Douglas Dynamics, Inc. (NYSE:PLOW) Q4 2024 Earnings Conference Call February 25, 2025 10:00 AM ET Company Participants Nathan Elwell - Vice President of Investor Relations Jim Janik - Chairman and Interim President and CEO Sarah Lauber - Executive Vice President and CFO Mark Van Genderen - COO and President of Work Truck Attachments Conference Call Participants Mike Shlisky - D. A. Davidson Greg Burns - Sidoti and Co Operator Good day, and welcome to the Douglas Dynamics' Fourth Quarter 2024 Earnings Confer ...

Douglas Dynamics (PLOW) came out with quarterly earnings of $0.39 per share, beating the Zacks Consensus Estimate of $0.37 per share. This compares to earnings of $0.19 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 5.41%. A quarter ago, it was expected that this snowplow maker would post earnings of $0.23 per share when it actually produced earnings of $0.24, delivering a surprise of 4.35%.Over the last four quarters, the co ...

Financial Performance - Full Year 2024 Net Sales reached $568.5 million, a slight increase from $568.2 million in 2023[3] - Full Year Net Income increased significantly to $56.2 million, compared to $23.7 million in 2023, driven by a one-time gain of $42.3 million from a sale leaseback transaction[6] - Adjusted EBITDA for 2024 rose 16.4% to $79.3 million, with an Adjusted EBITDA Margin of 14.0%, up from 12.0% in 2023[6] - Adjusted Diluted EPS increased approximately 45% to $1.47, compared to $1.01 in 2023[4] - Net income for the twelve-month period ended December 31, 2024, reached $56,151 thousand, significantly higher than $23,723 thousand in 2023, marking an increase of 136.5%[25] - Adjusted EBITDA for the twelve-month period ended December 31, 2024, was $79,349,000, up from $68,122,000 in 2023, reflecting a growth of 16.5%[31] - Adjusted net income for the twelve-month period ended December 31, 2024, was $35,167,000, compared to $24,370,000 in 2023, marking an increase of 44.3%[34] - The weighted average diluted earnings per share for the twelve-month period ended December 31, 2024, was $2.36, compared to $0.98 in 2023, representing a significant increase of 140.8%[34] Segment Performance - The Work Truck Solutions segment achieved record full year Net Sales of $312.5 million, a 13.0% increase from $276.5 million in 2023[11] - The Work Truck Attachments segment saw a decline in Net Sales to $256.0 million for 2024, down from $291.7 million in 2023, due to low snowfall impacting demand[5] - The company reported an adjusted EBITDA margin of 16.7% for the Work Truck Attachments segment in Q4 2024, compared to 11.1% in Q4 2023[29] - The Work Truck Solutions segment reported net sales of $89,765 thousand for Q4 2024, up from $78,868 thousand in Q4 2023, an increase of 13.5%[29] Cash Flow and Assets - Operating cash flow for the twelve-month period ended December 31, 2024, was $41,131 thousand, compared to $12,469 thousand in 2023, indicating a significant improvement[27] - Free cash flow for the three-month period ended December 31, 2024, was $70,576,000, slightly down from $73,819,000 in 2023, while the twelve-month free cash flow increased to $33,321,000 from $1,948,000 in 2023[37] - The net cash provided by operating activities for the three-month period ended December 31, 2024, was $74,404,000, compared to $76,617,000 in 2023, showing a decrease of 2.9%[37] - Cash and cash equivalents at the end of the period decreased to $5,119 thousand from $24,156 thousand, a decline of 78.8%[27] - The company’s total assets decreased slightly from $593,418 thousand in 2023 to $589,983 thousand in 2024, a decrease of 0.7%[23] Liabilities and Expenses - Total current liabilities decreased from $118,517 thousand in 2023 to $70,192 thousand in 2024, a reduction of 40.7%[23] - The company incurred restructuring and severance costs of $1,997,000 for the twelve-month period ended December 31, 2024, compared to no such costs in 2023[34] - The company reported an interest expense of $3,144,000 for the three-month period ended December 31, 2024, down from $4,468,000 in 2023, indicating a decrease of 29.7%[31] - Stock-based compensation for the three-month period ended December 31, 2024, was $1,233,000, compared to a negative $3,283,000 in 2023, indicating a positive shift in compensation expenses[34] - The company reported a depreciation expense of $2,231,000 for the three-month period ended December 31, 2024, down from $2,852,000 in 2023, reflecting a decrease of 21.8%[31] Future Outlook - Total backlog at the start of 2025 was approximately $348 million, significantly elevated compared to historical averages[6] - The company expects 2025 Net Sales to be between $610 million and $650 million, with Adjusted EBITDA projected to range from $75 million to $95 million[14] Taxation - The effective tax rate for 2024 was 24.0%, an increase from 18.9% in 2023, influenced by a tax benefit related to investment tax credits in the prior year[6] Quarterly Performance - Net sales for the three-month period ended December 31, 2024, increased to $143,549 thousand, up from $134,245 thousand in the same period of 2023, representing a growth of 9.7%[25] - Net income for the three-month period ended December 31, 2024, was $7,907,000, compared to $7,077,000 for the same period in 2023, representing an increase of 11.7%[31] - Gross profit for the twelve-month period ended December 31, 2024, was $146,837 thousand, compared to $134,270 thousand in 2023, reflecting an increase of 9.4%[25]

