Earnings Labs

Douglas Dynamics, Inc. (PLOW)

Q1 2025 Earnings Call· Tue, May 6, 2025

$45.36

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Transcript

Operator

Operator

Good day, and welcome to the Douglas Dynamics' First Quarter 2025 Earnings Conference Call. All participants will be in a listen-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.

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. We have published a one-page fact sheet on our website that summarizes our results for the quarter. Joining me on the call today are and Mark Van Genderen, President and CEO and Sarah Lauber, Executive Vice President and CFO. Mark will provide an overview of our performance, followed by Sarah reviewing our financial results and guidance. After that we will open the call for questions. With that, I'll hand the call over to Mark. Please go ahead.

Mark Van Genderen

Analyst

Thanks, Nathan, and welcome everyone to our call. My first is CEO of the company. I've been in the chair for about two months now and we've been busy. I've had the chance to visit many of our facilities across the country, walk the manufacturing and upfit floors. Work Truck Attachments, they've seen me for years. In Solutions, these were my initial visits and I'm coming up to speed quickly. In both cases, it's great to see the engagement of the teams. Our business is running at a high level of efficiency and effectiveness right now. We continue to develop and nurture our corporate culture, which we see as a real differentiator that allows us to optimize during the tough times as well as when things are going well as they are now. One of my initial areas of focus has been to make sure we have the right leaders in place across the company. At the corporate level, Sarah and her team operate like a well-oiled machine. I'm pleased with the partnership she and I have created as we look to the future of Douglas Dynamics. Shannan Vlieger has ramped up quickly in her role as Senior Vice President of People and Culture, and our latest addition to the team is Chris Bernauer, who joined us in February as President of Work Truck Attachments. Pat Miller, President of Dejana and Chad Barker, Vice President and General Manager of Henderson, round out our executive leadership team. I would also like to take a moment to thank Jim Janik and Bob McCormick, both former CEOs of the company and both incredibly knowledgeable about this business given their years of experience at Douglas Dynamics. Their support and guidance over the past five years have been a reason I've been able to hit…

Sarah Lauber

Analyst

Thanks, Mark. I will start with a summary of this great quarter and then more around our guidance which will include a discussion on the impact of tariffs. Q1 results are a great start to the year. Solutions delivered their fourth consecutive quarter of record results on higher volumes primarily on the municipal side. And thanks to a closer to normal winter across North America, Attachments results significantly improved on increased sales of both equipment and parts and accessories. Before jumping into the numbers, please note that unless stated otherwise all the comparisons I'll make today are between the first quarter of 2025 and the first quarter of 2024. Consolidated net sales increased 20.3% to a record $115.1 million and the gross margins improved by 470 basis points to 24.5%. SG&A expenses increased by $1.9 million to $23.4 million as our improved performance led to higher stock-based compensation. This translates to breakeven on GAAP earnings per share basis, a significant improvement compared to negative $0.37 in 2024. As a reminder in the first quarter of last year we recorded restructuring and impairment charges of $2.1 million as part of the implementation of the 2024 cost savings program. Now in its second year, we continue to expect the 2024 cost savings program to deliver annualized savings of $11 million to $12 million in 2025. Interest expense decreased by approximately 1/3rd to $2.4 million following the debt reduction and lower revolver borrowings following last year's sale leaseback transaction. Adjusted EBITDA increased significantly to $9.4 million and adjusted net income improved by $8.7 million to $2.2 million. This created a record adjusted earnings per share of $0.09 and an adjusted EBITDA margin of 8.2%, major improvements all around. Now I'll walk through the results for the two segments. Mark discussed the market conditions…

Operator

Operator

Thank you. [Operator Instructions] The first question today comes from Mike Shlisky with D. A. Davidson. Please go ahead.

Mike Shlisky

Analyst

Good morning. Wanted to touch on your comments, Sarah, on the solutions business in 2025 versus 2024. You had mentioned, I guess, by the time the year is over when all is said and done, it might look relatively similar to the prior year. But I was curious whether there could be -- is that what your goal was for the entire year? I guess I always thought you wanted to really break past that 10% level and get to at least double digits for margins and you seem well poised to do that if you guys are past the hump in a lot of ways. I guess what's holding that business back from breaking through past 10%, eleven % here?

Sarah Lauber

Analyst

Absolutely. And you're right, Mike. We're in a great position. I mean, we landed really close to 10% at the end of last year with our goal being double digits to low teens. I still fully expect that Solutions can achieve that longer term target. For 2025, what we have planned is some additional investment in growth that we will be bringing in, layering in, later in the year. And I would also say there is some uncertainty that I have factored in there on the commercial side, just from a demand perspective. So it hasn't slowed us down to working hard on that longer term low teens, but I would say this year has a little bit of mix of some risk and some investment.

Mike Shlisky

Analyst

Okay. Also your comments, I think it was big book you made, but Mark, you kind of started off with it about M&A. That looked interesting as well. If the right target doesn't come along, I'd be curious as to what your cash priorities might be after that. So I'm guessing that the difference is going to at least stay stable or possibly grow a little for the first time in a couple of years here. But if no M&A candidate shows up, do you have additional R&D you're planning? And you just kind of suggested, Sarah, is that a lot of money or would you consider share buyback or other use of capital?

