Performance Impacted by Snowfall, the COVID-19 Pandemic and Chassis Supply
First Quarter Highlights:
Douglas Dynamics, Inc. (NYSE: PLOW), North America's premier manufacturer and upfitter of work truck attachments and equipment, today announced financial results for the first quarter ended March 31, 2020.
Bob McCormick, President and CEO, explained, "With the health and safety of our employees, customers and partners as our top priority, we temporarily closed all 20 of our U.S. locations on March 18 and immediately began preparing a 'safe return to work' environment. I am extremely proud of the way our team has adapted our facilities to the new reality, creating a safe and productive workplace. Based on our essential services designation, we began ramping up production levels in mid-April, and aim to resume full operations by the end of May. We have done everything within our power to ensure our employees, customers and partners remain safe and well, while maintaining business continuity wherever possible."
McCormick added, "Of course, the pandemic plus near-term headwinds impacted our results for the first quarter. However, we have used our time prudently during the temporary shutdown, and have been able to prepare for the next phase of managing through the ongoing pandemic. We are confident in our ability to operate effectively as economic activity resumes."
Consolidated First Quarter 2020 Results
$ in millions Q1 2020 Q1 2019 (except Margins & EPS) Net Sales $68.2 $93.2 Gross Profit Margin 17.1% 24.6% Income (Loss) from Operations $(8.2) $3.6 Net Income (Loss) $(10.1) $(0.3) Diluted EPS $(0.44) $(0.01) Adjusted EBITDA $(1.7) $9.0 Adjusted EBITDA Margin (2.5)% 9.7% Adjusted Net Income (Loss) $(7.8) $0.3 Adjusted Diluted EPS $(0.34) $0.01
Work Truck Attachments Segment First Quarter 2020 Results
$ in millions Q1 2020 Q1 2019 (except Adjusted EBITDA Margin) Net Sales $19.1 $25.8 Adjusted EBITDA $(2.1) $2.3 Adjusted EBITDA Margin -11.0% 8.8%
Work Truck Solutions Segment First Quarter 2020 Results
$ in millions Q1 2020 Q1 2019 (except Adjusted EBITDA Margin) Net Sales $49.1 $67.4 Adjusted EBITDA $0.4 $6.7 Adjusted EBITDA Margin 0.7% 10.0%
Dividend, Balance Sheet and Liquidity
Outlook and COVID-19 Pandemic Update
The Company is withdrawing its 2020 financial outlook due to the operational and economic uncertainty related to the COVID-19 pandemic. At this time, our aim is to provide updated guidance as the economic outlook becomes clearer.
McCormick explained, "Given the number of unknowable variables, we are not in a position to provide useful guidance today. It is clear that the operational and economic impact of the COVID-19 pandemic, coupled with chassis supply constraints, is hindering our ability to execute effectively in the near-term. However these impacts manifest, we believe the underlying strength of our business model remains intact, and the long-term prospects for our company remain strong. Douglas Dynamics is accustomed to adapting quickly and utilizing DDMS techniques to solve problems and find creative solutions, and we will continue to fund initiatives critical to delivering long-term profitable growth. We believe that we are better positioned than many companies to thrive during a downturn and will work to ensure we emerge stronger from this difficult situation."
Due to the COVID-19 pandemic, Douglas temporarily shut down all of its U.S. facilities starting on March 18 to protect the health and safety of its employees, customers, partners and the surrounding communities.
Douglas Dynamics' operations are generally viewed as essential services in the geographies in which it operates. As such, some of its facilities began to reopen in mid-April. Decisions will continue to be regarding how and when to open facilities as the situation evolves, and are expected to be fully operational by the end of May.
Earnings Conference Call Information
About Douglas Dynamics
Home to the most trusted brands in the industry, Douglas Dynamics is North America's premier manufacturer and up-fitter of commercial work truck attachments and equipment. For more than 70 years, the Company has been innovating products that not only enable people to perform their jobs more efficiently and effectively, but also enable businesses to increase profitability. Through its proprietary Douglas Dynamics Management System (DDMS), the Company is committed to continuous improvement aimed at consistently producing the highest quality products, at industry-leading levels of service and delivery that ultimately drive shareholder value. The Douglas Dynamics portfolio of products and services is separated into two segments: First, the Work Truck Attachments segment, which includes commercial snow and ice control equipment sold under the FISHER(R), SNOWEX(R) and WESTERN(R) brands. Second, the Work Truck Solutions segment, which includes the up-fit of market leading attachments and storage solutions under the HENDERSON(R) brand, and the DEJANA(R) brand and its related sub-brands.
