Douglas Dynamics, Inc.

Douglas Dynamics Third Quarter 2022 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Sarah Lauber, Chief Financial Officer. Please go ahead, 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 other matters that we have 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, and 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. Before we begin, I would like to welcome Zohar Akalawala to our Board of Directors. Zohar has a track record of strong leadership at blue chip multinational companies over 30 years across a diverse set of industries. Importantly, he brings a focus on finance, information technology, and cybersecurity, and we look forward to working with him. We also want to thank Jim Staley for his contributions to the company. Jim will retire from the board at the end of his current term at the 2023 annual meeting. Jim has been a trusted advisor to Douglas for many years and we are grateful for the great advice he has given us on many occasions. We will miss his counsel and wisdom and wish him all the very best for the future. Turning to the quarter, we are justifiably proud of our results for the third quarter. Demand for our products and services remains strong. Macroeconomic supply headwinds continue And the predicted increase in chassis and component supply has yet to materialize in any significant way. However, both segments delivered across-the-board improvements compared to the same quarter last year. The strong demand outlook in both segments bodes well for the future. And we are simultaneously focused on delivering on the factors within our control while constantly trying to see around corners to limit the impact of macroeconomic challenges wherever possible. In the third quarter, net sales increased by 30% based on increased volumes and pricing adjustments in both segments. The revenue dropped through to the bottom line with net income up 89% and adjusted EBITDA increasing 62% due to higher volumes and improved price realization, somewhat offset by operational inefficiencies due to supply chain constraints. We feel good about our position today and also raised and narrowed our 2022 guidance. which Sarah will talk through later. Overall, our team is making the right moves internally to maximize our performance externally and to ensure we remain the leader in the markets we serve. Okay, let's look at each segment. Beginning with work truck attachments where we had another strong quarter and sales increased 33% and adjusted EBITDA increased 55% over the prior year. Our team delivered a strong conclusion to the pre-season order period based on increased volume, price realization, and inflationary pressure stabilizing, which was partly offset by increased labor costs. As expected, we again saw the historical 55-45 split in pre-season shipments between second and third quarter after pandemic disruptions in the previous years. Importantly, we are entering the snow season in great shape. despite the potential for order pull ahead from the fourth quarter to preseason. Dealer sentiment remains positive, and retail inventories are in good shape. When you look on a year-to-date basis, the attachments team is turning in another amazing year, partly driven by the shifting demand trends we talked about at our event in May, and partly driven by the strong execution from our team in difficult circumstances. Now I'll talk to our work truck solution sector. Net sales increased approximately 25% compared to the corresponding period of last year. Adjusted EBITDA improved compared to the third quarter of 2021, although our efficiency continues to be impacted by chassis and component supply, plus inflationary pressures on material labor and freight costs. We did see higher volumes compared to last year on more predictable but still constrained supply of chassis. We aren't seeing any strong signals from OEMs that we will see a dramatic improvement in chassis supply anytime soon. Demand, however, continues to be strong at both Henderson and DeJana. We entered 2022 with record backlogs, and demand has not subsided, and customer order cancellations remain minimal. While it's logical to assume a potential economic downturn will have some impact on our demand over the medium term, The short-term outlook remains positive for three reasons. First, with the ongoing chassis constraint issues, trucks on the road today are aging, negatively impacting their productivity, and are in even more need of being replaced. Additionally, our municipal customers in particular don't tend to be impacted by economic changes. And finally, we have a massive backlog to work Because of this, we are confident that customers will maintain their orders even if the predicted recession occurs. We know we are always at the front of line for chassis and we will work through our backlog as quickly as possible. But the limited supply of chassis and components remains a frustrating fact of life for everyone in the industry. Our solutions team continues to battle these headwinds. And the hard work being done behind the scenes will pay off when we can move more velocity through our facilities in the years ahead. Turning to our ongoing investments in the business. We continue to pursue long-term growth initiatives, particularly our vertical integration strategy. Today, I want to provide an update on two exciting projects we've been working on for some time. First, we launched our new redesigned re-engineered pusher plow this summer. As we talked about at our investor event in May, we are seeing shifting demand trends in snow and ice control with the common denominator that our end users need to move more snow faster and often with fewer people. Unlike our truck-mounted plows, a pusher plow is attached to heavy-duty equipment like skid steers, wheel loaders, tractors, or backhoes. The pusher plows are large pieces of equipment ranging anywhere from 8 to 16 feet in length and are often used in large parking lots, shopping malls, et cetera. The vertical integration team has done a fantastic job of reengineering the product to improve its productivity, efficiency, and its durability. The new pusher plow is just one of a number of new product introductions scheduled to launch over the next two years, resulting in us increasing our organic growth targets for the attachment segment earlier this year. Second, we also launched a brand new product for Dijana a few months ago, the Dynapro Dump Body, which is also manufactured at our new facility here in Milwaukee. This product has been well received in the market, having already become the standard dump body we use at Dijana. Before its recent launch, we used to source 100% of these types of products from outside providers. There are several benefits for us producing this product ourselves. The design for upfit concept means our engineers worked with upfitters to ensure the product was optimally designed from the ground up to be upfitted more efficiently, saving time, materials, and ultimately leading to a better product. With our own engineers on the case, we were able to maximize quality, durability, and functionality for our customers. Using our expertise developed at Work Truck Attachments, we were able to develop our own hydraulic systems for the dump body lift. And finally, and increasingly importantly, this is another example of us gaining more control over our supply chain. These are good examples of the types of projects that will help drive long-term organic growth, and I applaud the efforts of the many teams across the entire company to successfully launch these products. Of course, it goes without saying that these kinds of investments will be made in addition to funding our dividend, which we will continue to maintain and grow as we have since we went public. We also are definitely open to acquisitions today and are in a strong financial position to take on opportunities. Our blue-chip targets are mostly private family-held companies, making the timing of deals difficult to judge. We will continue to forge strong relationships with these companies and are ready to execute on deals should we find the right opportunity at the right valuation. We are also in the process of improving our acquisition and our integration capabilities using lessons learned from previous deals. So in summary, overall, we are executing well under challenging conditions, all with an eye to exiting in a stronger position to ensure success over the long term. Demand trends remain positive, and we are constantly adapting and improving our operations. Our company is built to manage through uncertainty, given our heritage in a weather-focused business. And we will continue to use our continuous improvement mindset to get better every day and maintain our focus on the long game, implementing the strategies that will ensure we build upon our industry-leading position. The results we've delivered, despite the uncertain external conditions, are a testament to our collaborative, problem-solving culture. While we expect these headwinds will persist into 2023, we remain on track to deliver our long-term financial targets and remain confident about our long-term future potential. With that, I'd like to pass the call to Sarah to discuss our financial results in more detail. Sarah?