James Janik - Chairman, President and Chief Executive Officer Robert McCormick - Executive Vice President and Chief Financial Officer.

Timothy Wojs - Robert W. Baird & Co. Michael Shlisky - Seaport Global Securities, LLC Les Sulewski - Sidoti & Company, LLC.

Good day, ladies and gentlemen, and welcome to the Douglas Dynamics' First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference. Mr. Bob McCormick, Executive Vice President and Chief Financial Officer, you may begin..

Thank you. Welcome everyone and thank you for joining us on the call today. Two quick items before we begin. First, please note that some of the information that you will hear during this call will consist of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended.

Such statements express our expectations, anticipations, beliefs, estimates, intentions, plans and forecasts. Because these forward-looking statements involve risks and uncertainties, our actual results could differ materially from those in the forward-looking statements.

For more information regarding such risks and uncertainties, please see the sections titled Risk Factors, Forward-Looking Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission and the impending updates to these sections in our Quarterly Reports filed on Form 10-K, 10-Q.

Second, this call will involve a discussion of adjusted EBITDA, and non-GAAP financial measures, which under SEC Regulation G, we are required to reconcile with GAAP. The reconciliation of this measure to the closest GAAP financial measure is included in today's earnings press release, which is available at douglasdynamics.com.

Joining me on the call today is Jim Janik, our Chairman, President and Chief Executive Officer. Jim will begin by providing an overview of our performance for the quarter and current industry trends. Then I will review our financial results before turning it back to Jim to discuss our outlook. Finally, we will open the call for your questions. Jim..

Thanks Bob and good morning everyone. Thank you for joining us on today’s call. We are pleased with our over results for the first quarter, which were in line with our expectations.

As many of you know, we produced uncharacteristically strong first quarter results for 2014 and 2015 based on the release of pent up demand, strong snowfall across core markets and of course the addition of Henderson last year.

Given the significantly below average snowfall and far fewer plowable events during this past winter, we certainly didn’t expect to repeat this performance. However, I’m pleased to report that Henderson performed very well providing a strong boost to our results and the team in Manchester, Iowa maintains a healthy backlog of business for the year.

I think this quarter provides a good illustration of one of the benefits of adding Henderson to our portfolio as our business is not primarily weather dependent and results are fairly evenly distributed across all four quarters.

While the weather trends across North America this past winter impacted our commercial snow and ice products, non-snowfall indicators remain positive including ongoing strength in light-truck sales, relatively low gas prices and positive viewer sentiment.

As you saw in our release, we reported first quarter 2016 net sales of $48.8 million and net income of $0.23 per diluted share, which included a $10 million or $0.27 per diluted share from the successful completion of our pattern infringement lawsuit against Buyers Products Company.

Collectively the people at Douglas Dynamics have invested a massive amount of time and energy over the past 65-years, developing and improving our industry leading products. Therefore, after our employees and dealers, we consider our intellectual property are most valuable asset and one which we would diligently defend.

We were pleased that during the first quarter in a solid Applet Circuit Court upheld the 2010 Federal Court decision, which ruled in our favor. The court concluded that Buyers Products Company owner of the SnowDog brand was deemed to have infringed on a product design patents.

This lawsuit has been sitting out there for a long time due to ongoing appeals, so it’s good to have it and conclude successfully. Having to defend our intellectual property in court is one of the less desirable aspects of being the industry leader.

It’s hard for our competitors to match our commitment to innovation, which sometimes leads to situation like this. Make no mistake, we’ll continue to fend ourselves where necessary. Turning back to the business, as always when we experience significantly below average snowfall, we implement our low snowfall playbook.

It would be an understatement to say that we’ve seen this movie before and that we’re confident that we have the systems in place to not just manage through low snowfall, but to thrive.

We have already reduced some discretionary spending and are focusing on improvements that will directly increase service levels and quality for our customers while improving base business profitability. To be clear, we don't see below average snowfall as a completely negative situation.

It is part of our business and something we've experienced regularly for decades. We see it as an opportunity to focus extra time and energy on both the innovation for our next generation of products and using DDMS to improve quality and service for our dealers and end users.

This serves us well during the low snowfall environment, but the benefits really start to show themselves when the snow returns and the volume increases.

I cannot overstate the importance of DDMS for our business, it underpins our success to drive incremental improvements across our product portfolio and allows us to quickly adapt and react to changing market conditions.

