Douglas Dynamics, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Douglas Dynamics Second Quarter 2021 Earnings Conference Call. At this time, our participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question at this time, you will need to press star 1 on your telephone. Please be advised that today's conference call is being recorded. Thank you. I will now turn the conference call over to Sarah Lauber, CFO. You may begin at this time, ma'am.

Thank you. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I'd like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we've described in yesterday's press release and in our filings with the SEC. Joining me on the call today is Bob McCormick, our President and Chief Executive Officer. In a moment, Bob will provide an overview of our performance. Then I'll review our financial results and guidance. After that, we'll open the call for your questions. With that, I'll hand the call over to Bob.

Thanks, Sarah. Good morning, everyone. We are pleased with our results for the second quarter, which reflect both the continued strength of overall demand trends across our businesses, plus our team's commitment and creativity in addressing the various industry-wide supply challenges we continue to face. Both segments turned in positive results, with a strong pre-season shipment period from attachments and a very strong order book for our solutions segment, creating record backlog at both Henderson and Dijana. The strong demand outlook in both segments means we are well positioned for long-term success. It would be a massive understatement to say that from a business perspective, our situation has improved dramatically from a year ago. We continue to adapt and learn how to operate most effectively within the constraints we are facing. The headwinds we outlined last quarter remain our biggest challenges today, similar to many other industrial companies. First, material price inflation has arguably moved to the top of the list. We've seen many suppliers bringing multiple price increases across all areas of the business during the quarter. Naturally, our margins will be impacted this year as these increases outpaced our ability to pass these costs through. And while we will recapture it over the long term, the pace of increases means this will take some time. Second, supply chain disruption and component shortages. We are still seeing uncertainty with the supply of many components. The issue is impacting any and all vehicles globally, not just the North American work truck industry, with chip shortages at the top of the list of factors. OEMs have cut back chassis production in Q2 and expect to continue to do so into Q3. There are signals that chip production may bottom out in the third quarter and then slowly improve. It's clear our performance will definitely be impacted through the second half of 2021. Third is labor market constraints. The vast majority of our workforce remains loyal and dedicated. Our primary issue is with the entry that we generally see more turnover with, even during normal circumstances. The churn in these positions has increased in recent quarters and is expected to continue to be an issue for the near term. Our teams are finding creative ways to attract and retain employees, including temporary financial incentives and other rewards. While these challenges continue, we are managing through them as effectively as possible. Our flexible business model and problem-solving mindset mean we are better able than many to overcome adversity, and we are confident our approach is yielding the best possible results. Now I will walk through each segment. Beginning with work truck attachments, where we had a strong quarter. We produced $104.6 million of net sales and $32.2 million of adjusted EBITDA. As a reminder, this past season produced an unusual third consecutive below-average snow season. But this year saw better snow totals on the east coast than the previous winter, which is good for our Fisher brand in particular. So, a good start to preseason shipments, partly related to the release of Pen of Demand following dealer cautiousness in 2020. And as we stated last quarter, our strong Q1 results likely did include orders pulled forward from the preseason. This year, we expect to see a shift back towards the historical 55-45 split between preseason shipments, rather than the 50-50 split we saw last year, which was impacted by the pandemic. Both dealer inventories and dealer sentiment remain positive. Overall, attachments continue to lead the industry and manage through the supply challenges effectively. Turning to our work truck solution segment, where we delivered $52.9 million of net sales and $1.3 million of adjusted EBITDA for the quarter. Demand dynamics continue to improve and now are at or above pre-pandemic levels at both Henderson and at the Janna. The municipal budget uncertainty is behind us and was a bump in the road as we had hoped, with order patterns improving significantly in the second quarter. Henderson team worked through the gap in production schedules, implementing rolling shutdowns at several facilities, which were executed efficiently. The JANA had a good quarter under the circumstances and the strength of demand across our broad customer base bodes well for the future. The JANA is always at the front end of the line for chassis, so we know orders will eventually be filled. Similar to what we've done at Henderson, the JANA rolling shutdowns at certain Dijana locations in the third quarter. While these ongoing supply chain challenges are frustrating and will impact second half performance, we are encouraged by the strong demand trends. With record backlog in our solutions group, we are well positioned for long-term success. Moving on to capital allocation. We continue to invest in the business to fund our long-term growth initiatives. As a brief update, we have launched the medium-duty municipal first responder product and have seen a positive response so far. This initiative has been a great first project, and while it won't be a significant driver of growth this year, it is an excellent example of the approach and results we expect going forward. As our vertical integration strategy continues, we are lining up projects that, when combined, will help drive long-term organic growth. Of course, our commitment to our dividend remains as strong as ever after increasing it again for the 13th time earlier this year. Additionally, we will continue to use our strong free cash flow to pay down debt and maintain a healthy balance sheet. We continue to actively monitor the competitive landscape for potential M&A opportunities. The valuations we see remain high, and we will always take a hard look at pricing versus growth potential and strategic fit. In summary, we're pleased with our performance overall, especially under the circumstances, and are comfortable with our guidance going forward. Demand trends remain very positive, and we are managing through supply issues seen across our industry and the broader economy. We are working on near-term projects that drive organic growth and longer-term strategies to ensure we maintain and expand our industry-leading position. And as always, we're laser-focused on providing the highest level of value to our customers. Although supply-related headwinds will impact short-term results, we remain well-positioned and confident about our future potential. When looking at the factors within our control, we are driving our continuous improvement mindset across the company and pushing towards our long-term financial targets. With that, I'd like to pass the call back to Sarah to discuss our financial results in more detail. Sarah?