Earnings Labs

Douglas Dynamics, Inc. (PLOW)

Q1 2024 Earnings Call· Tue, Apr 30, 2024

$44.41

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Transcript

Operator

Operator

Good day and welcome to the Douglas Dynamics First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nathan Elwell, VP of IR. Please go ahead.

Nathan Elwell

Analyst

Thank you. 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 up the call for questions. With that, I'll hand the call over to Bob. Please go ahead.

Robert McCormick

Analyst · Baird

Thanks, Nathan. Our results for the first quarter of 2024, reflect a continuation of trends we saw last year. Work Truck Solutions continues to deliver improved results, while Work Truck Attachments, is being hindered by unprecedented weather conditions. Having said that, we are pleased to report improved performance across the board this quarter compared to last year. The performance of our Solutions segment was again the highlight. This is the seventh consecutive quarter of improved performance versus the prior year same quarter. I'd like to thank the Solutions teams for their continued hard work. When chassis supply was at its worst, they stayed focused on what they could control and used DDMS to get better every day, knowing that when chassis supply improved, they'd exit stronger and more profitable. Great job. Now let me run through our performance in each segment. Despite experiencing the second winter in a row with significantly below average snowfall in all of our core markets, our Work Truck Attachments team still managed to deliver improved results compared to last year. Snowfall in the first quarter this year was better than the fourth quarter of 2023, and on the East Coast, conditions were better than the previous winter. We were glad to break the record 700-plus day gap between measurable snowfalls in the important cities, along the I-95 corridor. However, after a positive start to snowfall in the first quarter, with above average snowfall in many markets during January, and the first Nor’easter in 2 years in early February, there was a lack of snowfall through the rest of February and March, so the season ended as poorly as it began. I should reiterate, we've never seen back-to-back seasons of this magnitude over the 75-plus years we've been in business, and we are in unchartered territory…

Sarah Lauber

Analyst · Baird

Thanks, Bob. I'm pleased to report that, when compared to the first quarter of last year, our results improved across all metrics. Net sales increased 16% to $95.7 million, and gross profit increased 67.3% to $18.9 million. SG&A expenses decreased 4.3% to $21.5 million compared to first quarter 2023. The improvement was driven by higher volume and price realization at Solutions and higher parts and accessory volumes at Attachments. In addition, expenses came in lower based on the successful implementation of the 2024 cost savings program, which was partially offset by related severance and impairment costs. In conjunction with the implementation of the 2024 cost savings program, we recorded restructuring and impairment charges of $2.1 million, which was in line with our expectations. Interest expense was $3.5 million for the quarter compared to $2.9 million incurred in the same period last year. We recorded a GAAP net loss for the quarter, which is typical, given the seasonality of our business. The net loss for the first quarter 2024 was $8.4 million compared to net loss of $13.1 million last year, an improvement of $4.7 million. On an EPS basis, this translates to negative $0.37, a significant improvement compared to negative $0.58 in 2023. On an adjusted basis, we generated net loss of $6.5 million, or negative $0.29 per diluted share compared to an adjusted net loss of $12.5 million, or negative $0.55 per diluted share. Similarly, we generated a consolidated adjusted EBITDA of $1.5 million, compared to negative $7.4 million in the corresponding period of the prior year. Let's review results for the 2 segments. Work Truck Attachments results improved across the board, compared to the prior year, despite the ongoing weather issue. Net sales increased 23.9% to $23.8 million, and adjusted EBITDA increased $5.7 million to negative $4.5 million.…

Operator

Operator

[Operator Instructions] The first question today comes from Robert Schultz with Baird.

Robert Schultz

Analyst · Baird

So it's now been about 2 seasons now with lower snowfall totals and attachments. I just wanted to ask, during the past 2 seasons here, have you noticed any changes in the competitive environment, or anything you'd call out from that perspective?

Robert McCormick

Analyst · Baird

No. Terrific question. We do formal market share surveys with our dealer base every year. As you know, we've got 50% to 60% market share and our market share is holding very solid. Our growth in some of our Non-Truck segments, is adding some market share in those areas. So we think that the competitive landscape is fairly stable, Bobby, even in this environment.

Robert Schultz

Analyst · Baird

Got it. And then on the Solution side, I think last quarter you guys had called out some expected impact from the UAW strike. Were you guys able to quantify the impact on Q1, and maybe could have Solutions performance even been a little bit better this quarter, had you not seen any impact?

Sarah Lauber

Analyst · Baird

Yes, we actually saw very little impact from the UAW strike. I think from the standpoint of maybe some delayed chassis, those types of things, the teams were really creative, and we have enough backlog, to work around some of those interruptions we experienced. It probably was no different than some of the other chassis delays that, we'd experienced prior to the strike, which was good.

