Good day, ladies and gentlemen, and welcome to the Douglas Dynamics Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to introduce your host for today’s conference call Mr. Bob McCormick, Executive Vice President and Chief Financial Officer. You may begin, sir.

Thank you. Welcome everyone and thank you for joining us on today’s call. Two quick items before we begin. First, please note that some of the information that you will hear during this call will consist of forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. These statements express our expectations, anticipations, beliefs, estimates, intentions, plans and forecasts. Because these forward-looking statements involve risks and uncertainties, our actual results could differ materially from those in the forward-looking statements. For more information regarding such risks and uncertainties, please see the sections titled Risk Factors, Forward-Looking Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission and the impending updates to these sections in our Quarterly Report on Form 10-Q. Second, this call will involve a discussion of adjusted EBITDA, a non-GAAP financial measures, which under SEC Regulation G, we are required to reconcile with GAAP. Reconciliation of this measure to the closest GAAP financial measure is included in today’s earnings press release, which is available at douglasdynamics.com. Joining me on the call today is Jim Janik, our Chairman, President and Chief Executive Officer. Jim will begin by providing an overview of our performance for the quarter, current industry trends, and will review our recent acquisition of Dejana Truck & Utility Equipment. Then, I will review our financial results before turning it back to Jim to discuss our outlook. Finally, we’ll open the call for your questions. Jim?

Thank you, Bob and good morning everyone. I’m pleased to report that despite experiencing one of the lowest snowfall environments in the past decade, last winter season, we’ve produced a tremendous start to our pre-season order period for our commercial snow and ice products, which drove record second quarter results. We also saw a strong performance from the Henderson team for the period. During the second quarter, Henderson successfully relocated its Illinois upfit location to a substantially larger more efficient facility that better supports our growth expectations in that region. Not only did we produce a great quarter, we also announced in June and subsequently completed in July, the important acquisition of Dejana Truck & Utility Equipment Company. And based on all this good news, we also increased and narrowed our 2016 outlook, which I’ll get to later in the call. I’ll start with a brief overview of our results. We produced a record second quarter net sales of $113.8 million, which translates into record second quarter EPS of $0.71 per diluted share. We also generated record second quarter adjusted EBITDA of $32.7 million. Overall, a lot of records this quarter. Our pre-season for commercial snow and ice products was strong, signaling ongoing optimism from dealers, despite the lack of snowfall across the country last winter. Last year, pre-season shipments were more evenly split due to the unprecedented new product launch production ramp-up. This resulted in stronger third quarter shipments for 2015, which will not occur again this year. For 2016, we expect orders to be more heavily weighted towards the second quarter versus the third quarter with an approximate 55-45 split, which is more in line with historical averages. While weather trends across North America this past winter impacted our commercial snow and ice products, non-snowfall indicators remain positive.…

Thanks , Jim. As you can see in our press release, we produced exceptional results for the second quarter of 2016, generating net sales of $113.8 million compared to second quarter 2015 net sales $107.1 million. The increase relates to stronger sales of snow and ice control equipment compared to the prior year and a slight shift in the pre-season order pattern. The improvements were offset slightly by lower parts and accessories sales due to the aforementioned low snowfall this past season. Gross profit was a record $41.5 million or 36.5% of net sales for the second quarter of 2016 compared to $37 million or 34.5% of net sales for the second quarter of 2015. The increase is attributable to favorable commodity pricing and improved operating performance realized through DDMS. Net income for the 2016 second quarter was a record $16.3 million or $0.71 per diluted share compared to net income of $13.1 million or $0.57 per diluted share last year. Even with the increase in net sales, we were able to successfully leverage our cost structure, which led to a larger increase to the bottom line. We reported adjusted EBITDA of $32.7 million in the second quarter, compared to adjusted EBITDA of $28.1 million in the same quarter last year. The effective tax rate for the second quarter of 2016 was 36.1%, and we estimate that the effective tax rate for the full year will be approximately 36%. CapEx through June 2016 totaled $4.8 million compared to $3.3 million in the first half of 2015. In 2016, CapEx included the $2.8 million purchase of a state-of-the-art upfit facility for the Henderson, Illinois installation and distribution center, which will significantly increase capacity and drive productivity and throughput. During the first six months of 2016, the Company recorded net cash provided…

