Core Molding Technologies Inc

in eight quarters, marking a return to growth after two full years of declines. We believe this momentum is being fueled by a combination of new product introductions and our continual wallet share growth. As an example, we are now in full production for the UTV skid plates. In the third quarter, we successfully launched the UTV skid plate program we've discussed on prior calls. We're seeing signs of recovery in demand for power sports helped by expectations for continued lower interest rates and new launches. That combination is creating a more active demand environment across both water and land power sports as we head into 2026. Regarding the skid plate program specifically, we expect it to generate approximately $8 million in annual run rate revenue once fully ramped. While this category remains somewhat seasonal, we believe power sports is positioned for a stronger rebound in 2026, particularly in a more favorable interest rate environment following recent cuts and new program launches. Last quarter, we highlighted 46.7 million in new business wins this year, 99% of which is incremental. This builds on the 45 million in wins from last year. We are pleased with the momentum and excited about our known future growth and continue to see additional opportunities in a robust sales pipeline of over $250 million. But we know we still have many opportunities to leverage the execution improvements we have made, and therefore we are continuing to invest and aggressively refine our sales systems. This has always been the last phase of the core molding transformation and it is our current must-win battle as we drive to leverage all the business execution improvements and unlock the earnings potential of our improved capabilities. To accelerate growth further, we have implemented a value selling program and we're adding three new business development roles that are focused and incentivized to expand wallet share with key partners and drive lead development for our new sheet molding compound opportunities. On last quarter's call, we discussed the completion of a market analysis to determine the total addressable market for SMC in North America. During the third quarter, we partnered with four potential customers who completed molding trials of our material and provided positive feedback. Based on the successful product trials with the initial customers, we are optimistic about our current market potential. As we've stated earlier, we see the quote-to-cash cycle for this product in the six-month range versus our fully designed product being in the 12- to 18-month range. We're pleased with the level of end-market diversification represented in these trials, which includes electrical boxes, multifamily commercial doors, buses, and roof and hoods for truck customers. We remain focused on broadening our sales and marketing work to promote CORE's proprietary SMC product as raw material for key customers. We estimate the total addressable market for this product exceeds about $200 million. Our focus on operational improvements and key investments in our SMC operations has significantly improved our capacity, consistency, and performance, which we are seeing as key value propositions as we engage with customers in this market. We have always viewed our advanced formulations as a deep competitive differentiator for CORE. And now working directly with SMC customers, we clearly see our product and service advantages versus their current suppliers. Specifically, CORE has more consistent material, expertise in modifying SMC formulations to meet specific molded part requirements, and CORE has significantly shorter lead times. All of these factors create significant value for our customers, particularly for customers whose end products are built around Coors Sheet Molding Compound, as is always the case with SMC. Work continues on our strategic $25 million investment, and layouts are complete for the Matamoros expansion and the new Greenfield build in Monterey, Mexico. Monterey has been designed to provide additional capacity for future growth in low-pressure injection molding and DCPD processes. Additionally, we are adding topcoat paint capabilities to this facility as customers have specifically asked for this capability, especially in the construction and agricultural machine market. We believe the Monterey region will continue to grow and has significant long-term potential for us. We have also ordered two new state-of-the-art 4,500-ton compression molding presses, and we have completed the automation design and plant layout for a sleeper roof program in our Matamoros facility. The tooling revenue from these programs is anticipated to be approximately $35 million and is expected to be recognized in 2027. Organic growth remains our top priority in our capital allocation strategy, and this investment not only supports the launch of a major truck program, but also adds DCPD molding and topcoat paint capabilities to our Monterey business, serving growing industries, including the Con Ag market. The addition of DCPD molding positions us closer to key customers that highly value this process. Additionally, our new top coat paint capabilities enables us to deliver final top coat paint products that are ready to install by our customers. This is a significant value add for our customers, which reduces overall costs and makes the process from order to finish product more efficient. Together, these investments expand our technical capabilities and create new durable revenue streams. We have good visibility into the truck and power sports industry recovery, which gives us confidence in the potential for over $300 million in total revenue in 2027. These long-term programs are expected to generate approximately $150 million in revenue over the next seven to 10 years. Based on our current projections across truck, power sports, and other growing end markets, we expect annual product revenue to exceed $325 million within the next two years. Turning to our Q3 financial results, revenue was $58.4 million, which is down 19.9% from the prior year, with over half of the sales decline coming from the known Volvo transition and the remaining due to declines in other truck demand. Gross margin was 17.4%, which is within our targeted range of 17% to 19%. Adjusted EBITDA margin of 11%. That's up 70 basis points from a year ago. Cash flow from operations for the first nine months of the year of over $14 million, which continues to exceed our year-to-date net earnings. We again delivered stable gross margins this quarter within our projected range and positive year-to-date free cash flow. Sales declines in the third quarter were more than we expected, but the new business wins are there, and we continue to ramp up our investor growth efforts. We expect fourth quarter sales to be up year over year, primarily due to significant increase in tooling sales. Regarding the ongoing succession plan execution, Eric and I are working closely in all facets of the role as we continue to progress towards the CEO succession plan for May of 2026. As I've discussed in the past, we have robust systems for organizational development and succession planning throughout all levels of our organization. In conjunction with our succession plan for Eric, we have developed a strong bench under Eric, including an Executive Vice President of Mexico Operations, Arnold Alanis, who has worked for CORE for over 13 years, and our Executive Vice President of U.S. and Canada Operations, Mike Gafer. Arnold and Mike have been a part of the entire leadership transition over the last year, and I appreciate their increased engagement in our business, allowing Eric time to focus on transitioning to CEO. I believe that our culture is a competitive advantage, and a key benefit of that strategy is our ability to develop and grow leaders from within core molding, as demonstrated by our ability to promote new executive leaders from within the organization. I think it's a testament to the effectiveness of our organizational development and succession process. Now I'll hand the call over to Eric to share comments on our new production and operational efficiency efforts.

