Good morning, and welcome to the Core Molding Technologies First Quarter 2022 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I’d now like to turn the conference over to Sandy Martin of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us for the Core Molding Technologies conference call to review first quarter results for 2022. Joining me on the call today are Core Molding’s President and CEO, Dave Duvall, and the Company’s EVP and CFO, John Zimmer. This call is also being webcast and can be accessed through the audio link on the Events and Presentations page of the Investor Relations section at coremt.com. Today’s call, including the Q&A session will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today’s discussion that are not historical facts, including statements or expectations or future events or future financial performance are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, by their nature, are uncertain and outside of the company’s control. Actual results may differ materially from those expressed or implied. Please refer to the earnings press release that was issued today for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company’s filings with the Securities Exchange Commission. Management may also refer to non-GAAP measures, including adjusted EBITDA. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Core Molding Technologies assumes no obligation to publicly update or revise any forward-looking statements. Finally, the earnings press release we issued earlier today is posted on the Investor Relations section of our website at coremt.com. A copy of the release has also been included in an 8-K submitted to the SEC. And now I would like to turn the call over to the company’s CEO, Dave Duvall. Dave?

Thank you, Sandy, and good morning, everyone. Let me start today’s call by celebrating an accomplishment with our teams. We were recently notified of the Gallis Award nomination that recognizes Core Molding for ORBIS’ supplier of the month. And this is 2 months in a row. The nomination is provided by the ORBIS plant teams to companies that have stepped up to take whatever actions are necessary to support the ORBIS value proposition. This value proposition exemplifies a commitment to provide the highest level of quality, service and on-time delivery with flawless execution. We are grateful and humbled by the nominations. I am proud of our team for their commitment to excellence in the field, especially given the challenging supply chain. So during the last quarter’s call, John and I talked about implementing a much more proactive investor outreach program that started with our earnings conference call. Today, we’re expanding on that by adding a questions-and-answer session at the end of our prepared remarks. We are pleased with the reaction from new and existing investors as we continue to create more dialogue and transparency with the investment community. Additionally, we have expanded our outreach to attend additional conferences and nondeal roadshows as part of our new ongoing strategy to share our business transformation and growth story. Our EVP of Human Resources, Renee Anderson likes to remind me that when you think you’ve communicated enough, you need to do it 10x more. I appreciate her coaching, and I believe I’ve learned from it. This is exactly why John and I are ramping up our investor and public communications. In the past, Core Molding was very much more a medium and heavy-duty truck company with about 91% of our revenue coming from the transportation industry. Today, transportation represents less than 40% of…

Thank you, Dave, and good morning, everyone. First quarter 2022 net sales totaled $90.6 million, up 24% versus a year ago, and product sales increased 30% versus the prior year period. Sales increases were largely driven by customer demand across all industries, new program sales, mainly from industrial and powersports customers as well as raw material recoveries. Gross profit for the quarter was $14.5 million or 16% of sales compared to $12.7 million or 17.5% of sales in the prior year first quarter. The decline in the first quarter margin percentage was primarily due to the impact of 0 margin recoveries of higher raw material costs. Excluding this impact, first quarter 2022 gross margin would have been 17.7%, an improvement from the year ago quarter. We have recovered a majority of the increased cost the company has occurred from the raw material inflation. However, we are still working with certain customers to obtain recovery. We expect to have all significant recovery agreements finalized by the end of the second quarter. Although we have seen improvement in supply chains, we continue to carefully monitor customer demand changes resulting from supply chain impacts. After adjusting for raw material recoveries, we were able to match profitability levels from last year’s first quarter, even with broader inflationary headwinds from other cost categories like labor, supplies and energy. Selling, general and administrative expenses for the quarter were $8.5 million compared to $7.4 million in the prior year period. Higher wage cost due to investment in our technical solutions and advanced manufacturing engineering teams, additional professional fees related to information technology improvements and recruiting and higher insurance costs due to premium inflation drove the SG&A increase. We also finalized a new 4-year labor agreement in our Cobourg facility. Now all of the company’s labor agreements are…

