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Good day, and welcome to the Douglas Dynamics Third Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nathan Elwell, VP of Investor Relations. Please go ahead.

Thank you, Nick. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in yesterday's press release and in our filings with the SEC. Joining me on the call today is Jim Janik, Chairman and Interim President and CEO; Sarah Lauber, Executive Vice President and CFO; and Mark Van Genderen, Chief Operating Officer and President of Work Truck Attachments. 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.

Thank you, Nathan. Douglas Dynamics has a 75-year history of adapting and improving our operations. For our Attachment segment, this has been a year of adapting to very unusual weather conditions that we've seen. For our Solutions segment, it has been a year of delivering improvements following the challenging work put in over the past few years that is now paying off. This was a positive quarter for the company and I'm very impressed with the operational improvements that have been made. I want to recognize the dedication and resilience of our team which continually allows us to maximize our potential in all market conditions. With that said, let's talk about what happened in the third quarter. First, we saw an impressive performance from Work Truck Solutions, which is becoming a very nice trend. Our Henderson operations are outperforming expectations this year, helping to drive record double-digit adjusted EBITDA margins for the quarter in Solutions. Second, our results at Work Truck Attachments were more or less in line with our expectations. The other key factor this quarter was the 2024 cost savings program. As you may remember, earlier this year the team made difficult decisions to align our cost structure at Attachments and our corporate team in light of the demand outlook. The actions taken mean that Attachments is well positioned to succeed over the medium to long term in all market conditions. The program was implemented in the first quarter and expanded in the second quarter. And it is expected to deliver $11 million to $12 million in sustainable annualized savings starting next year. Importantly, we remain on pace to deliver $9 million of savings this year. Now, turning to results in each segment, starting with Attachments. As we noted, preseason orders were softer than previous years with demand continuing to be impacted by two years in a row of significantly below average snowfall in our core markets, particularly on the East Coast. However, taken as a whole, our preseason results were slightly below our overall predictions. The ratio of preseason shipments in 2024 came in at 65-35 split between the second and third quarters rather than the more traditional 55-45. The lengthening equipment replacement cycle will continue to be a near-term factor and we will carefully track retail activity and dealer inventory trends. Margins were also impacted by the mix of products this quarter, with more of our most profitable products being shipped in the second quarter this year. It's important to point out that the 2024 cost savings program has really helped preserve profitability. In fact, our adjusted EBITDA margins are a respectable 19.5% on a year-to-date basis. Rest assured, we are talking with our dealers and monitoring order patterns and will be ready to ramp up production if needed as we work through the elongated equipment replacement cycle. Our recent dealer checks indicate inventory levels continue to come down but remain elevated and less than ideal compared to previous years. Also reorder activity at the end of the third quarter was lower than expected. While these reorder numbers in September are relatively small, they are directionally important as we head into the retail season for snow and ice control equipment. The financial health of our dealer network remains strong and the sentiment is positive under the circumstances. While it's been longer than we like, we know that the impact of low snowfall is temporary and we have adjusted our operations to match today's market conditions. We will continue to prudently invest in upgrading our manufacturing capabilities in 2025 and beyond to maintain our operational competitive advantages. As we enter winter, we are ready for whatever mother nature throws at us, and we'll use our continuous improvement mindset to adjust as the snow season progresses. Okay, let's talk about Work Truck Solutions. I'm pleased to confirm that Dejana and Henderson teams delivered record third quarter results. The profitability shown this quarter exceeded our internal expectations. The volumes were down slightly, but the improved efficiency plus the price realization were the primary driver of record