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Good day, and welcome to the Douglas Dynamics' Fourth Quarter 2024 Earnings Conference Call. All participants will be in a lis10-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Nathan Elwell, Vice President of Investor Relations. Please go ahead, sir.

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 are Jim Janik, Chairman and Interim President and CEO; Sarah Lauber, Executive Vice President and CFO; and Mark Van Genderen, COO and President of Work Truck Attachments. Jim will provide an overview of our performance, followed by Mark discussing our segment results. Then Sarah will review our financial results and guidance for the year before we open the call for questions. With that, I'll hand the call over to Jim. Please go ahead.

Thank you, Nathan. The fourth quarter of 2024 was a positive end to what began as a challenging year. Consolidated results improved across all metrics when compared to the prior year, primarily due to strong growth in the Solutions segment and increased margins in the Attachments segment. There were quite dramatic differences in the circumstances our two segments faced which was reflected in their results. However, the common denominator between attachments and solutions was the grit and determination shown by our people in addressing the challenges we have faced in recent years. After several tough years following the pandemic, the Solutions segment entered 2024 with strong momentum, which I am pleased to say continued throughout the year. I want to congratulate the leadership team of both Henderson and Dejana for producing a record annual performance and showing everyone what great things we are capable of. Well done to everybody at our Dejana and Henderson operations. While there is no doubt it has been a tougher year at Attachments, we are just as proud of what we have been able to produce under the circumstances. The hard work completed in 2024 to streamline our operations and adapt to recent weather patterns is already paying off. We operated efficiently in a tough environment and delivered improved margins compared to last year. A crucial part of that success was the cost-savings program, which exceeded expectations in 2024. Given the circumstances, our teams performed extraordinarily well and we couldn't have asked them for more. Sarah will talk to capital allocation in detail later, but I will just say that the dividend remains our priority and we are maintaining the current dividend in 2025. With a lot of hard work completed last year, our balance sheet is strong and provides us with additional options moving forward. When it comes to M&A, there have been no change in our approach. Over the long term, we hope to find companies with complex attachments that need to be professionally upfit onto work trucks with strong brands, growth potential, and a good cultural fit. With our operating results and a strong balance sheet, we are now in a position where we could consider looking at small and medium-sized acquisitions if we find the right opportunity. Having said that, we will maintain our disciplined approach and we aren't actively pursuing any deals at this time. Finally, I want to give a quick update regarding our leadership. I am pleased to say that the recent management transitions have been smooth, thanks to the combination of our excellent internal team plus our planning and preparation. In addition, we just appointed a highly qualified new President of Work Truck Attachments, Chris Bernauer, which Mark will discuss further. The next step is to conclude our search for a new permanent CEO. Our intention remains the same to have a new CEO named in the first half of 2025. The search process has been thoughtful and diligent and we believe we are close to having the right person in place. Okay, I am going to hand over the call to our COO, Mark Van Genderen, who I have asked to walk you through several topics this morning.

