Douglas Dynamics(US:PLOW)2022-08-02 20:03Financial Performance - Net sales for the three months ended June 30, 2022, were $187.6 million, an increase of 19.1% compared to $157.5 million for the same period in 2021[106] - Net sales for the six months ended June 30, 2022, were $290.2 million, reflecting an increase of 11.2% from $260.9 million in the same period of 2021[106] - The Work Truck Attachments segment reported net sales of $130.4 million for the three months ended June 30, 2022, up from $104.6 million in the same period of 2021, a rise of $25.8 million[107] - The Work Truck Solutions segment achieved net sales of $57.2 million for the three months ended June 30, 2022, compared to $52.9 million in the same period of 2021[107] - Net sales for the Work Truck Solutions segment were $57.2 million for the three months ended June 30, 2022, an increase of 8.1% from $52.9 million in the same period in 2021[108] Profitability - Gross profit for the three months ended June 30, 2022, was $51.2 million, representing a gross margin of 27.3%, down from 31.0% in the same period of 2021[105] - Income from operations for the three months ended June 30, 2022, was $25.6 million, which is 13.6% of net sales, compared to 15.3% in the same period of 2021[105] - Net income for the three months ended June 30, 2022, was $17.7 million, or 9.5% of net sales, compared to $14.1 million, or 9.0% in the same period of 2021[105] - Gross profit for the three months ended June 30, 2022 was $51.2 million, a 4.9% increase from $48.8 million in the same period in 2021[110] - Net income for the three months ended June 30, 2022 was $17.7 million, an increase of 25.5% from $14.1 million in the same period in 2021[116] Expenses - Cost of sales increased by $27.6 million or 25.4% to $136.3 million for the three months ended June 30, 2022, compared to $108.7 million for the same period in 2021[109] - Selling, general and administrative expenses rose by $1.0 million or 4.0% to $25.7 million for the three months ended June 30, 2022, compared to $24.7 million in the same period of 2021[111] Cash Flow and Liquidity - Total liquidity as of June 30, 2022 was $47.1 million, a decrease from approximately $136.1 million as of December 31, 2021[121] - Net cash provided by operating activities decreased by $71.3 million to $(58.2) million for the six months ended June 30, 2022, compared to $13.1 million in the same period in 2021[126] - Cash and cash equivalents were $6.0 million as of June 30, 2022, down from $37.0 million as of December 31, 2021[125] - Free cash flow for the three months ended June 30, 2022 was ($35.6) million, a decrease of $22.2 million compared to ($13.4) million in the same period in 2021[129] - Free cash flow for the six months ended June 30, 2022 was ($63.8) million, a decrease of $72.4 million compared to $8.6 million in the same period in 2021[129] Tax and Adjusted Metrics - The effective tax rate increased to 23.2% for the three months ended June 30, 2022, compared to 5.5% for the same period in 2021[114] - Adjusted EBITDA for the three months ended June 30, 2022 was $34.1 million, compared to $33.5 million in the same period in 2021, an increase of $0.6 million[136] - Adjusted EBITDA for the six months ended June 30, 2022 was $38.7 million, a decrease of $5.4 million compared to $44.1 million in the same period in 2021[136] - Adjusted net income for the three months ended June 30, 2022 was $20.1 million, compared to $21.3 million in the same period in 2021[142] - Adjusted diluted earnings per share for the three months ended June 30, 2022 was $0.85, compared to $0.91 in the same period in 2021[142] Market Conditions and Operational Challenges - The company experienced a significant decline in snowfall, approximately 12% below the ten-year average for the snow season ended March 2022, impacting demand[107] - Inflation in materials and labor significantly impacted profitability in the three and six months ended June 30, 2022, with expectations of ongoing inflationary pressures affecting profitability for the remainder of 2022[145] - The decrease in free cash flow is primarily due to lower cash provided by operating activities of $71.3 million[129] Debt and Interest Rate Management - As of June 30, 2022, the company had outstanding borrowings of $213.3 million under its term loan and $58.0 million under its revolving credit facility[154][156] - A hypothetical 1% increase in interest rates would have increased interest incurred on the term loan by $0.1 million for the three months ended June 30, 2022[154] - The company employs a highly variable cost structure, allowing adjustments based on sales volume fluctuations[155] - Interest rate swap agreements are in place to mitigate exposure to interest rate volatility, with a notional amount of $125,000 effective from May 31, 2024, to June 9, 2026[155] Steel Cost Management - Steel purchases as a percentage of revenue increased to 11.6% for the three months ended June 30, 2022, compared to 10.0% for the same period in 2021, and 15.8% for the six months ended June 30, 2022, compared to 11.1% in 2021[157] - The company anticipates being able to mitigate increased steel costs through temporary and permanent surcharges, although timing differences may affect gross margins[145][157] - The company does not use derivative or hedging instruments to manage steel price risk, which could lead to declining gross margins if costs cannot be passed onto distributors[157] Seasonal Trends - The Work Truck Attachments segment experiences significant seasonality, with sales heavily influenced by snowfall levels, particularly from October to March[147] - Pre-season sales programs are utilized to manage seasonal impacts, generating over two-thirds of sales volume during the second and third quarters[148]