Good day, and welcome to the Douglas Dynamics' Fourth Quarter 2024 Earnings Conference Call. All participants will be in a lis10-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Nathan Elwell, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Nick. 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 are Jim Janik, Chairman and Interim President and CEO; Sarah Lauber, Executive Vice President and CFO; and Mark Van Genderen, COO and President of Work Truck Attachments. Jim will provide an overview of our performance, followed by Mark discussing our segment results. Then Sarah will review our financial results and guidance for the year before we open the call for questions. With that, I'll hand the call over to Jim. Please go ahead.

Thank you, Nathan. The fourth quarter of 2024 was a positive end to what began as a challenging year. Consolidated results improved across all metrics when compared to the prior year, primarily due to strong growth in the Solutions segment and increased margins in the Attachments segment. There were quite dramatic differences in the circumstances our two segments faced which was reflected in their results. However, the common denominator between attachments and solutions was the grit and determination shown by our people in addressing the challenges we have faced in recent years. After several tough years following the pandemic, the Solutions segment entered 2024 with strong momentum, which I am pleased to say continued throughout the year. I want to congratulate the leadership team of both Henderson and Dejana for producing a record annual performance and showing everyone what great things we are capable of. Well done to everybody at our Dejana and Henderson operations. While there is no doubt it has been a tougher year at Attachments, we are just as proud of what we have been able to produce under the circumstances. The hard work completed in 2024 to streamline our operations and adapt to recent weather patterns is already paying off. We operated efficiently in a tough environment and delivered improved margins compared to last year. A crucial part of that success was the cost-savings program, which exceeded expectations in 2024. Given the circumstances, our teams performed extraordinarily well and we couldn't have asked them for more. Sarah will talk to capital allocation in detail later, but I will just say that the dividend remains our priority and we are maintaining the current dividend in 2025. With a lot of hard work completed last year, our balance sheet is strong and provides us with additional options moving…

Yes. Thanks, Jim. Before I talk to our results at each segment, I want to highlight the important announcement that we made yesterday. Following an extensive search, we have recruited and hired our top candidate, Chris Bernauer as President of Work Truck Attachments. Chris is a dynamic leader who has had a successful career consistently delivering strong financial and operational performance. He joins us with over 30 years in the manufacturing sector, where he gained extensive experience in many disciplines including engineering, product development, sales and marketing, and dealer engagement, primarily in the automotive, motorcycle, and marine sectors. In addition to delivering operational and financial results, Chris brings a strong reputation for creating positive and collaborative cultures, which fits perfectly with our approach here at Douglas. He starts later this week and will be based here in Milwaukee reporting to me. Chris is the ideal candidate for this role. I'm thrilled to have him on Board and I'm positive his perspectives will be invaluable in the years ahead. Now as I transfer my Work Truck Attachment responsibilities to Chris in the coming weeks and months, I will continue working closely with Jim, Sarah, and other senior leaders to help chart the course for our company in 2025 and beyond. Now, turning to the results in Work Truck Attachments. Let's start with our favorite topic, the weather. While winter is far from over, we feel comfortable saying that the 2024, 2025 snow season will be better than the previous year where snowfall was approximately 40% below the 10-year average and while snowfall was down from October to January when compared to the 10-year average, we have seen more activity so far in February. In general, this has certainly looked like a more typical winter across the country and should be a…

Thanks, Mark. As Jim noted at the start of the call, it was a positive end to the year in Gulf's segment. To summarize the year, Work Truck Solutions produced a record year as the teams effectively manage their operations to deliver fantastic results. At Work Truck Attachments, challenging market conditions continued and the team did an outstanding job of maximizing their profitability under the circumstances. In fact, both fourth-quarter and full-year consolidated results improved across all metrics. With that said, let me walk through the numbers for you and please note unless stated otherwise all the comparisons I'll make today are to the full year 2023. Net sales were essentially flat at $568.5 million as lower sales and attachments were almost exactly offset by the increase as Solutions. On flat sales, we were able to increase gross profit of $146.8 million by 9%. This drove a gross margin increase of 220 basis points to 25.8%. These increases were based on the impact of the 2024 cost savings program plus improved price realization and throughput at solutions. The 2024 cost savings program was even more successful than anticipated within the year, producing pre-tax savings of more than $10 million. As we've previously noted, we expect the program to deliver annualized savings of $11 million to $12 million, which will drive nominal additional savings in 2025. I want to thank our teams that have done the difficult but necessary work during 2024 to reduce costs and improve our profitability, allowing us to operate from a position of strength in 2025 and beyond. Selling, general and administrative expenses increased approximately 16% to $91.7 million mainly due to one-time items, including costs for the sale-leaseback transaction announced in the third quarter, severance costs related to the cost savings program and CEO transition costs.…

Good morning and thanks for taking my questions.

Good morning, Mike.

Good morning, Mike.

So let's start off with some weather headlines. So there's a bit of winter weather in the South and Southeast U. S. Last month, not areas that we normally see snow. I was wondering if you were able to ship at least a couple of units to those areas and maybe help some of your dealers reduce their channel inventories at least just on a one time basis for the big snow we saw earlier this year?