Yes. Thanks, Jim. Before I talk to our results at each segment, I want to highlight the important announcement that we made yesterday. Following an extensive search, we have recruited and hired our top candidate, Chris Bernauer as President of Work Truck Attachments. Chris is a dynamic leader who has had a successful career consistently delivering strong financial and operational performance. He joins us with over 30 years in the manufacturing sector, where he gained extensive experience in many disciplines including engineering, product development, sales and marketing, and dealer engagement, primarily in the automotive, motorcycle, and marine sectors. In addition to delivering operational and financial results, Chris brings a strong reputation for creating positive and collaborative cultures, which fits perfectly with our approach here at Douglas. He starts later this week and will be based here in Milwaukee reporting to me. Chris is the ideal candidate for this role. I'm thrilled to have him on Board and I'm positive his perspectives will be invaluable in the years ahead. Now as I transfer my Work Truck Attachment responsibilities to Chris in the coming weeks and months, I will continue working closely with Jim, Sarah, and other senior leaders to help chart the course for our company in 2025 and beyond. Now, turning to the results in Work Truck Attachments. Let's start with our favorite topic, the weather. While winter is far from over, we feel comfortable saying that the 2024, 2025 snow season will be better than the previous year where snowfall was approximately 40% below the 10-year average and while snowfall was down from October to January when compared to the 10-year average, we have seen more activity so far in February. In general, this has certainly looked like a more typical winter across the country and should be a reminder that winter as a concept isn't over and that weather will continue to move in cycles. That said, snowfall this winter has been very regional in nature. It has certainly been positive to see above-average snowfall in some of our markets, but we still haven't seen enough snow in core markets like Chicago, New York, and Boston. We don't yet know how this snow season will turn out and while overall snowfall is likely to return to average, it is shaping up to be better than last year. With the more frequent snowstorms and a more typical winter unfolding, dealer sentiment is positive and our inventory checks with dealers at the January confirmed that. While inventory levels remain above average, they continue to fall and our dealers remain on a strong financial footing. Of course, the lengthened equipment replacement cycle based on the lower snowfall of the past several years will remain a near-term factor and we will continue to diligently analyze trends and end-user demand. Importantly, the 2024 cost savings program has driven an increase in profitability. And in addition, our finished goods inventory is in excellent shape as we have been planned and purposeful in our production scheduling, throttling back when needed, being extremely nimble and responding to our dealer specific requests. We continue to optimize our business and have proven once again that we know how to manage through tough times. We've done this while remembering to look at the medium to long term as we know the impact of low snowfall is temporary. Today, our operations have been adjusted to match market conditions leaving us well-positioned to drive volume as demand ramps up. Overall, I am proud of our progress over the past 12 months and I want to commend our team and Work Truck Attachments for really managing the business extremely effectively. We will remain optimistic yet cautious and will be ready to ramp up and take advantage whenever and wherever snow drives demand. Turning to Work Truck Solutions, where the teams exceeded our expectations delivering impressive top and bottom-line growth for the year. The overall operating environment improved in 2024 and we delivered the third consecutive year of top and bottom line growth. That being said, it took our team's ingenuity to navigate a changing marketplace. We maximized performance and delivered significant year-over-year growth returning us to pre-pandemic levels of profitability. We want to thank our solutions team for improving their results once again. Commercial demand in solutions includes both areas of strength and areas of softness. And as we mentioned last quarter, we are focusing more attention on fleet business opportunities where the supply of chassis are continuing or are currently the strongest. Demand and backlog from municipal customers remains robust with large multi-year municipal contracts that we will deliver in 2025 and 2026 and there are pockets of capacity expansion that we are investing in for the longer term. The diversification process we began a decade ago is helping us manage through tough times with both our Dejana and Henderson operations producing a record year for solutions and improved results for the third year in a row. In summary, as we've seen in recent years, one segment has performed well, while the other has been negatively impacted by market conditions, namely low snowfall. We will continue to manage through the short-term challenges, while keeping our focus on the long term future to ensure that we have the best products in place to maintain and expand our market leading positions. Finally, I am looking forward to heading down to the NTEA Work Truck Show in Indianapolis next week. It is always a great opportunity to meet with our teams representing all of our brands and I look forward to meeting with partners and customers across all businesses at this important industry event as well. With that said, I will hand the call to Sarah.

