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" Sidoti & Company, LLC

" Robert W. Baird & Co. Incorporated, Research Division

Good day, and welcome to the Douglas Dynamics Third Quarter 2025 Earnings Conference Call. [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.

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. Please note, in addition to our earnings release, we issued another press release yesterday afternoon regarding the acquisition of Venco Venturo. We also published a one-page fact sheet on our IR website that summarizes our results for the quarter. Joining me on the call today is Mark Van Genderen, President and CEO; and Sarah Lauber, Executive Vice President and CFO. Mark will first discuss the acquisition of Venco Venturo before providing an overview of our performance for the quarter. Then Sarah will review our financial results and guidance. After that, we'll open the call for questions. With that, I'll hand the call over to Mark. Please go ahead.

Thanks, Nathan, and welcome, everyone. We had another solid quarter, which Sarah and I will discuss shortly. But I'd like to start by thanking the employees of Douglas Dynamics for their continued focus and resolve. This team truly cares about keeping people safe and communities thriving, especially important as we head into winter. I'd also like to take a moment to highlight 2 changes we recently announced regarding our Board of Directors. After 13 years of dedicated service, Margaret Dano decided to retire. We wish her the very best and want to thank her for her many meaningful contributions to Douglas Dynamics over the years. Always collaborative and thoughtful, her guidance will have a lasting positive impact on Douglas Dynamics for many years to come. Second, we are pleased to welcome Jennifer Ansberry and Brad Nelson as new independent directors. Jennifer is the Executive Vice President and General Counsel of Lincoln Electric. Her extensive legal and M&A experience and deep understanding of the industrial sector will be invaluable as we advance our strategic priorities. Brad possesses a strong track record and significant leadership experience in manufacturing from companies such as Oshkosh Corporation to his current role as CEO of MasterCraft Bolt Company. Both Jennifer and Brad bring valuable experience and fresh perspectives that will be essential to support our future progress. As a result of these changes, our Board has now expanded from 7 to 8 members, 6 of whom are independent. Turning to the business and our announcement we made last night. Over the past several months, we've shared with our employees and with you, our shareholders, the Optimize, Expand, and Activate strategic pillars. On our last quarterly call, I focused mostly on Optimize and Expand. So as you may have guessed, today, I'll talk to Activate, which refers…

Thanks, Mark. Before I begin, unless stated otherwise, all the comparisons I'll make today are between the third quarter of 2025 and the third quarter of 2024. Also, please remember the third quarter of 2024 included a one-time gain of $42.3 million from the sale-leaseback transaction. I want to start by congratulating everyone on their performance this quarter, with all teams either meeting or exceeding our expectations. This strong work has allowed us to increase our guidance ranges again, which I will get to. But first, let's look at the third quarter. Overall, results were very encouraging. Solutions produced another record quarter with top and bottom line growth of over 30% and preseason shipments were in line with expectations at Attachments. On a consolidated basis, net sales increased 25% to $162.1 million, and gross profit grew 23% to $38.1 million, primarily driven by higher demand plus improved throughput at Solutions and the timing of preseason shipments at Attachments. SG&A expenses were $22.5 million. The change this quarter, excluding the 2024 sale-leaseback transaction costs, was driven by higher stock and incentive-based compensation on higher earnings, somewhat offset by lower CEO transition costs. Interest expense decreased 16% to $3.8 million for the quarter due to lower interest on the term loan and revolver from lower borrowings and a lower interest rate, which was partially offset by floor plan interest on higher chassis inventory. Adjusted net income and adjusted earnings per share both increased more than 60% for the third quarter to $9.5 million and $0.40, respectively. Adjusted EBITDA increased 31% to $20.1 million, and margins increased 60 basis points to 12.4%. Okay. Let's look at the results for the 2 segments. Attachments, our preseason orders ended in line with our forecast. Net sales increased 13% to $68.1 million, and adjusted EBITDA increased…

[Operator Instructions] The first question comes from Greg Burns from Sidoti & Company.

Would you be able to share maybe a little bit more detail about the acquisition? Maybe how much revenue Venco was generating, what type of margins, and maybe what multiple you paid for the business?

