Good morning, everyone. Welcome to the Core Molding Technologies First Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sandy Martin, Three Part Advisers. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us for Core Molding Technologies' conference call to review first quarter results for 2024. Joining me on the call today are the company's President and CEO, Dave Duvall; and EVP and CFO, John Zimmer. This call is being webcast and can be accessed through coremt.com via an audio link on the Investor Relations' Events and Presentations page. Today's conference 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 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release 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 and Exchange Commission. Core Molding Technologies assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, including adjusted EPS, adjusted EBITDA, debt-to-trailing 12 months EBITDA ratio, free cash flow and return on capital employed. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Finally, this release has been submitted to the SEC on Form 8-K. Now I would like to turn the call over to the company's President and CEO, Dave Duvall.

Thank you, Sandy, and thank you all for joining us to review our 2024 first quarter results. I want to start today with some positive highlights related to our Core Molding team in the first few months of 2024. This spring, Core was presented with BRP's Gold Supplier Award related to its Sea-Doo boats and Personal Watercraft models. BRP or Bombardier Recreational Products is a global leader in power sports vehicles on land, water and snow. I'm proud of our team, and we are honored to be one of BRP's key suppliers for the Sea-Doo Personal Watercraft and the Sea-Doo Switch. Our team has been awarded this prestigious recognition for Core's manufacturing and logistics excellence, high-quality products and processes and superior customer service. Being recognized as a gold supplier is a culmination of the complete business transformation that we've been executing and communicating over the past several years. I am proud of what the team has accomplished and the magnitude of this accomplishment can be seen in our tremendous improvements in our basic metrics. For safety, we reduced our incident rate by 44% in last 2 years and are much better than the industry average. For people, we continually improve our focus on individual and organizational development which is reflected in our low turnover of salaried team members, now less than 12% annualized. We've implemented annual leadership development programs, organizational and career development programs, technical certification programs along with many other training and employee engagement initiatives. Employee development is and always will be a key focus area for Core Molding. In quality, we've reduced our customer PPM by an incredible 89.6% in the last 4 years and 17% in the last 2 years. In delivery, we improved our on-time delivery by 21% in the last 2 years and are now…

Thank you, Dave, and good morning, everyone. As Dave mentioned earlier, our total net sales for the first quarter were $78.1 million, down 21.5% compared to a year ago. And sequentially, our net sales improved by 5.9%, up from the fourth quarter's sales of $73.8 million. Seasonality and mix shifts produced growth from Q4, and we believe that including sequential performance comparison allows us to explain recent changes in customer demand. As expected, first quarter sales reflected tough prior year comparisons, notable mix shifts and rebalancing of customer inventory levels. Q1 medium and heavy-duty truck sales shifted from 50% of sales in 2023 to 55% this year, and power sports shifted from 22% of sales last year to 25% in the first 3 months of 2024. In addition, other industries, including building products and industrial and utilities continued to produce soft sales. The first quarter gross margin was $13.3 million or 17% of sales compared to 17.8% in the year ago quarter. With lower sales versus prior year, fixed cost operating leverage was negatively impacted in the first quarter by approximately 170 basis points. Due to the operational improvements and pricing changes, we were able to offset a significant portion of the lost fixed cost leverage. Before our operational improvements, volume decreases and mix shifts historically created more volatility in gross margin. However, we now have better operational efficiencies and profitability across all our plants, which allows us to offset fixed cost leverage decreases and maintain more stable margins in changing demand levels, as was demonstrated in this quarter. We continue to expect gross margin to be in the 17% to 19% for the full year with the potential for gross margins a quarter outside of this range. SG&A expenses were $8.6 million compared to $9.7 million in the prior…