Thanks, Mark. As Jim noted at the start of the call, it was a positive end to the year in Gulf's segment. To summarize the year, Work Truck Solutions produced a record year as the teams effectively manage their operations to deliver fantastic results. At Work Truck Attachments, challenging market conditions continued and the team did an outstanding job of maximizing their profitability under the circumstances. In fact, both fourth-quarter and full-year consolidated results improved across all metrics. With that said, let me walk through the numbers for you and please note unless stated otherwise all the comparisons I'll make today are to the full year 2023. Net sales were essentially flat at $568.5 million as lower sales and attachments were almost exactly offset by the increase as Solutions. On flat sales, we were able to increase gross profit of $146.8 million by 9%. This drove a gross margin increase of 220 basis points to 25.8%. These increases were based on the impact of the 2024 cost savings program plus improved price realization and throughput at solutions. The 2024 cost savings program was even more successful than anticipated within the year, producing pre-tax savings of more than $10 million. As we've previously noted, we expect the program to deliver annualized savings of $11 million to $12 million, which will drive nominal additional savings in 2025. I want to thank our teams that have done the difficult but necessary work during 2024 to reduce costs and improve our profitability, allowing us to operate from a position of strength in 2025 and beyond. Selling, general and administrative expenses increased approximately 16% to $91.7 million mainly due to one-time items, including costs for the sale-leaseback transaction announced in the third quarter, severance costs related to the cost savings program and CEO transition costs. In addition, we experienced higher incentive based compensation due to higher earnings. The effective tax rate for 2024 was 24% compared to 18. 9%. Last year's effective tax rate was lower due to higher tax credit. Net income increased to $56.2 million compared to $23.7 million mainly due to the one-time gain from the sale leaseback transaction, plus improved profitability across both segments. The sale leaseback transaction is non-operational and non-recurring and is excluded from all adjusted earnings. Adjusted EBITDA increased 16% to $79.3 million. Similar to the gross profit margins, the actions we took in 2024 led to an increase in our adjusted EBITDA margins of 200 basis points to approximately 14% on flat net sales. Adjusted net income and adjusted earnings per share both increased approximately 45% to $35.2 million and $1.47 respectively. Finally, I'm pleased to report that our total backlog at the end of 2024 was $348 million an increase of $52 million which was driven by strong municipal bookings. Our backlog is within approximately 5% of the record level set at the end of 2022. It is great to see the robust backlog continue into 2025, which gives us continued confidence in the pipeline of business flowing into solutions in the coming years. Now let's look at the results for the two segments. Starting with Attachments, we closed out the year with snowfall not at average levels as we had hoped, driving lower-than-expected sales. Sales were down 12% to $256 million while adjusted EBITDA only declined 4% to $48.5 million. The highlight here is that adjusted EBITDA margin of 18.9% improved 160 basis points largely due to the successful cost savings program where we realized over $10 million of savings. It's important to note that some savings were accelerated into 2024 rather than 2025, but the expectation of $11million to $12 million in annualized savings has not changed. The good news is the Attachments business is now right-sized for the suppressed demand we have seen recently and we're managing our production schedules efficiently to minimize additional working capital needs. We are cautiously optimistic, but remain in wait-and-see mode until the snow season concludes and preseason numbers start to come in, and we will update you on the first quarter earnings call in May. The bottom line is we are in a great position to leverage this business as demand returns. In the Solutions segment, we closed the quarter with record sales and record adjusted EBITDA, primarily driven by strong municipal performance. So with three record quarters in a row, Solutions delivered a record year bringing adjusted EBITDA margins to the low end of the long-term target range and back to pre-pandemic levels. Net sales grew 13% to $312.5 million and adjusted EBITDA increased 76% to $30.9 million with margins of 9.9%, a 350 basis point improvement. The performance this year exceeded our expectations and was driven by strong price realization and improved throughput. Congratulations to everyone at Work Truck Solutions for the record results and a strong year from start to finish. Now let's look at our balance sheet and liquidity. We are very proud of our cash generation for the year, while operating effectively in a low snowfall environment. Let's walk through the details. Net cash provided by operating activities increased 229% to $41.1 million, driven by higher earnings and a better working capital position. The primary drivers positively impacting working capital were the timing of supplier payments on our accounts payable, cash receipts from investment tax credits purchased in 2023 and reduced inventory levels in 2024. In addition, capital expenditures decreased $2.7 million to $7.8 million as some investments were deferred. In 2025, we expect our CapEx to be on the high end of our targeted range of 2% to 3% of revenue. This leads us to a successful year of generating free cash flow of $33.3 million an increase of $31.4 million. I do want to highlight the effect the sale leaseback transaction had on free cash flow and leverage. The transaction had an approximate $17 million negative impact on free cash flow, which related to taxes, rent and fees, partially offset by reduced interest. However, the $64.2 million received from the sale leaseback is included in cash provided by investing activities, which is excluded from free cash flow. Bottom line, we view this as a successful transaction, netting proceeds of $42 million which we utilized to delever to 2.4x at year end, which is back within our targeted leverage range during an elongated period of suppressed snowfall. We are now confident that with our current capital structure, we will operate well within our goal range of 1.5x to 3x in 2025. Turning to capital allocation, the fourth quarter dividend was paid as planned in December. The dividend remains our priority. We are maintaining the current quarterly cash dividend of $0.295 per share for the first quarter of 2025. I just mentioned we're comfortable with where our leverage is in 2025 and I also mentioned we're expecting capital expenditures closer to 3% of sales, which then allows us to start thinking about M&A as Jim discussed earlier. At the end of 2024, liquidity was strong, consisting of $5.1 million in cash and borrowing capacity of approximately $150 million under our revolver. Now let's turn to our outlook for the year. As you saw in the release, we expect 2025 net sales to be between $610 million and $650 million. Adjusted EBITDA is predicted to range from $75 million to $95 million. Adjusted earnings per share is expected to be in the range of $1.3 to $2.1 per share. The effective tax rate is expected to be approximately 24% to 25%. And this outlook assumes we experience relatively stable economic and supply chain conditions and that core markets will experience average snowfall in 2025. At the midpoint of our ranges, we assume projected higher volumes across both segments contributing to low double-digit top-line growth. While we are cautiously optimistic on volume, we expect the work done in 2024 on our margins to contribute to stable to slightly improving year-over-year margins in each segment. Solutions remains in a strong position to replicate or improve upon 2024 results based on strong backlog trends combined with improved operating performance. Again, this year, the largest assumption of our 2025 guidance relates to the continued elongated replacement cycle of snow and ice equipment in the field. At the midpoint, our guidance assumes that attachment demand in 2025 will approximate 2023 levels. As always, our range encompasses lower or higher demand levels depending on how we end the snow season, the wear and tear on equipment, and the sentiment of end users and dealers. We will have further information during the initial phase of our pre-season order period, which starts in April, which we will cover in our first-quarter earnings call in May. To recap, from an operational standpoint, earnings and margins grew on successful and focused initiatives. Moving forward, we're in a good position to leverage our operational strength and drive further earnings power over the long term. With that, we'd like to open up the call for questions. Operator?

