Good morning, everyone. Welcome to the Core Molding Technologies First Quarter Fiscal 2024 Financial Results Conference Call. As a reminder, this conference call is being recorded.

Thank you, and good morning, everyone. We appreciate you joining us for Core Molding Technologies' conference call to review first quarter results for 2024. Joining me on the call today are the company's President and CEO, Dave Duvall; and EVP and CFO, John Zimmer. This call is being webcast and can be accessed through coremt.com via an audio link on the Investor Relations' Events and Presentations page. Today's conference call, including the Q&A session will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of the date of any replay or transcript reading. I would also like to remind you that the statements made in today's discussion that are not historical facts including statements or expectations or future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Core Molding Technologies assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, including adjusted EPS, adjusted EBITDA, debt-to-trailing 12 months EBITDA ratio, free cash flow and return on capital employed. Reconciliations to the nearest GAAP measures can be found at the end of our earnings release. Finally, this release has been submitted to the SEC on Form 8-K. Now I would like to turn the call over to the company's President and CEO, Dave Duvall.

Thank you, Sandy, and thank you all for joining us to review our 2024 first quarter results. I want to start today with some positive highlights related to our Core Molding team in the first few months of 2024. This spring, Core was presented with BRP's Gold Supplier Award related to its Sea-Doo boats and Personal Watercraft models. BRP or Bombardier Recreational Products is a global leader in power sports vehicles on land, water and snow. I'm proud of our team, and we are honored to be one of BRP's key suppliers for the Sea-Doo Personal Watercraft and the Sea-Doo Switch. Our team has been awarded this prestigious recognition for Core's manufacturing and logistics excellence, high-quality products and processes and superior customer service. Being recognized as a gold supplier is a culmination of the complete business transformation that we've been executing and communicating over the past several years. I am proud of what the team has accomplished and the magnitude of this accomplishment can be seen in our tremendous improvements in our basic metrics. For safety, we reduced our incident rate by 44% in the last 2 years and are much better than the industry average. For people, we continually improve our focus on individual and organizational development which is reflected in our low turnover of salaried team members, now less than 12% annualized. We've implemented annual leadership development programs, organizational and career development programs, technical certification programs along with many other training and employee engagement initiatives. Employee development is and always will be a key focus area for Core Molding. In quality, we've reduced our customer PPM by an incredible 89.6% in the last 4 years and 17% in the last 2 years. In delivery, we improved our on-time delivery by 21% in the last 2 years and are now at 99% on-time delivery. We have reduced scrap and rework costs by over 51%. We increased our production capacity by over 20% with existing assets and made strategic investments in our plants to increase capacity through efficiencies, automation, facility improvements, which increased our total current capacity to between $425 million to $475 million in annual sales. We first significantly improved our customer support and service levels, which then enabled us to make the necessary changes to our pricing to bring prices back in line with market rates, which provides us the financial resources necessary to continue to improve our operations and customer service levels. As a company, I believe we're in the best overall business operating condition in company history. Our focus has been on implementing robust business systems throughout the transformation. I am confident that our improvements are sustainable and that we have some of the highest service levels in the industry that the company has the organizational capability, operational infrastructure and financial stability in place to drive revenue growth through new programs, acquisition opportunities and existing programs as demand levels rebound. We have prepared the organization for growth. The engine is ready. And now we're at the invest-for-growth phase or better stated, our Must Win Battle is now invest for growth, which I will talk about later. I'm also excited to share that we have published Core's second sustainability report, which showed solid progress from last year. This comprehensive report published on our website offers an overview of our sustainability strategy and provides all Core stakeholders with a view of our progress against established goals and commitments. Sustainability is embedded into our values and business and is instrumental in driving organizational change that reduces both enterprise risks and costs. Also important is that our sustainability systems allow Core Molding to be a part of something bigger than ourselves by providing a structure for our organization to support environmental stewardship. Our second annual report details accomplishments in 2023 and progress on our important 30 x 30 targets. We intend to reduce our company's energy consumption, greenhouse gas emissions and landfill waste by 30% by the end of 2030. And we think this is a sustainable goal to attain. Turning to a review of our top-level financial results. We signaled a few weeks ago, during our year-end earnings call, that 2024 sales expectations were lower than 2023. Today, we reported sales of $78 million, down 21.5% due to challenging 2023 comparisons and end market headwinds that we will discuss more in a moment. When we look at sales sequentially compared to the fourth quarter of 2023, sales for the first quarter of 2024 increased by 5.9%. Gross margin for the 2024 first quarter was 17% compared to 17.8% in the prior year first quarter and up 220 basis points from 14.8% in the fourth quarter of 2023. Anticipating lower sales, the company reacted quickly and leaned on the operational improvements made over the past several years to offset lost fixed cost leverage. We also generated $8.8 million in adjusted EBITDA or 11.2% of sales and we reported positive free cash flows. In summary, for 2023, we completed the second Must Win Battle initiative, and the results are improved operational efficiencies and a solid foundation for continuous improvement in all of our plants. That work allowed us to operate with much more stability, consistency and translating to more stable margins and improved product line profitability. Our intense focus or Must Win Battle is on sales this year, and our business fundamentals remain strong. We continue to work on landing and diversifying into new business and increasing our opportunity pipeline.