Thank you, Dave, and good morning. One of our newest program opportunities is a large Canadian rail infrastructure project. The cable railway containment trough system replaces concrete systems, and its installations were labor-intensive, slow, and costly. Under the traditional installation process, crews excavate a shallow trench and use a crane to lift and position each concrete section. The benefits of our proprietary polymer and composite troughing are that they are lightweight, non-conductive, easier to install, and made from recycled materials, reducing both installation labor and lifetime maintenance costs. I'd also like to share an update on footprint optimization initiative launched at the end of the second quarter, which we expect to be completed by year end. As part of our ongoing focus on product-level profitability, the current softness in the truck demand created an opportunity to consolidate our RTM, or resin transfer molding process, by purposefully relocating select programs to another one of our facilities. This strategic move will streamline operations at the originating site and is expected to deliver further margin improvement. Lastly, I wanted to call out our operational teams for their 99% on-time deliveries and excellent 62 ppm performance. PPM, which measures the number of defective parts per million produced, is used by our customers to measure quality performance. The rate below 0.01% indicates a high level of quality and demonstrates the precision of our quality processes. We have also maintained industry-low safety incident rates and employee turnover rates, which we take pride in. These favorably trending metrics reflect well on our culture and commitment to excellence across all our people and our plants. With that, I would like to turn the call over to Alex to run through the financials.

Thank you, Eric, and good morning, everyone. For the third quarter, net sales totaled $58.4 million. As Dave stated, product sales were primarily down due to the known Volvo transition. Including the Volvo transition, sales were down 8.7% from prior year due to lower demand primarily in the medium and heavy-duty truck verticals. This was partially offset by new product sales to customers in power sports, building products, and industrial and utilities markets. Despite the operating deleverage experienced in the third quarter, we maintained a gross margin of $10.1 million, or 17.4% of sales. Over the past 12 months, we have executed a series of initiatives focused on improving operational efficiency, optimizing raw material costs, and enhancing overall margin performance. These efforts have helped offset the fixed cost deleveraging associated with the planned Volvo transition. We continue to expect our gross margin to remain within our targeted range of 17 to 19% for the year. SG&A expenses for the third quarter were 7.6 million, or 13% of sales, compared to 12% in our prior year period. Excluding the 220,000 in footprint optimization costs, our SG&A rate would have been 12.6% for the quarter. As Eric discussed, our footprint optimization project is underway. We have invested 500,000 so far and plan to invest 1.5 million by the end of 2025. Again, this project involves relocating production to a different plant to generate cost savings of over 1 million each year, beginning in January of 2026. Operating income for the quarter was 2.6 million or 4.4% of sales, down from 3.6 million or 4.9% of sales in the same period in the prior year. The third quarter's interim effective tax rate was 29.3% compared to 18.7% in the prior year quarter. The increase was due to taxable income being generated in higher tax rate jurisdictions this quarter. Net income for the third quarter was 1.9 million, or diluted income per share of 22 cents, compared to net income of 3.2 million, or diluted EPS of 36 cents in the comparable year period. Excluding the impact of footprint optimization costs, our third quarter diluted EPS would have been 24 cents. Third quarter adjusted EBITDA was 6.4 million, or 11% of sales, We generated $14.2 million in gap cash from operations, and after capital expenditures of $9.3 million, our free cash flow was $4.9 million for the first nine months of 2025. We continue to expect the 2025 capital expenditures to be approximately $18 to $22 million, including investments for the Mexico expansion. As we previously announced with the award of the Volvo Mexico business, the company will invest approximately 25 million over the next 18 months. As of September 30th, our balance sheet was strong with a total liquidity position of 92.4 million, comprising of 42.4 million in cash, plus 50 million available under the revolver and capital credit lines. The company's term debt was 20.3 million at the end of the quarter, and our debt-to-EBITDA ratio for the trailing 12 months remains less than one times. Our return on capital employed was 6.5%, and excluding cash, the rate was 8.7%. As we continue to launch new business, we expect this metric to improve by better leveraging top-line performance and driving better asset utilization. Both ROSI metrics are computed using the trailing 12 months of operating income in total capital employed, a pre-tax metric. Please see our earnings release for the gap to non-gap reconciliation tables. Our capital allocation strategy remains flexible with a significant focus on organic growth as well as disciplined management of debt and working capital and share repurchases. Year-to-date, we have spent $2.5 million on Mexico expansion projects and expect to spend a total of $7.5 million by the end of 2025 and $17.5 million in 2026. For the three months ended September 30th, no shares were repurchased. And to date this year, we have repurchased 151,584 shares at an average price of $14.80. Our full year sales expectations are down 10% to 12%. However, we have forecasted fourth quarter sales to increase, driven by new program launches and significantly higher tooling sales. As a reminder regarding tariffs, Our products in both Canada and Mexico are USMCA compliant and are currently exempt from tariffs. We will continue to closely monitor how changes in trade policies affect our customers and their end markets. And with that, I would like to turn it back to Dave.