Good morning and thanks for taking my questions.

Good morning, Mike.

Good morning, Mike.

So let's start off with some weather headlines. So there's a bit of winter weather in the South and Southeast U. S. Last month, not areas that we normally see snow. I was wondering if you were able to ship at least a couple of units to those areas and maybe help some of your dealers reduce their channel inventories at least just on a one time basis for the big snow we saw earlier this year?

Yes, Mike, this is Mark. I'll certainly be happy to answer that question. I would say in general to your point, we don't have a strong dealer presence in the Deep South. That being said, I'd point to a couple of things. I think one is, if you look at our SnowEx line of products, we use a distribution model for that and it remains a bit more nimble. So our distributors can sell to independent dealers. I think it's fair to say we certainly saw products being sold in markets where we traditionally wouldn't see them being sold based on that snowfall. The other thing that we'll see and have experienced is opportunistic and very smart contractors in the North will actually head down to the South and they will head down during these snowstorms and help to remove equipment or excuse me, help to remove snow with their equipment. So, it may not be a direct impact on dealer inventory, but it certainly helps the usage of the equipment for eventual replacement.

Got it. That's great color. Thank you. I also wanted to turn to the Solutions segment. You mentioned some strong trends in municipal markets. Can you update us on the private sector? Are you seeing large fleets there also mix a pretty big orders or is all the growth focused on government related customers?