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"). The non-GAAP measures used in this press release are Adjusted EBITDA, Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share, and Free Cash Flow. The Company believes that these non-GAAP measures are useful to investors and other external users of its consolidated financial statements in evaluating the Company's operating performance as compared to that of other companies. Reconciliations of these non-GAAP measures to the nearest comparable GAAP measures can be found immediately following the Consolidated Statements of Cash Flows included in this press release.
Adjusted EBITDA represents net income (loss) before interest, taxes, depreciation, and amortization, as further adjusted for stock-based compensation, non-cash purchase accounting adjustments, incremental costs incurred related to the COVID-19 crisis, and certain charges related to unrelated legal fees and consulting fees. Such COVID-19 related costs include increased expenses directly related to the pandemic, and do not include either production related overhead inefficiencies or lost or deferred sales. We believe these costs are out of the ordinary, unrelated to our business and not representative of our results. The Company uses Adjusted EBITDA in evaluating the Company's operating performance because it provides the Company and its investors with additional tools to compare its operating performance on a consistent basis by removing the impact of certain items that management believes do not directly reflect the Company's core operations. The Company's management also uses Adjusted EBITDA for planning purposes, including the preparation of its annual operating budget and financial projections, and to evaluate the Company's ability to make certain payments, including dividends, in compliance with its senior credit facilities, which is determined based on a calculation of "Consolidated Adjusted EBITDA" that is substantially similar to Adjusted EBITDA.
Adjusted Net Income (Loss) and Adjusted Earnings (Loss) Per Share (calculated on a diluted basis) represents net income (loss) and earnings (loss) per share (as defined by GAAP), excluding the impact of stock-based compensation, non-cash purchase accounting adjustments, incremental costs incurred related to the COVID-19 crisis, mark-to-market adjustments on derivatives not classified as hedges, and certain charges related to unrelated legal fees and consulting fees, net of their income tax impact. Such COVID-19 related costs include increased expenses directly related to the pandemic, and do not include either production related overhead inefficiencies or lost or deferred sales. We believe these costs are out of the ordinary, unrelated to our business and not representative of our results. Mark-to-market adjustments on derivatives not classified as hedges are non-cash and are related to overall financial market conditions; therefore, management believes such costs are unrelated to our business and are not representative of our results. Management believes that Adjusted Net Income (Loss) and Adjusted Earnings Per Share are useful in assessing the Company's financial performance by eliminating expenses and income that are not reflective of the underlying business performance.
Free Cash Flow is a non-GAAP financial measure that we define as net cash provided by (used in) operating activities less capital expenditures. Free Cash Flow should be evaluated in addition to, and not considered a substitute for, other financial measures such as Net Income (Loss) and Net Cash Provided by Operating Activities. We believe that free cash flow represents our ability to generate additional cash flow from our business operations.
Forward Looking Statements
This press release contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. These statements include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation, product demand, the payment of dividends, and availability of financial resources. These statements are often identified by use of words such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "should," "could," "may," "plan," "project," "predict," "will" and similar expressions and include references to assumptions and relate to our future prospects, developments, and business strategies. Such statements involve known and unknown risks, uncertainties and other factors that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, weather conditions, particularly lack of or reduced levels of snowfall and the timing of such snowfall, our ability to manage general economic, business and geopolitical conditions, including the impacts of natural disasters, pandemics and outbreaks of contagious diseases and other adverse public health developments, such as the COVID-19 pandemic, our inability to maintain good relationships with the original equipment manufacturers with whom we currently do significant business, the inability of our suppliers and OEM partners to meet our volume or quality requirements, increases in the price of steel or other materials, including as a result of tariffs, necessary for the production of our products that cannot be passed on to our distributors, increases in the price of fuel or freight, the effects of laws and regulations (including those enacted in response to the COVID-19 crisis) and their interpretations on our business and financial condition, the potential that we may be required to recognize goodwill impairment attributable to our Work Truck Solutions segment, a significant decline in economic conditions, including as a result of global health epidemics such as COVID-19, our inability to maintain good relationships with our distributors, lack of available or favorable financing options for our end-users, distributors or customers, inaccuracies in our estimates of future demand for our products, our inability to protect or continue to build our intellectual property portfolio, the effects of laws and regulations and their interpretations on our business and financial condition, our inability to develop new products or improve upon existing products in response to end-user needs, losses due to lawsuits arising out of personal injuries associated with our products, factors that could impact the future declaration and payment of dividends, our inability to compete effectively against competition and our inability to achieve the projected financial performance with the business of Henderson Enterprises Group, Inc. ("Henderson") which we acquired in 2014 or the assets of Dejana, which we acquired in 2016 , and unexpected costs or liabilities related to such acquisitions, as well as those discussed in the section entitled "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2019 and any subsequently filed Quarterly Reports on Form 10-Q. You should not place undue reliance on these forward-looking statements. In addition, the forward-looking statements in this release speak only as of the date hereof and we undertake no obligation, except as required by law, to update or release any revisions to any forward-looking statement, even if new information becomes available in the future.
