Core Molding Technologies(CMT) - 2023 Q4 - Annual Report

Part I Item 1. Business Core Molding Technologies operates as a single-segment manufacturer of molded plastic products for diverse markets, pursuing growth through various strategic initiatives - The Company operates as a molder of thermoplastic and thermoset structural products for varied markets, with headquarters in Columbus, Ohio, and six production facilities in the U.S., Canada, and Mexico[8] - Growth strategies include resourcing products from other suppliers, obtaining new products through OEM bidding, converting alternative materials, and acquiring existing businesses[124] Research and Development Expenses (2021-2023) | Year | R&D Expense (in millions) | | :--- | :--- | | 2023 | $1.7 | | 2022 | $1.6 | | 2021 | $1.3 | Capital Expenditures (2021-2023) | Year | Capital Expenditures (in millions) | | :--- | :--- | | 2023 | $9.1 | | 2022 | $16.6 | | 2021 | $11.6 | Products and Manufacturing Processes The company manufactures structural plastic components using various molding processes, offering advantages over traditional metals like lighter weight and corrosion resistance - The company's core products are structural plastics, which compete with metals by offering advantages such as lighter weight, corrosion resistance, and greater design flexibility[140] - Key manufacturing processes include SMC compression molding, Direct Long Fiber Thermoplastic (D-LFT), Reaction Injection Molding (RIM), Structural Foam and Web Injection Molding (SIM), and Hand Lay-Up/Spray-Up[46][23][127] - As of December 31, 2023, the Company owned 82 molding presses ranging from 250 to 5,500 tons across its six facilities[141] Major Customers and Markets The company's sales are concentrated among five major customers, with the North American truck market being a key, yet cyclical, sector - The North American truck market, which is a primary market for customers like Navistar, Volvo, and PACCAR, is highly competitive and its demand is subject to considerable volatility based on economic cycles[13] Sales to Major Customers as a Percent of Total Sales | Customer | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | BRP | 14% | 14% | 12% | | Navistar | 20% | 17% | 15% | | PACCAR | 10% | 10% | 12% | | UFP | 7% | 9% | 12% | | Volvo | 16% | 14% | 12% | Sales by Country (in thousands) | Country | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | United States | $234,504 | $231,391 | $191,667 | | Mexico | $105,818 | $113,245 | $88,952 | | Canada | $11,980 | $26,829 | $22,642 | | Other | $5,436 | $5,911 | $4,222 | | Total | $357,738 | $377,376 | $307,483 | Operations and Human Capital The company manages production capacity based on demand, maintains a significant unionized workforce, and reported a backlog of $25.3 million at year-end 2023 - Capacity utilization for large compression molding presses (≥2,000 tons) was 83% in 2023, down from 89% in 2022; for large injection molding presses (≥750 tons), utilization was 64% in 2023, down from 79% in 2022[166][150] - The four-week ordered backlog of expected shipments was $25.3 million at the end of 2023, compared to $30.3 million at the end of 2022[31] - As of December 31, 2023, the company had 1,857 employees, with 67.3% of the workforce unionized under collective bargaining agreements at its Columbus, Matamoros, Cobourg, and Escobedo facilities[169][88] Item 1A. Risk Factors The company faces significant risks from customer concentration, the cyclical nature of its key markets, raw material volatility, and potential labor disruptions - A significant business risk is customer concentration, with five customers accounting for approximately 68% of total sales in 2023; the loss of any of these customers could materially harm the business[154][39] - Business with Volvo, representing 16% of 2023 sales, will begin transitioning away from existing production programs starting in the second half of 2024, with no assurance of replacing the lost revenue[155] - The company is heavily dependent on the highly cyclical North American heavy and medium-duty truck industry, which constituted 52% of product sales in 2023[157][81] - Risks include price increases and availability of raw materials, potential work stoppages at unionized facilities (representing 67.3% of the workforce), and operational challenges in foreign locations like Mexico and Canada[62][88][68] - The company faces cybersecurity risks, which are increasing in sophistication and frequency; past incidents have not had a material impact, but future attacks could disrupt operations and compromise confidential information[445][446] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[452] Item 1C. Cybersecurity The company maintains an integrated cyber risk management program overseen by senior executives and the Board of Directors, utilizing third-party monitoring services - The company has a cyber risk management program integrated into its enterprise risk management (ERM), which includes employee training, disaster recovery exercises, and access controls[453][454] - Third-party service providers are engaged for 24/7 monitoring and mitigation of the company's network, endpoints, and data[455] - The Board of Directors has principal oversight responsibility for cybersecurity, reviewing risks, processes, and mitigation steps with management at least annually[460] Item 2. Properties The company operates from its Ohio headquarters and six production facilities across the US, Canada, and Mexico, with four properties owned and two leased - The company operates six production facilities in the US, Canada, and Mexico; four are owned and two are leased[479] Item 3. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position - The Company is not aware of any material pending legal proceedings[461] Item 4. Mine Safety Disclosure This item is not applicable to the company - No mine safety disclosures are reported[480] Part II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchase of Equity Securities The company's common stock trades on the NYSE American under "CMT", and in 2023, it repurchased shares solely for tax obligations on stock awards - The Company's common stock is traded on the NYSE American LLC under the symbol "CMT"[481] - In 2023, the company repurchased 125,701 shares of its common stock to satisfy tax withholding obligations from vesting stock awards; no shares were repurchased in the fourth quarter of 2023[482][483] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management anticipates a revenue decrease in 2024, while 2023 saw lower sales but significantly improved gross margin and net income - The company expects revenues for 2024 to decrease by approximately 10% to 