Good morning, everyone. Welcome to the Core Molding Technologies Third Quarter Fiscal 2023 Financial Results Conference Call. [Operator Instructions]. I will now turn the call over to Sandy Martin with Three Part Advisors. Please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us for the Core Molding’s Technologies conference call to review third quarter results for 2023. Joining me on the call today are the Company's President and CEO, Dave Duvall; and EVP and CFO, John Zimmer. This call is also being webcast and can be accessed through coremt.com via 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 fact, 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. Forward-looking statements by their nature are uncertain and outside of the company's control. Actual results may differ materially from those expressed or implied. Please refer to the earnings press release issued today 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 update or revise any forward-looking statements publicly. Management will refer to non-GAAP measures, including adjusted EPS, adjusted EBITDA, 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, a copy of the press release has also been submitted to the SEC on Form 8-K. And now, I would like to turn the call over to Dave Duvall. Dave?

Thank you, Sandy. Good morning, everyone and thank you for joining our third quarter earnings call. Let me start today's call with a couple of accomplishments during the quarter. A few weeks ago, we received the EcoVadis Bronze Award in recognition of our ongoing sustainability achievements. This award demonstrates our systematic approach to environmental stewardship and it directly supports Core's value proposition to our customers that are driving to accurately quantify and reduce their Scope 3 greenhouse gas emissions. We believe this is a visible reminder of our responsibility for our employees, communities and the environment. We were also one of six finalists in the award for composites excellence competition at this year's annual CAMX or Composites and Advanced Materials Expo in Atlanta. The award recognizes the unique proprietary engineering technology we used to produce one of our customers' personal watercraft tools. It demonstrates our ability to combine different composite materials and molded in features to optimize the design for improved performance and cost. These are important recognitions of Core Molding's strong value proposition through our technical solutions and sustainability efforts that we are continually strengthening in our organization. As always, I want to thank our hard-working team of talented people for executing Core shared vision for growth and driving improvements in our business every single day. Our most important competitive advantages our talented teams working together and a culture that values transparency, learning and openness to challenge. This makes a difference and we continually and purposely drive this culture within our organization. Our team strives every day to execute the company's four strategic initiatives one; driving revenue growth; two, technical solutions sales; three, enhancing profitability and four; generating cash flow. Along those lines I'd like to report that our must-win battle to drive significant operational improvements in specific plants…

Thank you, Dave, and good morning everyone. As we noted last quarter return to more historical seasonality impacted the third quarter's top line, combining the 36.5% product revenue increase from last year with our 12.4% decline this year product revenues are still up approximately 20% from 2021 levels. Last year, we saw customers rebuilding depleted inventories against higher demand and this year their inventory levels are more optimal or in certain industries and overbuilt position and customers are working through those inventories. Our product sales by end market this quarter include increases in medium- and heavy-duty trucks where production levels remained strong while other sectors were down due to management of inventory levels and macro-economic impact. Our ongoing industry diversification efforts are working as planned as we have taken advantage of changing demand by industry and minimize the impact of any one industry to the company's overall revenue. Our trailing 12 month adjusted EBITDA through the third quarter totaled $41.8 million another notch higher than last quarter's TTM and the highest ever in the company's history. This continues to give us further conviction that our intentional focus on operational improvement is progressing. I want to congratulate our team on their hard work this last quarter and this year. Turning to our financial results. Third-quarter 2023 net sales were $86.7 million compared to $101.6 million a year ago. Product sales were down 12.4%, largely based on our discussion around difficult comparisons coupled with a return to more historical seasonality this year. Gross profit for the third quarter rose to $15.3 million or 17.6% of sales compared to $13.3 million or 13.1% of sales in the prior year quarter. As Dave mentioned this was a 450-basis point improvement over the prior year. During the 2023 third quarter material cost and production efficiencies…

Thank you, John. Few comments on our outlook for 2024. Our goal is to continue to focus on revenue diversification in industries that value engineered solutions to continually enhance our margin. Based on our earlier information for 2024, we anticipate a continuation of macroeconomic headwinds, truck cyclicality and the end-of-life of certain programs could negatively impact revenues compared to 2023. Industry projections for 2024 in the North American Class 9 truck market, which still makes up approximately half of our revenue, forecast a cyclical correction compared to 2023 with the expectations for truck demand to rebound in 2025. Our diversification efforts have reduced our exposure to the truck market cycles, but with higher interest rates we anticipate a downward impact on our customers' demand. It has to at some point. We expect to adjust our cost structure based on anticipated sales projections, consolidate operational improvements and seek attractive acquisitions to continually support our diversified growth goals. We also want to take full advantage of various industries that require new or better solutions, including opportunities arising from government funded infrastructure projects and government driven sustainability strategies. We still believe in our long-term goals as we provide products and services that have growing long-term demand across many industries. We believe there will be increased demand driven by onshoring of manufacturing, US infrastructure improvements, and overall industry growth over the next several years. As discussed last quarter, we are finalizing our acquisition strategy, timing and M&A pipeline. Given the size of our company, it's important that we set the appropriate acquisition criteria and carefully analyze valuations against our strategic requirements. As stated earlier, we have strategically prepared our organization for growth by acquisition and we are excited about the timing. We have communicated to investors in the past that we plan to further…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And ladies and gentlemen, our first question today comes from Tim Moore with EF Hutton. Please go ahead.