Douglas Dynamics, Inc. Consolidated Balance Sheets (In thousands) March 31, December 31, 2020 2019 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 27,141 $ 35,665 Accounts receivable, net 48,096 87,871 Inventories 112,370 77,942 Inventories - truck chassis floor plan 8,774 6,539 Refundable income taxes paid 974 - Prepaid and other current assets 5,168 3,511 Total current assets 202,523 211,528 Property, plant, and equipment, net 58,542 58,444 Goodwill 241,006 241,006 Other intangible assets, net 160,984 163,722 Operating lease - right of use asset 21,555 22,557 Other long-term assets 7,926 8,438 Total assets $ 692,536 $ 705,695 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 17,224 $ 16,113 Accrued expenses and other current liabilities 22,135 26,496 Floor plan obligations 8,774 6,539 Operating lease liability - current 3,770 3,822 Income taxes payable - 2,990 Short term borrowings 30,000 - Current portion of long-term debt 1,938 22,143 Total current liabilities 83,841 78,103 Retiree health benefit obligation 6,451 6,338 Deferred income taxes 45,961 47,211 Long-term debt, less current portion 222,008 222,081 Operating lease liablility - noncurrent 18,010 18,981 Other long-term liabilities 23,230 19,818 Total stockholders' equity 293,035 313,163 Total liabilities and stockholders' equity $ 692,536 $ 705,695
Douglas Dynamics, Inc. Consolidated Statements of Income (In thousands, except share and per share data) Three Month Period Ended March 31, 2020 March 31, 2019 (unaudited) Net sales $ 68,190 $ 93,187 Cost of sales 56,500 70,241 Gross profit 11,690 22,946 Selling, general, and administrative expense 17,149 16,644 Intangibles amortization 2,738 2,741 Income (loss) from operations (8,197 ) 3,561 Interest expense, net (5,040 ) (4,150 ) Other expense, net (111 ) (171 ) Loss before taxes (13,348 ) (760 ) Income tax benefit (3,262 ) (463 ) Net loss $ (10,086 ) $ (297 ) Weighted average number of common shares outstanding: Basic 22,813,256 22,729,084 Diluted 22,813,256 22,729,084 Loss per share: Basic loss per common share attributable to common shareholders $ (0.44 ) $ (0.01 ) Loss per common share assuming dilution attributable to common shareholders $ (0.44 ) $ (0.01 ) Cash dividends declared and paid per share $ 0.28 $ 0.27
Douglas Dynamics, Inc. Consolidated Statements of Cash Flows (In thousands) Three Month Period Ended March 31, 2020 March 31, 2019 (unaudited) Operating activities Net loss $ (10,086 ) $ (297 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,894 4,808 Amortization of deferred financing costs and debt discount 303 303 Stock-based compensation 1,368 1,054 Mark-to-market adjustments on derivatives not designated as hedges 1,413 - Provision for losses on accounts receivable 204 107 Deferred income taxes (1,250 ) 1,010 Earnout liability (17 ) (217 ) Changes in operating assets and liabilities, net of acquisitions: Accounts receivable 39,014 26,096 Inventories (34,428 ) (29,229 ) Prepaid assets, refundable income taxes paid and other assets (2,119 ) (3,676 ) Accounts payable 1,161 (2,179 ) Accrued expenses and other current liabilities (7,334 ) (1,451 ) Benefit obligations and other long-term liabilities (2,203 ) (1,906 ) Net cash used in operating activities (9,080 ) (5,577 ) Investing activities Capital expenditures (2,304 ) (769 ) Net cash used in investing activities (2,304 ) (769 ) Financing activities Shares withheld on restricted stock vesting paid for employees' taxes (72 ) (50 ) Dividends paid (6,487 ) (6,292 ) Net revolver borrowings 30,000 16,000 Repayment of long-term debt (20,581 ) (30,784 ) Net cash provided by (used in) financing activities 2,860 (21,126 ) Change in cash and cash equivalents (8,524 ) (27,472 ) Cash and cash equivalents at beginning of period 35,665 27,820 Cash and cash equivalents at end of period $ 27,141 $ 348 Non-cash operating and financing activities Truck chassis inventory acquired through floorplan obligations $ 6,215 $ 10,299