Thank you, Alex. We're excited about new and existing customers and end markets. As Eric mentioned, we are finalizing negotiations on a large Canadian project for the rail data line transmission troughs called Trow Trough, which is worth about $15 million in annual revenue starting in the second half of 2026. We continue to see a strong pipeline of opportunities with over $250 million in business development potential in our pipeline. We believe we can add over 40 million in new wins that would be awarded in the next three to six months. We're also excited about this year's wins because they are in new and emerging markets for core. These new markets, which we strategically targeted, include new pickup box panels for small EV trucks, satellite tracking systems, and the truck applications. We plan to expand our DCPD molding process for large OEMs in the areas we already serve and have added top coat paint to our full-service partner model. We continue to invest in our sales organization, and we're driving like hell to develop new customers who trust us with their long-term business. Eric and I are highly focused on further scaling operations, leveraging our fixed cost base, and optimizing our portfolio footprint. Our commitment to continuous performance improvement, especially with the lower current demand, positions us to translate top line growth into bottom line results. We are excited about the future and look forward to leveraging all the improvements with the addition of the 65 million in incremental wins we have achieved in the last 20 months. We will continue to strengthen our operations and take the necessary actions to drive long-term business capability and profitability. We are pursuing the most promising opportunities in new markets and growing wallet share with our current long-term customers. We are confident this is only beginning. New areas are emerging, and we will continue to evolve in the construction sector, such as commercial windows and doors market. We focus on large, diverse sectors, such as construction, energy, industrial, aerospace, and medical markets, and we have proven we will win. We are driving to engage our sales and technical teams earlier in the design cycle to expand wallet share and educate customers of our full range of value-added capabilities, including SMC formulation, large part molding, and top coat painting. Customers desire a strategic partner like Core Molding to handle design, fabrication, and completion with the top coat paint. Our teams are committed to maintaining our must-win battle excellence by, one, driving incremental sales growth into new markets, two, improving our margin profile through operational excellence and our innovation pipeline, and three, continually investing in growing a business that has proven it can execute well. Although the truck industry forecast continues to look soft for Q4, ACT and customer forecasts indicate a truck build increase in the second half of 2026. As we discussed last quarter, the great pause, as one customer put it, continues with delayed decisions and major markets still serving in a lower than expected demand environment. Tariff concerns have caused companies to pause, and we've seen delays in demand and even more so in the decisions of launching new programs. However, recently we have seen signs of stabilization and rebounding demand in several of our key end markets. We are finding ways to attract new customers and increase wallet share with current customers. Our must-win battle of invest for growth continues, which is reflected in our confidence to make significant investments in future growth. Developing a world-class engineering and manufacturing solutions partner for large and ultra-large molded solutions is our goal. Again, I want to thank our team for their hard work and dedication to excellence, which has enabled us to achieve successes throughout our transformation journey. I also want to thank our customers, investors, and board for their belief in what we do every day at Core Molding. Finally, we will present our investment story and host one-to-one meetings at the Southwest Ideas Conference in Dallas on Wednesday, November 19th. Please reach out if you would like to see us there in person or set up an investor call soon. With that, let's open up the line for questions. Operator?