Thanks. That's really helpful your commentary. When do you think you might know the full impact of the UAW strikes on your sales? It's impressive that you can still maintain your gross margin guidance range for this year despite that drag. But do you think you all know the full impact of late December?

Yes. Tim I think one of the pieces of that is to recognize that -- we deal in auto but we also have the UAW is actually on strike with Mack, which is a major division of Volvo which is one of our major customers. And so they have not it settled their strike at this point. And so we're watching that. The stuff that we do in auto has been the auto guys are back to work. They're building ramping back up, but we did have some effect of theirs in October. And we think that that will start coming back online now. But really Mack has not been settled at this point.

Fair enough.

In talking with Volvo they're doing everything they can to continue producing and driving that forward. But right now we know what the roadblock is and until they resolve the strike there at a point now where they don't have ended up.

Yes. Just curious I tried to ask theoretical questions but if there wasn't a UAW strike do you think you still would have expected flat product sales for this year? And do you think you can recover some of those Mack sales in March quarter?

Yeah. Again I think we would hope that our Mack and recover those sales in the industry. And so we think that the UAW strike in Q4 probably has somewhere between $2 million and $4 million of sales impact on us. So, again, part of that depends on when they actually settle the strike or if Mack sales strike and timing. But we estimate it was somewhere between $2 million and $4 million as the impact of the UAW strike.

That's helpful. And then John I know you mentioned on the August conference call that there was the variable compensation that cause an uptick in SG&A expense. How should we think about SG&A expense as a percentage of sales going forward? I know it was running 2.7% to 2.8% the past two quarters but it's typically 9.5% to 10%.

Yes, I think if you back out our compensation again this quarter, we were going to be around $8.5 million of SG&A again this quarter, which is consistent with the other quarters. Now, that does include the $500,000 of press move that's a one-time move to get a press down to Monterrey is that planned launch in some new programs next year. And so without that we were probably running around $8 million of SG&A costs for the quarter versus $8.5 million for the first two quarters if you back out our bonus impact. Long-term as we move forward we continue to look at that. We always tried to target that around 10%. And so if sales are down a little bit we try to recognize that make adjustments to the SG&A as we go forward. But right now we're probably running between $8 million and $8.5 million a quarter is where we're at without bonus.

That's helpful. My next question is how far along do you think you are on selling price improvement? Is that those prices fully implemented as of today or you sixth inning on that for the company-wide?

Yes, we still have one other contract that we're working on. We'll finalize that this year beginning of next year.

Okay. The rest have been pretty much implemented on a rolling basis the past few quarters.

So, we've been through all the other contracts. This is the last one that we're working on right now one of our large customers.

Great. And actually two more questions for Dave. What would you say you're kind of anything you might be in use the base format for too long? On the operational and efficiency improvements I saw you added a new board member appointment. Looks like sell ads more operational manufacturing experience in Canada Mexico. But how far along do you think you are on the operational efficiency improvements? And when you think you'll be done?

Yes. So, we'll be done when we talk about the must-win battle. That was the focus on the three SMC plants really focusing on two of them majority wise that was predicted or forecasted 20% improvement. So, we'll have that. We're at that now. So, really what we're moving into is a corporate-wide continuous improvement and consolidating those. So it will be ongoing. But it's not 20% per year per plan.

No. That's helpful color. And then my last question is you mentioned some commentary a little bit about this in your opening remarks about, acquisitions. Can you just remind us is still a capital allocation priority for process equipment? And what do you seeing out there? Do you think you're going to have to probably do acquisitions to acquire five to seven presses? Or given that there's such a long wait list and not much availability for new presses?

Yeah. That's a big point relative to if you're trying to install the capacity from a greenfield site, by the time you build the site and order all the equipment. You're talking about a multiple year endeavor. So really what we're looking at is I call bolt-on or tuck-in acquisitions anywhere up to say $30 million $40 million. And it's really about what sales channels can we get similar to what we did with the previous acquisitions, because then we're able to also cross-sell and sell multiple composites into that customer, through our other processes and products.

Great. That's very helpful. Thanks a lot Dave and John. And I'll hand it back over to the operator.

Thanks Tim.

Thanks Tim.

