Hello, and welcome to the Douglas Dynamics Fourth Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] I would now like to hand the call to Nathan Elwell, Vice President of IR. Please go ahead.

Thank you, MJ. 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 Bob McCormick, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Bob 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 Bob. Please go ahead.

Thanks, Nathan, and good morning everyone. Today I wanted to talk briefly about the fourth quarter 2023. As you probably saw, our detailed pre-release last month and the release yesterday evening. But more importantly, I'd like to focus on 2024 and a bright future I see for Douglas Dynamics. The main drivers of our fourth quarter performance were a continuation and expansion of what we had previously discussed throughout 2023. Work Truck Solutions performance was the highlight of the fourth quarter and 2023 in total. Their strong Q4 completed calendar year where they met their financial targets, improving EBITDA margins each quarter over prior year performance. I want to commend the solutions team for their dedication and performance. And I'm pleased to say, we expect continued improvements throughout 2024. The improved solutions performance, however, was overshadowed by weather driven challenges in the attachment sector. Following two years of excellent results in attachments, the weather really impacted performance in 2023 and was the reason our results came in well below our expectations. We've been in the snow business for 75 plus years. And while we've seen our share of poor snowfall seasons, we've never seen back-to-back seasons of this magnitude. The first quarter 2023 was impacted by the end of the 2022-2023 snow season with record low snowfall in the East Coast. The fourth quarter 2023 was impacted by the start of the current 2023-2024 snow season we saw very low snowfall across the entire snowbelt with snowfall totals that were barely 70% below the 10-year average. As a result of these unprecedented weather patterns, there was a record 700 plus day gap between measurable snowfalls and important East Coast markets. This resulted in the lowest fourth quarter order activity we've ever seen signaling that the equipment replacement cycle has lengthened…

Thanks Bob. Now the simple story for 2023 was that work Solutions produced significantly improved results, while Work Truck Attachments was hindered by unprecedented weather trends. Clearly, 2023 did not unfold as we expected but collectively we made the right decisions and implemented the right policies to adapt to these unusual challenges successfully. I want to thank our teams for stepping up, identifying issues and more importantly, finding solutions as we manage through the year. With that said, let me walk through the numbers for you. On a consolidated basis net sales were $568.2 million for the year compared to $616.1 million in 2022. The approximate 8% decrease was due to low snowfall, impacting volumes and attachments, which was partially offset by higher volumes and better price realization and solutions. Gross profit of $143.3 million or 23.6% of sales compared to $151.5 million or 24.6% last year, as the impact of lower volumes and higher margin attachments segment negatively affected our mix. SG&A expenses including intangibles amortization decreased 3.6% to $89.4 million for 2023 compared to $92.7 million for the prior year. The decrease was primarily due to lower incentive-based compensation and the impact of curtailing spending as part of our low snowfall playbook. Adjusted EBITDA for 2023 was $68.1 million or 12% of sales compared to $86.8 million or 14.1% of sales in 2022. We remain focused on improving EBITDA margins and solutions made significant improvement in the year. Interest expense increased to $15.7 million for 2023 compared to $11.3 million in 2022, due to higher interest on our revolver of $3 million based on higher borrowings and higher variable interest rates compared to last year. Our combined tax rate for 2023 was 18.9% compared to 18.5% for 2022. Both rates are lower than typical with the 2023 rate…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Mike Shlisky with D.A. Davidson. Please go ahead.

Hi. Good morning and thank you. Maybe some comments you made on the dividend. So I wanted to clarify you mentioned you were holding back on making the decision about increasing the dividend for 2024? And is it the same chance that you would increase as well as cut or a coating that there's just not a table that's going to be flat or up is your current thinking?

Yes. Good morning, Mike. You know certainly we've always talked and that has not changed that the dividend is our number one priority and we have strived to increase and have a sustainable dividend for years now. And we've had many years of increasing. We believe the dividend is absolutely sustainable at this point. All of our plans for the year includes that dividend and we expect that to continue.

Yes. I'll just I'll just jump in there to reiterate what Sarah said Mike. This public company thesis for Douglas Dynamics was launched 14 years ago with the dividend being front-center. That hasn't changed, okay? While it's prudent not to increase it as we navigate through this weather environment. It is still the number one priority and our business model is built around protecting it and delivering it every quarter.