results. Performance was also strong on a year-to-date basis with adjusted EBITDA margins more than doubling to 9.5% when compared to the previous year. This performance demonstrates that our long-term goals are very achievable when external circumstances allow. At Dejana, the team continues to focus more of their attention on the fleet business where the supply of chassis is currently the strongest. Some customers are less urgent about their buying decisions today and more price conscious with some signs of softening demand for certain products. We believe there is an impact from high interest rates in some local market customers are hesitating with their spending decisions due to the upcoming election. However, in other areas, demand remains generally stable and we're working to position ourselves to drive sustainable long-term growth. For example, we're just starting to see the positive impact of the infrastructure bills with interest in sectors related to utilities, sewage, and waste, as well as telecom. While the situation isn't perfect, chassis availability has improved, especially for fleet customers, and we're starting to eat into our backlog a little bit more. At Henderson, the team is having a great year and we're well on its path to long-term profitability goals. Chassis and component supply are more closely aligned with our needs, and stable supply of labor coupled with our operational improvements of recent years are delivering stronger results. Municipal demand remains positive and the backlog remains much higher than historical levels. We do believe some of our outperformance at Henderson this quarter was due to business mix and we predict some softness in the coming quarter. Overall, our results at Solutions bode well for the future and it's important to remember that demand remains positive with municipal customers and most solid with commercial customer. Near-term chassis supply is as good as we've seen in recent years. The improved chassis availability has helped our teams drive great efficiency, which has led to improved profitability. While we aren't counting on it, market commentators are indicating that OEM production levels are increasing over the medium term. From an operational standpoint, we executed effectively across the board and we still have a solid backlog to work through and in some parts of the business it is growing. We are on track to deliver on our goal of improved performance for the third straight year in solutions. So in summary, it's great to see Solutions hit their stride this year and hats off to those teams for continuing to push forward. We've seen in recent years that the diversity of our operations has helped us to manage through tough times, as one segment has performed well, while the other was impacted by market conditions. After the turbulent conditions we've faced in recent years, with various unpredictable external headwinds, we believe the years ahead will produce more stable conditions that will allow us to deliver on our potential. We will continue to manage through the short-term challenges, while investing in long-term future to ensure we remain the clear leader in our markets. Okay, before I hand the call over to Sarah, I want to discuss our leadership team. We have a terrific group of people in place today, and we recently announced a few changes in our senior team, promoting the next generation of leaders. As Nathan mentioned, we have Mark Van Genderen on the call with us today. Mark was recently promoted to Chief Operating Officer of Douglas Dynamics. Since he joined Douglas four years ago, he's established himself as an important leader within our organization and in his new role he will be overseeing both Attachments and Solutions. Mark has a broad operational background and demonstrated sales and marketing expertise and most importantly he shares our values and is a great fit with our culture. I look forward to working with him and Sarah as we lead the company into 2025. Also, our Chief Human Resource Officer, Linda Evans, is retiring at the end of the year as planned after 16 years at Douglas. Linda has played a pivotal role in many aspects of the company's growth. She has helped shape our culture and her passion and enthusiasm will be greatly missed by all. A silver lining to Linda retiring is the strength of her successor, Shannan Vlieger, who Linda has been mentoring. Her dynamic leadership will prove important to our success in the years ahead. Finally, I've been back in the CEO role for five months now. I'm in Milwaukee and I stay committed to stay on as interim CEO into 2025. The primary objective of the CEO search process is to take the time to ensure we appoint the right person. Our intention is to have a new CEO in place in the first half of 2025. With that, I'll pass the call on to Sarah.