Similar to last quarter I would like to outline an example of DDMS project, this time will outline our project that focuses on improvements, which directly benefit our Henderson customers.

The ability to quickly turn a customer order into a shipment is another major focus for our DDMS efforts, again looking for ways to enhance our industry leading service levels, we are currently using a measurement called days in process.

We measured the time, we started customer order until it is completed for shipment through [tied on events], developing kitted flow, utilizing capacity for the next customer order and focusing the organization on velocity of work we've been able to reduce the days in process by more than 50%, which is a dramatic improvement for our Henderson customers.

Also I would like to touch on our uses of cash, we paid our quarterly cash dividends at the end of March of $0.235 per share of common stock, this represents a 5.6% increase over the fourth quarter dividend.

We've increased our dividend eight time in the six-years since our IPO, which is a testament to our financial strength and commitment to returning excess cash to our shareholders. In addition to the dividend, our addition cash priorities remain unchanged.

We will also consider using excess cash to reduce the company’s debt levels, to maintain financial flexibility and pursue strategic acquisitions. We continue to explore opportunities with companies that produce work dedicated attachments and offer us the highest risk adjusted return on investment capital.

We opportunistically pursue deals that will expand our market share in new geographic and end user markets and develop strategic platforms that reduce reliance on weather. While we remain active in the M&A arena, we also remain very disciplined in our approach.

Finally, there continue to be positive non-snowfall, business indicator such as strength in light-truck sales and relatively low gas prices. Selected U.S. light-truck sales grew 6% during the first quarter when compared to the first quarter of last year.

Another positive indicator is favorable dealer sentiment; distributor field inventory taken at the end of January was only moderately higher than last year, which is exactly what we would hope for following the winter with significantly below average snowfall.

With that, I'm going to turn the call back over to Bob to discuss the specifics of our financial results. Bob..

Thanks, Jim. For the first quarter of 2016, we produced net sales of $48.8 million compared to $53.9 million in the same quarter last year in line with our expectations. Henderson performed very well during the quarter and our commercial snow and ice results matched our expectations given the weather conditions.

Gross profit was $14.1 million or 29% of sales for the first quarter compared to $16.4 million or 30.5% of sales in the first quarter of 2015. The decrease in margin as a percentage of sales is largely due to the strong performance by Henderson, which operates at lower margins, coupled with lower volumes in commercial snow and ice.

It is worth noting that the first quarter of 2015 included the negative impact of a one-time $2 million Henderson purchase account inventory write-off which was expensed from cost to good sold. SG&A expenses were $10.9 million for the first quarter of 2016 compared to $11.4 million in the first quarter of 2015.

This 4.4% decrease was driven by lower sales and marketing spending, which we implemented as part of our low snowfall playbook. First quarter 2015 adjusted EBITDA was $6.3 million compared to prior year adjusted EBITDA of $9.6 million, again driven by the trends I have already outlined.

Turning to net income as you have seen in the release, our net income this quarter includes approximately $10 million gain led to the successful conclusion of a lawsuit, which equates to $0.27 per diluted share. So including the gain net income for the first quarter of 2016 was $5.3 million compared to prior year net income of $24 million.

Earnings per share were $0.23 per diluted share in the first quarter of 2016 compared to earnings per diluted share of $0.01in the first quarter of 2015.

Also for the first quarter of 2015, there was a $2.1 million impact of non-cash purchase accounting adjustments related to the Henderson acquisition which equates to negative $0.05 per diluted share.

Net cash provided by operating activities for the first quarter of 2016 was $18.6 million compared to prior year the cash provided by operating activities of $11.3 million, the increase relates primarily to working capital changes.

Inventory was $73.7 million at the end of the first quarter of 2016, modestly higher and in line with our expectations when compared to $71 million of inventory at the end of the first quarter of 2015. Accounts receivables at the end of the first quarter of 2016 were $29 million when compared to $23.9 million for the first quarter of 2015.

The increase stems from the fact that the company entered 2016 with higher receivable balance compared to 2015, but levels remain within traditional ranges. Cash on hand at the end of first quarter of 2016 totaled $48.4 million, the unused borrowing capacity under the revolver is $97.8 million with total liquidity of $146.2 million.

We are well positioned to fund our regular quarterly dividend payments and future growth opportunities. Overall, we remain in a very strong financial position and are confident we can continue to improve our standard in 2016. With that, I will turn the call back over to Jim for his concluding remarks. Jim..