Thanks, Bob. To close, I’d like to outline the update to our outlook and expectations in the second half of the year. For the first six months of 2016, the Company’s performance has exceeded initial internal expectations. Based on second quarter results and visibility into market trends plus the addition of the Dejana business, we’re increasing and narrowing our 2016 financial outlook. I should also mention that we decided to include this additional information to help everyone better understand how the update came together, what is related to Dejana versus the original business. But we have not plans to provide such levels of detail on a regular basis. While there is additional detail available in the table we included in the press release, I will focus on the new total guidance numbers. Including Dejana, we now expect to produce 2016 net sales in the range of $395 million to $450 million, net income in the range of $31 million to $40 million, adjusted EBITDA between $77 million and $97 million, and earnings per diluted share in the range of $1.36 to $1.79 per share. Please remember, these numbers include our estimates for the impact of purchase accounting related to the Dejana acquisition. We believe this will include an inventory write-up of approximately $4 million net of tax which equates to approximately $0.18 on a per share basis. As I mentioned, these numbers are just estimates at the moment, the final computations will be will be ready in the fourth quarter 2016 in line with our plans. Also, you will see we increased the top end of the EPS outlook while leaving the other items the same. The main reasons for the difference is the change in income tax rates and lower interest expense due to our large cash balance than we anticipated at the start of the year. In summary, the second quarter of 2016 was a successful and important quarter for our Company. We implemented our low snowfall playbook and turned in a financial performance that exceeded our expectations. At the same time, we effectively executed our largest acquisition to-date and are now well-positioned to pursue growth going forward. On behalf of the Board, I want to thank all of our employees for their ongoing dedication to the Company and welcome our newest team members under Dejana team. We are glad you are on-board. It is hard for me to fully explain, just how proud I am of the entire Douglas team and how excited I am with fall and winter just around the corner. With that said, we would now like to open the call for your questions. Operator?

[Operator Instructions] Our first question comes from Josh Chan with Baird.

My first question is on the pre-season orders which you said were above your expectations. Were there any patterns that you noticed in terms of like larger distributors versus smaller and specific geographies? And then I also wanted to make sure that there was any additional incentives or significant dealer additions that drove that number as well.

Sure, I’ll answer the second one first. There were no additional incentives. We think we have the right balance of incentives most years that we go into the marketplace, this year is no different. There was nothing materially different there. Secondly, I think as we always see, pre-season orders are always a little bit stronger in areas that experience some of the better snowfall, there wasn’t many of those areas this year but there were some of them. And one of the other things that I’ve seen this year, which might be a little bit different is I think in our programming we saw more people taking cash terms versus the late terms over a period of time. I don’t know necessarily that we can come to any conclusions as to why that is or what makes it unique, but it is something that’s a little bit different.

Okay, that’s interesting. And with respect to the inventory, I guess, is that an area that you are potentially concerned about, especially if Q4 doesn’t materialize as the way that you expect or how manageable is the channel inventory right now you think?

Channel inventory is pretty manageable. Yes, it’s elevated a little bit as one might expect when you have a fairly snowfall year last year, but it’s well within our comfort zone. As we look in the fourth quarter, both us, both the Company and our dealers are very adaptive at ramping up and ramping down so that we -- again, we’ve planned for average snowfall in the fourth quarter; if it’s above average, we’re going to make sure we can take care of all the customers. And if it’s below average, I think all of us know what the playbook is. So, we can always soften. But again, from my perspective, we’re looking for average snow as we always do.

And on the steel cost front, I think costs have increased pretty meaningfully during the quarter. Historically, you’ve been able to offset that but just wanted to see what your thoughts are in terms of pricing and margins as we look at that core business into next year?

Sure. Josh, we’ve certainly benefitted from the impact of lower steel costs in our first six months performance. Steel prices have risen in recent months. And if you recall, our steel pricing in our core business is based upon a 90-day lag to the actual market price. When steel prices go up, we don’t feel the impact until 90 days after that increase occurs. Having said that, we will see an impact in the third quarter from those increasing steel prices. Now, we’re not sure the long-term fundamentals are in place to support the current price levels, longer term. So, we’re going to take a wait and see approach. So, there’ll be some short term steel price impact in Q3. We’re questioning whether that’ll hold through the end of the year or not just based upon market fundamentals.

And my last question is just on Dejana. You’ve owned the business for couple of weeks here. Just any surprises one way or the other and what’s sort of the primary focus area within the next three to six months here?

Well, it’s -- yes, right, we’ve owned it…

Two weeks.

Yes, 16 days at this point. We don’t see anything different than we saw during diligence. In fact. what we see more of -- now that the deal is closed and we’re able to get inside and spend more time with more of the Dejana team, a very cooperative focus group of folks who come to work every day, looking to serve the customer and make their business better, so it fits us very well from a cultural perspective. Certainly, the early target areas for us -- there’re some standard integration things we have to do from a treasury perspective et cetera, but it really is to introduce some DDMS concepts into their business, in target areas to allow their growth trajectory to continue for the back half of the year and into 2017.

