please press star, then two. At this time, we'll pose momentarily to assemble a roster.

Speaker Change: With that, we'd like to open up the call for questions. Operator? Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. And our first question comes from Mike Shlisky from D.A. Davidson. Please go ahead

Speaker Change: To withdraw your question, please press star, then 2. At this time, we'll pause momentarily to assemble our roster.

Michael Shlisky: And our first question comes from Mike Shlisky from DA Davidson.

Speaker Change: And our first question comes from Mike Shlisky from DA Davidson. Please go ahead.

Michael Shlisky: Please go ahead.

Michael Shlisky: Good morning. Thanks for taking my questions. I wanted to touch, yeah, I wanted to touch first on order activity in solutions.

Michael Shlisky: Good morning. Thanks for taking my questions. I wanted to touch first on order activity in solutions. [inaudible] We're covering what's coming out of the backlog, and perhaps you're seeing a book to build at or above one at the current time.

Michael Shlisky: Good morning. Thanks for taking my questions.

Michael Shlisky: I wanted to touch first on order activity in solutions. So we're seeing stronger throughput. Is a lot of that due to existing backlogs, or would you say that incoming orders are...

James Janik: To make things stronger through put, a lot of that due to existing backlogs, or would you say that incoming orders are recovering what's coming out of the backlog and perhaps if you're seeing a book to build at or above one at the current time. Yeah, it's pretty simple; the what's coming out of the backlog is the current productions. We're also taking new orders that are generally replacing those. So we're still seeing a very strong backlog that, in a few cases, is actually growing. So it isn't diminishing the backlog very much at this particular point, which is good to have that visibility going into 2025 and beyond.

Speaker Change: We're covering what's coming out of the backlog, and perhaps you're seeing a book to build at or above one at the current time.

James L. Janik: Yeah, um, the, yeah, it's pretty simple. What's coming out of the backlog is the current production. We're also taking new orders that are generally replacing those. So we're still seeing a very strong backlog that, in a few cases, is actually growing. So it isn't diminishing the backlog very much at this particular point, which is good to have that visibility going into 2025 and beyond.

Speaker Change: Yeah, um, the, yeah, it's pretty simple. The, the...

Speaker Change: What's coming out of the backlog is the current productions. We're also taking new orders that are generally replacing those, so we're still seeing a very strong backlog that, in a few cases, is actually growing.

Speaker Change: So, um, it's...

Speaker Change: It isn't diminishing the backlog very much at this particular point, which is good to have that visibility going into 2025 and beyond.

James L. Janik: I'll just add to that, Mike. The backlog in solution is sequentially up quarter-to-quarter, but it's really only down 10% from the peak, which was a couple years ago. So there is still strength in the backlog.

Sarah Lauber: Yeah, I'll just add to that, Mike. The backlog in solution is sequentially up, quarter to quarter, but it's really only down 10% from the peak, which was a couple of years ago. So still strengthen the backlog. Got it.

Speaker Change: I'll just add to that, Mike. The backlog in solution is sequentially up quarter-to-quarter.

Speaker Change: But it's really only down 10% from the peak, which was a couple years ago, so still strength in the backlog.

Michael Shlisky: I wanted to also ask about solutions margin as well. You know, it's been a pretty long journey over the last five years, but it looks like this core, you've finally got back to that pre-pandemic margin level and you're, at least as of this quarter, kind of knocking on the door of double-digit down margins. That might change the back half, but given the number of units going through facilities and what you've done over the last five years, were the efficiencies and the implementation of DDMS principles and what you've added since over the last couple of years.

Michael Shlisky: I wanted to also ask about solutions margins as well. You know, it's been a pretty long journey over the last five years, but it looks like this quarter you finally got back to that pre-pandemic margin level, and at least, as of this quarter, we're kind of knocking on the door of double-digit EBITDA margins. That might change in the back half, but, you know, given the number of units going through your facilities and what you've done over the last five years with efficiencies and implementation of DDMS principles, and what you've added over the last couple of years.

Speaker Change: Got it.

Speaker Change: I wanted to also ask about solutions margins as well. You know, it's been a pretty long journey over the last five years, but it looks like this core, you finally got back to that.

Speaker Change: Pre-pandemic margin level and you're at least as of this quarter we're kind of knocking on the door of double-digit EBITDA margin. That might change in the back half but you know given the number of units going through facilities

Speaker Change: and what you've done over the last five years with efficiencies and implementation of DDMS principles and what you've added since over the last couple of years. I kind of wonder if 10% income margins for that segment...