Thank you, John. As John discussed, we are pleased with our first quarter results and with customer demand that continues to expand our opportunity pipeline to over $200 million. Our company has worked hard to be a good corporate citizen that recognizes our social responsibility and commitment to our employees and the communities in which we live and work. In addition to social health, safety and human rights policies, we are committed to the environmental sustainability that focuses on the efficient use of energy and raw materials as well as waste minimization and risk prevention. Our material development team continues to research the use of organic and renewable materials. We have also appointed a dedicated leader of our sustainability efforts at Core to lead and optimize our efforts in this somewhat unclear period that all of us are experiencing. In our thermoplastics product line, we strive to use recycled material as an alternative to virgin materials, stressing our desire to convert waste into usable products. Simply stated, our goal is to exceed the needs of the present while helping to make the world a better place for the future. We also have some interesting research projects underway that I’ll discuss on future calls. One involves reversing coral reef damage in the ocean caused by linefish. Meaningful work and research is underway, so we will share more information in future quarters. We remain laser-focused on continuing to execute our long-term strategic plans, and we are well positioned for continued growth. We are no longer a truck supplier, although we still very much appreciate our business and partnerships in the heavy truck industry. Our technical solutions sales are winning in new industries, and we continue to invest in our people, engineering capabilities, automation and assets as we drive to improve every single day. We will also continue to invest in our ability to innovate and provide technical solutions and provide conversions that result in lighter weight, lower cost and higher performance products for our customers. We are concentrating on new industries, especially in the industrial and utility sector as more people and I quote this, work where they want to live in both suburban and rural settings where improved infrastructure is needed. We know that decision-makers of critical infrastructure investments will be evaluating products and processes and our engineering materials solutions are supporting these customers by reducing the installation costs and converting traditional materials to a lighter weight, more durable composite solution. Our low-cost, lightweight and durable substitutions with our technical solutions teams are ready for rapid deployment into new infrastructure projects. We believe the continued execution of our long-term strategic goals will position the company for further stability and profitable growth in the future. We see a bright future ahead for Core Molding Technologies, and we are excited to continue growing the company and delivering value for our shareholders and stakeholders. With that, I’d like to open the call to questions from analysts or investors. Operator?

[Operator Instructions] Our first question comes from JP Geygan from Global Value Investment Corp.

[Technical Difficulty]. Congratulations on the excellent print, it seems like you’ve come a long way over the past few years. [Technical Difficulty] you talked about labor, energy and other cost pressures, but it seems like your recoveries have only related so far to material costs. Can you elaborate on the other cost pressures that you’re experiencing? And if there’s an opportunity to recover any of those cost increases?

Yes. So JP, we’re -- so the recoveries we primarily focus on has always been the raw materials because from a sized situation, they’re much larger increases than the other areas. But we are like everybody seeing inflation in labor, energy, gas -- natural gas prices are going up supplies because -- and then anything that has anything to do with freight from a standpoint of getting to our building. We’re seeing a little bit there and everything. We -- as we’ve been working with our customers, we have been looking at those situations where our overheads and our labor has been going up, and we’ve been passing some of that through. We do see that it’s our responsibility also to try to control those costs. Our goal isn’t to take everything and pass it through to our customers. It’s really to try to control those costs, find efficiencies, still look for alternate supplies, alternate sources. And so that’s always our first choice is to try to figure out how to minimize the cost. But we do work with customers and different customers, we’ve had -- been able to pass through some of the overheads in labor. But the material cost is definitely still the significant portion of our raw material inflation we’ve seen.

Okay. That’s helpful. Obviously, supply chain issues are affecting all sorts of producers across all sorts of businesses. It strikes me that your customers might be more affected than your business, in particular, has been by supply chain issues. Can you provide any additional color around that and what we might expect as these issues resolve and demand begins to normalize?

Yes. I think from our side, relative to our supply base, we see a lot of it stabilizing. I think we’ve done a lot of work with the supply base as well as what we had to do with inventories, changing our component mix as well. So we’re seeing that much behind us. We do see some challenges, more of an intermittent supply chain challenges in some of our larger customers, their supply chains are significantly more complex than ours. So probability is that they’ll have some challenges at least for the near future. But it’s -- they’ll have a challenge, but they still want to catch up. What we’re seeing is the demand is there and a rush to meet the demand.

Got it. Turning to your capital structure. You’ve obviously made some substantial improvements over the past several quarters or years, but it strikes me that there might be room for additional improvements or to said another way, lower your cost of capital, particularly your debt capital. Can you provide some color around how we would expect the capital structure to develop over the coming quarters?