Thank you, John. We are highly focused on offsetting certain end market headwinds, truck cyclicality and the end-of-life programs. As John mentioned, we have seen inventories rebalancing down for power sports and the industrial and utilities markets. Even so, we are seeing a return to pre-pandemic levels. We have aggressively ramped up lead generation by partnering with a professional sales agency, added sales resources, ramped up trade show presence and we are streamlining our quote-to-cash processes to maximize our organic business growth. Actually, this week, I'll be supporting our sales and marketing team in our display at the NPE show in Orlando. We are also in the process of vetting potential acquisitions that meet our strategic growth criteria for sales channel growth and footprint expansion. Our current sales opportunity pipeline is over $200 million, and I'm excited to report that we've been awarded over $25 million in new and replacement business that we'll launch near the end of '24 through 2025. We know that in our industry, the quote to cash is over a year, so efforts today are most likely going to start delivering results in 2025 and beyond. We are also prepared for the ACT or American Commercial Truck research forecasted truck increase in 2025 and 2026 which is driven by the 2027 emission regulations. Even though our customers are currently in a reduced demand period, our business is well positioned as we serve blue-chip customers with sole-source products that are foundational to our customers' long-term growth plans. We remain focused on continuous improvement to lower overall costs and prepare for higher demand levels. Our Technical Solutions' sales approach provides our customers unique solutions for their highly specialized needs, and we have never been in a better position to benefit from our extensive portfolio of presses, processes and industries serve. Our Engineered Solutions allow us to work on new environmentally friendly and sustainable products. And we are seeing opportunities in 2024 from the infrastructure bill that Core Molding is well suited to provide, including projects driven by the Buy America, Build America or BABA Act. We have built a resilient organization well positioned for growth, and our strategy supports the creation of long-term shareholder value. Our Must Win Battle in 2024 is invest for growth, and that is what we are driving today. We appreciate, and I want to thank our dedicated Core Molding team. Our team is our competitive advantage. We also appreciate, and I want to thank our customers, shareholders and the Board for their continued support. With that, I'd like to open the line for questions. Operator?

[Operator Instructions] And today's first question comes from Chip Moore with ROTH MKM.

I wanted to ask -- your comments, Dave, around the engines ready for growth, investing in growth, maybe just start there, if you can expand on some of the organic and inorganic efforts that you're going after this year?

Yes. We've done a lot to really drive the lead optimization as far as all the leads that we've already had in the system, business maybe that we had looked at in the past. So a lot more on the lead generation side as well as on the immediate or short-term working with customers on contract molding or transfer molding. When we're looking at customers in the truck, personal watercraft, ATV, UTV; those are more longer-term design phase. So we're already partnering with customers in those products. Some of those we've already won that would be part of that $25 million and then really driving in the industrial and utilities and packaging areas on being able to either develop the new products for conversions, working with them currently and developing products where we can transfer the molds. A lot more on the lead generation side and continuing on to industrial and utilities and still growing our ability in those areas.

Understood. That's helpful Dave. And maybe the opportunity pipeline boosted quite a bit this quarter versus when we talked fairly recently, just talk about the composition of that pipeline, has that shifted with some of the changes in the end markets that you're seeing right now? And then what are you seeing in some of the newer areas? Growth opportunities?

Yes. We're still seeing some opportunities in the automotive side as far as underbodies and tailgate type work. So we're looking at that. We're still working on the automotive side. Some of those are a little longer, starting in '25, '26. Also some of the newer truck programs that we're looking at and power sports. We do have probably about 30% of it in the industrial and utilities area.

That's helpful. And just one on the heavy-duty truck market, right, given that it's a sizable piece of your business. Can you expand on the 2027 emissions drivers, when you might see that? Maybe you're seeing some of it already to trickle through in terms of pull forward or demand? And from some of those regulations?

No, that's a really good question. And we are starting to see that with our customers and talking with them as well as in the ACT. So last year, '23, the volume was about $340,000 Class 8, this year it was increased from $285,000 to $304,000. Next year, we're looking at about $320,000 to $330,000 and then '26 is the peak year of $346,000. So what we're seeing is that as the emissions come in, the '27 emissions are a costly one. So what companies are doing is they're going to start preordering prior to the '27 cost increase. And when they start filling build slots, then you start seeing them come in earlier and earlier into the '24, '25 time frame. And that's what we're getting prepared for now and talk with customers about.

