Good morning, and welcome to the Douglas Dynamics Second Quarter 2025 Earnings Conference Call. Please note 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, Drew. 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 our 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, we have 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 provide an overview of our performance, followed by Sarah reviewing 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. I'm pleased to say it was another good quarter for our company with both segments executing well and a continuation of recent trends. Overall, our results were comparable to the same period last year. Solutions delivered another record quarter, the fifth in a row and with an impressive profit increase. Preseason demand and shipments at attachment were generally in line with our expectations. When combined, this has allowed us to narrow and increase our guidance ranges for the year. Sarah will speak to that later. Our business is running at a high level of efficiency and effectiveness right now, and it's great to see the strong engagement of our teams. Let me run through our performance in each segment, starting with Work Truck Attachments. Snowfall last year was about 10% below the longer-term average, but up compared to the previous two winters. Ice events were well above average. This weather, coupled with dealer inventories moving in the right direction, position us well as we proactively address the elongated equipment replacement cycle. More specifically, the ratio of preseason shipments in 2025 is expected to be closer to the more traditional 55% to 45% split between the second and third quarters. Last year, in 2024, we shipped 65% of preseason in Q2 and 35% in Q3. This was unique as higher finished goods inventory at the end of Q1 last year drove a stronger shipment mix in Q2. As we've noted, company-owned attachment inventories this year has decreased significantly compared to last year. We are also seeing dealer inventories coming back in line with expectations after a couple of years of being elevated, which, assuming we receive a normal amount of cooperation from nature, bodes well for us this winter. We will be paying careful attention to reorder activity in the back half of the year and weather trends in the fourth quarter. Finally, I'm pleased to say that dealer sentiment and financial health both remain positive. Clearly, the segment has adapted and adjusted to the unique weather patterns of the past several years. This is what we are good at. Production plans are logical, inventories are in good shape, and we are playing off of our front foot operationally. To summarize, we are well positioned to respond to nature this coming winter. Turning to Work Truck Solutions. The team exceeded expectations and in doing so, delivered their fifth consecutive record performance. This is even more impressive now that the comps are tougher compared to a record quarter last year. We remain encouraged by the progress that's been made in recent years and the strength of our backlog, which is being driven by robust municipal demand. Our municipal business continues to grow, thanks to our investments and optimization efforts in recent years, plus our strong competitive position in a dynamic market. In our commercial business, we are seeing softer order patterns at the local dealer level due to overall economic and competitive pressures. Dealers have a fair amount of inventory on the ground. And when you add higher interest rates compared to the last several years and cautious consumer sentiment in general, smaller customers are more price conscious and hesitant. The commercial fleet business, however, remains generally positive and seems less impacted by these near-term issues. Finally, the backlog in Solutions is still very strong. The mix between commercial and municipal backlog shifts over time and municipal customers make up the lion's share right now. We are booking production dates well into 2026 and are adding approximately 10% of additional municipal capacity, which we expect will come online next year. So overall, continued strong performance in the Solutions segment. Before we go any further, let me take a moment to reiterate our position on tariffs and their potential impact on our performance. First and foremost, we are a U.S.