Michael Shlisky: I kind of wonder if 10% income margins for that segment are an ending point. It sounds like you're nowhere near where you could be on throughput, and you've got plenty of cost initiatives that haven't really shown up yet in the P&L. So can you just give us some reasonable assessment of where solutions margins could be in a truly normalized environment? Absolutely.

James Janik: I kind of wonder if 10% of time margins for that segment is an ending point. It sounds like you're nowhere near where you could be on throughput, and you've got plenty of costs and issues that haven't really shown up yet in the P&L.

Speaker Change: is an ending point. It sounds like you're nowhere near where you could be on throughput, and you've got plenty of cost initiatives that haven't really shown up yet in the P&L.

James Janik: So can you give us some reasonable assessment of where solutions margins could be, you know, truly normalized environment? Absolutely. No, it's a great question, Mike, and we are extremely pleased to see the results of all the hard work that we've put in over the last couple of years as solutions. And this was a great quarter that really is demonstrating all of that. There was a lot that was firing on all cylinders in the second quarter, and as I said in my script, I expect the back half to maybe not have all those things firing and will be closer to where we were last year in the back half. But, you know, bottom line, the improvements that we're seeing are sustainable improvements.

Speaker Change: So can you just give us some reasonable assessment of where solutions margins could be in a truly normalized environment?

James L. Janik: Absolutely, no, it's a great question, Mike, and we are extremely pleased to see the results of all the hard work that we've put in over the last couple of years at Solutions. And this was a great quarter that really is demonstrating all of that. There was a lot that was firing on all cylinders in the second quarter. And as I said in my script, I expect the back half to maybe not have all those things firing, and we'll be closer to where we were last year in the back half.

Speaker Change: Absolutely. No, it's a great question, Mike, and we are extremely pleased to see the results.

Speaker Change: of all the hard work that we've put in over the last couple of years at Solutions. And this was a great quarter that really is demonstrating all of that. There was a lot that was firing on all cylinders in the second quarter. And as I said in my script,

Speaker Change: I expect the back half to maybe not have all those things firing, and we'll be closer to where we were last year in the back half.

James L. Janik: But, you know, bottom line, the improvements that we're seeing are sustainable improvements. And so as we navigate into 2025, I think we'll be closer to that double-digit, low-teams long-term target. And we're just going to continue to focus on the plans we need to continue to make improvements.

Speaker Change: You know, bottom line, the improvements that we're seeing are sustainable improvements, and so as we navigate into 2025, I think we'll be closer to that double-digit, to low-teams.

James Janik: And so, as we navigate into 2025, I think we'll be closer to that double digit to low teams long-term target, and we're just going to continue to focus on the plans we need to continue to make improvements to get there.

Speaker Change: Long-term target and we're just going to continue to focus on the plans we need to continue to make improvement to get there.

Michael Shlisky: I'm turning to M&A. We saw a deal on the solution side in the uptrend world earlier this week. A pretty good size deal, and part of the rationale from the buyer was more scale, more product breadth, and more geographic reach for all their products.

Michael Shlisky: Turning to M&A... We saw a deal on the solutions side in the uptrending world earlier this week, a pretty good-sized deal, and part of the rationale from the buyer was more scale, more product breadth, and more geographic reach for all their products.

Speaker Change: Got it. Turning to M&A,

Speaker Change: We saw a deal on the solution side in the uptrending world earlier this week.

Speaker Change: a pretty good-sized deal and, you know, part of the rationale from the buyer...

Speaker Change: was, you know, more scale, more product breadth and, you know, more geographic reach for all their products. Can you discuss...

James Janik: Can you discuss Dulles' desire to pursue similar growth in solutions, especially when you get past the extreme low in attachments and the cash flow that that normally brings?

James L. Janik: Can you discuss Douglas' desire to pursue similar growth in solutions, especially when you get past the extreme low in attachments and the cash flow that that normally brings? Just curious whether, A, you are pursuing or looking at things and solutions to add to your portfolio, and B, James, if that is a job for the next CEO or if you're willing to kind of go that route in the near future. We're looking at... You know, longer term, we look at a lot of opportunities, both in attachments and solutions.

Speaker Change: Douglas' desire to pursue similar growth in solutions, especially when you get past the extreme low in attachments in the cash flow that that normally brings.