Thank you, Jim. The explanation of our performance this quarter is relatively straightforward. The Attachment segment results were a little softer than our expectations as we managed through the elongated replacement cycle. But this was helped by the Solution segment which delivered a record third quarter performance and exceeded our expectations with a significant improvement in profitability. Of course, the sale leaseback has made things look more complex at first glance. As you probably saw, we completed the sale leaseback transaction in September, which delivered growth proceeds of $64.2 million. Cash taxes for the deal were $12.7 million, with transaction expenses of $5.3 million. $42 million of the proceeds were used to pay down our term loan debt, which in turn gives us more flexibility and allows us to better support our long-term growth plan. The incremental rent expense we now have, when weighted against the lower interest expense following the debt pay down, will have an insignificant impact on our earnings per share on an annual basis. The transaction was a great way to optimize our balance sheet and ensures we are well positioned to make investments in the business. The transaction included seven facilities with 780,000 square feet of manufacturing and upfitting space, and the initial leases are for 15 years with two 10-year options to renew. All seven facilities are critical to our operations, and these long-term leases reinforce our commitment to continue operating in these communities for decades to come. With that said, let's turn to the quarter. Although demand and attachments was lower this quarter, profitability remains flat based on the strong bottom line performance of Solutions and the impact of the 2024 cost savings program. On a consolidated basis, our third quarter net sales were $129.4 million compared to $144.1 million in the same period last year. Gross profit declined slightly to $30.9 million, but gross profit margin increased 160 basis points to 23.9% based on higher price realization, the 2024 cost savings program, and improved performance at Solutions. SG&A expenses were $20.4 million for the quarter, excluding sale leaseback transaction costs of $5.3 million. This compares to the $18 million recorded in third quarter 2023. The remaining increase of $2.4 million is primarily related to CEO transition costs and higher incentive-based compensation. As a reminder, the 2024 cost savings program is expected to deliver $11 million to 12 million in sustainable annualized savings, approximately $9 million of which is on track to be realized in 2024. Interest expense was $4.5 million in line with the $4.6 million reported last year. The effective tax rate was 22.7% for the third quarter of 2024 compared to 16.4% in the same period last year, which was impacted by a tax benefit related to the purchase of investment tax credits. GAAP net income for the second quarter -- for the third quarter, I’m sorry, was $32.3 million or $1.36 per diluted share. Adjusted net income for the quarter was $5.9 million in line with the $6 million for the third quarter of 2023. Adjusted EBITDA decreased to $15.3 million when compared to $17.3 million for the third quarter of last year. The decreases were driven by lower Attachments volume, partially offset by price realization, and improved efficiencies at Solutions. Now let's look at each segment in more detail. Starting with Attachments, where we continue to be impacted by the two previous winters of significantly below average snowfall in our core markets, which has created an elongated equipment replacement cycle and led to lower order volume. Net sales were $60.2 million for the quarter, slightly lower than expected based on lower reorder volumes in September and product mix, which produced adjusted EBITDA of $8.1 million. As we expected, the ratio of preseason shipments this year was 65-35 between the second and third quarters. That's similar to last year, but more skewed towards the second quarter than our long-term average, which is closer to 55-45. The 2024 cost savings program has helped preserve profitability, with adjusted EBITDA margins close to 20% on a year-to-date basis, in line with our expectations. Turning to Solutions, which delivered record third-quarter sales and earnings, as we continue to make progress towards our growth and profitability goals. Net sales of $69.1 million were slightly higher than last year, with lower volumes offset by higher price realization. Adjusted EBITDA increased 44% to $7.2 million, with margins of 10.4%, a 310 basis point improvement. The profitability shown this quarter exceeded our expectations based on price realization and improved efficiencies led by Henderson. Results were also strong on a year-to-date basis, with adjusted EBITDA margins more than doubling to 9.5% when compared to the previous year. However, I want to be clear, while the progress we've seen this year is excellent, we do not expect the improvements to be linear going forward. Between business mix and the timing of deliveries, plus the profitability of certain contracts, our overall results will continue to fluctuate from quarter-to-quarter, but we expect to show annual improvement in EBITDA for the third year in a row. In fact, we're now on track to deliver high single-digit adjusted EBITDA margins in the segment for the year. Now let's look at our balance sheet and liquidity. As of September 30th, we had $90.9 million of total liquidity comprised of $8.4 million in cash and cash equivalents and $82.5 million of borrowing availability under our revolving credit facility. On a year-to-day basis versus 2023, net cash used in operating activities improved $30.9 million and free cash flow improved $34.6 million from negative $71.9 million to negative $37.3 million. The improvement relates to favorable changes in working capital, including decreases in cash used in accounts payable, accounts receivable, and inventory. Proceeds from the sale lease-backed transactions favorably impacted cash provided by investing activities by $64.2 million. As I mentioned earlier, proceeds of $42 million were used to voluntarily prepay long-term debt. This means our leverage ratio at the end of the quarter was 2.6 times, which is well within our targeted range of 1.5 times to 3 times. Inventories were $145.4 million at the end of the quarter, slightly lower than the $147.2 million in the third quarter of 2023. Accounts receivable at the end of the quarter were $153.1 million, lower than the $165.3 million in the same point last year. Year-to-date capital expenditures of approximately $4 million were significantly lower than the $7.7 million in the same period last year. And based on the year-to-date numbers, we expect CapEx for the year will be below the low end of our target -- typical range of 2% to 3% of net sales. We paid our quarterly cash dividend of $29.5 per share at the end of the quarter and the dividend remains our top priority. Let's turn to the outlook for the end of the year. As I mentioned, the excellent recent performance at Solutions means they're poised to deliver improved full-year results for the third year in a row. Albeit we have a tougher comparison at Solutions for the fourth quarter and we expect Attachments shipments to remain constrained due to the elongated recycling cycle. We are planning for average snowfall in the fourth quarter, and as always, we will be closely monitoring reorders as dealers continue to lower their inventory to more traditional levels. With that in mind, we're lowering our net sales guidance and reducing the top end of the adjusted EBITDA and adjusted EBITDA margin ranges as follows. Net sales are now expected to be between $570 million and $600 million versus the previous range of $600 million to $640 million. Adjusted EBITDA is now predicted to range from $70 million to $80 million versus the previous range of $70 million to $90 million. Adjusted earnings per share is now expected to be in the range of $1.20 per share to $1.60 per share versus the previous range of $1.20 to $1.70. The effective tax rate is expected to be approximately 24% to 25%. And as always, our outlook assumes relatively stable economic conditions, the supply of chassis and components, and that our core markets will experience average snowfall in the fourth quarter of this year. From an operational standpoint, we executed effectively across the company this quarter. As external conditions improve, we are in a great position to leverage our operations and drive long-term earnings power. With that, we'd like to open up the call for questions.