Douglas Dynamics, Inc. Segment Disclosures (unaudited) (In thousands) Three Months Ended Three Months Ended March 31, 2020 March 31, 2019 Work Truck Attachments Net Sales $ 19,120 $ 25,817 Adjusted EBITDA $ (2,076 ) $ 2,284 Adjusted EBITDA Margin -10.9 % 8.8 % Work Truck Solutions Net Sales $ 49,070 $ 67,370 Adjusted EBITDA $ 361 $ 6,735 Adjusted EBITDA Margin 0.7 % 10.0 %
Douglas Dynamics, Inc. Net Loss to Adjusted EBITDA reconciliation (unaudited) (In thousands) Three month period ended March 31, 2020 2019 Net loss $ (10,086 ) $ (297 ) Interest expense - net 5,040 4,150 Income tax benefit (3,262 ) (463 ) Depreciation expense 2,156 2,067 Intangibles amortization 2,738 2,741 EBITDA (3,414 ) 8,198 Stock-based compensation 1,368 1,054 COVID-19 (1) 317 - Purchase accounting (2) (17 ) (217 ) Other charges (3) 31 (16 ) Adjusted EBITDA $ (1,715 ) $ 9,019 (1) Reflects incremental costs incurred related to the COVID-19 crisis for the periods presented. (2) Reflects reversal of earn-out compensation acquired in conjunction with the acquisition of Henderson in the periods presented. (3) Reflects one time, unrelated legal and consulting fees for the periods presented.
Douglas Dynamics, Inc. Reconciliation of Net Loss to Adjusted Net Income (Loss) (unaudited) (In thousands, except share and per share data) Three month period ended March 31, 2020 2019 Net loss $ (10,086 ) $ (297 ) Adjustments: Stock based compensation 1,368 1,054 COVID-19 (1) 317 - Purchase accounting (2) (17 ) (217 ) Other charges (3) 31 (16 ) Mark-to-market adjustment on derivative not classified as hedge (4) 1,413 - Tax effect on adjustments (778 ) (205 ) Adjusted net income (loss) $ (7,752 ) $ 319 Weighted average basic common shares outstanding 22,813,256 22,729,084 Weighted average common shares outstanding assuming dilution 22,813,256 22,729,084 Adjusted earnings (loss) per common share - dilutive $ (0.34 ) $ 0.01 GAAP diluted loss per share $ (0.44 ) $ (0.01 ) Adjustments net of income taxes: Stock based compensation 0.04 0.03 COVID-19 (1) 0.01 - Purchase accounting (2) - (0.01 ) Other charges (3) - - Mark-to-market adjustment on derivative not classified as hedge (4) 0.05 - Adjusted diluted earnings (loss) per share $ (0.34 ) $ 0.01 (1) Reflects incremental costs incurred related to the COVID-19 crisis for the periods presented. (2) Reflects reversal of earn-out compensation acquired in conjunction with the acquisition of Henderson in the periods presented. (3) Reflects one time, unrelated legal and consulting fees for the periods presented. (4) Reflects mark-to-market adjustments on an interest rate swap not classified as a hedge for the periods presented.
Douglas Dynamics, Inc. Free Cash Flow reconciliation (unaudited) (In thousands) Three month period ended March 31, 2020 2019 Net cash used in operating activities $ (9,080 ) $ (5,577 ) Acquisition of property and equipment (2,304 ) (769 ) Free cash flow $ (11,384 ) $ (6,346 )
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