James Janik: Just curious whether you are pursuing or looking at things with solutions to add to your portfolio and be Jim, if that is a job for the next CEO or if you're willing to kind of go that route. We're looking at a longer term; we look at a lot of opportunities both in attachments and solutions. In 2024, we're not looking at anything specifically. There are a couple of things out there that might be interesting in 2025, but right now it sort of pencils down for us on acquisition or M&A.

Speaker Change: Just curious whether A, you are pursuing or looking at things and solutions to add to your portfolio and B, Jim, if that is a job for the next CEO or if you're willing to kind of go that route, you know, in the near future. We're looking at...

James L. Janik: You know, longer term, we look at a lot of opportunities, both in attachments and solutions.

James L. Janik: In 2024, we're not looking at anything specifically. There are a couple of things out there that might be interesting in 2025, but right now, it sort of pencils down for us on acquisition or M&A. So, Jim, just to clarify, is that a function of you waiting for the next CEO to take that on? Is it a balance sheet question and the current business, you know, trends and attachments? It's holding you back, but what do you need to see to kind of get something going on the M&A?

James L. Janik: In 2024 we're not looking at anything specifically. There are a couple of things out there that might be interesting in 2025, but right now it sort of pencils down for us on acquisition or M&A.

James Janik: So Jim, just to clarify, is that a function of your way for the next CEO to take that on? Is it a balance sheet question and the current business, you know, a trend in attachment? It's holding you back, but what do you need to see that kind of gets up and going on the other side? Yeah, I think first of all, we're looking for specific opportunities, and those opportunities right now aren't available, and that's the primary hurdle for us. I think for the right opportunity, certainly it would either be the new CEO or it could be me depending on how long the search takes, but it's really comes down to finding exactly the right property that we think fits our company.

James L. Janik: So, Jim, just to clarify, is that a function of you're waiting for the next CEO to take that on? Is it a balance sheet question and the current business, you know, trends and attachments is holding you back? Or what do you need to see to kind of get something going on the M&A side?

James L. Janik: Yeah, I think first of all, we're looking for specific opportunities, and those opportunities right now aren't available. And that's the primary hurdle for us. I think for the right opportunity, certainly it would either be the new CEO or it could be me, depending on how long the search takes. But it really comes down to finding exactly the right property that we think fits our company. But I don't want to get into too much detail because that would probably not be a good place to go.

James L. Janik: Yeah, I think first of all, we're looking for specific opportunities.

James L. Janik: and those opportunities right now aren't available.

James L. Janik: And that's the primary...

Speaker Change: are hurdled for us.

James L. Janik: I think for the right opportunity.

James L. Janik: Certainly.

Speaker Change: It would either be the new CEO or it could be me, depending on how long the search takes.

Speaker Change: But it really comes down to finding exactly the right property that we think fits our company. But I don't want to get into too much detail because that would...

Michael Shlisky: But I don't want to get into too much detail because that would probably not be a good place to go. Sure, sure. Well, I appreciate the color. I'll pass it along. Thank you.

Speaker Change: That would probably not be a good place to go.

Michael Shlisky: Sure, sure. Well, I appreciate the color. I'll pass it along. Thank you.

Speaker Change: Sure, sure. Well, I appreciate the color. I'll pass it along. Thank you.

Robert Schultz: The next question comes from Robert Schultz from Beard. Please go ahead. Hey guys, thanks for taking the questions.

Robert J. Schultz: The next question comes from Robert Schultz from Baird. Please go ahead.

Speaker Change: The next question comes from Robert Schultz from Baird. Please go ahead.

Robert J. Schultz: Hey guys, thanks for taking the questions. Just starting off here, what do you think is really driving dealers to pull forward orders and attachments? I think we had a similar dynamic last year where Q2 had a higher split of total preseason orders than expected coming into the year. So what are you guys seeing there?

Robert Schultz: Just starting off here, what do you think is really driving dealers to pull forward orders and attachments? I think we had a similar dynamic last year, where Q2 had a higher split of total preseason orders than expected coming into the year. So what do you guys see in there? I would say it's not necessarily dealers pulling ahead orders as it is. We have our preseason ordering period. And then we have the ability to produce and ship the best way possible for our manufacturing facilities. And we were able to ship more out in June than we had expected.