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Chip Moore with Roth.

Good morning. Thanks for taking the question. Hey, everybody.

Good. I wanted to, a lot of noise around tariffs for trucking specifically. I think right there were some actions that got pushed October and November, but just your updated thoughts around those tariffs specifically, any potential impacts or what you're seeing from customers in regards to those?

Yeah, I mean, all of our products are USMCA compliant. So right now, you know, we still – our understanding is we are exempt. Our bigger concern is the impact that it could have on customer demand down the road. But right now, we're not seeing the impact on tariffs just yet.

Got it. Okay. No, that's helpful. And I guess, you know, to your point – I think overall, too, Chip –

I think overall, too, from an operational standpoint, we have both operations in U.S. and Canada. And if need be, it's not a short change to move, but it's always possible to move.

Yeah. And then the only other thing I would add is, you know, we have RMA raw material adjusters in all of our contracts. And so if we do get hit with a tariff and increased costs, we can pass that through to customers.

Got it. That's helpful. And maybe the follow-up on, as you look out, it sounds like your line of sight to 300 million plus is quite strong. Just if we think about 27, I guess, biggest risks to that or upside to that? And then what do you have built in around trucking as we look out maybe to 2027?

That's a great question. So When I look at it from a high level, you know, as we said, our quote to cash cycle time is 12 to 18 months. So as we know, the Volvo program won't launch until 27, and we have – Forty-five million of wins in prior year and 47 million of incremental wins this year that we see layering in over the next 18 months. So that's where we're seeing it. As they ramp up, you start out with a ramp and maybe you're ramping for six to seven months until you get into full volume. So that's where we start seeing the sales coming together. So we're pretty excited about that. When we talk with truck customers right now and looking at ACT, we're seeing that we believe truck or they believe truck will start coming back the second half of next year. Probably the biggest concern, we were talking with one customer yesterday and the rate of increase that they had going into The second half next year was significant. So I would say after yesterday, our biggest concern was really how fast will the truck market come up? Because they can come up pretty quick and being able to hire and meet all those demands on the upswing. Because it goes up as fast as it comes down. And the further it goes down, probably more likely the more it's going to go up.

Perfect. If I could ask another one. Just around sort of more near term, the tooling revenues, you know, getting bumped to Q4. Any sense of how to think about tooling revenues, you know, maybe for Q4 and even over the next couple of quarters, just with all the new programs you've got on the horizon? Yeah.

Yeah, so for the full year of 2025, we anticipate tooling sales to be roughly 15% of our total sales in 2025. And then keep in mind, Chip, those sales will be at a lower margin than our product sales. And then in the future years, so 26, I mean, we're not really given any guidance from a number perspective for 26, but the Volvo Mexico tooling job will close. It'll be close at the end of 26, maybe slips into 27, but it'd be December of 26, maybe January of 27.

Got it. Okay. So a little negative mixed impact Q4 on higher tooling revenues. Any way to think about... Hey, Chip, but just... Yeah, sorry.

Yeah. So margins will take a little bit of a hit, but we still are providing guidance that we'll be within that 17% to 19% target that we've put out there each quarter and for the full year.

Yeah. That's what I was going to ask. And I was going to follow up just sort of longer term, you know, as the tooling normalizes? Is 17 to 19 still the right way to think about it? Or do you think there's upside potential at some point, you know, on higher volumes?

Yeah, I think, you know, when we start getting back into the 300 million, there's going to definitely be some upside. I mean, we'll start getting back some fixed leverage. We'll reverse it, you know, favorably. And so I think that'll be worth, you you know, anywhere, I would say right around 200 basis points. If you go back and look at our previous quarters and see the lost leverage each quarter, yeah, I think if we go back two years, we're losing right around 200 basis points. So you could add 200 basis points, I think, is a good way to look at it.

Also, the part that we believe is that on the new programs, the systems that we put in place and How we're quoting business, it's definitely incremental on the margin side.

Excellent. Okay.

I don't want to give you a number on how much yet, though.

Yeah, understood. Yeah, I'll hop in queue and let others ask.

Thanks.

Once again, if you would like to ask a question, please press star 1 on your telephone keypad. You have a follow-up question coming from Chip. Your line is live.