Core Insights - Douglas Dynamics, Inc. reported strong financial results for the fourth quarter and full year ended December 31, 2024, driven by record performance in Work Truck Solutions and improved margins in Work Truck Attachments [2][3][5] Financial Performance - Net Sales for FY 2024 reached $568.5 million, a slight increase from $568.2 million in FY 2023 [6] - Net Income for FY 2024 was $56.2 million, significantly up from $23.7 million in FY 2023, reflecting a one-time gain of $42.3 million from a sale leaseback transaction [10][5] - Diluted Earnings Per Share (EPS) increased to $2.36 in FY 2024 from $0.98 in FY 2023 [10][5] - Adjusted Net Income and Adjusted Diluted EPS rose approximately 45% to $35.2 million and $1.47, respectively [5][10] Segment Performance - Work Truck Solutions achieved record full-year results with Net Sales of $312.5 million, up from $276.5 million in FY 2023 [12][8] - Work Truck Attachments saw Net Sales decline to $256.0 million from $291.7 million in FY 2023, impacted by low snowfall in previous winters [11][8] - Adjusted EBITDA for Work Truck Solutions increased 75.6% to $30.9 million, while Work Truck Attachments reported Adjusted EBITDA of $48.5 million, down from $50.6 million [12][11] Cost Management and Efficiency - The 2024 Cost Savings Program exceeded expectations, delivering over $10 million in savings [5][6] - Selling, general, and administrative expenses rose to $91.7 million in FY 2024 from $78.8 million in FY 2023, primarily due to one-time costs [6][10] Capital Allocation and Liquidity - Net Cash Provided by Operating Activities increased significantly from $12.5 million in FY 2023 to $41.1 million in FY 2024 [17][10] - Free Cash Flow for FY 2024 was $33.3 million, a substantial improvement from $1.9 million in FY 2023 [17][10] - The leverage ratio improved to 2.4X at the end of FY 2024, down from slightly below 3.5X at the end of FY 2023 [17][10] 2025 Outlook - The company anticipates Net Sales for 2025 to be between $610 million and $650 million, with Adjusted EBITDA expected to range from $75 million to $95 million [18][14] - The effective tax rate for 2025 is projected to be approximately 24% to 25% [18][14]

Core Viewpoint - Douglas Dynamics, Inc. has appointed Chris Bernauer as President of Work Truck Attachments, effective February 28, 2025, highlighting the company's commitment to enhancing its market position and operational excellence [1][3]. Group 1: Leadership Appointment - Chris Bernauer brings over 30 years of experience in manufacturing, engineering, product development, sales, and marketing, with a strong background in the automotive, motorcycle, and marine sectors [2][3]. - Bernauer previously served as President & CEO of Temperature Systems Inc. and held leadership roles at Harris & Cypress Cay Pontoons and Harley-Davidson Motor Company [2][6]. Group 2: Strategic Focus - In his new role, Bernauer will oversee all aspects of Work Truck Attachments, including strategy, operations, and new product development, aiming to build on the company's legacy and create a strong future [3][4]. - The appointment reflects Douglas Dynamics' strategy to advance its market-leading position and deliver sustainable, profitable performance [3][4]. Group 3: Leadership Transition - Bernauer succeeds Mark Van Genderen, who will now concentrate on his responsibilities as Chief Operating Officer while continuing to oversee the company's reporting segments [4].