Before we open the call for questions, let me talk briefly about our priorities and outlook for 2016. Overall, despite the lack of snow this past winter, we remain encouraged by the positive non-snowfall indicators.

We are reaffirming our 2016 outlook and expect net sales for the full-year 2016 to range between $310 million and $370 million producing adjusted EBITDA in the range of $55 million to $85 million and EPS between $1.05 and $1.65 per share.

As we are in early stages of our April to June pre-season order period, we anticipate shipments during the pre-season period to be closer to a 55/45 split between the second and third quarters.

For example, as you may remember the new product production ramp up last year resulted in stronger third quarter shipments, which will not occur again this year. As we move further into 2016, I want to reiterate our top strategic priorities that we announced on our last call.

Namely, driving the difference through DDMS, we are continually searching for ways to create benefits for the customer rather than just reducing cost by diligently tracking performance, we’re able to identify gaps, communicate expectations and drive alignments.

DDMS continues to be the cornerstone of our strategy and will remain vitally important to us for years to come. Secondly, achieving Henderson’s potential. I’m glad to say that ad opportunities continue to bound at Henderson.

We are focused on improving our ability to provide customized solutions that are unique for our customers’ geography, climate and population. As I mentioned earlier, we continue to implement DDMS to successfully scale our customized solutions approach, meet growing demand and expand market share. Thirdly, optimize our margin.

As with every year, we expect to improve profitability this year in commercial snow and ice. Combining small annual product price increases, which helps to offset cost inflation with ongoing cost reductions consistently improves profitability. And finally, exploring adjacent markets.

We remain focused on developing strategic platforms that reduce our reliance on weather and the active current M&A market includes multiple opportunities that we will diligently explore. That said, we remain disciplined and will politely pass on more deals that we pursue.

We are excited by the opportunities in front of us and we will continue to leverage DDMS to drive service and quality across all aspects of the business, which will in turn drive increased value for our shareholders. We will now open the call for your questions.

Operator?.

Thank you. And our first quarter comes from the line of Tim Wojs with Baird. Your line is now open..

Hey guys. Good morning..

Good morning..

I have a few questions, I guess the first one is I just wondered if you can comment maybe on how April has looked from a pre-season order perspective and if that’s been in line? Or how that’s compared I guess relative to your expectations considering where inventory levels are in sort of the positive non-snowfall indicators that you are talking about?.

Sure. April as you know is about the first month of pre-season for us and its coming in nicely. I’m not going to make comparisons from previous years, because it’s so early at this point, but it is meeting our internal expectations..

Okay. And then I know steel costs have kind of picked up a little bit here, how should we think about just price cost through the year as we kind of get into the back half for comparisons on raw materials probably get a little bit more challenging..

Yes, I think Tim we're certainly seeing a small uptick as well.

When we take our mid-year price increase, we will take that into consideration along with what we think the balance of year looks like and as we've stated many times, we will take a price increase through the market that will largely cover up the cost of raw material and wage rate inflation.

So I wouldn't expect that to be any different in 2016 as has been historically..

And then last one just, any help just trying to Henderson had pretty good quarter.

Is there any way to frame maybe how that business did from a revenue growth perspective and in terms of year-over-year growth maybe in the single-digits in terms of growth maybe up double-digits just a little bit of a color on Henderson would be great?.

Yes that’s an excellent question. We provided more granular guides on Henderson during the first year of our ownership.

Now that it's integrated into our base business, we're not providing specific guidance and/or data points there, but safe to say Henderson's growth pattern continues, there is still a long runway for them, DDMS is really allowing them to explore and chase revenue growth opportunity to how to benefit them in 2016 and beyond..

Okay I have one last question.

What was parts and accessories as a percentage of the total revenue for Q1?.

I don't have that information with me at the moment. That will be something you can find in our Q and we can certainly follow-up after the call on that as well Tim..

Okay, great. Good luck on 2016..

Thank you..

And our next question comes from the line of Mike Shlisky with Seaport Global. Your line is now open..

Good morning guys..

Hi Mike..

So, maybe I could follow-up on the previous question about Henderson, is it better to say that Henderson as a percentage of the mix in 2015, might be a larger this year than it was in the prior year?.

Yes, I think that's a very safe assumption, you've got Henderson which continues to grow and coming off of two record years in the commercial snow and ice business, the impact of the below average snowfalls is going to certainly brings that businesses revenues down. So that's a logical conclusion to draw..