Thanks. I just wanted to make sure I wasn't hogging the line. I guess just one more for me on the new business opportunities. The Canadian Rail Project, you know, that's a nice win. Opportunity for similar type projects and then SMC, you know, how is the traction there? It sounds like it's going pretty well. But any more detail you can provide?

Yeah, two parts to that, Chip. So the first one on the rail trojan troughs, we actually had that business in 22-23. It tends to be a project-based when a city or a municipality does a section of rail. It's a big project for us for a couple years. So we've had a couple years without any, and we have another one of those currently building a test track for next summer. And that would turn into that bigger multi-year program. So we're excited about it. Can't say that we've 100% won it, but we are certainly there in the test track and believe that we are in a good position to win the whole installation. Your second question was around SMC. We put some comments in there. We have, since last quarter, four very specific customers that are trialing, actually molding parts, had some of our engineering teams working with them. And so, made a lot of progress with four of the 10 customers that we had focused on. And so, we believe in the next quarter or so, we'll be having awards or agreements with some of those customers to announce in our next earnings. Perfect.

Okay. I may just last on the buyback. You didn't do any this quarter, but can you just remind us what your authorization is there? Thank you.

Yeah, we have roughly about just over $2 million left. And the buyback is, you know, it's still in place as of today. And so, but yeah, we plan on still utilizing that as a way to use our capital.

Great. Okay. Thanks for all the color. Appreciate it. Thanks, Chip. Thanks, Chip.

Your next question is from Bill DeZellum with Titan Capital.

Thank you. A couple questions. Would you please start by walking us through the tooling business that shifted to Q4 from the Q3? What the dynamics were behind that?

So tooling in general, Dave kind of walked through this on the call, but for us to recognize revenue, The customer has to accept tooling. So there is all kinds of different tests. You have to do a full production run test. You have to do quality tests. There's different specifications. And so, you know, working with a customer at times, those tests get delayed for one reason or another. One could be because the customer decided to do engineering changes. And so In this case, one of our bigger tooling jobs that we originally thought was going to close in Q3 got delayed into Q4. We are currently in the process of doing those tests. I don't see that job specifically being pushed out any further at this moment, but that's kind of the nature of the tooling. We don't have a ton of control. We can push our customers, but as hard as we can and work with them. But there is still a risk from a job being delayed from a quarter to a quarter. But at the end of the day, it's not lost revenue. It's just a timing issue.

Hey, Bill, kind of the way that we look at it as well, you know, usually if it's a lot of times it's not us. It's the entire product level is really what they're dealing with. And they're trying to really – put everything together. The ideal case for them would be every supplier, every validation test, everything works, and then they get full approval. When one of those things doesn't work, the entire supply base is not PPAP approved. So once we get PPAP approved, we recognize the revenue, which is a signed off document. Now, if that PPAP is going to be pushed for a long period of time, we would certainly be in there talking with the customer saying, hey, we can't wait a quarter for this to be done. But if it's weeks, it's probably not worth pushing that hard.

That's helpful. Thank you. And then you referenced the footprint optimization that you were doing, and that was going to have a nice cost savings. Would you please walk us through physically what's What's moving from where to where and why that's taking place? Besides just the money aspect, and maybe it's just straightforward, is the cost savings.

Sure, Bill. If you remember the term resin transfer molding or RTM parts, we used to have a business in Batavia, Ohio, a number of years ago that built almost only resin transfer products. We ultimately... close that plant and move that product into our Matamoros facility and our Columbus facility. And ultimately what we've decided is to move what was left in our Columbus facility down to our Matamoros facility. And our facility down there has employees with 20 and 30 years of experience doing resin transfer molding, Over 300 of our employees in Mexico are a part of that business unit down there. And so they are just, they're skilled, capable, and engaged. And we've struggled in Ohio to produce those, I'll say, heavy manual labor, difficult parts, you know, very hand working with fiberglass. And so ultimately, you know, we're just leaning into where our strength and skills are, and there's some labor savings associated with it, but really it's about the technical expertise and the employee base that we have that's capable of it.

That is very helpful. And the math behind this, you said you were going to spend about a million dollars on the transfer, and it'll save you about a million a year. Did I hear that correct earlier? Sure.

It will be about 1.5 total investment, so cost side, and then a million dollars a year annual run rate ongoing.

Excellent. Okay. Thank you both. You're welcome.

We have reached the end of the question and answer session, and I will now turn the call over to Dave Duvall for closing remarks.

Thank you for your continued interest in our company. We look forward to providing an update on our progress when we report our fourth quarter results. Have a great day. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.