Yes. So we are working on that right now. We started the process probably about 9 months ago of looking at how to restructure our debt. And we had the third quarter, which was a little bit of a challenge. And so we kind of held off and now that we have a good couple of quarters again behind us. We are in the final negotiations with restructuring the debt. We looked at overall lowering the cost and then being able to fix some of the costs also when we get that done. We would hope to have that done probably by the end of the second quarter, maybe the start of the third quarter at the latest, but we’re actively working on that right now.

Okay. And then finally for me, you previously stated that acquisition is likely a part of your growth strategy, particularly as you diversify into various end markets. Can you provide any sort of commentary around where you stand in evaluating potential acquisitions and what we would expect in terms of characteristics of an acquisition target?

Yes. I mean it’s absolutely part of our strategy. We know moving forward. Right now, when we’re getting $75 million in net new wins last year, $10 million already in the first quarter. Right now, our focus is on gaining the organic growth that we’re seeing out there and really installing the capacity and locations in our plants that are already set up for those machines being the least expensive option on growing the business. Acquisitions we see as something a little further out when we’re looking at where we need to install the capacity and then adding to our overall strategy and value proposition, whether that’s either different processes or technologies or knowledge to help us with the technical solutions sales. Right now, we have a lot of opportunities that we’re acting on today.

Yes, makes sense. All right. That’s it for me. I appreciate the additional color, and congratulations again.

The next question comes from Justyn Putnam from the Talanta Investment Group.

My question is, as you look out over the next several years to continue with this transition in the business. How much of an anomaly is the current level of capital expenditures you’re expecting for this year?

Again, Justyn, I think the way we look at it is, I don’t think it’s an anomaly. I think where we would be looking at it is our maintenance CapEx is usually going to be somewhere around probably 3% of sales. We’ll flex those up and flex those down those things that we need to just make sure we’re doing. So as we grow the company, if we can get to our targets of continuing to grow the revenue, there is going to be the maintenance CapEx that we’ll continue to grow kind of in line with revenues. As Dave mentioned, and I mentioned in mine, I think we’ve kind of always put out there that a couple of years ago, we were at $200 million, $210 million. We kind of last year hit $307 million, just to $90 million a quarter. And what we’re seeing is to really go to that next level, we are going to strategically have to add capacity, primarily presses maybe some brick-and-mortar at some point as we kind of grow the facility. So I would see that CapEx only be needed as we grow the company. As we go to that next level of revenues, $400 million above, I think we would continue to add capacity strategically in order to continue to grow the company. So I don’t know that I’d call it abnormal, but I would call it part of the growth strategy of us getting to that next level. We are going to definitely have to add presses and automation and those things as we go forward.

The next question comes from Chip Moore from EF Hutton.

I want to follow up there, I guess, on investing to meet the strong organic demand, just the 3 new presses that you’re investing in sort of time line there, how to think about that? And then can you delve a little bit deeper on the automation efforts? I think you said it was on 3 presses, what that will give you a sort of throughput and cost and potential maybe to roll out more automation throughout the business?

Yes. The 3 new presses will be going in place. They’ll be installed this year. One of them is -- well, they were all used, but one of them is already in operation. We’re moving that over and automating. And then we have 2 other presses that were not in operation that we’re refurbishing and putting in place and locations already exist. But as you said, pretty exciting being able to implement the full automation. We’ll fully automate load and unload on prices. Obviously, there’s a lot of challenges with getting direct labor in specific regions of the U.S., but really about improving the throughput, the speed and getting more out of our assets at the press itself.

Got it. And maybe one more, just on the opportunity pipeline. I think you said greater than $200 million, you said that before. Is that -- should we think about that as a similar mix to the current business in terms of end market? Or does it skew a certain way and give you more diversification, maybe industrial utility, for example?

Yes. I would -- if you were to rate it as far as a percentage of current sales to future sales, it would definitely be weighted more towards the strategic direction just because it’s more front-loaded on ahead of the strategy, more of a leading indicator. So we’re seeing more in areas where we’re purposely going after the business, industrial utilities, agricultural. So we’re seeing a lot more in that area.

Got it.

Because that’s where we’re focusing, right?

Yes.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I’d like to turn the conference back over to Dave Duvall for any closing remarks.

I’d like to thank everyone, and thank you for your continued interest in our company. We look forward to providing an update on our progress when we report our second quarter results in August. Thank you very much from the entire team.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.