Thank you, Dave, and good morning, everyone. As Dave mentioned earlier, our total net sales for the first quarter were $78.1 million, down 21.5% compared to a year ago. And sequentially, our net sales improved by 5.9%, up from the fourth quarter's sales of $73.8 million. Seasonality and mix shifts produced growth from Q4, and we believe that including sequential performance comparison allows us to explain recent changes in customer demand. As expected, first quarter sales reflected tough prior year comparisons, notable mix shifts and rebalancing of customer inventory levels. Q1 medium and heavy-duty truck sales shifted from 50% of sales in 2023 to 55% this year, and power sports shifted from 22% of sales last year to 25% in the first 3 months of 2024. In addition, other industries, including building products and industrial and utilities continued to produce soft sales. The first quarter gross margin was $13.3 million or 17% of sales compared to 17.8% in the year ago quarter. With lower sales versus prior year, fixed cost operating leverage was negatively impacted in the first quarter by approximately 170 basis points. Due to the operational improvements and pricing changes, we were able to offset a significant portion of the lost fixed cost leverage. Before our operational improvements, volume decreases and mix shifts historically created more volatility in gross margin. However, we now have better operational efficiencies and profitability across all our plants, which allows us to offset fixed cost leverage decreases and maintain more stable margins in changing demand levels, as was demonstrated in this quarter. We continue to expect gross margin to be in the 17% to 19% for the full year with the potential for gross margins a quarter outside of this range. SG&A expenses were $8.6 million compared to $9.7 million in the prior year, primarily due to lower bonuses, labor and benefit costs and favorable foreign currency translation. Operating income for the quarter was $4.7 million or 6.1% compared to $8.1 million or 8.1% in the year ago period. Net interest expense was $82,000 in the first quarter, down from $356,000 in the prior year quarter. Netted in the $82,000 net interest expense in the first quarter of 2024 is $252,000 of interest income from our accumulated cash balances. The quarterly interim effective tax rate was 21.5%, comprising the weighted tax costs from the 3 tax jurisdictions where we operate. Our net income totaled $3.8 million or diluted EPS of $0.43 compared to $5.9 million or diluted EPS of $0.66 in the comparable year period. Our first quarter adjusted EBITDA was $8.8 million or 11.2% of sales compared to $12.2 million or 12.3% of sales in the prior year quarter. You can refer to our GAAP to non-GAAP reconciliation tables that are at the end of our press release. Turning to the company's financial position. We ended the quarter with $26.6 million of cash and cash equivalents. The company's cash provided by operating activities was $5.1 million for the first quarter, which compared favorably to the $4.6 million in the 2023 first quarter. For the first 3 months, capital expenditures were $1.9 million and free cash flows were $3.2 million, an improvement from the $2.5 million in the prior year. We currently expect 2024 capital expenditures to be approximately $13 million for the year. As of March 31, 2024, total outstanding liquidity was $76.6 million, which includes cash and $50 million available under the revolver and capital credit lines. The company's term debt was $22.7 million at the end of the quarter, and our debt-to-trailing 12 months EBITDA ratio was less than 1x. Our working capital continues to be well managed and netted to $61 million on March 31, 2024. Our return on capital employed, a pretax return metric, was 14% on a trailing 12-month basis. Our capital allocation strategy remains consistent with prior guidance and includes investments in organic growth, share buybacks, acquisitions, and repayment of debt. Now we will provide an update on our 2024 sales outlook. Nothing has materially changed from our comments a few weeks ago, and we expect 2024 annual net sales to be down 10% to 15% compared to '23. Our sales outlook includes a cyclical demand slowdown in truck, stabilizing customer inventory as well as consumer demand environment that returns to more normal seasonality. Customer inventories are leveling down in certain end markets like power sports, which may be impacted by Fed rates staying higher for longer. As a reminder, Volvo is transitioning from its existing truck model to a new one that Core is not part of, beginning in the second half of 2024 and continuing through 2026. We have a good relationship with Volvo and active bids. We believe we are positioned to secure programs outside the current programs. We will continue working on profitability initiatives, focusing on additional continuous improvements across all product lines.