Company Overview - Douglas Dynamics, Inc. is North America's premier manufacturer and upfitter of work truck attachments and equipment, with over 75 years of industry experience [4] - The company operates through two segments: Work Truck Attachments, which includes brands like FISHER®, SNOWEX®, and WESTERN®, and Work Truck Solutions, which includes HENDERSON® and DEJANA® brands [4] Financial Results Announcement - Douglas Dynamics will release its financial results for the fourth quarter and full year 2024 after market close on February 24, 2025 [1] - A conference call to discuss these results will take place on February 25, 2025, at 9:00 a.m. Central Time, hosted by key executives including the Chairman and Interim President [2] Conference Call Details - The conference call will be available for live streaming on the company's website and can also be joined via phone [3]

Core Viewpoint - Douglas Dynamics (NYSE: PLOW) is assigned a buy rating despite facing a prolonged and challenging downcycle, as historical trends suggest that such cycles eventually revert [1]. Group 1: Company Analysis - Douglas Dynamics operates as a cyclical business, which makes it susceptible to seasonal fluctuations [1]. - The current downcycle has been longer and more difficult than typical, but the company has implemented cost-saving measures that enhance its position for recovery [1]. Group 2: Investment Philosophy - The investment philosophy of Three Mile Research focuses on identifying exceptional businesses that are trading below their intrinsic value, leveraging fundamental analysis and market research to exploit market inefficiencies [1]. - The inspiration for Three Mile Research stems from the Three Mile Island accident, which illustrates the paradox of extreme market reactions to events that do not result in tangible harm, paralleling the approach of investing in undervalued stocks during periods of market panic [1].

Financial Performance - Net sales for the three months ended September 30, 2024, were $129.4 million, a decrease of $14.7 million or 10.2% compared to $144.1 million in the same period of 2023[113]. - Net sales for the nine months ended September 30, 2024, were $425.0 million, a decrease of $8.9 million or 2.1% compared to $433.9 million in the same period of 2023[113]. - The Work Truck Attachments segment reported net sales of $60.2 million for the three months ended September 30, 2024, down $15.7 million from $75.9 million in the same period of 2023[114]. - The Work Truck Solutions segment achieved net sales of $69.1 million for the three months ended September 30, 2024, an increase of $0.9 million from $68.2 million in the same period of 2023[115]. - Net income for the three months ended September 30, 2024 was $32.3 million, an increase of $26.5 million from $5.8 million in the same period in 2023[124]. - Net income for the nine months ended September 30, 2024 was $48.2 million, compared to $16.6 million in the same period in 2023[143]. Profitability Metrics - Gross profit for the three months ended September 30, 2024, was $30.9 million, compared to $32.1 million in the same period of 2023, reflecting a gross margin of 23.9%[111]. - Gross profit for the three months ended September 30, 2024 was $30.9 million, a decrease of $1.2 million or 3.7% from $32.1 million in the same period in 2023[117]. - Adjusted EBITDA for the three months ended September 30, 2024 was $15.3 million, a decrease of $1.98 million compared to $17.3 million in the same period in 2023[146]. - Adjusted EBITDA for the nine months ended September 30, 2024 was $60.6 million, an increase of $7.36 million compared to $53.2 million in the same period in 2023[146]. - Adjusted net income for the nine months ended September 30, 2024, was $25.897 million, up from $19.840 million in the same period of 2023, reflecting a growth of approximately 30%[150]. Expenses and Cost Management - Selling, general, and administrative expenses increased to $25.7 million for the three months ended September 30, 2024, compared to $18.0 million in the same period of 2023[111]. - Selling, general and administrative expenses increased by $6.7 million or 32.5% to $27.3 million for the three months ended September 30, 2024, compared to $20.6 million for the same period in 2023[119]. - The company implemented a 2024 Cost Savings Program in January 2024, primarily involving restructuring charges for salaried headcount reductions[109]. Cash Flow and Liquidity - Total liquidity as of September 30, 2024 was $90.9 million, down from approximately $126.7 million as of December 31, 2023[129]. - Net cash used in operating activities decreased by $30.9 million to $(33.3) million for the nine months ended September 30, 2024, compared to $(64.1) million for the same period in 2023[133]. - Net cash provided by investing activities increased by $68.3 million to $60.5 million for the nine months ended September 30, 2024, primarily due to gross proceeds from a sale leaseback transaction[134]. - Free cash flow for the three months ended September 30, 2024 was ($15.4) million, a decrease of $15.0 million compared to ($0.4) million in the same period in 2023[136]. - Free cash flow for the nine months ended September 30, 2024 was ($37.3) million, an increase of $34.6 million compared to ($71.9) million in the same period in 2023[136]. Transactions and Financing - The company executed a sale leaseback transaction in September 2024 for gross proceeds of $64.2 million, using $42.0 million to pay down its term loan[109]. - Gain on sale leaseback transaction was $42.3 million for the three and nine months ended September 30, 2024, compared to $0.0 million in the same periods in the prior year[121]. - The company closed a sale leaseback transaction with a total of approximately $88.9 million in committed future lease payments over the next 15 years[152]. Market Conditions and Impact - The most recent snow season ended March 2024 was approximately 39.0% below the 10-year average, impacting sales volumes[114]. - Inflation in materials and labor had a material impact on profitability, with ongoing inflationary pressures expected to continue affecting profitability in the remainder of 2024[154]. - The company experienced significant increases in steel costs due to inflationary pressures, but was able to mitigate these effects through surcharges[154]. Steel Cost Management - Steel purchases as a percentage of revenue decreased to 5.9% for Q3 2024 from 9.4% in Q3 2023[167]. - For the nine months ended September 30, 2024, steel purchases as a percentage of revenue were 7.0%, down from 10.2% for the same period in 2023[167]. - The company does not use any derivative or hedging instruments to manage steel price risk[167]. - An increase of $1.00 in steel costs without the ability to pass on the increase could lead to a $1.00 decline in gross margins[167]. - The company has historically mitigated increased steel costs through price increases or temporary surcharges[167].