-focused company. Our operations, supply base and sales are all primarily domestic. We have increased our annual guidance, and that includes a logical assessment of the impact of tariffs this year. As we look further out, we will continue following the evolving situation and analyze to what extent the proposed tariffs would impact our business. Our global sourcing team is a real advantage in times like this, and we are well versed in moving quickly to adapt to changes. We know we're in good hands with that team and stand ready to manage through additional tariffs and trade rule changes. Okay. I'd like to take a step back and touch on the three priorities we've been formalizing internally, and we've really been focusing much of our time on this year, namely optimize, expand and activate. We have three great businesses that are already operating efficiently, but we know there is always more that can be done. So our first priority is to optimize our current operations. Now of course, this isn't a new concept at Douglas Dynamics. It's part of our DNA, but it makes sense to step back and with a newly formed leadership team ensure that we are fully focusing our efforts across the organization. One of the best examples of our optimized initiative is our long-term project to create centers of excellence within the attachment segments. In the past, our three facilities in Milwaukee, Madison Heights, Michigan and Rockland, Maine operated as they had historically, generally centered around our three brands. Over the past several years, our manufacturing team has initiated the monumental project of moving specific product production to individual facilities, thereby creating centers of excellence that focus on specific aspects of our manufacturing. A good example of this is our Madison Heights, Michigan facility that manufactures all of our hoppers and spreaders regardless of brand. We can focus all of our engineering, supply chain and manufacturing expertise across all three brands in that one facility. So optimize is the first pillar. The second is expand, pursuing organic geographic growth opportunities and product offerings to exceed customer expectations. Earlier, I mentioned a great example of geographic expansion in solutions. Lead times across the Municipal segment are getting longer, and we believe our ability to deliver trucks on time is an important differentiator. This is one of the reasons we recently broke ground on a new multipurpose facility leased in Columbia, Missouri to better serve the surrounding markets with new upfits and to service existing in-market municipal trucks. At Attachments, our engineering team is world-class. We consistently strive to develop the next-generation upgrades of our existing products, and we also work to broaden our product offering. Recently, we launched a new piece of tech, an auto speed controller for hopper spreaders at the Annual Snow and Ice Management Association Conference, and it's being well received within the industry. This controller is located in the vehicle cab and easily links directly to the truck CPU. This allows it to automatically adjust the flow of de-icing material as the vehicle speed changes, improving efficiency, reducing wasted de-icing material, allowing for better monitoring and giving the contractor one less thing to think about as they work. What's more, this technology is retroactively compatible with Douglas Dynamic truck hoppers across our Western, Fisher, and Snowex brands going back almost 10 years. We are also exploring new areas of snow and ice control in collaboration with partners. We can't talk about that at the moment, but we plan to have more to say in 2026. And finally, Activate, which refers to the restart of our M&A efforts as we look for the opportunities to build our portfolio of attachments and diversify our overall offering over the long term. As I mentioned last quarter, with the recent improvements in our performance and balance sheet and a clear vision of the types of acquisitions we are best suited to make operationally, we can now consider small-to-medium-sized deals if and when we find the right opportunity. Ideally, these opportunities would be in the work vehicle attachment space, have strong brands and growth potential as well as being a good cultural fit. We have started to conduct more research and investigate companies while still maintaining our disciplined approach. There will be more to come on our strategic pillars in the coming quarters. To conclude, this was another quarter characterized by strong execution, ongoing dedication and market-leading innovation. I would categorize our general outlook as remaining positive, but with caution, looking around the corners as to what might be coming our way. Inside our company, we firmly believe we have the right people in place and operations that are correctly aligned with the current market conditions. In Work Truck Attachments, we are operating efficiently, and we are correctly sized to work through the elongated replacement cycle, ready to use our agility to handle whatever weather conditions we see later this year. In Work Truck Solutions, while seeing softness in our commercial dealer business continues to see a positive fleet business and substantial demand and backlog in our municipal business and the alignment of our future strategy around the optimize, expand and activate areas of focus reinforces our confidence that we can achieve our longer-term growth and profitability goals in the years ahead. Thank you to everyone at Douglas Dynamics for your commitment and drive to exceed. I fully believe the future presents many exciting opportunities for us to grow and achieve our considerable potential. With that, I'd like to pass the call to Sarah.