Okay. Got it. I've also had a quick housekeeping and about the guidance. In the press release, you kind of have two different centers about EPS. And I wanted to just kind of square up that together and also what you provided back on January 30th. So you mentioned $1.28 to $2.10 of adjusted EPS in dollars, but then growth of 50% to 100% also which would suggest $1.50 to $2. And then you said that you were 7% to 8% back on January 30th. So I'm not really sure they're kind of in the same range more or less but which one is the most appropriate one for us to look at?

Yes. That's a great question Mike. So the guidance ranges we typically give at $1.20 to $2.10 that encompasses low snowfall potentially in the fourth quarter on the low end of the range. The next statement there was meant to be a qualitative statement getting asked a significant amount of earnings per share increase that we have in front of us based on weather and on the other levers that we pulled. So the 50% to 100% is within that guidance range, but it was really more a qualitative statement to get at the magnitude of the earnings per share…

Okay. And a follow-up on that later. Maybe

I guess maybe are you finding that Mike was just focused on the guidance range as we've typically provided $1.20 to $2.10. And as I mentioned in my script the larger assumption there being the 50% return to average that we will update in April and we're seeing it's trending in any different fashion.

Okay. And then maybe just talking about more the long-term here. You've mentioned the past you can get an average snowfall year $3 a share that you're looking to get this can we see it sounds like which might be the next year at least, but that's what you're looking at. That's I that's what I last heard from you folks. I guess you could you comment is that viewpoint still valid? And then maybe secondly, the cost improving permanent that you've captured kind of rolling out here create another quarter or higher EPS and that was probably not perceived of your fresh issue that $3 guidance, so it more like $3.25 going forward? And then maybe lastly attachments would have to go up quite a bit from here in an average -- on an average snowfall scenario. I know you mentioned you know low to mid digit growth but would there really be a gap up here first if we see more normal snow and then you have to go from there to your long-term growth rate? It was my three questions about one of them but the more broader long-term view I'd appreciate it.

Got it. I don't know. Let me let me start and then I'll let I'll let Sarah finish. Obviously, we've been talking about $3 share targets for quite some time. Most recently over the past couple of years we've talked about $3 of EPS by 2025 that -- that journey is driven largely by in internal profit drivers which we've talked about quite a bit right? We took pretty conservative stances, Mike, on the external drivers, both snowfall and chassis supply, to reach those long-term targets. We're pleased to say, and we'll shout from the rooftops, we have delivered on our internal profit driver commitments, and we expect that to continue, okay? Now having said that, this profit model is always impacted by weather, right? In most environments, snowfalls up or down 5% to 10%. It doesn't really move the needle very much. Given what's happened over the last 1.5 years, right, the historic impact on earnings of weather has been over $1 of EPS. So it more than wipes out the gains from the internal profit drivers. Having said all that, as we find ourselves moving forward from today, we are laser focused on three things, right? We've repositioned the attachments business to support a multiyear return to normal demand levels, and when that occurs, as that occurs, you're going to see some nice gains. We have to continue to support the continued improvements within the Solutions group that Sarah's talked about. And then lastly, where I started, we are still laser focused on delivering our internal profit drivers. Now you put all those things together, and that will drive significant EPS improvements in 2024 and 2025, okay? That's where our attention is at this point. Sarah has reiterated that our long-term goals by segment really haven't changed. I'll give her a chance to add any additional comments you may want to provide.

Yes. When I go back to your three questions, Mike, Bob just walked through, I guess, the journey and the fact that we're reaffirming where the segments land, which is the growth rate in Attachments of low- to mid-single digits and mid- to high-20s margin with the Solutions being at mid- to high-single digits and double digit to low teens margin. We absolutely see a path to those. The snow impact of being than $1 and the multiyear aspect is really more the assumption that we've had to make in the first year. And the Cost Savings Program absolutely is additive to where we were several years ago. That's, call it, $0.20 to $0.30 that we expect within our guidance this year. And we expect those to be permanent additions to our earnings as we move forward. So all of those things, I guess, well position us to get that significant earnings per share increase that we've been talking about. We're just not focused on the timing of the $3.

Okay. Okay. I'll take my other questions offline. Thank you so much.

Thanks, Mike.

Thank you. The next question is from Robert Schultz with Baird. Please go ahead.

Hey, good morning. You guys talked about recovering about half of the weather-driven volume declines that you experienced in 2023. Maybe could you provide a little bit more context there and kind of the underlying assumptions you made to get to half?