Financial Data and Key Metrics Changes - Consolidated net sales for Q3 2024 were $129.4 million, down from $144.1 million in Q3 2023 [25] - Gross profit decreased slightly to $30.9 million, but gross profit margin increased by 160 basis points to 23.9% [25] - Adjusted net income for the quarter was $5.9 million, consistent with $6 million in Q3 2023 [28] - Adjusted EBITDA decreased to $15.3 million from $17.3 million in the same quarter last year [28] - Effective tax rate increased to 22.7% from 16.4% in the previous year [27] Business Segment Data and Key Metrics Changes Attachments Segment - Net sales were $60.2 million, slightly lower than expected due to lower reorder volumes and product mix [29] - Adjusted EBITDA for Attachments was $8.1 million, with margins close to 20% year-to-date [30] - Preseason orders were softer than previous years, with a 65-35 split in preseason shipments between Q2 and Q3 [9][30] Solutions Segment - Net sales for Solutions were $69.1 million, slightly higher than last year, with adjusted EBITDA increasing 44% to $7.2 million [31] - Adjusted EBITDA margins improved to 10.4%, a 310 basis point increase [31] - Year-to-date adjusted EBITDA margins more than doubled to 9.5% compared to the previous year [31] Market Data and Key Metrics Changes - Demand for Attachments continues to be impacted by two years of below-average snowfall, leading to an elongated equipment replacement cycle [29] - Municipal demand remains positive, with a backlog much higher than historical levels [16] - The financial health of the dealer network remains strong, with positive sentiment despite current challenges [12] Company Strategy and Development Direction - The company is focused on continuous improvement and operational flexibility to adapt to market conditions [12][60] - A 2024 cost savings program is expected to deliver $11 million to $12 million in sustainable annualized savings starting next year [8][26] - The company plans to invest in upgrading manufacturing capabilities in 2025 and beyond [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the future, expecting more stable conditions that will allow the company to deliver on its potential [18] - The company is prepared for various weather conditions and is ready to adjust operations as needed [12][60] - Management acknowledged the impact of high interest rates and upcoming elections on local market demand but remains hopeful for a rebound [54] Other Important Information - The company completed a sale leaseback transaction in September, generating proceeds of $64.2 million, which were used to pay down term loan debt [23][24] - The leverage ratio at the end of the quarter was 2.6 times, within the targeted range of 1.5 to 3 times [34] Q&A Session Summary Question: Update on off-highway Attachments business - Management noted that while newer products are gaining attention, they are not yet material to growth [41] Question: Support for dealers until winter - Management indicated that dealers are waiting for the snow season and that moving inventory does not add significant value [43] Question: Expectations for reorder activity - Management expects reorders to be softer than normal as dealers work down existing inventory [45] Question: Breakdown of price versus volume in Solutions - Price realization was in the low single digits, with volume declines primarily at Dejana [50] Question: Free cash flow expectations for the year - Free cash flow is expected to exceed dividend levels, with positive changes in working capital [51] Question: Demand environment for Dejana - Management noted uncertainty due to interest rates and elections but remains optimistic for a rebound in 2025 [54]