Robert McCormick

Analyst · Baird

Yes, I think to Sarah's point, certainly we saw some chassis delays. Now the OEMs were not jumping up and saying, here's exactly the impact. But hats off to the team, for moving some other chassis and reprioritizing the mix. So that we could still get decent flow through our upfit center. So we're pleased that the impact in total was pretty negligible and now appears to be behind us.

Robert Schultz

Analyst · Baird

Got it. That's good to hear. And then one last one from me. Solutions margins were pretty strong this quarter. Does it change at all your expectations from that segment perspective for the remainder of the year? And I guess, how do you kind of see the margin playing out for the rest of the year?

Sarah Lauber

Analyst · Baird

Yes, no, it does not change our expectations for the year. So I still expect full year margins for Solutions will improve over 2023, making progress towards the double-digit long-term margin profile. But the front half of the year, I expect to be better than prior year, whereas in the back half of the year, those are a little bit tougher comps. I expect those margins to be a little more flat to last year.

Operator

Operator

The next question comes from Mike Shlisky with D.A. Davidson.

Linda Umwali

Analyst · D.A. Davidson

This is Linda on for Mike. So my first question is, can you give us some thoughts from the NTEA Show? What were some customer reactions to some of your new products? And what do you think there are? Do you think there are any growth tailwinds this year from those?

Robert McCormick

Analyst · D.A. Davidson

Oh, yes, absolutely. In my comments, I made reference to a number of new product launches that we had. Probably the one that sticks out most for me is the hydraulic pusher plow product that we launched, which rounds out our new pusher plow line; very, very positive dealer sentiment there. This will turn out to be the most productive, efficient pusher plow in the industry. So we've got lots of excitement there. Now we have to temper that a little bit in this calendar year, because with the 2 back-to-back historic low snowfalls and still some elevated retail inventories, it's going to take some of our dealers a little bit of time to work through existing inventory before they grab our new product lines. But the long-term prospects there are just terrific.

Linda Umwali

Analyst · D.A. Davidson

Great. That's good to hear. And then on that, what are you hearing from dealers about the financial health of end users? Have you had multiple years of low snowfall affected their ability to buy equipment, or have some of their businesses, other businesses like landscaping supported cash flow enough that it doesn't seem like many of them have financial distress?

Sarah Lauber

Analyst · D.A. Davidson

Yes, I would say the reaction this year is similar to last year. We are partnered with very strong dealers. And what they are experiencing, I guess, from their end users has not changed dramatically in the last couple of years. We've not had a lot of, I guess, dealer input to us that would be negative, because of the weather patterns.

Linda Umwali

Analyst · D.A. Davidson

Okay. And then my last question is, what has been the order cadence at Dejana? Have backlogs increased so far this year?

Sarah Lauber

Analyst · D.A. Davidson

Yes, I can speak to Solutions in total. Solutions in total, our orders have been very strong. Our backlog is still very high. It really has only come down about 10% from its record high. So we have not seen softening of demand.

Linda Umwali

Analyst · D.A. Davidson

Got it. And then my last question, I know it's not the most likely outcome, but if it doesn't snow next winter, how do you think your balance sheet and Attachment segments are positioned? And what's your view on Solutions? Do you think you have enough backlog, or visibility that it could be an offset next year?

Sarah Lauber

Analyst · D.A. Davidson

Yes, if we look to another year that would be similar to last year, 5there's a lot of things that have changed in the business that would be, I would say, tailwinds for us. One, you mentioned, I mean, we have backlog in solutions. Our backlog in solutions still is a year, and possibly a little bit greater than a year. And then when you look at the cost savings program that, we've implemented of $10 million plus savings a year, in addition to other baseline profit improvements that we've made. So from that standpoint, I mean, at this point, I do not have any concerns on the ability for our free cash flow in a similar year to cover our dividend like it will this year.

Operator

Operator

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Bob McCormick for any closing remarks.

Robert McCormick

Analyst · Baird

Thanks. Thank you for your continued interest in Douglas Dynamics. Let me finish with a few brief thoughts. We are encouraged by our positions in all the markets we serve today and our long-term growth prospects remain intact. We're confident that our continuous improvement mindset, will allow us to thrive as the external headwinds subside. And we continue to execute effectively, manage through the weather uncertainty, and focus on factors within our control. I guess for those of you that have been around us quite a while, you know that we're focused on continuous improvement. You know that we have a get better every day mentality. We're also weather driven company, right? And this weather challenge we're navigating through, while we've never seen something like this before, remember it is short-term. Weather will come back. And our Attachments group will come back stronger when those weather conditions come back. The Solutions group is showing ongoing continuous improvement in terms of results. I say all that just to remind everybody of 2 things: Number 1, our dividend remains our top priority and always will be, and we will generate enough free cash flow to cover that dividend in 2024; and number 2, when these weather headwinds subside, our long-term financial targets are still clearly within our reach. So with that, thank you for your support. We look forward to speaking with you soon.

Operator

Operator

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