Yes, Mike, this is Mark. I'll certainly be happy to answer that question. I would say in general to your point, we don't have a strong dealer presence in the Deep South. That being said, I'd point to a couple of things. I think one is, if you look at our SnowEx line of products, we use a distribution model for that and it remains a bit more nimble. So our distributors can sell to independent dealers. I think it's fair to say we certainly saw products being sold in markets where we traditionally wouldn't see them being sold based on that snowfall. The other thing that we'll see and have experienced is opportunistic and very smart contractors in the North will actually head down to the South and they will head down during these snowstorms and help to remove equipment or excuse me, help to remove snow with their equipment. So, it may not be a direct impact on dealer inventory, but it certainly helps the usage of the equipment for eventual replacement.

Got it. That's great color. Thank you. I also wanted to turn to the Solutions segment. You mentioned some strong trends in municipal markets. Can you update us on the private sector? Are you seeing large fleets there also mix a pretty big orders or is all the growth focused on government related customers?

I can take that one too as well, Mike. Where we're really seeing the growth right now across the businesses is in the municipal sector, Henderson is very strong with a strong backlog and Dejana as well. On the commercial side, we've noted we've seen a bit of softness. I think the teams are doing a great job looking at where that is, what it is, focusing on the areas where we do have, what I'll call competitive capabilities with fleet sales, really managing the relationships with our dealers and doing well there, but yes, I would say overall on the municipal side, it's been strong and commercial it's we that's a real area of focus for us.

Yes, I would just add, Mike, that when you look at solutions and you look at our guidance for the year, at the midpoint that implies like mid-single-digit growth, we're seeing that more, as Mark said, on the municipal side and when you look at our backlog, our backlog is really near record level. Those backlog -- that backlog includes multi-year contracts for our municipal customers. So that growth will span over ‘25 and ‘26.

Got it. Maybe one last one for me from a balance sheet perspective, Sarah. Working capital and free cash in 2025, given the operational obviously, there's some weather dependent here, but outside of that, given the operational improvements that you've made, particularly in Attachment to kind of be more nimble and quick with how you build and deliver, do we be thinking of any major changes up or down in the inventory environment that's on your books for 2025 or somewhat stable there?

Yes. When I look at free cash flow for 2025, what we expect is that our free cash flow will be at or better, than where we landed for 2024 at $33 million. The biggest change is primarily in the higher capital expenditures that we're expecting being closer to 3% of sales versus where we were in 2024. When I think about working capital, I would say we are in a much better position, you're right, much more nimble. There's not nearly as much inventory to take out in the year and I expect that to be pretty similar to the, I'm sorry, a little bit better, certainly better than 2024.

Just to clarify this, Sarah, it sounds like you mentioned during your prepared remarks that there was a P&L impact on the sale leaseback. So wouldn't that be going away as well? It sounds like free cash flow, when you include that, got a positive outlook to it.

Yes, same free cash flow, we had a $17 million impact. That would go away, but then when you look at the capital expenditures, that's probably that is by far the largest mover and then cash, that's the largest mover.

Okay. Outstanding. Thank you so much. I'll pass it along.

And your next question today will come from Greg Burns with Sidoti and Co. Please go ahead.

Good morning.

Good morning, Greg.

You mentioned I guess snowfall has been market or regional focus. Can you just remind us where like your most important markets are? Like you did mention the big cities, but when we think about the regional distribution of where snow is falling.

Yeah, I can. Greg, it's Mark, I'd be happy to take that. With our three brands, we have a nice national footprint basically anywhere that it snows. But to your point exactly I mean it's really, we look at kind of where the major population centers are. So as we think about it, and this is very rough, it's kind of anything East of the Mississippi and kind of north of, if you want to call it kind of Tennessee, Virginia, that's really the sweet spot. So anywhere in the upper Midwest, Ohio Valley, the Mid-Atlantic, New York, New Jersey, up into Maine and then certainly we have a strong presence in Canada as well. So with some of the storms that we've seen recently, Ottawa, Toronto, getting hit with some major snow, that certainly is very beneficial for, for us.

Okay. And then when we look at the margin improvement that's been happening on the solution side of the business, I know you're kind of at that low end of that double-digit range or just right around it for this year. But where do you think your margins can go for that business? Is it going to be strictly volume-based based or do you have other kind of efficiency programs that you're implementing to drive the margins on that business?

Yes, we entered into the target range, I would say this year at the low end and the target range being double digit to low teens. I would say by far the largest mover to get us into the 13% range is more throughput at both of the businesses but that does not stop us from all the other initiatives that focus on margin improvement that will also help us get there.

Okay, thank you.

[Operator Instructions] Seeing no further questions, this will conclude our question and answer session. I would like to turn the conference back over to Jim Janik for any closing remarks.

Thank all of you for your ongoing interest in Douglas Dynamics and we are confident about the future potential of our company as we address the opportunities on the horizon and deliver improvements. Thank you for your time today and we hope to talk to all of you soon.

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