Sarah C. Lauber: I would say it's not necessarily dealers pulling ahead orders, as we have our pre-season ordering period, and then we have the ability to produce and ship the best way possible for our manufacturing facilities, and we were able to ship more out in June than we had expected. We are taking more production out in the third quarter than we did last year because we have lower volumes than where we were last year.

Speaker Change: I would say it's not necessarily dealers pulling ahead orders as it is. We have our pre-season ordering period.

Speaker Change: And then we have the ability to produce and ship.

Speaker Change: the best way possible for our manufacturing facilities.

Speaker Change: and we were able to ship more out.

James Janik: We are taking more production out in the third quarter than we did last year because we have lower volumes than where we were last year. So I think it's really more a function of one of us having the right inventory and the ability to ship, and then two level loading and figuring out the best way to manage our production in our inventory level based on our these lower volume levels.

Speaker Change: in June than we had expected.

Speaker Change: We are taking more production out in the third quarter than we did last year because we have lower volumes than where we were last year.

Speaker Change: So I think it's really more a...

Speaker Change: a function of one, us having the right inventory and

Sarah C. Lauber: So I think it's really more a function of one, us having the right inventory and the ability to ship, and then two, level loading and figuring out the best way to manage our production and our inventory level based on these lower volume levels.

Speaker Change: The ability to ship and then to level loading and figuring out the best way to manage our production and our inventory levels based on these lower volume levels.

Robert Schultz: Got it.

Robert J. Schultz: Got it. And then more on attachments, you guys called out that the product mix was better there. More specifically, did you guys have higher P&A sales? Or did you have a favorable mix within plows?

James Janik: And then, more on attachments, you guys called out the product mix was better there. More specifically, did you guys have higher PNA sales, or did you have a favorable mix within plows? And maybe why does that not continue into the third quarter? Yeah, we actually, in the second quarter, going back to what I was just talking about. So we did ship out quite a bit of cross-mounted plows, which are higher-margin plows. We also did have higher margin parts and accessories, and when you look at our parts and accessories for year-to-date versus last year, we're almost flat to last year.

Speaker Change: Got it. And then more on attachments. You guys called out the product mix was better there. More specifically, did you guys have higher P&A sales or did you have favorable mix within Plows and maybe why does that not continue into the third quarter?

Sarah C. Lauber: And maybe that will not continue into the third quarter?

Sarah C. Lauber: Yeah, we actually in the second quarter, going back to what I was just talking about, so we did ship out quite a bit of truck-mounted plows, which are our higher-margin plows. We also did have higher-margin parts and accessories, and when you look at our parts and accessories for year-to-date versus last year, we're almost flat with last year, whereas, you know, our other volumes, you can see the amount of volume that we're down just after two low snow seasons. So, I don't fully expect that we will have the same level of orders to ship in those product categories in the third quarter.

Speaker Change: Yeah, we actually in the second quarter, going back to what I was just talking about, so we did ship out quite a bit of spruce-mounted plows, which are our higher margin plows.

Speaker Change: We also did have higher margin parts and accessories, and when you look at our parts and accessories for year-to-date versus last year, we're almost flat to last year.

James Janik: Whereas, you know, our other volumes, you can see the amount of volume that we're down just after two lows, no seasons.

Speaker Change: Whereas, you know, our other volumes, you can see the amount of volume that were down just after two low snow seasons. So, I don't fully expect...

Robert Schultz: So I don't fully expect that we'll have the same level of orders to ship in those product categories in the third quarter. Got it.

Speaker Change: that will have the same level of orders to ship in those product categories in the third quarter.

Robert J. Schultz: Got it. And then we've seen steel prices come down since the start of the year. What are your expectations for steel prices as we kind of think about the remainder of 2024 and into 2025?

James Janik: And then, we've seen steel prices come down since the start of the year. What are your expectations for price costs as we kind of think about the remainder of 2024 and into 2025? I think I can take that one. The cost of materials for the most part has been pretty flat with steel. Obviously, to your point, it has come down. I think we'll enjoy that in the fourth quarter and in the first quarter, but right now it's quite low, which we enjoy. But, as you know, these things can change, and a lot of that is based on lower demand in the Chinese markets.

Speaker Change: Got it. And then we've seen steel prices come down since the start of the year. What are your expectations for price costs as we kind of think about the remainder of 2024 and into 2025?