Thanks, Mark. I will walk through the quarter. I'll explain our increased guidance and then open it up to questions. Before I talk to the numbers, unless stated otherwise, all the comparisons I'll make today are between the second quarter of 2025 and the second quarter of 2024. I am pleased to say it was a positive and straightforward quarter. The record results at Work Truck Solutions offset the anticipated lower volumes at Work Truck Attachments, and our overall performance was essentially in line with last year. Consolidated net sales decreased just 2.8% when compared to 2024 due to the expected lower volumes at Attachments related to the timing of preseason shipments. SG&A expenses decreased 6.9% to $21.8 million for the quarter based on lower stock-based compensation and employee benefits costs. Interest expense decreased 27.9% to $3 million due to lower borrowings on the revolver and term loan. GAAP net income for the quarter was $26 million or $1.09 per diluted share, an increase of 6.6% and 6.9%, respectively. Adjusted EBITDA was $42.6 million and margins were flat to last year at 21.9%, which reflects the strength of Solutions margin improvements that offset the impact of lower preseason shipments in attachments. Overall, results were positive and could be classed in either in line or better than our expectations. When combined with a strong first quarter, we produced a robust first half of the year that has allowed us to narrow and raise our guidance ranges, which I'll get to later. Okay. Let's look at the results for the two segments. Overall, Work Truck Attachments had a good quarter and our preseason is progressing generally as we expected. Net sales of $108.1 million and adjusted EBITDA of $31.6 million are lower, but that's due to the anticipated timing of preseason shipments. This year, the ratio of preseason shipments in 2025 is expected to be close to the more traditional 55% to 45% split between the second and third quarters. And if you remember, the 2024 preseason was unusual as higher inventory levels led to significantly more equipment being shipped in the second quarter. That meant the 2024 preseason was unusually skewed towards 2Q and a 65% to 35% ratio. Given that shift, our results this quarter are actually better than they appear at first glance and were in line with our expectations, thanks to strong execution from the team. Now let's focus on Work Truck Solutions, which continues to set records and exceed expectations despite facing tough comparisons to a record-setting quarter last year. We continue to be encouraged by the team's progress, delivering top and bottom line growth once again. Net sales increased 5.4% to $86.2 million. Adjusted EBITDA grew an impressive 39.8% to $11 million based on product mix, price realization and higher municipal throughput. The adjusted EBITDA margin of 12.8% is a record for any quarter since 2017. It's fantastic to see the teams deliver such excellent profitability. They're really showing us what they're capable of this year. Remember that 2024 was a record year for Solutions. We'll continue to face difficult comparisons in the back half of the year as we start to measure up to the record results in previous quarters. Also, the solutions business can vary from one quarter to the next. That's worked in our favor so far this year. But based on projected product mix and the timing of deliveries, we anticipate margins will be slightly lower in the second half of 2025. That being said, we still expect Solutions 2025 results to show continued improvement of margin sustainability over the longer term. Overall, our backlog remains near record levels. Municipal demand is strong, and we're working to augment our capacity on that side of the business, given we have great visibility into 2026. We have less visibility for our commercial business. Our fleet business remains solid, but local and dealer business order trends are softening. We will be monitoring this closely as the year continues to unfold. With the results for the quarter covered, I'll turn to the balance sheet and liquidity figures. For the first half of 2025, net cash used in operating activities improved $6.4 million to $12.7 million due to improved earnings, somewhat offset by changes in working capital. Total inventory was $153.3 million versus $139.4 million. As we discussed last quarter, the Attachments segment has done a great job significantly reducing its inventory over the past year, but this is being masked by the planned inflow of components to supply the rich backlog of orders in Solutions. Year-to-date, free cash flow increased approximately $4 million to negative $17.8 million compared to negative $21.9 million in the first half of '24. At midyear, we maintained $90.5 million of total liquidity comprised of $8 million in cash and $82.5 million of capacity on the revolver, which is more than ample for our needs this year. Capital expenditures increased by $2.4 million in the first half of 2025 as planned. We still expect full year CapEx to be towards the higher end of our traditional range of 2% to 3% of net sales as we catch up on projects we postponed last year and we accelerate a few facility projects as part of last year's sale leaseback agreement. On a related note, thanks to the work we undertook to improve our balance sheet this last year plus the amended debt agreement signed in March, our leverage ratio is now 2.0x. That's significantly lower than the 3.3x this time last year, now at a very manageable level and we expect to stay around 2x for the second half of the year, which is well within our goal range of 1.5x to 3x. Finally, as I've said in the past, in a normal good year, we generate a lot of cash. While some of that will continue to be reinvested in the business, we're committed to returning a healthy amount to investors. We have consistently paid a strong dividend, and we don't expect that to change. It remains our top priority. We're also open to other opportunities, and we repurchased around 210,000 shares during the quarter, covering the stock grants. The dividend and buyback combined totaled $12.9 million returned to shareholders. Okay. Let's turn to our outlook. The headline is this. We are now able to raise and narrow our guidance ranges based on the combination of preseason orders at attachments in line with our expectations, plus another record quarter and strong overall backlog at Solutions. So we now expect net sales to be between $630 million and $660 million. Adjusted EBITDA is now predicted to range from $82 million to $97 million. Adjusted earnings per share are expected to be in the range of $1.65 per share to $2.15 per share. Let me provide a little more context. At Attachments, preseason orders were generally in line with expectations. As a reminder, our outlook always assumes average snowfall in the fourth quarter. However, we are also assuming that the elongated equipment replacement cycle will continue to have an impact. And therefore, average snowfall may not translate into average volumes. When combined with lower dealer inventories, the overall data indicates we remain on track. We believe our measured cost control efforts and close management of production schedules means we're ready for whatever weather conditions we see later this year. For Solutions, we're confident our operations are performing well, and our near record backlog provides a level of visibility for the remainder of 2025 and into 2026. We faced tough comparisons in the second half of the year, but we currently remain on track to deliver expected low double-digit adjusted EBITDA margins, which would be an improvement for the fourth year in a row. It's worth remembering that although uncertainty around the economy and tariffs continues, we have a U.S.-centric business model and believe we are better positioned than most companies, given all of our manufacturing takes place in the U.S. Around 95% of our net sales are in the U.S., and we source the vast majority of our steel in the U.S. and less than 10% of our direct materials are sourced from China, Mexico or Canada. As a reminder, our guidance includes our expected exposure for current tariffs. So to summarize, we're very pleased with our year-to-date results, and we're focused on executing well in the back half of the year. With that, we'd like to open the call for questions.