Mark Van Genderen

Analyst

Yes. I would say it's a combination of both of those. Our primary focus is really right now and I talked about it, we've emphasized in some of our discussions, but I think there's some real opportunity out there with the just the overall operational excellence that I think we have in the Attachment space of bringing additional brands and companies in under that fold. And we're in a financial position to be able to do that. And as we continue to have these type of results, it will enable us in the future to really focus on acquisitions. That being said, we said we're not going to chase anything. We're not going to be dumb. In that event, we'd have to evaluate. We've got open buybacks right now of -- what's the total we have $40 million. So that's available. That would be something that we could potentially look at. We haven't increased the dividend. We look at doing that. So there's a couple of different opportunities that we would have.

Mike Shlisky

Analyst

Great. Excellent.

Operator

Operator

The next question comes from Bobby Schultz with Baird. Please go ahead.

Bobby Schultz

Analyst · Baird. Please go ahead.

Hey, guys. Thanks for taking the questions this morning. First, I just noticed on the press release that, it's noted that we're off to a strong start this year, but partly related to the timing of certain projects. Is there any way to quantify the timing benefit and anything we should consider from a timing perspective as we think about Q2 and the rest of the year?

Sarah Lauber

Analyst · Baird. Please go ahead.

I would say I have not quantified it. There are some projects that are going to be lumpy for solutions, depending on when we actually get the trucks out. That has been pretty consistent for solutions for many years. I would say this quarter, some of the volume that we had in municipal would have been pulled from the second quarter. In addition, we had some small pull ahead from a Canadian dealer. So there was some, but I wouldn't say it was overly material, Bobby.

Bobby Schultz

Analyst · Baird. Please go ahead.

Got it. And then, from a tariff perspective, do you think most of your competition has a pretty similar manufacturing footprint? At this point, have you seen meaningful price increases in the market to offset any tariff impact from competition?

Mark Van Genderen

Analyst · Baird. Please go ahead.

I can take that one. I would say that if you look at the different divisions, if you look at attach what we've seen from competitive pricing is in line with what we've done. I can't speak specifically to their manufacturing or sourcing footprint, but it's been consistent. And as I noted for this year, Sarah talked to it as well, we're committed and have figured out ways that within our current guidance to cover if the existing tariffs were to go into place and stay as they are right now. Solution side of the business, we look at Henderson and think that one of the reasons that they're on a roll right now is because of their base in the United States. U.S. customers, municipalities really like the fact that Henderson is here, American company. We have made some pricing adjustments there as well to cover our tariffs. But overall, I think in the case of Henderson, we're in a very, very good competitive spot right now.

Bobby Schultz

Analyst · Baird. Please go ahead.

Awesome. Thanks guys. I'll leave it there.

Operator

Operator

The next question comes from Greg Burns with Sidoti and Co. Please go ahead.

Greg Burns

Analyst · Sidoti and Co. Please go ahead.

Good morning. Just wanted to ask maybe a little bit about the planned capacity expansion you have for the Solution side of the business. What is the timing of that coming online? And I guess maybe what is the impetus for that? Is it just the strong demand you're seeing? Are lead times too long? Like are you capacity constrained now as you look at the business?

Sarah Lauber

Analyst · Sidoti and Co. Please go ahead.

Yes. Great question, Greg. As we look at the Henderson business and where we are in the contracts that we have, we have some pockets where we would like to expand. We've started those plans. We would not expect that to come online until 2026. We're not talking about overly significant, I would say call it 10% additional capacity. We will be very prudent in adding any fixed costs to the business and capacity and ensure that we've got the backlog and the contracts in place before we do that.

Greg Burns

Analyst · Sidoti and Co. Please go ahead.

Okay, great. And then, you mentioned maybe some of the new product line extensions maybe you were talking about on the hopper line. Can you just maybe talk about new product development, anything else that is in the pipeline that might be coming to market and any areas where you think you might be able to fill out the product line or take market share with new products?

Mark Van Genderen

Analyst · Sidoti and Co. Please go ahead.

Yes. I think it's a great question and certainly a tenant of my background coming in and I know the work truck attachments teams right now is very focused on not just this year, but over the next three and five years and looking at where the market is going. And can't get into the specific details, but I would say a trend that we're seeing in the market from end users and attachments is how they can more efficiently use product and whether that's reducing overall manpower, whether it's equipment that moves snow better, faster, with more accuracy. Those are all, I'd say, the main tenants that we're focused on. And when you look at our product pipeline over the next few years, it's certainly reflective of that. A good recent introduction that we had. We mentioned the upgrade to the hopper lines, which have been received well. The introduction of our pusher plow line, similarly, the feedback from dealers is saying, hey, there are some cases where we're looking for bigger plows that attach to front end loaders and skid steers. And so understanding the market and coming out with those types of new products. Wish I could share more, but yes, stay tuned.

Greg Burns

Analyst · Sidoti and Co. Please go ahead.

Yes. No, that's great. Thank you.

Operator

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Van Genderen with President and CEO for any closing remarks.

Mark Van Genderen

Analyst

Yes. Thank you. And thank you all for your time today. We appreciate your continued interest in Douglas Dynamics, and we look forward to talking with you all soon.

Operator

Operator

[Operator Closing Remarks].