Sarah C. Lauber: I can take that one. The cost of materials, for the most part, has been pretty flat, with steel, obviously, to your point, has come down.

Speaker Change: I can take that one.

Speaker Change: The cost of materials, for the most part, has been pretty flat with steel, obviously to your point, has come down. I think we'll enjoy that in the fourth quarter and in the first quarter, but right now it's

Sarah C. Lauber: I think we'll enjoy that in the fourth quarter and in the first quarter. But right now, it's... Michael Shlisky, Nathan Elwell, Gregory Burns, Douglas Dynamics Inc.

Speaker Change: Quite low, which we enjoy. But as you know, these things can change. And a lot of that is based on, you know, lower demand in the Chinese market. So if that market picks up, certainly

Robert Schultz: So if that market picks up, certainly copper, aluminum, steel can go up too. But we're looking forward to some stable pricing over the next few months, for sure. Awesome. Thanks, guys. I'll leave it there. Thanks.

Speaker Change: copper, aluminum, steel could go up too. So, but we're looking forward to some stable pricing over the next few months for sure.

Robert J. Schultz: Awesome. Thanks, guys. I'll leave it there.

Speaker Change: Awesome. Thanks, guys. I'll leave it there.

Gregory Burns: The next question comes from Greg Burns from Cedodian Company. Please go ahead. I'm just looking for a little bit of clarity on the guidance around solutions for the second half. When you're talking about similar results, the year-ago period, is that from a margin perspective, or is that also from a revenue perspective? From an EBITDA margin perspective, I don't expect the second quarter modest margins to be linear. So what we've talked about in solutions is that we expect this year to have continued improvement to double digit for the full year. And so I still expect that.

Gregory John Burns: The next question comes from Greg Burns from Sudotian Company. Please go ahead.

Bobby: Thanks Bobby. Thanks.

Bobby: The next question comes from Greg Burns from Sudotian Company. Please go ahead.

Gregory John Burns: Just looking for a little bit of clarity on the guidance around solutions for the second half. When you're talking about similar results from the year before, is that from a margin perspective, or is that also from a revenue perspective?

Gregory John Burns: Just looking for a little bit of clarity on the guidance around solutions for the second half. When you're talking about similar results,

Gregory John Burns: the year-ago period. Is that from a margin perspective or is that also from a revenue perspective?

Sarah C. Lauber: From an EBITDA margin perspective, I don't expect the second quarter margins to be linear. So, what we've talked about in solutions is that we expect this year to have continued improvement to double digits for the full year. And so I still expect that, but when you look at the quarterly margins, I expect the EBITDA margins to be closer to Q3 and Q4 of last year.

Speaker Change: From an EBITDA margin perspective, I don't expect the

Gregory John Burns: Okay. Okay. And then with the...

Speaker Change: and the second quarter margins to be linear. So what we've talked about in solutions is that we expect this year to have continued improvement to double digit for the full year.

Gregory Burns: But when you look at the quarterly margins, I expect the EBITDA margins to be closer to Q3 and Q4 of last year, respectively.

Speaker Change: And so I still expect that. But when you look at the quarterly margins, I expect the EBITDA margins to be closer to Q3 and Q4 of last year.

James Janik: Okay. And then with the, I guess, the throughput you saw in the second quarter and the backlog you have, is there any reason to believe that was there anything special that occurred in this quarter that drives such high throughput and revenue this quarter? Or should we think about that continuing into the second half of the year? There was some favorable product mix. We had some larger, higher margin jobs that were shipped out in the second quarter that I don't expect to be in the third quarter. And then I would also say just from Henderson standpoint, I guess the throughput improvement and then the contracts that we had in the second quarter were also favorable.

Speaker Change: Okay. And then with the, I guess, the throughput you saw in the second quarter and the backlog that you have, is there any reason to believe that?

Sarah C. Lauber: I guess the throughput you saw in the second quarter and the backlog that you have, is there any reason to believe that? Was there anything special that occurred in this quarter that drove such high throughput and revenue this quarter, or should we think about that continuing into the second half of the year?

Speaker Change: Was there anything special that occurred in this quarter that drives such high throughput and revenue this quarter, or should we think about that continuing into the second half of the year?

Sarah C. Lauber: Yeah, there was some favorable product mix. We had some larger, higher-margin jobs that were shipped out in the second quarter, but I don't expect them to be in the third quarter. And then I would also say, just from a Henderson standpoint, I guess the throughput improvement and then the contracts that we had in the second quarter were also favorable. So it's not really one big thing. It's kind of spread across both businesses. That brings me closer to last year's margins.