Thank you, John. We are highly focused on offsetting certain end market headwinds, truck cyclicality and the end-of-life programs. As John mentioned, we have seen inventories rebalancing down for power sports and the industrial and utilities markets. Even so, we are seeing a return to pre-pandemic levels. We have aggressively ramped up lead generation by partnering with a professional sales agency, added sales resources, ramped up trade show presence and we are streamlining our quote-to-cash processes to maximize our organic business growth. Actually, this week, I'll be supporting our sales and marketing team in our display at the NPE show in Orlando. We are also in the process of vetting potential acquisitions that meet our strategic growth criteria for sales channel growth and footprint expansion. Our current sales opportunity pipeline is over $200 million, and I'm excited to report that we've been awarded over $25 million in new and replacement business that we'll launch near the end of '24 through 2025. We know that in our industry, the quote to cash is over a year, so efforts today are most likely going to start delivering results in 2025 and beyond. We are also prepared for the ACT or American Commercial Truck research forecasted truck increase in 2025 and 2026 which is driven by the 2027 emission regulations. Even though our customers are currently in a reduced demand period, our business is well positioned as we serve blue-chip customers with sole-source products that are foundational to our customers' long-term growth plans. We remain focused on continuous improvement to lower overall costs and prepare for higher demand levels. Our Technical Solutions' sales approach provides our customers unique solutions for their highly specialized needs, and we have never been in a better position to benefit from our extensive portfolio of presses, processes and industries we serve. Our Engineered Solutions allow us to work on new environmentally friendly and sustainable products. And we are seeing opportunities in 2024 from the infrastructure bill that Core Molding is well suited to provide, including projects driven by the Buy America, Build America or BABA Act. We have built a resilient organization well positioned for growth, and our strategy supports the creation of long-term shareholder value. Our Must Win Battle in 2024 is to invest for growth, and that is what we are driving today. We appreciate, and I want to thank our dedicated Core Molding team. Our team is our competitive advantage. We also appreciate, and I want to thank our customers, shareholders and the Board for their continued support. With that, I'd like to open the line for questions.

And today's first question comes from Chip Moore with ROTH MKM.

I wanted to ask your thoughts, Dave, about the engines prepared for growth and your plans for investing in growth. Could you elaborate on some of the organic and inorganic initiatives you're pursuing this year?

Yes. We've done a lot to really drive the lead optimization as far as all the leads that we've already had in the system, business maybe that we had looked at in the past. So a lot more on the lead generation side as well as on the immediate or short-term working with customers on contract molding or transfer molding. When we're looking at customers in the truck, personal watercraft, ATV, UTV; those are more longer-term design phases. So we're already partnering with customers in those products. Some of those we've already won that would be part of that $25 million and then really driving in the industrial and utilities and packaging areas on being able to either develop the new products for conversions, working with them currently and developing products where we can transfer the molds. A lot more on the lead generation side and continuing on to industrial and utilities and still growing our ability in those areas.

Understood. That's helpful Dave. And maybe the opportunity pipeline boosted quite a bit this quarter versus when we talked fairly recently, just talk about the composition of that pipeline, has that shifted with some of the changes in the end markets that you're seeing right now? And then what are you seeing in some of the newer areas? Growth opportunities?

