Douglas Dynamics, Inc.

Good day, and welcome to the Douglas Dynamics Third Quarter 2024 Earnings Conference 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 a touch-tone phone. 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 Nathan Elwell, VP of Investor Relations. Please go ahead.

Thank you, Nick. Welcome, everyone, and thank you for joining us on today's call. Before we begin, I would 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 have described in yesterday's press release and in our filings with the SEC. Joining me on the call today is Jim Janik, Chairman and Interim President and CEO, Sarah Lauber, Executive Vice President and CFO, and Mark Van Genderen, Chief Operating Officer and President of Work Truck Attachments. Jim will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that, we'll open the call for questions. With that, I'll hand the call over to Jeff.

Please go ahead. Thank you, Nathan. Douglas Dynamics has a 75-year history of adapting and improving our operations. For our attachment segment, this has been a year of adapting to very unusual weather conditions that we've seen. For our solution segment, it has been a year of delivering improvements following the challenging work put in over the past few years that is now paying off. This was a positive quarter for the company, and I'm very impressed with the operational improvements that have been made. I want to recognize the dedication and resilience of our team, which continually allows us to maximize our potential in all market conditions. With that said, let's talk about what happened in the third quarter. First, we saw an impressive performance from Work Truck Solutions, which is becoming a very nice trend. Our Henderson operations are outperforming expectations this year, helping to drive record double-digit adjusted EBITDA margins for the quarter in solutions. Second, our results at work truck attachments were more or less in line with our expectations. The other key factor this quarter was the 2024 cost savings program. If you may remember, earlier this year, the team made difficult decisions to align our cost structure at attachments and our corporate team in light of the demand outlook. The actions taken mean that attachments is well positioned to succeed over the medium to long term in all market conditions. The program was implemented in the first quarter and expanded in the second quarter. and is expected to deliver $11 to $12 million in sustainable annualized savings starting next year. Importantly, we remain on pace to deliver $9 million of savings this year. Now, turning to results in each segment, starting with attachments. As we noted, preseason orders were softer than previous years with demand continuing to be impacted by two years in a row of significantly below average snowfall in our core markets, particularly on the East Coast. However, taken as a whole, our preseason results were slightly below our overall predictions. The ratio of preseason shipments in 2024 came in at 65 to 35 split between the second and third quarters, rather than the more traditional 55-45. The lengthening equipment site replacement cycle will continue to be a near-term factor and we will carefully track retail activity and dealer inventory trends. Margins were also impacted by the mix of products this quarter, with more of our most profitable products being shipped in the second quarter this year. It's important to point out that the 2024 cost savings program has really helped preserve profitability. In fact, Our adjusted EBITDA margins are a respectable 19.5% on a year-to-date basis. Rest assured, we are talking with our dealers and monitoring order patterns and will be ready to ramp up production if needed as we work through the elongated equipment replacement cycle. Our recent dealer checks indicate inventory levels continue to come down but remain elevated and less than ideal compared to previous years. Also, reorder activity at the end of the third quarter was lower than expected. While these reorder numbers in September are relatively small, they are directionally important as we head into the retail season for snow and ice control equipment. The financial health of our dealer network remains strong, and the sentiment is positive under the circumstances. While it's been longer than we like, we know that the impact of low snowfall is temporary. and we have adjusted our operations to match today's market conditions. We will continue to prudently invest in upgrading our manufacturing capabilities in 2025 and beyond to maintain our operational competitive advantages. As we enter winter, we are ready for whatever Mother Nature throws at us, and we'll use our continuous improvement mindset to adjust as the snow season progresses. Okay, let's talk about work truck solutions. I'm pleased to confirm that the Jen and Henderson teams delivered record third quarter results. The profitability shown this quarter exceeded our internal expectations. The volumes were down slightly, but the improved efficiency plus the price realization were the primary driver of record results. Performance was also strong on a year-to-date basis with adjusted EBITDA margins more than doubling to 9.5% when compared to the previous year. This performance demonstrates that our long-term goals are very achievable when external circumstances allow. At Dijana, the team continues to focus more of their attention on the fleet business where the supply of chassis is currently the strongest. Some customers are less urgent about their buying decisions today and more price conscious, with some signs of softening demand for certain products. We believe there is an impact from high interest rates and some local market customers are hesitating with their spending decisions due to the upcoming election. However, in other areas, demand remains generally stable and we're working to position ourselves to drive sustainable long-term growth. For example, we're just starting to see the positive impact of the infrastructure bills with interest in sectors related to utilities, sewage, and waste, as well as telecom. While the situation isn't perfect, chassis availability has improved, especially for fleet customers, and we're starting to eat into our backlog a little bit more. At Henderson, the team is having a great year, and we're well on its path to long-term profitability goals. Chassis and component supply are more closely aligned with our needs, and stable supply of labor coupled with our operational improvements of recent years are delivering stronger results. Municipal demand remains positive, and the backlog remains much higher than historical levels. We do believe some of our outperformance at Henderson this quarter was due to business mix and we predict some softness in the coming quarter. Overall, our results at Solution bode well for the future, and it's important to remember that demand remains positive with municipal customers and most solid with commercial customers. Near-term chassis supply is as good as we've seen in recent years. The improved chassis availability has helped our teams drive great efficiency, which has led to improved profitability. While we aren't counting on it, market commentators are indicating that OEM production levels are increasing over the medium term. From an operational standpoint, we executed effectively across the board, and we still have a solid backlog to work through, and in some parts of the business it is growing. We are on track to deliver on our goal of improved performance for the third straight year in solutions. So in summary, it's great to see solutions hit their stride this year and hats off to those teams for continuing to push forward. We've seen in recent years that the diversity of our operations has helped us to manage through tough times as one segment has performed well while the other was impacted by market conditions. After the turbulent conditions we faced in recent years, With various unpredictable external headwinds, we believe the years ahead will produce more stable conditions that will allow us to deliver on our potential. We will continue to manage through the short-term challenges while investing in long-term future to ensure we remain the clear leader in our markets. Okay, before I hand the call over to Sarah, I want to discuss our leadership team. We have a terrific group of people in place today. And we recently announced a few changes in our senior team, promoting the next generation of leaders. As Nathan mentioned, we have Mark Van Gendren on the call with us today. Mark was recently promoted to Chief Operating Officer of Douglas Dynamics. Since he joined Douglas four years ago, he's established himself as an important leader within our organization. And in his new role, he will be overseeing both attachments and solutions. Mark has a broad operational background and demonstrated sales and marketing expertise. And most importantly, he shares our values and is a great fit with our culture. I look forward to working with him and Sarah as we lead the company into 2025. Also, our Chief Human Resource Officer, Linda Evans, is retiring at the end of the year as planned after 16 years at Douglas. Linda has played a pivotal role in many aspects of the company's growth. She has helped shape our culture and her passion and enthusiasm will be greatly missed by all. A silver lining to Linda retiring is the strength of her successor, Shannon Flieger, who Linda has been mentoring. Her dynamic leadership will prove important to our success in the years ahead. Finally, I've been back in the CEO role for five months now. I'm in Milwaukee and I stay committed to stay on as interim CEO into 2025. The primary objective of the CEO search process is to take the time to ensure we appoint the right person. Our intention is to have a new CEO in place in the first half of 2025. With that, I'll pass the call on to Sarah.