Core Molding Technologies(CMT) - 2022 Q1 - Quarterly Report

Part I — Financial Information This section presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including operations, comprehensive income, balance sheets, equity, cash flows, and detailed accounting notes Consolidated Statements of Operations Consolidated Statements of Operations (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :---------------------- | :------------------ | :------------------ | | Net sales | $90,592 | $72,829 | | Cost of sales | $76,085 | $60,111 | | Gross margin | $14,507 | $12,718 | | Operating income | $6,012 | $5,346 | | Income before taxes | $5,502 | $4,807 | | Income tax expense | $1,638 | $1,351 | | Net income | $3,864 | $3,456 | | Basic EPS | $0.46 | $0.41 | | Diluted EPS | $0.46 | $0.41 | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Net income | $3,864 | $3,456 | | Other comprehensive income: | | | | Post-retirement benefit plan adjustments (net of tax) | ($64) | ($64) | | Comprehensive income | $3,800 | $3,392 | Consolidated Balance Sheets Consolidated Balance Sheets (as of March 31, 2022 and December 31, 2021) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------------------------- | :---------------------------- | :------------------------------- | | Total current assets | $89,230 | $75,142 | | Total Assets | $199,886 | $186,692 | | Total current liabilities | $63,272 | $53,052 | | Total Liabilities | $95,489 | $86,597 | | Total Stockholders' Equity | $104,397 | $100,095 | Consolidated Statement of Stockholders' Equity Consolidated Statement of Stockholders' Equity (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Balance at December 31 | $100,095 | $93,932 | | Net income | $3,864 | $3,456 | | Change in post-retirement benefits | ($64) | ($64) | | Restricted stock vested | $1 | $0 | | Share-based compensation | $501 | $318 | | Balance at March 31 | $104,397 | $97,595 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :---------------------------------------- | :------------------ | :------------------ | | Net cash used in operating activities | ($1,657) | ($512) | | Net cash used in investing activities | ($2,482) | ($2,436) | | Net cash (used in) provided by financing activities | ($681) | $1,844 | | Net change in cash and cash equivalents | ($4,820) | ($1,104) | | Cash and cash equivalents at end of period| $1,326 | $3,027 | Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION - The unaudited consolidated financial statements are prepared in accordance with Form 10-Q and GAAP for interim reporting, including all normal and recurring adjustments[27] - Core Molding Technologies operates as one segment in the engineered materials market, producing thermoplastic and thermoset structural products for various markets (e.g., medium and heavy-duty trucks, power sports, building products)[28] 2. CRITICAL ACCOUNTING POLICIES AND ESTIMATES - Revenue is recognized from product sales (generally upon shipment or customer control) and tooling revenue (at a point in time upon customer acceptance or over time based on a cost-to-cost measure of progress)[31][32][33] - The company maintains allowances for doubtful accounts of $32,000 at March 31, 2022, and for slow-moving and obsolete inventory of $451,000 at March 31, 2022[36][37] - Goodwill and long-lived assets are reviewed for impairment, with no impairment charges recorded for the three months ended March 31, 2022, or 2021[40][43] - The company is self-insured for medical, dental, vision, and workers' compensation claims, with an estimated liability of $890,000 at March 31, 2022[45] 3. RECENT ACCOUNTING PRONOUNCEMENTS - The company will adopt ASU 2016-13 (CECL) on January 1, 2023, but does not expect a material impact on its consolidated financial position, results of operations, or cash flows[48] - ASU No. 2020-4 (Reference Rate Reform) provides optional expedients for applying GAAP to transactions affected by reference rate reform, effective through December 31, 2022[49] 4. NET INCOME PER COMMON SHARE Net Income Per Common Share (3 Months Ended March 31) | Metric | 2022 (in thousands, except per share) | 2021 (in thousands, except per share) | | :--------------------------------------------- | :------------------------------------ | :------------------------------------ | | Net income available to common shareholders | $3,767 | $3,252 | | Weighted average common shares outstanding — basic | 8,268,000 | 7,985,000 | | Basic net income per common share | $0.46 | $0.41 | | Diluted net income per common share | $0.46 | $0.41 | - Restricted shares granted under the 2006 Long Term Equity Incentive Plan are considered participating securities, requiring the two-class method for EPS calculation[52] 5. MAJOR CUSTOMERS - Five major customers (BRP, Navistar, PACCAR, UFP, and Volvo) individually accounted for more than ten percent of total sales during the three months ended March 31, 2022[55] Sales Revenue by Major Customer (3 Months Ended March 31) | Customer/Sales Type | 2022 (in thousands) | 2021 (in thousands) | | :------------------ | :------------------ | :------------------ | | Total BRP sales | $12,357 | $8,683 | | Total Navistar sales| $14,033 | $10,243 | | Total PACCAR sales | $8,858 | $9,683 | | Total UFP sales | $12,687 | $10,657 | | Total Volvo sales | $11,002 | $10,145 | | Total product sales | $89,901 | $69,133 | | Total tooling sales | $691 | $3,696 | | Total sales | $90,592 | $72,829 | 6. INVENTORY Inventories, Net (as of March 31, 2022 and December 31, 2021) | Inventory Component | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------ | :---------------------------- | :------------------------------- | | Raw materials | $18,984 | $17,160 | | Work in process | $2,061 | $1,976 | | Finished goods | $7,354 | $5,993 | | Total | $28,399 | $25,129 | - An allowance for slow-moving and obsolete inventory of $451,000 was recorded at March 31, 2022, compared to $362,000 at December 31, 2021[37][58] 7. LEASES - The company has operating leases for certain buildings and warehouses with remaining lease terms of less than one year to four years, some including five-year extension options[59] Lease Information (as of March 31, 2022 and December 31, 2021) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------- | :---------------------------- | :------------------------------- | | Operating lease right-of-use assets | $5,081 | $5,577 | | Total operating lease liabilities | $5,185 | $5,513 | | Weighted average remaining lease term| 3.9 years | 4.2 years | | Weighted average discount rate | 4.0% | 4.1% | - Cash paid for operating leases was $475,000 for the three months ended March 31, 2022, an increase from $368,000 in the prior year period[64] 8. PROPERTY, PLANT & EQUIPMENT Property, Plant and Equipment, Net (as of March 31, 2022 and December 31, 2021) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | | Property, plant and equipment | $186,166 | $183,500 | | Accumulated depreciation | ($110,120) | ($107,603) | | Property, plant and equipment — net | $76,046 | $75,897 | - Depreciation expense for the three months ended March 31, 2022, was $2,517,000, and purchase commitments for capital expenditures in progress were $3,822,000[66] 9. GOODWILL AND INTANGIBLES Goodwill and Intangibles, Net (as of March 31, 2022 and December 31, 2021) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | | Goodwill | $17,376 | $17,376 | | Intangibles, net | $9,080 | $9,567 | | Aggregate intangible asset amortization expense (3 months ended Mar 31) | $487 | $487 | - No additions or impairments to goodwill were recorded for the three months ended March 31, 2022[68] 10. POST-RETIREMENT BENEFITS Post-Retirement Benefits Expense (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Total pension expense | $572 | $491 | | Net periodic benefit credit (health & life insurance) | ($31) | ($40) | | Total post-retirement benefits expense| $541 | $451 | - The company expects to make approximately $2,179,000 in pension plan payments and $1,360,000 in post-retirement healthcare and life insurance payments for the remainder of 2022[72] 11. DEBT Debt Breakdown (as of March 31, 2022 and December 31, 2021) | Debt Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------------------- | :---------------------------- | :------------------------------- | | Wells Fargo term loans payable| $13,392 | $13,992 | | FGI term loans payable | $12,077 | $12,561 | | Leaf Capital term loan payable| $111 | $119 | | Total debt | $25,580 | $26,672 | | Long-term debt | $20,239 | $21,251 | - Wells Fargo Term Loans bear interest at LIBOR plus 300 basis points or base rate plus 200 basis points, with a weighted average interest rate of 3.78% at March 31, 2022[75] - The FGI Term Loan has a fixed interest rate of 8.25% and is secured by certain machinery, equipment, and real property in Mexico[80][81] - The Wells Fargo Revolving Loan has a commitment of $25,000,000, with $4,835,000 outstanding at March 31, 2022, and a weighted average interest rate of 4.50%[84][86][87] 12. INCOME TAXES - Net deferred tax assets include $252,000 for Canada and $841,000 for Mexico, with a net deferred tax liability of $572,000 for the U.S. at March 31, 2022[92] - A valuation allowance of $3,310,000 was recorded due to cumulative losses over the last three years and uncertainty regarding the realization of deferred assets[92] Income Tax Expense (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :----------------- | :------------------ | :------------------ | | Income tax expense | $1,638 | $1,351 | | Effective tax rate | 29.8% | 28.1% | 13. STOCK BASED COMPENSATION - The 2021 Long Term Equity Incentive Plan allows for grants of various stock awards up to an aggregate of 712,364 awards, vesting over one to three years[95][96] Stock-Based Compensation Summary (as of March 31, 2022) | Metric | March 31, 2022 (shares) | December 31, 2021 (shares) | | :------------------------------------ | :---------------------- | :------------------------- | | Unvested Restricted Stock balance | 427,320 | 459,420 | | SARs Outstanding | 177,016 | 177,016 | - Total unrecognized compensation expense for Restricted Stock was $2,579,000 at March 31, 2022, expected to be recognized over a weighted-average period of 1.9 years[99] - Total compensation cost related to Stock Appreciation Rights (SARs) for the three months ended March 31, 2022, was $33,000[102] 14. ACCUMULATED OTHER COMPREHENSIVE INCOME Changes in Accumulated Other Comprehensive Income (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | | :------------------------------------ | :------------------ | :------------------ | | Balance at December 31 | $1,075 | $1,375 | | Other comprehensive income before reclassifications | $0 | $0 | | Amounts reclassified from AOCI | ($81) | ($81) | | Income tax benefit | $17 | $17 | | Balance at March 31 | $1,011 | $1,311 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial performance, operating results, liquidity, capital resources, and forward-looking statements Business Overview - The company's business and operating results are directly affected by changes in customer demand, operational costs, and the leverage of its fixed cost and SG&A infrastructure[108] - Product sales fluctuate due to factors beyond the company's control, such as general economic conditions, interest rates, government regulations, raw material cost inflation, and labor availability[109] - For 2022, the company expects sales to increase compared to 2021, driven by higher demand in medium and heavy-duty truck, power