Yes. We're still seeing some opportunities in the automotive side as far as underbodies and tailgate type work. So we're looking at that. We're still working on the automotive side. Some of those are a little longer, starting in '25, '26. Also some of the newer truck programs that we're looking at and power sports. We do have probably about 30% of it in the industrial and utilities area.

That's helpful. And just one on the heavy-duty truck market, right, given that it's a sizable piece of your business. Can you expand on the 2027 emissions drivers, when you might see that? Maybe you're seeing some of it already to trickle through in terms of pull forward or demand? And from some of those regulations?

No, that's a really good question. And we are starting to see that with our customers and talking with them as well as in the ACT. So last year, '23, the volume was about $340,000 Class 8, this year it was increased from $285,000 to $304,000. Next year, we're looking at about $320,000 to $330,000 and then '26 is the peak year of $346,000. So what we're seeing is that as the emissions come in, the '27 emissions are a costly one. So what companies are doing is they're going to start preordering prior to the '27 cost increase. And when they start filling build slots, then you start seeing them come in earlier and earlier into the '24, '25 time frame. And that's what we're getting prepared for now and talking with customers about.

Perfect. That's helpful. And maybe last one, maybe for you, John, on the gross margin side, that 17% to 19% range for the year. Maybe just talk about baseline assumptions there, what gets you towards the higher end? Is it sort of the volume dependent, I assume? And then just remind us any quarterly dynamics to keep in mind here with seasonality and some of the other one-off impacts.

Yes. So seasonality is probably not going to hurt us as much this year as some of the mix has changed. We'll probably see better seasonality in Q2 and Q3. Q4 has always been the most challenging due to the holidays. So my expectation is Q2 and Q3 would be a little bit higher than what we're at today. One of the big pieces that drive us to the 17% to 19% is, I think at year-end, we talked about how a lot of the utility guys had gone away and weren't really ordering anything from us. So getting a little bit more volume back from those guys, we won't be adding any fixed cost leverage at all in order to do that. And so we can see just a little bit of a pickup in the sales side. We really should see the margins head towards that 19%. And so that's the real key as we get a little bit of a rebound in the revenues as we go into the second half of the year.

The next question comes from Bill Dezellem with Tieton Capital.

Specific to the Building Products category, would you talk about the impacts versus the Q1 of '23 and then what drove the increase versus the Q4 of last year?

Yes. So Building Products for us is primarily from a couple of different customers, and so it's not a lot of customers. From last year, we know our UFP sales are down, UFP sales through big-box retailers. And so as they have program changes with big-box retailers, it eventually comes through to us and so we do know that they've been ordering less and we expect that's something to do with who they're selling to this year versus last. From an actual quarterization standpoint, Q4 is really a slow period for building products. Q1 and Q2 are usually a little bit stronger as people start to put in lattice and those types of things in the stores for people to start doing building projects in March, April, and May. And so that's normally kind of a seasonality. But year-over-year, our business primarily with UFP is just down. And I think that's just a difference in their sales mix to their end customers.

And then relative to acquisitions, would you please talk about the pipeline and how you are thinking about acquisitions now?

Yes. So we would look at an acquisition, right now, anywhere between about $20 million to $40 million acquisition. Really, we're looking at footprint, customer and industry diversification or sales channel development. I think focused processes really in the U.S. that we also need when we look at some of the infrastructure in the BABA is really structural foam, DLFT or large part injection molding. I think the big thing for us when we look at footprint, and we look at sales channels, everything has to be a technical or a large part, not small parts. So really, the big driver is what we're looking at is footprint, sales channel development and industry diversification with specific processes.

Yes. One of the questions we often receive is about the valuations in our industry. We've engaged with approximately 25 bankers who specialize in resin-based products. I liken this situation to the housing market; despite the significant increase in financing costs, the valuation multiples remain relatively stable. We are seeing figures around 7% to 8% for standard deals, excluding specialty medical ones. Therefore, we must be disciplined in our approach. If we are acquiring at 7 to 8 times enterprise value, we need to evaluate how quickly we can achieve synergies from that acquisition, whether through cost savings or increased sales. As you know, we are primarily manufacturers. Our strategy typically does not involve acquiring a facility and shutting it down for consolidation and savings; instead, we aim to expand our presence. We are proceeding carefully in this regard. Interest rates are significantly higher now than they have been in the last 15 years, which affects financing. We are specifically looking for opportunities that can yield 8% to 10% EBIT and a return on capital employed of 16%, while also enabling us to realize synergies quickly. We are being somewhat selective because valuations have not decreased as much as we had anticipated given the rising costs of financing.