Operator Instructions. The first question comes from Mike Shlisky with D.A. Davidson.

What would lower interest rates do for demand in the back half of the year? If we see a rate cut by the year-end or maybe early winter, would it be too late to stimulate some last-minute fourth quarter demand for additional snow and ice control equipment? And I guess maybe similarly on the commercial side, what's been a little bit challenged more recently, could you squeeze in some deliveries at the end of the year if we saw lower interest rates or would anything have to wait until 2026?

Yes, Mike, it's Mark. I'll take that one. I would say, generally, no, you have to see some pretty significant decreases to ultimately end up with consumer interest rates, contractor consumer interest rates at a point where that would, I'd say, move the needle. For us, it's really more around the average snowfall or above in the fourth quarter.

Yes. I would just add, Mike, I mean, any, I guess, positive economic sentiment that we start to feel from a demand perspective, if that were to occur to have the capacity and be able to deliver additional snow and ice equipment and/or commercial volumes, we have the capacity and would be able to do that if we actually felt enough of that lift that you're describing.

I would also like to mention that if we were to see interest rates decrease over time, returning to the 2% to 4% range as they were about 2, 3, or 4 years ago, this would positively affect the business, particularly regarding our equipment and the new trucks being bought at that time.

Great. And other question was, I want to follow up on your comment about capacity. If you're adding 10% more capacity for municipal business, does that mean that you're reducing commercial capacity? Or are you overall increasing your capacity? And just want to make sure that what you're adding isn't just crowding in, but there's some decent margin on the new capacity.

Yes, that's a great question. When we discuss the municipal side, it's additional capacity that isn't replacing anything in the fleet or dealer. Much of it is driven by the new facility currently being built for Henderson, which will handle both new vehicle production and servicing in Columbia, Missouri. We broke ground on that with our partners about a month ago, and it's on track. This will be a beautiful purpose-built facility that will overall increase capacity for Henderson.

The next question comes from Tim Wojs with Baird.