I can take that one too as well, Mike. Where we're really seeing the growth right now across the businesses is in the municipal sector, Henderson is very strong with a strong backlog and Dejana as well. On the commercial side, we've noted we've seen a bit of softness. I think the teams are doing a great job looking at where that is, what it is, focusing on the areas where we do have, what I'll call competitive capabilities with fleet sales, really managing the relationships with our dealers and doing well there, but yes, I would say overall on the municipal side, it's been strong and commercial it's we that's a real area of focus for us.

Yes, I would just add, Mike, that when you look at solutions and you look at our guidance for the year, at the midpoint that implies like mid-single-digit growth, we're seeing that more, as Mark said, on the municipal side and when you look at our backlog, our backlog is really near record level. Those backlog -- that backlog includes multi-year contracts for our municipal customers. So that growth will span over ‘25 and ‘26.

Got it. Maybe one last one for me from a balance sheet perspective, Sarah. Working capital and free cash in 2025, given the operational obviously, there's some weather dependent here, but outside of that, given the operational improvements that you've made, particularly in Attachment to kind of be more nimble and quick with how you build and deliver, do we be thinking of any major changes up or down in the inventory environment that's on your books for 2025 or somewhat stable there?

Yes. When I look at free cash flow for 2025, what we expect is that our free cash flow will be at or better, than where we landed for 2024 at $33 million. The biggest change is primarily in the higher capital expenditures that we're expecting being closer to 3% of sales versus where we were in 2024. When I think about working capital, I would say we are in a much better position, you're right, much more nimble. There's not nearly as much inventory to take out in the year and I expect that to be pretty similar to the, I'm sorry, a little bit better, certainly better than 2024.

Just to clarify this, Sarah, it sounds like you mentioned during your prepared remarks that there was a P&L impact on the sale leaseback. So wouldn't that be going away as well? It sounds like free cash flow, when you include that, got a positive outlook to it.

Yes, same free cash flow, we had a $17 million impact. That would go away, but then when you look at the capital expenditures, that's probably that is by far the largest mover and then cash, that's the largest mover.

Okay. Outstanding. Thank you so much. I'll pass it along.

And your next question today will come from Greg Burns with Sidoti and Co. Please go ahead.

Good morning.

Good morning, Greg.

You mentioned I guess snowfall has been market or regional focus. Can you just remind us where like your most important markets are? Like you did mention the big cities, but when we think about the regional distribution of where snow is falling.

Yeah, I can. Greg, it's Mark, I'd be happy to take that. With our three brands, we have a nice national footprint basically anywhere that it snows. But to your point exactly I mean it's really, we look at kind of where the major population centers are. So as we think about it, and this is very rough, it's kind of anything East of the Mississippi and kind of north of, if you want to call it kind of Tennessee, Virginia, that's really the sweet spot. So anywhere in the upper Midwest, Ohio Valley, the Mid-Atlantic, New York, New Jersey, up into Maine and then certainly we have a strong presence in Canada as well. So with some of the storms that we've seen recently, Ottawa, Toronto, getting hit with some major snow, that certainly is very beneficial for, for us.

Okay. And then when we look at the margin improvement that's been happening on the solution side of the business, I know you're kind of at that low end of that double-digit range or just right around it for this year. But where do you think your margins can go for that business? Is it going to be strictly volume-based based or do you have other kind of efficiency programs that you're implementing to drive the margins on that business?

Yes, we entered into the target range, I would say this year at the low end and the target range being double digit to low teens. I would say by far the largest mover to get us into the 13% range is more throughput at both of the businesses but that does not stop us from all the other initiatives that focus on margin improvement that will also help us get there.

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 for any closing remarks.

Thank all of you for your ongoing interest in Douglas Dynamics and we are confident about the future potential of our company as we address the opportunities on the horizon and deliver improvements. Thank you for your time today and we hope to talk to all of you soon.