15% compared to 2023, citing a cyclical demand slowdown and the ramp-down of existing programs with Volvo starting in the second half of the year[491][492] - Cash provided by operating activities was $34.8 million in 2023, a significant increase from $19.0 million in 2022, driven by higher net income and favorable changes in working capital[224] - The company has a $75 million credit agreement with Huntington National Bank, comprising a term loan, a CapEx loan, and a revolving loan, which provides sufficient liquidity for current needs[437] Results of Operations (2023 vs 2022) Net sales decreased by 5.2% in 2023, but improved gross margin drove a substantial increase in net income to $20.3 million - The decrease in net sales was primarily due to lower tooling sales ($10.4M in 2023 vs $18.7M in 2022) and reduced product demand from customers in building products and industrial industries[495] - The increase in gross margin percentage was driven by favorable net changes in selling price and raw material costs (+5.3%) and production efficiencies (+0.6%), partially offset by lower fixed cost leverage (-1.2%)[496] Financial Performance Comparison (2023 vs 2022) | Metric (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net Sales | $357,738 | $377,376 | | Gross Margin | $64,520 | $52,402 | | Gross Margin % | 18.0% | 13.9% | | Operating Income | $26,537 | $18,003 | | Net Income | $20,324 | $12,203 | Results of Operations (2022 vs 2021) Net sales grew in 2022 due to higher demand and price increases, with net income significantly boosted by a deferred tax asset valuation allowance reversal - The increase in product sales from $284.0 million to $358.7 million was driven by higher demand in the heavy-duty truck and power sports markets[503] - Income tax expense in 2022 included a valuation allowance reversal of $2,363,000 related to U.S. federal deferred tax assets, which significantly benefited net income[505] Financial Performance Comparison (2022 vs 2021) | Metric (in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net Sales | $377,376 | $307,483 | | Gross Margin | $52,402 | $41,344 | | Gross Margin % | 13.9% | 13.4% | | Operating Income | $18,003 | $11,068 | | Net Income | $12,203 | $4,671 | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include commodity price changes, interest rate fluctuations on variable-rate debt, and foreign currency volatility - The company is exposed to three main market risks: changes in commodity prices for raw materials (resins, fiberglass), fluctuations in interest rates on its variable-rate loans (Term and Revolving Loans), and foreign currency fluctuations (Mexican Peso, Canadian Dollar)[195][196] - A hypothetical 10% increase in raw material costs or a 10% decrease in the USD to MXN/CAD exchange rates would adversely affect operating margins[198] Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements, which received an unqualified opinion from Crowe LLP - The independent registered public accounting firm, Crowe LLP, issued an unqualified opinion, stating that the financial statements present fairly, in all material respects, the financial position of the company and that the company maintained effective internal control over financial reporting as of December 31, 2023[213][200] Consolidated Financial Statements The financial statements show decreased 2023 sales but increased net income, with growth in total assets, equity, and strong operating cash flow Consolidated Statements of Operations Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Sales | $357,738 | $377,376 | $307,483 | | Gross Margin | $64,520 | $52,402 | $41,344 | | Operating Income | $26,537 | $18,003 | $11,068 | | Net Income | $20,324 | $12,203 | $4,671 | | Diluted EPS | $2.31 | $1.44 | $0.55 | Consolidated Balance Sheets Highlights (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $102,879 | $80,665 | | Total Assets | $213,377 | $198,615 | | Total Current Liabilities | $46,186 | $50,797 | | Total Liabilities | $74,424 | $82,490 | | Total Stockholders' Equity | $138,953 | $116,125 | Consolidated Statement of Cash Flows Highlights (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $34,842 | $18,982 | $12,546 | | Net cash used in investing activities | ($9,100) | ($16,588) | ($11,415) | | Net cash provided by (used in) financing activities | ($5,821) | ($4,357) | $884 | Notes to Consolidated Financial Statements The notes detail revenue recognition, major customer data, debt structure, stock compensation, and the use of derivatives for hedging financial risks - The company entered into a $75 million credit agreement with Huntington National Bank in July 2022, consisting of a term loan, a CapEx loan, and a revolving loan commitment[306] - The company uses foreign currency forward contracts and interest rate swaps as cash flow hedges to mitigate risks from exchange rate and interest rate volatility[380][382] Sales Revenue by Major Customer (in thousands) | Customer | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | BRP | $48,702 | $52,670 | $37,813 | | Navistar | $72,118 | $63,904 | $46,508 | | PACCAR | $37,363 | $37,945 | $35,561 | | UFP | $25,390 | $33,638 | $38,292 | | Volvo | $58,198 | $51,643 | $35,977 | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure This item is not applicable, as the company reports no changes in or disagreements with its accountants - Not Applicable[393] Item 9A. Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[395] - Based on an evaluation using the 2013 COSO framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2023[397] - The independent registered public accounting firm, Crowe LLP, issued an unqualified opinion on the effectiveness of the Company's internal control over financial reporting[398] Item 9B. Other Information The company reports no other information for this item - None[400] Item 9C. Disclosure Regarding foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[401] Part III Items 10-14 Information for Items 10-14 is incorporated by reference from the company's forthcoming definitive proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's definitive proxy statement, to be filed within 120 days after the fiscal year-end[403][425][427] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed with the Form 10-K - This section lists the documents filed as part of the report, including financial statements (located in Item 8), financial statement schedules, and a detailed index of exhibits[431][464] Item 16. Form 10-K Summary This item is noted in the table of contents but contains no substantive information in the body of the report - This item is listed in the report's table of contents but has no corresponding summary or content[465]