Our next question comes from Mike Shlisky with Seaport Global.

Couple of questions here, let me first ask on the core business. I guess, I was wondering about the low snowfall playbook that you’re implementing. Is that the cause of the good results here or would you attribute it to more your overall market condition? Because I always thought that the low snowfall playbook was a cost control kind of a playbook rather than a sales push strategy.

Correct. That is more of a temporary cost control measure to maximize profit and cash flow when we’re in a below average snowfall cycle. So, the low snowfall playbook really doesn’t have an impact on order patterns.

Okay, got it. But I guess, is the idea just simply that your customers, you’ve noticed just very low snowfall, still feel good about buying this year early or is it just more like you think that these customers have let’s say a better budget for this year or is there forecast for snowfall for rest of the year seem pretty high? I want color as to what exactly is making everybody so confident given that there was no snow last year.

Sure. The primary drivers of our business, as you know are snowfall, secondary would be truck sales and general economy. The snowfall portion of it was really quite weak, but the rest of drivers continue to be fairly strong. And I think that creates some additional optimism, only through our dealer organization but from the end users. And as a result, I think we were pleasantly surprised by the strength of the orders and the optimism that’s out in the field as people find that the economy is doing okay. And as a result, I think what we are seeing is reaction to those drivers and people being generally optimistic. So, I think that’s the primary driver. Let me mention another thing that comes to mind is two other things, one is as I mentioned, there is a little bit more of a shift of pre-season into Q2 from Q3 than we’ve seen historically. So that may give us a little bump in Q2. And secondly, we did introduce an awful lot of brand new products in 2015, which I think continue to be very popular and well-received within the market place combined with some of the new products we introduced this year. So, I think there is a really a confluence of things that have resulted in a particularly good second quarter.

Great. I also wanted to touch on Henderson as well. You briefly mentioned it, but maybe just a little bit more color as how that’s going this year and whether the drivers of Henderson are also doing as well as the core truck type business?

Henderson continues to do well. We are very pleased with the results thus far. One of the big events for them was moving their upfit facility that was in Illinois, Northern Illinois, they moved to a significantly larger facility. And interestingly, using DDMS ideas, they were able to move the entire operation of that facility in three working days. So, there was barely a loss of productivity and shipping. So, the group is embracing DDMS and we have got a great leadership team. I think they are going to continue to do great things.

Okay, great. And just I have got two quick questions here on Dejana as well. Given that you’ve just bought company, two weeks into balance sheet, is there anything that surprised you on the inventory side, do you feel that’s appropriately sized for what you typically see in your businesses or are there any changes as to have they manage their inventory and other working capital?

There is nothing out the ordinary from a working capital inventory perspective that we can see either through diligence or those initial ownership timeframe. Certainly one of these decisions they will need to make as part of their DDMS journey is how much focus they put on reducing inventory, which is another form of waste elimination versus working on productivity and throughput. So, a little early to answer those questions at this point. But, there isn’t -- you won’t -- when you’d see the balance sheet, you’re not going to see anything out of the ordinary from an inventory turn perspective or from a working capital perspective.

And just kind of finally here on the debt reduction or debt pay down plan, can you give us any sort of framework as to how much you might be paying down until the next 18 months, given the guidance what it is today? And let’s assume a somewhat normalized year next year. I guess debt is I wouldn’t call amazingly high but I guess people are kind of wondering where you might take the debt by the end of 2017 as you ramp into your next M&A deal?

We’re very pleased that we only increased our term loan $130 million to get this latest deal done. We did put approximately $30 million on our ABL revolver, which it would nice if we paid most of that if not all of that off by the end of this calendar year, but to wait and see how the start to the snow season goes. But if we can accomplish that then I think we had into 2017 with a reasonable leverage ratio that if as Jim said earlier, if any opportunistic acquisitions come along that are high on our priority list, we’ll certainly have the capital necessary to make those acquisitions. So, I’m feeling good about how we approach this particular deal. And if we can execute like I hope we can for the balance of the year and pay that short term ABL revolver off, I think we’re in great shape.

[Operator Instructions] And I’m not showing any further questions at this time. I’d like to turn the call back over to our host.

Thank you, operator. And thank you for joining us today and your continued interest in Douglas Dynamics. We look forward to speaking with you again during the third quarter announcement in early November. Thanks again. And have a great day.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.