sports, utilities, and industrial markets, and anticipated new program launches[114] - Raw material costs are expected to remain elevated in 2022, but the company recovered much of these increases in Q1 2022 and is pursuing additional cost recoveries, with ongoing wage inflation anticipated despite improving labor market constraints[115][116] Results of Operations Key Financial Results (3 Months Ended March 31) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (YoY) | | :---------------------- | :------------------ | :------------------ | :----------- | | Net sales | $90,592 | $72,829 | +24.3% | | Product sales (excl. tooling) | $89,901 | $69,133 | +30.0% | | Gross margin percentage | 16.0% | 17.5% | -1.5 pp | | SG&A expenses | $8,495 | $7,372 | +15.2% | | Net income | $3,864 | $3,456 | +11.8% | - The increase in net sales was primarily driven by higher demand from the medium and heavy-duty truck, power sports, and building product markets, coupled with price increases to offset raw material and labor cost inflation[119] - The gross margin percentage decreased due to negative impacts from net changes in selling price and raw material costs (-1.7%) and product mix/production inflation (-1.2%), partially offset by higher fixed cost leverage (+1.4%)[119] Liquidity and Capital Resources - The company's primary sources of funds are cash generated from operating activities and borrowings from third parties, with primary cash requirements for operating expenses, capital expenditures, and debt repayments[124] Cash Flow and Liquidity (3 Months Ended March 31, 2022) | Metric | Amount (in thousands) | | :---------------------------------------- | :-------------------- | | Cash used in operating activities | ($1,657) | | Cash used in investing activities | ($2,482) | | Cash used for financing activities | ($681) | | Cash on hand (March 31, 2022) | $1,326 | | Available revolving line of credit (March 31, 2022)| $24,316 | - The company anticipates spending up to $20,000,000 on capital expenditures in 2022, including capacity expansion in Matamoros, Mexico, and new presses in Winona, Minnesota, and Cobourg, Ontario, Canada[127] - Management believes cash on hand, cash flow from operating activities, and available borrowings will be sufficient to meet current liquidity needs, and the company was in compliance with all financial covenants as of March 31, 2022[129][130] Critical Accounting Policies and Estimates - For detailed information on critical accounting policies and estimates, refer to Note 2 of the consolidated financial statements[150] Recent Accounting Pronouncements - For information on the impact of recently issued accounting pronouncements, refer to Note 3 of the consolidated financial statements[151] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks from commodity prices, interest rates, and foreign currency fluctuations - The company's primary market risks include changes in commodity prices (raw materials), interest rates (variable rate loans), and foreign currency fluctuations (Mexican Peso and Canadian Dollar)[153][154] - A hypothetical 10% increase in commodity prices or a 10% decrease in the United States dollar to Mexican Peso and Canadian Dollar exchange rates would have an adverse effect on operating margins[155][156] - A hypothetical 10% change in short-term interest rates would not have a material effect on earnings before tax[155] Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and procedures, confirming no material changes in internal controls - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[158] - No changes in internal controls over financial reporting occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal controls over financial reporting[158] Part II — Other Information This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and exhibits Item 1. Legal Proceedings States the company is not involved in any legal proceedings expected to materially affect its financial position or operations - The company is not involved in any legal proceedings that are likely to have a material adverse effect on its consolidated financial position or results of operations[161] Item 1A. Risk Factors Confirms no material changes to risk factors previously disclosed in the Annual Report on Form 10-K - There have been no material changes in Core Molding Technologies' risk factors from those previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021[162] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities during the three months ended March 31, 2022 - The company did not make any unregistered sales of equity securities during the three months ended March 31, 2022[163] Item 3. Defaults Upon Senior Securities States there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[164] Item 4. Mine Safety Disclosures Indicates no mine safety disclosures are required for this reporting period - There are no mine safety disclosures[165] Item 5. Other Information Confirms no additional information to report under this item - There is no other information to report under this item[166] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including corporate governance documents and certifications - The report includes various exhibits such as certificates of incorporation, by-laws, and Section 302 and 1350 certifications[174] Index to Exhibits - The index provides a comprehensive list of all exhibits, detailing their descriptions and whether they are filed herein or incorporated by reference[174] Signatures Contains the authorized officers' signatures certifying the report - The report is signed by David L. Duvall (President, Chief Executive Officer, and Director) and John P. Zimmer (Executive Vice President, Secretary, Treasurer, and Chief Financial Officer) on May 10, 2022[170][172]