Okay great. I also wanted to ask about pricing, I know you had mentioned in a mid-year price increase.

But in your core commercial snow and ice business do you expect to see some of the smart competitors out there, try to get more competitive or a little more tricky with their pricing, in a lower volume environment this year versus last year?.

We don't anticipate that. Historically what we've seen is most of our competitors really don’t utilize pricing as a competitive advantage or disadvantage, most of the customers for our business are generally not weary of price, they are really looking more and more for a reliable product.

So pricing isn't necessarily a great tool for the toolkit at this point if you are a competitor..

Okay, great. I also wanted to try into the low snowfall playbook. Just wanted to get a little bit more detail there, perhaps you can allow since you have pulled out the old playbook there.

I guess I was kind of wondering first, what we saw in Q1 as far as your SG&A reduction, is that the normal amount you would see every quarter throughout the year or as you approach the more core delivery season, do things change? Talk a little bit about just the higher SG&A cuts here in Q2, just give us a little more color on the timing and intent of some of the cost pressure changes, I'm guessing..

The way that we approach our below average snowfall year is, we will make a fairly substantial amount of cuts and/or freezes early, that includes spending reductions which we've talked about.

It includes freeze in any position openings that you might have, it would also include a substantial reduction in the temporary workforce that are in our factories, those are all the main components of the low snowfall playbook.

And then as the precedes in order book shows itself, as we get farther into the third quarter and we start to see what fourth quarter demand looks like.

We can tweak those spending adjustments upward down, but the real key is to make a fairly sizeable adjustment early, the one that you can always bring some of that spending back into the business model if things turn out to be better than you anticipated.

So it's really is a quarter-by-quarter proposition in that terms of what happens to that SG&A spending..

Okay got it. That’s a great color. Thanks guys..

And our next question comes from the line of Les Sulewski with Sidoti and Company. Your line is now open..

Good morning and thanks you guys..

Hi Les..

So, perhaps you can guide us on the both the risk on the higher end of our your EPS guidance or is it maybe the upper [indiscernible] of the late snow season or it's more of operational versus specifically at Henderson?.

No, I think it’s when we look at the upper end of the guidance range, the snowfall assumption that we make is that obviously the season that just ended is now behind us and that’s factored into our guidance to begin with.

The upper end of the guidance then would be when next year snow season starts in the fourth quarter of 2016 that’s a heavy snowfall start to the next season, okay.

Henderson’s revenue plans and Henderson’s growth trajectories are not driven by whether to any large degree, so the upper end of the guidance is really commercial snow and ice that we get a very positive start to the fourth quarter snow season..

Okay. Got it.

As far as capital allocation goes maybe in the long-term, are you more geared towards debt reduction, dividend increase or an acquisition?.

Yes..

In which order I guess..

Protecting and paying and growing the base dividend has always been our number priority and that doesn’t change in any snowfall environment. Pass that, we’re in a great capital position currently. Pass that, it’s a combination of paying down debt and or looking for a nice accretive acquisition that fits a very disciplined acquisitions strategy.

So that would be the priority..

I guess a follow-up to that in terms of acquisitions, would you be more willing to - are you more open to product additions or perhaps getting into distribution business?.

I think from our perspective we’re looking at the truck equipment attachment space and I think the answer to that is we’re keeping a very open but disciplined mind in terms of exactly where the greatest opportunity is. There are some opportunities out there that we continue to bet, but we do pass on a lot more than we actually act on.

So I think we’re pretty flexible..

Okay.

So it could essentially be a product position or a distribution?.

Yes, I would hate to at this particular point to rule anything out. What we do believe is that if it’s in our core market which is truck equipment and we can utilize DDMS as a basis for improving the business and it’s certainly accretive. We’ll certainly consider it..

Got it. okay, thank you guys..

Welcome..

[Operator Instructions].

Operator while we are - if there is any more questions, I’ll go back to the third quarter, parts and accessories revenue for the first quarter was $9.8 million just to cover that off for Tim..

And I’m showing no further questions at this time. I would now like to turn the call back over to Mr. Jim Janik, Chairman President and CEO for any closing remarks..

Thank you operator and thank all of you for your interest in Douglas Dynamics. We look forward to speaking with you again in early August for our second quarter earnings announcements. Have a great day..

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program. You may all disconnect. Everyone have a great day..