We'll now begin the question-and-answer session. [Operator Instructions] And our first question today comes from Michael Shlisky of D.A. Davidson. Please go ahead.

Hi, good morning. This is Linda [indiscernible] on for Mike Shlisky. Thank you for letting us ask questions. So my first question for you is on the Attachments segment. Can you update us on your off-highway Attachments business, such as your wheel loader and tractor-based products. Has this meaningfully contributed to growth in 2024?

Let me make sure that I understand your question. You're talking about the non-truck market. Is that accurate?

Yes, so it's the off-highway Attachments. So like the wheel loaders and tractor-based products. Yes.

Yes. They continue to have a very nice spot in the market. I would say some of the newer products are having some impact, but at this particular point, it's not material. But as we get into 2025 and beyond, we expect them to have a very good role within our profitability and our marketplace?

Yes, I can add a little bit of color to that. So for the third quarter, we were relatively flat when you look at non-truck sales. For the year, we are down similar to what we're down in preseason. So it just kind of follows the trend. And non-truck sales still represent less than 5%. But it is a large, large growing segment for us and Attachments.

Yes. This is Mark. I would add that from a product development standpoint some of the products that we brought to market over the last year or 18 months really starting to get into the groove right now. I was down in Louisville at a big show three weeks ago and our pusher plows, the big ones that go on skid-steers and front-end loaders, it's getting a lot of attention, it's got some great features, so we're pretty excited about that product in the future.

Oh, great. That's great color. Thank you. And then my next question would be, can you detail for us what you're doing for your dealers to help them until the winter starts? Are you offering to move inventories around to the dealers or even take back inventories if they ask for it?

Yes, this is Jim. I think for the dealers, most of them are typically have the equipment that they need. They're just waiting for the snow season to come around. It's not a mix issue for most of our dealers. It's a demand issue. So moving inventory around is a nice thought, but it doesn't add a lot of value or relief to any of our dealers. We do feel as if with any decent snow this coming year, inventory is going to be normalized by 2025.

Got it. Thank you for your time.

Thank you.

And our next question today comes from Tim Wise with Baird. Please go ahead.

Hey everybody. Good morning.

Hi Tim.

Hey. Maybe just in the Attachment segment, I guess you're expecting to have average snowfall in December. But I guess what is your expectation for reorder activity relative to average snowfall? I guess is that -- are you expecting reorders to be normal, or are you still expecting to see weaker reorders just as your dealer kind of start to flush inventory for any sort of initial [Multiple Speakers]?

Tim, I think you've hit the nail on the head. Your comment is that, with some elevated levels of inventory, many of the dealers will work down that inventory as they see retail activity and probably we won't see retail or reorder activity as you might otherwise see just because they're working down that inventory. So I think your point is the good one, is they're going to work down the inventory first and then reorder. So with average snowfall, we expect reorders to be, as we've indicated here, it would probably be a little softer than we would normally expect under the circumstances.

Our guidance has been fine. Even though we talk about average snow fall expected for now for a couple of quarters, we don't expect that to equate to average volume. So that's been embedded in our fourth quarter the way we're thinking about it.

Okay, okay. Good, that's helpful. And then, I guess from a production standpoint, I mean, you've always been -- you've always kind of heralded your ability to kind of react very quickly to changes in in-season demand. I mean, with the cost savings that you've kind of run through the organization, I mean, has anything changed from a production standpoint that would -- your ability to react to demand if it was better than expected?

Yes, Tim, this is Mark. I can take that one. I would say we're -- this year in particular, we've improved our ability to react accordingly. I mean, we know that the last 18 months with the snowfall, the last couple of years have been atypical. So, as a result, we really looked at operations across all of our facilities and, I'd say, improved our overall flexibility from a production standpoint, whether that means bringing it down to make sure that internal inventories are in line as we match those against dealer inventories, and at the same time if we need to ramp up. So we're in a pretty good spot right now, I think.

