Douglas Dynamics Reports First Quarter 2020 Results
Performance Impacted by Snowfall, the COVID-19 Pandemic and Chassis Supply
First Quarter Highlights:
Net Sales of $68.2 million were negatively impacted by significantly below average snowfall, chassis supply constraints and the operational and economic impact of the COVID-19 pandemic in March- All
U.S. facilities closed onMarch 18 th; Conducting phased reopening of facilities during April and May - Paid
$0.28 per share cash dividend onMarch 31, 2020 and remain committed to maintaining the dividend based on balance sheet strength - Maintained ample total liquidity of
$86.3 million - Withdrawing 2020 guidance
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 (except Margins & EPS) |
Q1 2020 | Q1 2019 |
Gross Profit Margin | 17.1% | 24.6% |
Income (Loss) from Operations | ||
Net Income (Loss) | ||
Diluted EPS | ||
Adjusted EBITDA | ||
Adjusted EBITDA Margin | (2.5)% | 9.7% |
Adjusted Net Income (Loss) | ||
Adjusted Diluted EPS |
- The decrease in
Net Sales was primarily attributable to a combination of significantly below average snowfall across core markets, chassis supply constraints and the operational and economic impact of the COVID-19 pandemic. - All
U.S. facilities were temporarily shut down onMarch 18 th, which caused the significant decrease in Adjusted EBITDA as shutdown costs were incurred while unable to produce or ship products during the last two weeks of the quarter. - Negatively impacting interest expense was a
$1.4 million mark to market non-cash expense resulting from an interest rate swap becoming ineffective during the quarter.
Work Truck Attachments Segment First Quarter 2020 Results
$ in millions (except Adjusted EBITDA Margin) |
Q1 2020 | Q1 2019 |
Adjusted EBITDA | ||
Adjusted EBITDA Margin | -11.0% | 8.8% |
Net Sales decreased 26% over the prior year, mainly due to significantly below average snowfall across the Company’s core markets.- The 2019-2020 snow season marked the second lowest snowfall level in the past 10 years, and was the second consecutive year of significantly below average snowfall in the key North East region, which the Company expects will negatively impact its pre-season order period during the second and third quarters of 2020.
Work Truck Solutions Segment First Quarter 2020 Results
$ in millions (except Adjusted EBITDA Margin) |
Q1 2020 | Q1 2019 |
Adjusted EBITDA | ||
Adjusted EBITDA Margin | 0.7% | 10.0% |
Net Sales and Adjusted EBITDA decreased over the prior year, due to the combination of increased chassis supply constraints for Class 4 – 6 work trucks, as well as the impact of the COVID-19 pandemic and the related temporary facility shutdown.
Dividend, Balance Sheet and Liquidity
- A quarterly cash dividend of
$0.28 per share of the Company's common stock was declared onFebruary 24, 2020 , and paid onMarch 31, 2020 , to stockholders of record as of the close of business onMarch 20, 2020 . Net Cash Used in Operating Activities increased to$9.1 million from$5.6 million , due to less favorable operating results slightly offset by favorable changes in working capital.- Free Cash Flow decreased to
$(11.4) million from$(6.3) million due to higher cash used in operating activities in addition to an increase in capital expenditures for long term growth projects. - Maintained total liquidity of
$86.3 million as ofMarch 31, 2020 , comprised of$27.1 million in cash and cash equivalents and borrowing availability of$59.2 million under its revolving credit facility. - Following a
$20 million voluntary debt payment made within the first quarter, the Adjusted EBITDA to net debt leverage ratio was 2.5 times.
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.
Due to the COVID-19 pandemic, Douglas temporarily shut down all of its
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
- The Company will host a conference call on
Tuesday, May 5, 2020 at10:00 a.m. Eastern Time (9:00 a.m. Central Time ). To join the conference call, please dial (877) 369-6591 domestically, or (253) 237-1176 internationally. - The call will also be available via the Investor Relations section of the Company’s website at www.douglasdynamics.com. For those who cannot listen to the live broadcast, replays will be available for one week following the call.
About
Home to the most trusted brands in the industry,
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with
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
Financial Statements
Consolidated Balance Sheets | ||||||
(In thousands) | ||||||
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 | ||||
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 | ||
Consolidated Statements of Income | ||||||
(In thousands, except share and per share data) | ||||||
Three Month Period Ended | ||||||
(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 | ||
Consolidated Statements of Cash Flows |
||||||
(In thousands) |
||||||
Three Month Period Ended | ||||||
(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 | ||
Segment Disclosures (unaudited) | |||||||
(In thousands) | |||||||
Three Months Ended |
Three Months Ended |
||||||
Work Truck Attachments | |||||||
$ | 19,120 | $ | 25,817 | ||||
Adjusted EBITDA | $ | (2,076 | ) | $ | 2,284 | ||
Adjusted EBITDA Margin | -10.9 | % | 8.8 | % | |||
Work Truck Solutions | |||||||
$ | 49,070 | $ | 67,370 | ||||
Adjusted EBITDA | $ | 361 | $ | 6,735 | |||
Adjusted EBITDA Margin | 0.7 | % | 10.0 | % | |||
Net Loss to Adjusted EBITDA reconciliation (unaudited) | ||||||||
(In thousands) | ||||||||
Three month period ended |
||||||||
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. | ||||||||
Reconciliation of Net Loss to Adjusted Net Income (Loss) (unaudited) | ||||||||
(In thousands, except share and per share data) | ||||||||
Three month period ended |
||||||||
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. | ||||||||
Free Cash Flow reconciliation (unaudited) | ||||||||
(In thousands) | ||||||||
Three month period ended |
||||||||
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 | ) | ||
For further information contact:
847-530-0249
investorrelations@douglasdynamics.com
Source: Douglas Dynamics, Inc.