Thank you. And our next question comes from Jeff Geygan with Global Value Investment Corp. Please go ahead.

Thank you. Good morning, guys. Appreciate your time here.

How are you doing Jeff?

Hi Jeff.

Doing well. I'm curious, what type of visibility do you have into your customers inventory levels?

I don't know -- we would say we have a direct visibility. We don't have a data set to go directly into. And so a lot of it is demand feedback that we're getting. They do provide us EDI data out into the future. And I think we've talked about that before EDI. As you get out past a month gets a little bit -- it can change. It's not guaranteed one way or the other. And so, what we do know is that some customers during this quarter have come to us and said, we got ahead of ourselves. And so, we aren't taken as much product at least in this quarter and maybe a little bit into the first quarter next year. Now, again, what we stay close to home is we're hoping -- the nice thing is that this is a short-term issue for them. They'll get through that inventory. And they'll start taking sales again. And so it's a period of time that will work itself out. It's not the sales have gone away is to really a correction for a period of time. And so we'll work with them and hopefully get through this. And then you'll be back on with a lot of [indiscernible] in the first quarter next year sometime in the first quarter next year going into the second.

Yeah. It's a good point. When you see it, it's on the -- especially when you start looking at industrial and utilities because you have such a long supply chain between inventory at our location inventory at the job sites and inventories in our warehouses. So I think at the end of the year, they had looked at what their inventory levels throughout that supply chain and made a correction. But the business is still there. I think it's more a matter of adjusting their inventories at the end of the year.

All right. Appreciate it. You've talked repeatedly about reducing your exposure to truck. I think last time we reported out that might have been 44% of revs. Where it's at today? And what do you expect that trend to look like on a forward basis?

Yeah. It will continue. It's part of the strategy. It will vary between 44%, up to say 54% depending on the sales that we see in the other channels, especially when you start seeing personal watercraft, at the beginning of the year. That picks up. At the beginning of the year and trails off, at the end of the year same with building products.

And I think Jeff one of the pieces of that is our long-term strategy in truck was never to get out. It was to do just profitable business. As we came out of the turnaround, we realized that we had added on business that we just couldn't get to profitability. And we really think we've fixed the majority of that. Dave mentioned, we have one contract that we're still working on. It gets a little bit of additional pricing. Hopefully that was actively working on right now. So long-term where we are as truck is we're bidding on new programs with truck. It's just we've got a different mindset than we did probably five years ago. We're looking to do profitable business with contracts that aren't one-sided that we really think are good for both business partners. And so I think our truck business truly just has changed strategy versus us totally getting out a change in strategy there. We'll only do stuff that we think we can make good money on.

Thank you. With your Q4 guide of revenues down 15% to 20%. John I thought you said your fiscal year at that point down roughly 5% to 10%. You anticipate maintaining your gross margins in the 17.5% to 18.5% range. What does that imply for your gross margin in Q2?

I mean, I think, if you do the math it probably puts us at a gross margin of 13% to 14% 13.5% to 14.5%. And a little bit of that's just going to be leverage. We are starting to reduce our -- we've always talked about what we can do is our variable cost is somewhere between 60%, 70% of our cost structure. And so we are able to reduce material price and material cost very quickly. Direct labor comes next and we've been moving very quickly on some of that taking some time off at the plants where they take a week down and those types of things so we can reduce that cost. But the one piece that takes a little bit more of a long-term and really we wouldn't reduce unless we think we got a long-term problem is the fixed cost. And we will adjust that very significantly because we really think long-term the company is going to continue to grow. We don't want to have to adjust where we have a real good seasoned workforce. So probably lost leverage in Q4 is more of the issue than anything else. That's certainly the margin in Q4.

And last question. When do you anticipate providing guidance for 2024 beyond?

Yeah. So 2024, yeah, we're still getting a lot of data. I think at the time we release the first -- not first quarter, but our year end results which would be early March we would have it. If there's anything significant that would warrant it before that we would definitely come back out and do a discussion in between. But where we are right now we have a lot of customers telling us that they have -- they're watching the economy as much as us. I got Polaris which is one of our major customers deck right in front of me. They came out and said they're watching the retail demand situation going on in the United States right now in North America. So I think we will have better data by the time we do the 10-K the earnings release at year end around March. But again if there's something major between now and then we would definitely come out and tell you guys.

Yeah. I appreciate that. I have to say you've done exactly what you've said you intend to do with your four pillars. Your execution has been excellent. I look forward to seeing what you do when you begin making some acquisitions. So thanks for the commentary today I thought it was very good and good luck as you go forward.

Thanks, Jeff.

Thanks.

Thank you. And ladies and gentlemen that's all the time we have for question-and-answer session today. So I'd like to turn the conference back over to the management team for any final remarks.

Yes. Thank you for joining our conference call and we look forward to the next call in March. Thank you.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.