Okay, good. And then just on Solutions, I guess I was surprised that volume was down in the quarter. I guess I thought you guys still had a fair amount of backlog to work through. So I guess, is there a way to kind of break out price versus volume and then just kind of update us on where the backlog is? Because I guess the top line seems a little more variable now relative to maybe the backlog driven demand we've seen in the last couple quarters.

Yes, so it really is kind of a tale of two cities here when you look at the two businesses. So price for the quarter for Solutions is really in the low single digits. And the volume, it's up a little bit at Henderson, but more of the volume decline has been at Dejana. When you look at the backlog, in total, our backlog is up still from the end of last year. But we saw Dejana kind of eat into some of their backlogs, and Henderson's backlog has grown. I would say on the Dejana side, we have experienced some softness that we talked to a bit in the script from the standpoint of quarter volumes in the quarter. We're seeing some of that come through in the third quarter.

Okay. And then I'm going to squeeze one last one in. Just what are your free cash flow expectations for, I guess, the year in Q4?

Yes, our free cash flow expectations don't change a lot from what we walked through last quarter other than the impact of the sale lease back. So our cash taxes will still be in that 24% to 25% effective tax rate. But that has kind of doubled because of the gain that we experienced on the sale leaseback. And then we have experienced already in our results some positive flow through on working capital. So I used to think working capital was flat for the year and now I expect that to be slightly favorable. So the total free cash flow for the year after the sale leads back with all of that will still well exceed our dividend level.

Okay. Great. Thanks for the time.

Thank you, Tim.

And our next question today comes from Greg Burns with Sidoti & Co. Please go ahead.

Good morning. Just to follow up on the Dejana demand environment, what are you hearing or seeing in the market? Is it just maybe a pause because of election uncertainty or maybe some other short-term drivers? Or is there anything maybe more structural where you're seeing demand soften? Just trying to get a sense of where you feel that business might be in 2025 if you expect that maybe a rebound as interest rates come down and we get past the election?

Yes, terrific question. Thank you, [Nick] (ph). I think as we look at it, it's a little bit difficult to determine what specifically the impact of interest rates and the election are. We know it has some impact and we're seeing it particularly in the local commercial businesses. Businesses like plumbing contractors, electrical contractors who are local to our businesses. I think they're just being very reluctant to pull the trigger on orders at this particular point. Our hope is that it rebounds after the election and the impact of the reduction in interest rates starts to work through the channels. Overall, I think we're optimistic with the business. We're also seeing more of a shift towards weak business and a little less of the local market business. So there's some puts and takes, and I think as we go into 2025, we're optimistic, but we're not entirely sure which of these factors are playing the greatest role.

Okay, thanks. And then maybe in terms of expected cash generation in the fourth quarter and where you expect leverage to exit the year?

Yes, so we are at 2.6 times at the end of the third quarter, and I expect that to continue to decline through the end of the year. And as you know, the fourth quarter is by far the highest free cash flow generating quarter for us. And I expect it to go strong, to end strong.

Okay. And I know you're kind of operating under expectations of normal snowfall. But if it is another year of below-average snowfall, are there other -- do you have plans or maybe other measures, maybe in terms of further cost reductions or maybe other sale leaseback transactional opportunities, things like that, that can maybe help support the business if snowfall remains below average for this coming year?

Yeah, when we put together the 2024 cost savings program, We really spent a lot of time on optimizing the business for the run rate that we've seen over the last several years. The sale leaseback did the same with optimizing the balance sheet. I really feel like at this point in time, we have a runway of some lower snowfall from here and/or higher snowfall from here. I think the business is well set to deliver, depending on what the snow brings up. So I guess my answer to that is, at this point in time, no, not additional action.

Okay. Thank you.

[Operator Instructions] Seeing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Jim Janik, Chairman, Interim President, and CEO, for any closing remarks.

Thank you for your time today. And going forward, our consistent focus on continuous improvement will help ensure we maximize the potential of any situation we are faced with. Our attachments team is ready for winter and right-sized for the current environment. If the weather cooperates and we see decent snowfall in the coming winters, we will be in a very good position to drive profits. Our Solutions team is now reaping the benefits of efficiency improvements implemented in recent years. And our company has a 75-year history of adapting and managing through uncertainty. And the only constraints are that the situations will arise and change will occur. We know how to manage through both the short term and the long term and recent results show when headwinds subside we deliver. Thank you and we look forward to seeing some of you at the Baird Conference in Chicago on November 12th. Thank you.