Perfect. That's helpful. And maybe last one, maybe for you, John, on the gross margin side, that 17% to 19% range for the year. Maybe just talk about baseline assumptions there, what gets you towards the higher end? Is it sort of the volume dependent, I assume? And then just remind us any quarterly dynamics to keep in mind here with seasonality and some of the other one-off impacts.

Yes. So seasonality is probably not going to hurt us as much this year as some of the mix has changed. We'll probably see better seasonality in Q2 and Q3. Q4, guys, has always got holidays in it and everything else, and so it's always the most challenging. So my expectation is Q2 and Q3 would be a little bit higher than what we're at today. One of the big pieces that drive us to the 17% to 19% is, I think at year-end, we kind of -- in March, for the year-end, we talked about how a lot of the utility guys had gone away, and wasn't really ordering anything from us. So getting a little bit more volume back from those guys, we won't be adding any fixed cost leverage at all in order to do that. And so we can see just a little bit of a pickup in the sales side. We really should see the margins head towards that 19%. And so that's the real key as we get a little bit of a rebound in the revenues as we go into the second half of the year.

The next question comes from Bill Dezellem with Tieton Capital.

Specific to the Building Products category, would you talk about the impacts versus the Q1 of '23 and then what drove the increase versus the Q4 of last year?

Yes. So Building Products for us is primarily a couple of different customers, and so it's not a lot of customers. From last year, we know our UFP sales are down, UFP sales through big-box retailers. And so as they have program changes with big-box retailers, it eventually comes through to us and so we do know that they've been ordering less, and we expect that's something to do with who they're selling to this year versus last. From an actual quarterization standpoint, Q4 is really a slow period for building products. Q1, Q2 are usually a little bit stronger as people start to put lattice and those types of things in the stores for people to start doing building products in March and April -- building projects in March and April and May. And so that's normally kind of a seasonality. But year-over-year, our business primarily with UFP is just down. And I think that's just a difference in their sales mix that they have to their end customers.

And then relative to acquisitions, would you please talk about the pipeline and how you are thinking about acquisitions now?

Yes. So we would look at in acquisition, right now, anywhere between about $20 million to $40 million acquisition. Really, we're looking at footprint, customer and industry diversification or sales channel development. I think focused processes really in the U.S. that we also need when we look at some of the infrastructure in the BABA is really structural foam, DLFT or large part injection molding. I think the big thing for us when we look at footprint, and we look at sales channels, everything has to be a technical or a large part, not small parts. So really, the big driver is what we're looking at is footprint, sales channel development and industry diversification with specific processes.

Yes. One of the questions we get, and we've been doing a lot of work on also in this area is what are we seeing for valuations. We've met with probably 25 different bankers that really are in this industry that I know sell resin-based products. I kind of compare it to the housing industry -- even though cost of financing has gone way up, the multiples haven't changed that much. We're hearing about 7% to 8% for kind of a normal deal, not a specialty medical or something like that. And so one of the things that we are going to be very disciplined on is if you're buying at 7x to 8x enterprise value, how fast can we get synergies from that acquisition, either cost synergies or sales synergies? And as you guys are aware, again, as Dave made a comment is, we're big part manufacturers. So our strategy is not usually to go in and buy a plant and shut it down and consolidate the plant and have all kinds of savings from that, it's actually to expand our footprint. So we're being diligent from that standpoint. Obviously, interest rates are a lot higher than they were over the last 15 years to finance them. And so we're definitely looking for opportunities that can get us to that 8% to 10% EBIT and return on capital employed of 16% and drive synergies pretty quick out of the gate. And so being a little selective on that because we haven't seen the valuations come down as much as we probably would have hoped to with higher financing costs.

And is your sense that there are -- maybe address the quantity of acquisitions that you see out there, more or less -- what's your view?