What is your perspective on the number of acquisitions you are seeing out there?

In our industry, it's less active. We've spoken to various bankers, and they agree that while there are still private equity firms involved, they have money to invest. However, the challenge remains that many sellers are holding out for high multiples like 7x, 8x, 9x, and 10x. At the same time, buyers are becoming more cautious and considering these valuations too high given the current financing rates. Recently, during a lunch with one of our bankers, we heard that they are also witnessing a slowdown in the industry. This trend seems to be a result of sellers maintaining high prices while buyers are taking a more rational approach.

The next question comes from Tim Moore with EF Hutton.

It was great to see the gross margin, EBITDA margin come in pretty impressively for the quarter despite the sales decline, so kudos on that cost savings and efficiency front. So maybe I'll just start off because two of my questions are already answered. Just kind of curiously, during your last earnings call, you mentioned, I believe it was $425 million to $475 million sales capacity in place. Just trying to wrap my head around some of the earlier comments about the Class 8 truck volume could be up to the peak in 2026. When you kind of look out through your sales capacity and maybe let's call it $425 million to $475 million, do you think it could be starting to fill that towards the end of 2026 and get those customer qualifications and terms in place by then? Because it seems like you're destined for a rebound next year, obviously on sales though, just trying to wrap my head around maybe when you'll start to fill that capacity fully.

Yes, I think with some of the new wins that we have, the $25 million we talked about, and it's probably somewhat conservative, but we are looking at 2025 where we will start seeing that ramp up. The truck demand will start picking up pretty quick as the installed capacity and the product lines are already there, so we constantly have customers asking if we're going to be able to meet their peak demand coming up here in '25, '26, they're already looking at it. For sure, '26 is going to be a high year for us relative to truck as well as the additional programs that we got from the wins this year and the wins last year. I think we still have the capacity we needed.

Good. It seems like everything is progressing well, and you've made very efficient additions. I imagine you're approaching late 2026 or late 2027. I want to clarify something; you mentioned the Volvo program and that one or two programs might phase out in February. Are there any additional sales or customer renewals expected over the next year? Is there anything else that could potentially decrease or add to that?

Of the wins we discussed, approximately 40% comes from replacement business. We always anticipate when programs will end and when they will return. The difficulty with Volvo was that the decision was made three years ago. However, as John mentioned, we now have a strong relationship with Volvo and are currently in discussions about the new program, aiming to provide those parts or at least a portion of those programs.

Yes. To follow up, we really don't have any other visibility to any other sales programs falling off. Like Dave said, one of our goals is that we're actually bidding on business 2, 3 years out. We have some of those programs that we've mentioned last year and this year that are wins, which is replacement business 3 years out. And so we really don't have anything like a Volvo out there that we're aware of. I think our customer relationships are good in all those areas. And I think the original comment that Dave made about where we are operationally, we really do think, operationally in this industry, we're pretty strong compared to some of our competitors that have gone through some challenges. And so I think we're really placed right. We've got to go win the business, and there's really no other major programs that we know of that or have been awarded away at this point or anything like that.

I think a lot of what we worked on was really getting the business model right, being able to get our execution in place as far as our costs as well as what we talk about on the market pricing. So I think preparing the organization and now looking at what we need to do to invest or to drive growth, to have the peak of the season come in and not be ready for that, we've seen what that does in the past in 2018, '19.

Great. Thanks for the color on the customer outlook and the visibility that you have there. That's really helpful.

And at this time, we are showing no further questioners in the queue, and this does conclude our question-and-answer session. I would now like to turn the conference back over to Dave Duvall for any closing remarks.

So thank you for your continued interest in our company. We'll participate in the upcoming East Coast IDEAS Conference in New York in June, and we look forward to providing an update on our progress when we report the second quarter results in August. Thank you very much, and have a great day.

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