Yes, Greg, I'll start and then turn it over to Sarah. Maybe I'll start qualitatively, and she can get into more of the quantitative questions. But this is a business that we've been talking to and looking at for the last several years. The owner of the business, Brett Collins and I have developed a relationship during my time at Douglas, and we realized it was just a great fit for us. And with a lot of the discussions that Sarah and I have had over the last several months with our shareholders and the investment community, and as we kind of thought about our strategic pillars, an area of focus was, hey, it's great that you're looking at additional M&A opportunities. But it's been a while since you've done one, look to find something maybe a little bit on the smaller side, something that fits in really well strategically with the company. And the list of kind of the boxes that we wanted to check went on and on, and Venco Venturo really hit every one of those. So Brent and I started talking in earnest, probably 6 months ago. And again, he's been fantastic to work with and his team have, and we couldn't be more excited about it. Again, the grand scheme for us may be on the small end of the scale of what we've done historically, but certainly, as we've kind of said, small but mighty small and strong internally as we look to the future and really get excited about the opportunities there and the synergies that can be built between our attachments team and between -- maybe I'll turn it over to Sarah to add a little more color on the quantitative.

Yes. So Greg, we can't get into the specifics on the terms of the deal. I guess what I can say is we've been talking -- since we've been turning on this Activate pillar, we have been talking about focusing on small- to medium-sized deals, which for us would be $25 million to $75 million, call it. I would say this one is on the very low end of that scale. For 2026, we talk about it being modestly accretive to earnings per share and free cash flow. I would estimate that their sales are in the $30 million to $40 million range. And currently, pre-synergies, their margins are closer to our solutions business margins, with plenty of opportunity for us to get in there with our DDMS and our sourcing and our operational synergies to work on margin improvement longer term.

And then just one more on Venco. Is DEJANA currently -- are they a supplier to DEJANA? Is DEJANA using them in their upfits? And what kind of opportunities are there for you to leverage the solutions business to maybe increase the demand or the growth for Venco?

Yes, you hit it spot on. This is why it kind of hit all of the boxes that Mark was describing, because it is a complex attachment that we do upfit. DEJANA is a purchaser of Venco Venturo cranes and hoists. It's certainly an opportunity for us to grow that also in future for the future upfit of DEJANA.

Yes. As we started the integration work in earnest, it's been good to see our sales team down there working with the sales organization at Venco Venturo and really looking to see, hey, where could this take us in the future. And again, in upcoming quarters, as we really settle in, I'm sure we'll have plenty of updates on how that's going.

[Operator Instructions] The next question comes from Tim Wojs from Baird.

Maybe just the first question I had, Sarah, I guess, if you could kind of maybe kind of outline maybe what you're expecting in each segment in the fourth quarter? And I guess, most specifically in attachments, just given we haven't really seen like, I guess, a normal snowfall in the fourth quarter for a long time. So just kind of curious if you could delve deeper into kind of what you're expecting in the fourth quarter in both segments.

Certainly. When you look at our new guidance and you focus in on the midpoint, I would say for attachments, that would be back to the '23 levels in volumes, which is, like I said on the call, it's still a conservative approach for us. We are focused on average snowfall, but we are not pinpointing average volumes at this time. From a margin perspective on attachments, I would say right now, our expectation at that volume level would be that that would be flattish margins to last year and where we landed last year.

And then I guess on the Solutions side, really good growth there. I guess, kind of how did the muni business perform kind of relative to the kind of commercial DEJANA businesses, in terms of maybe the pace of revenue growth between the 2 businesses? And then I guess, just given the growth, I thought there might be a little bit more leverage from a margin perspective. So if you just walk through kind of the margin expectations and kind of what you saw there in the third and fourth quarter?

Yes, absolutely. From the perspective of commercial and municipal, both of them had record top-line quarters. So we really did see good growth across both. It wasn't one versus the other. From a margin perspective, both performed very well, which led us to outperforming our expectation in the third quarter. The leverage when we look at that quarter-to-quarter can be a little bit choppy for solutions, just the way the Truck flow is. So when you think about incremental margins for solutions, you really need to look over a couple of quarters and/or a year period. I do expect for the year that solutions will be close to 25% incremental margins, which is pretty much where I've had them.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Mark Van Genderen, President and CEO.

Thank you. We appreciate your continued interest in Douglas Dynamics, and we look forward to seeing some of you at the Baird conference in Chicago next week.

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