Sure. Let me start and I'll let Sarah jump on. We've talked over the years, right? I mean, weather goes up and down, but one of the unique things about this weather business is we have enough history that when something happens, we can find two or three other data points historically where a similar thing has happened and therefore we know what happens next. We're not in that space right now, right? What's happened over the last 18 months has never happened before. So, there's not a lot of history to draw on. So, we're making more educated guesses and then tweaking those things up or down as the as the cycle show themselves. So Sarah, you want to add something to that.

And so our assumption and our guidance is based on the volume lost in attachments that we experienced in 2023. So, we are assuming that we get about half of that back. And then once April begins and we start to see preseason, we'll have more indications of that assumption. And so my plan is to update our guidance if we see that its materially different up or down from that point. Q – Robert Schultz: Yes. Got it. Thanks. And then maybe on the solution side, on the guidance for next year, maybe how should we think about the contribution there between Dejana and Henderson.

I'd say they're both improving equally. They're both on their journey to the targets that have been set out for the segment. And they both are making improvements, that I would say are relatively equal into my commentary for solutions in total. Q – Robert Schultz: Awesome. And then just one more for me. What are you expecting for free cash flow this year and kind of what are the puts and takes?

Yes. So when you when you look at the midpoint of the guidance for our EBITDA. I'll kind of walk you through the pieces, cash interest I would say, is around $15 million to $16 million and not too far from prior year and cash taxes we're expecting to be flat. And I mentioned our CapEx would be at the low end of our range of 2% to 3% of sales. And then the assumption on working capital, if you look at this year's working capital was greatly impacted by accounts payable timing. This year I would say -- and this year I would say more relatively flat working capital with us having opportunity to exceed that with the inventory reduction plans that we have in place. Q – Robert Schultz: Awesome. Thanks. I'll leave it there.

Thanks, Rob

Thank you. The next question comes from Greg Burns with Sidoti & Company. Please go ahead. Q – Greg Burns: Morning. You -- could you quantify what the impact on the UAW strike will be in the first quarter or what exactly the impact will be to you?

Yes, we've incorporated it into our guidance. I will tell you Greg, it's a little bit hard to understand exactly what UAW impact is versus other supply chain movements. I would say, that we've estimated probably between $1.5 million to $3.5 million of EBITDA primarily in the first quarter. Yes. Q – Greg Burns: Okay. Okay. And I just wanted to I guess understand the guidance a little better what the assumption is for the first quarter like, do you – are you expecting – what kind of end of the snow season are you expecting here in your outlook and what is factored in your guidance? Like, if we get no snow, does that we – or inclined to lower.

So January snowfall was better than January last year. We had no show up on the East Coast and that was very good. We actually had a record January for parts and accessories and our attachment segment because of that – that snowfall. February, you can see how your window has not been significant from a snow standpoint and that's more heavily weighted for the snow season. So right now our assumption is that we have a below average snowfall that’s what inside our guidance for the year for the first quarter. When I think about first quarter results, we are expecting improvement over prior year in total, and I would say the snowfall that we saw in January. And that improvement helped us to work our way towards close to breakeven for the first quarter, which as you know is our seasonal lowest quarter of the year.

Okay, great. And then when you consider M&A, are you looking to stay within your existing product categories or potentially maybe looking at a new – a new category maybe that's less weather dependent?

Yes, we certainly in the attachments acquisition strategy, we are targeting attachment products that are outside of traditional snow and ice control. And obviously, there's a host of reasons why. But one of them you just mentioned, right. We need to over the long-run further diversifies our earnings away from being so snow and ice control reliance. Most of the focus is upside of snow and ice.

Okay, great. All right. Thank you.

Thank you. [Operator Instructions] Seeing no further questions. This concludes our Q&A session. I would like to hand the call back over to President, Bob McCormick for any closing remarks.

Thanks. Thank you for your time today. We appreciate your ongoing interest in Douglas Dynamics. Our company is built to manage through uncertainty. And while it's been tested of late, I think we have shown we are more than capable of making the necessary decisions, however difficult and then executing those plans. The long-term demand trends and outlook remain positive for all of our businesses. We are confident that as external headwinds subside, we will come back stronger, deliver improvements and reach our long-term goals. I'm excited about the future of Douglas Dynamics. Our best is still ahead of us. Thank you and have a terrific day.

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