Yes, less in our industry. So like I said, one of the things, we talk to a lot of the different bankers in this industry, less in this industry. There's still PE guys playing the game. They still have money to play. And so -- but from an overall -- I think the challenge is that there are a lot of sellers that still want that 7x, 8x, 9x, 10x multiple, and there's a lot of buyers that have gotten a little bit more diligent and said that's just too high with the financing rates where they are today. And so when we did talk to -- over the last couple of weeks, I mean, we had lunch with one of our bankers, P&C Capital Markets, and they said that they've seen a slowdown in this industry also at this point. So we're seeing a little bit of a slowdown because I think sellers are keeping their prices high and buyers just are being more rational as they go through this.

The next question comes from Tim Moore with EF Hutton.

It was great to see the gross margin, EBITDA margin come in pretty impressively for the quarter despite the sales decline, so kudos on that cost savings and efficiency front. So maybe I'll just start off because two of my questions are already answered. Just kind of curiously, during your last earnings call, you mentioned, I believe it was $425 million to $475 million sales capacity in place. Just trying to wrap my head around some of the earlier comments about the Class 8 truck volume could be up to the peak in 2026. When you kind of look out through your sales capacity and maybe let's call it $425 million to $475 million, do you think it could be starting to fill that towards the end of 2026 and get those customer qualifications and terms in place by then? Because it seems like you're destined for a rebound next year, obviously on sales though, just trying to wrap my head around maybe when you'll start to fill that capacity fully.

Yes, I think with some of the new wins that we have, the $25 million we talked about and it's probably somewhat conservative, but we are looking at 2025 where we will start seeing that ramp up. The truck demand will start picking up pretty quick as the installed capacity and the product lines are already there, so we constantly have customers asking if we're going to be able to meet their peak demand coming up here in '25, '26, they're already looking at it. For sure, '26 is going to be a high year for us relative to truck as well as the additional programs that we got from the wins this year and the wins last year. I think we still have the capacity we needed.

Good. No, no, it seems like it's really good and you've done very efficient additions. And yes, I got to imagine you're going to be bumping up against that late 2026 or late '27. Just one thing I want to kind of clarify, I know you talked about the Volvo program that -- maybe that one or two programs phasing out, you mentioned, in February. Are there any kind of additional sales one-off of customers' renewals over the next year? Is there anything else that could maybe unwind a little bit or be additive?

Of the wins that we just talked about, about 40% of that is replacement business. So we're constantly -- we know ahead of time when the programs would be ending and when they'd be coming back. I think the challenge with the Volvo was that decision was actually made 3 years ago. But as John said, I think we have a great relationship with Volvo now and we're working with them. We're actually talking with them about that new program and being able to actually provide those parts as well or at least part of those programs.

Yes. To follow up, we really don't have any other visibility to any other sales programs falling off. Like Dave said, one of our goals is that we're actually bidding on business 2, 3 years out. We have some of those programs that we've mentioned last year and this year that are wins, which is replacement business 3 years out. And so we really don't have anything like a Volvo out there that we're aware of. I think our customer relationships are good in all those areas. And I think the original comment that Dave made about where we are operationally, we really do think, operationally in this industry, we're pretty strong compared to some of our competitors that have gone through some challenges. And so I think we're really placed right. We've got to go win the business, and there's really no other major programs that we know of that or have been awarded away at this point or anything like that.

I think a lot of what we worked on was really getting the business model right, being able to get our execution in place as far as our costs as well as what we talk about on the market pricing. So I think preparing the organization and now looking at what we need to do to invest or to drive growth, to have the peak of the season come in and not be ready for that, we've seen what that does in the past in 2018, '19.

Great. Thanks for the color on the customer outlook and the visibility that you have there. That's really helpful.

And at this time, we are showing no further questioners in the queue, and this does conclude our question-and-answer session. I would now like to turn the conference back over to Dave Duvall for any closing remarks.

So thank you for your continued interest in our company. We'll participate in the upcoming East Coast IDEAS Conference in New York in June, and we look forward to providing an update on our progress when we report the second quarter results in August. Thank you very much, and have a great day.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.