Maybe for my first question, as you evaluate the channel now for attachments, I understand there's a longer replacement cycle. How would you describe the inventory levels compared to what you might expect based on a 10-year average or something similar? I'm looking for some context about the current state of the channel regarding attachments.

We look at inventory from two perspectives: ours and the dealer's. Starting with our inventory, both Sarah and I believe we're in excellent shape regarding overall production and planning. The centers of expertise we've implemented have significantly improved our inventory control and provided greater flexibility in response to changing demand, which we expect to increase this winter with hopefully normal snowfall. In terms of dealer inventory, I've been in close contact with them. Our sales team indicates that plow inventories have decreased nicely over the last couple of years. While it's not exactly where we want it to be, it's getting close. With our cautious production approach and a normal snow year, dealers should be in a favorable position regarding inventory this year. For hoppers, given last season's strong performance with snow and ice, there's a noticeable demand for that product. Generally, I believe inventories are in good shape. The recent introduction of our new auto speed controller, which is retroactive for several years, should also positively impact hoppers. In short, plow inventory is nearly where we want it, with some opportunity for improvement at the dealer level to enhance it further with good production and snowfall, while hoppers and spreaders are aligned with our expectations.

Okay. Okay. Great. That's really helpful. And then just on the Solutions side, you mentioned mix was favorable. Was that mix within kind of just muni versus commercial? Or is it mix within mix, like the mix within one of those businesses? Just some added color on that.

Yes. It was really more mix within the municipal side of the business. So we have a lot of contracts that we're aware of. And as you know, we have pretty good visibility in that business. For the first and second quarters, we did have quite a few trucks going out the door that are at a higher than typical margin. So it will be a little bit choppy in the back half of the year, but I still expect full year improvement for solutions at the margin level when all is said and done.

Okay. Okay. And then how much price is kind of going through your top line in both segments this year?

Yes. Both segments are pretty consistent in the low single-digit range and that is what we saw in the second quarter. It's also what I expect for the full year.

The next question comes from Greg Burns with Sidoti & Company.

I wanted to follow up on the margin expectations for the Solutions segment in the second half. It seems that the guidance indicates you expect the overall margin to be higher for the year, but I’m unsure by how much over 24%. This suggests a notable decline in margins compared to the first half, yet demand, particularly in the municipal sector, doesn’t appear to be decreasing significantly. Therefore, I would anticipate production levels to remain stable in the second half. I'm trying to understand why you forecast a significant drop in margins from the first half to the second half.

Yes, I wouldn't necessarily agree that it will decline significantly. I expect our margins for the full year to continue improving; they should be close to 24%, likely in the low double-digit range. However, I believe the second half of the year will be more challenging, particularly from a comparison standpoint. The shipment mix I anticipate for the latter half doesn't seem as favorable regarding sequential margins, even though we've been performing well year-to-date. It's possible there could be a slight dip, but we're not forecasting that based on the expected product mix. I'm encouraged that our margins in that segment are stabilizing at a higher level. While margins may vary from quarter to quarter, the key takeaway is that we're witnessing improvement and stabilization at this elevated level.

Okay. Great. And then getting the acquisition engine going again, could you just maybe talk about what the pipeline looks like out there, what you're seeing and maybe any particular areas of focus that you'd be looking to add to the portfolio?

Yes, absolutely. As we discuss our strategic area of focus, Activate, we've dedicated significant time to it. We are now in a position where our financial health, strong leadership, and clear vision enable us to explore new opportunities. Our company has strengths in manufacturing attachments, including engineering, supply chain management, operational optimization, and effective sales and marketing. We lead the industry in snow and ice. Over the past few years, we have also recognized the role of upfitting in our operations. Currently, we are concentrating on the attachment sector. Our recent acquisitions have leaned towards upfitting, and we are evaluating additional markets where our capabilities can be applied. Truck attachments are central to our strategy, but we are also exploring other vehicle attachments. We are just beginning to uncover possibilities in this area, focusing on building specific relationships and understanding how to leverage our engineering, operations, supply, sales, and marketing strengths, especially with companies outside the snow and ice industry.

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, for any closing remarks.

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

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