Financial Performance - Net sales for Q3 2024 were $129.4 million, down from $144.1 million in Q3 2023, primarily due to low snowfall in previous seasons[4] - Net income for Q3 2024 was $32.3 million, significantly up from $5.8 million in the same period last year[4] - Adjusted EBITDA for Q3 2024 decreased to $15.3 million from $17.3 million in Q3 2023, impacted by lower volumes at Attachments[4] - The company reported a basic earnings per share of $1.37 for Q3 2024, compared to $0.25 in the same period last year[25] - Net income for the nine months ended September 30, 2024, was $48,244,000, compared to $16,646,000 for the same period in 2023, representing a significant increase[26] - Net income for Q3 2024 was $32.258 million, a significant increase from $5.792 million in Q3 2023[29] - Adjusted net income for the nine-month period ended September 30, 2024, was $25.897 million, compared to $19.840 million for the same period in 2023, reflecting a growth of 30.9%[29] - The company reported a GAAP diluted earnings per share of $1.36 for Q3 2024, up from $0.24 in Q3 2023[29] - Adjusted diluted earnings per share for the nine-month period ended September 30, 2024, was $1.09, compared to $0.82 for the same period in 2023, representing a 32.9% increase[29] Cost Management and Savings - Gross profit margin increased to 23.9% in Q3 2024 from 22.3% in Q3 2023, driven by higher price realization and the 2024 Cost Savings Program[4] - The 2024 Cost Savings Program is expected to deliver $11 - $12 million in sustainable annualized savings, with $9 million anticipated in 2024[4] - Selling, general, and administrative expenses increased to $25.7 million in Q3 2024, compared to $18.0 million in Q3 2023[25] Liquidity and Cash Flow - As of September 30, 2024, total liquidity was $90.9 million, consisting of $8.4 million in cash and $82.5 million available under the revolving credit facility[11] - Free cash flow for Q3 2024 was $(15.390) million, a decline from $(0.354) million in Q3 2023, indicating cash flow challenges[31] - The company reported a net cash used in operating activities of $33,273,000 for the nine months ended September 30, 2024, an improvement from $64,148,000 in the same period of 2023[26] - Total net cash used in operating activities for the nine-month period ended September 30, 2024, was $(33.273) million, compared to $(64.148) million in the same period of 2023[31] Asset Management - Total current assets increased to $316.1 million as of September 30, 2024, up from $262.2 million at the end of 2023[24] - Total assets reached $665.6 million, an increase from $593.4 million at the end of 2023[24] - Current liabilities rose to $147.5 million, compared to $118.5 million at the end of 2023, indicating increased short-term obligations[24] Segment Performance - Work Truck Solutions segment achieved net sales of $69.1 million, relatively flat year-over-year, with adjusted EBITDA increasing 44% to $7.2 million[9] - Work Truck Attachments segment net sales decreased to $60,249,000 in Q3 2024 from $75,879,000 in Q3 2023, a decline of approximately 20.5%[27] - Work Truck Solutions segment net sales increased to $69,149,000 in Q3 2024 from $68,242,000 in Q3 2023, reflecting a growth of about 1.3%[27] - The adjusted EBITDA margin for the Work Truck Attachments segment was 13.5% in Q3 2024, down from 16.2% in Q3 2023[27] One-time Gains and Transactions - The company announced a one-time gain of approximately $42.3 million from a sale leaseback transaction valued at $64.2 million[4] - The company recognized a gain of $42,298,000 on a sale leaseback transaction, impacting the net income positively[28] - The company reported a significant gain on a sale leaseback transaction amounting to $(42.3) million in Q3 2024[25] - The company reported a gain on sale leaseback transaction of $(42.298) million for the nine-month period ended September 30, 2024[29] Future Outlook and Challenges - The 2024 financial outlook for net sales has been revised to a range of $570 million to $600 million, down from the previous range of $600 million to $640 million[14] - The company anticipates continued challenges in managing economic conditions and product demand, which may impact future performance[23]