Speaker Change: Yeah, there was some favorable product mix. We had some larger, higher margin jobs that were shipped out in the second quarter, but I don't expect to be in the third quarter.

Speaker Change: And then I would also say, just from a Henderson standpoint, I guess the

Speaker Change: Throughput, Improvement, and then the Contracts.

Speaker Change: that we had in the second quarter were also favorable. So it really is, it's not one big thing, it's kind of spread across both businesses. That brings me closer to last year margins.

James Janik: So it really is; it's not one big thing. It's kind of spread across both businesses that brings me closer to last year's margins.

Sarah Lauber: Okay. And then I guess in terms of the balance sheet and the leverage, I guess stepping back down at the end of the third quarter, you're comfortable with how the year is lining up, staying within your covenant ratios. Yes, we are. Okay.

Gregory John Burns: And then, I guess, in terms of the... Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio show. He is a licensed financial professional in both the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts held by National Financial Services, LLC. Member NYSE, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com.

Speaker Change: Okay.

Speaker Change: And then I guess in terms of the...

Speaker Change: The balance sheet and the leverage, I guess it's stepping back down.

Gregory John Burns: At the end of the third quarter, are you comfortable with... You know, how the year's lining up, staying within your covenant ratios? Yes, we are. Okay. All right. Thank you.

Speaker Change: At the end of the third quarter, are you comfortable with how the year is lining up, staying within your covenant ratios?

Sarah Lauber: All right, thank you.

Speaker Change: Yes, we are.

Speaker Change: Bye, thank you.

Operator: Again, if you have a question, please press star, then one. There are no more questions in the queue.

James L. Janik: Again, if you have a question, please press star, then 1. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Jim Janik, Chairman and Interim CEO, for any closing remarks.

Speaker Change: Again, if you have a question, please press star, then 1.

James Janik: This concludes our question and answer session.

Speaker Change: There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Jim Janik, Chairman and Interim CEO , for any closing remarks.

James Janik: I would like to turn the conference back over to Jim Jenick, Chairman and Interim CEO for any closing remarks. Thank you for your time today and your interest in Douglas Dynamics. We're pleased that the hard work to improve our operations is starting to pay off, and our consistent focus on continuous improvement will help ensure we maximize the potential of any situation. We know the weather will turn in our favor at some point, and when it does, our attachments team will be ready to deliver for our customers. Until the dust, we will effectively manage our operations to preserve profitability while still keeping an eye on the future.

James L. Janik: Thank you for your time today and your interest in Douglas Dynamics. We're pleased that the hard work to improve our operations is starting to pay off, and our consistent focus on continuous improvement will help ensure we maximize the potential of any situation. We know the weather will turn in our favor at some point, and when it does, our attachments team will be ready to deliver for our customers. Until it does, we will effectively manage our operations to preserve profitability while still keeping an eye on the future.

James L. Janik: Thank you for your time today and your interest in Douglas Dynamics.

James L. Janik: We're pleased that the hard work to improve our operations is starting to pay off, and our consistent focus on continuous improvement will help ensure we maximize the potential of any situation.

James L. Janik: We know the weather will turn in our favor at some point, and when it does, our attachments team will be ready to deliver for our customers. Until it does, we will effectively manage our operations to preserve profitability while still keeping an eye on the future.

James Janik: Our attachments team has made significant moves to become right size for the current environment. With decent snowfall and the coming winters, we should experience some nice tailwinds in 2025 and beyond.

James L. Janik: Our attachments team has made significant moves to become right-sized for the current environment, and with decent snowfall in the coming winters, we should experience some nice tailwinds in 2025 and beyond. Thank you, and we look forward to talking to you all soon.

Speaker Change: Our Tasman's team has made significant moves to become right-sized for the current environment. With decent snowfall in the coming winters, we should experience some nice tailwinds in 2025 and beyond.

James Janik: Thank you, and we look forward to talking to you all soon.

Speaker Change: Thank you and we look forward to talking to you all soon.

Operator: The conference has now concluded. Thank you for attending today's presentation.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: You may now disconnect.

Speaker Change: ♪♪ ♪♪ ♪♪ ♪♪ ♪♪

Q2 2024 Douglas Dynamics Inc Earnings Call

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