Good day, ladies and gentlemen, and welcome to Douglas Dynamics First Quarter 2018 Earnings Call. [Operator Instructions]As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call Sarah Lauber, Chief Financial Officer. Please go ahead.

Thank you. Welcome, everyone, and thank you for joining us on today's call. A few quick items before we begin. First, please note that some of the information you would hear during this call will consist of forward-looking statement within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. Such statements express our expectations, anticipations, beliefs, estimates, intentions, plans and forecasts. Because these forward-looking statements involve risks and uncertainties, our actual results could differ materially from those in the forward-looking statements. For more information regarding such risks and uncertainties, please see the sections titled Risk Factors, Forward-looking Statements and Management Discussion and Analysis of Financial Conditions and Results of Operations, included in our Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission, and the impending updates to these sections in our quarterly reports on Form 10-Q. . Second, this call will involve a discussion of adjusted EBITDA, adjusted net income and adjusted earnings per share. All non-GAAP financial measures, which under SEC Regulation G, will require to reconcile with the most directly comparable GAAP measure. Reconciliations of these measures to the closest GAAP financial measure is included in today's earnings press release, which is available at douglasdynamics.com. Joining me on the call today is Jim Janik, our Chairman, President and Chief Executive Officer. Jim will begin by providing an overview of our performance, then I will review our financial results before turning it back to Jim to discuss our outlook. After that, we'll open the call for your questions. Jim?

Thanks, Sarah, and good morning, everyone. Thank you for joining us. Our results for the first quarter were strong when compared to the same quarter last year and were driven by better snowfall amounts across North America compared to the last 2 years, which positively impacted the Attachment segment and stronger demand within the Solutions segment. I'm pleased to report that we produced record first quarter net sales of $84 million, a 16% increase compared to the same quarter last year. We also produced gross profit of $20 million, which is a 17% increase year-over-year. These results really highlight the overall strength and diversity of our business, which is more varied today than at any point of our corporate history. Overall, both the Attachments and Solutions segments performed in line within our expectation, which means we are also reiterating our outlook for the year. For Work Truck Attachments segment, while snowfall was inconsistent during the first quarter, the late-season storms, meant we nearly matched the 10-year average snowfall totals for the winter as a whole, which is an improvement over the past 2 years and bodes well for our current preseason sales period. We do continue to see lingering chassis availability issues for our municipal products, but our teams are continually adapting and managing through the situation as well as can be expected. As usual, we reviewed dealer field inventory level during the first quarter and found that there were lower than last year, which is positive and in line with our expectations. In addition, sales of select pickup trucks continues to be favorable with first quarter 2018 remaining at historically high levels but were essentially flat when compared to the same period last year. We are now in the preseason period and we have seen a positive response to…

Good morning, everyone, again, I apologize for the mishap here with our electricity. I'm going to start with our earnings. So I'm going to begin with our consolidated earnings, followed by a look at how our 2 segments performed and end with some liquidity and balance sheet numbers. So as Jim mentioned, 2018 is off to a good start and the first quarter results were in line with our expectations. For the first quarter of 2018, we achieved record net sales of $84 million, representing a 16% increase over the same period last year. The increase relates to the timing and location of snowfall during the quarter and overall increased demand in our Solutions segment. Based on the increased sales, gross profit for the first quarter of 2018 increased to $20 million compared to $17.2 million in the same quarter last year. As a percentage of net sales, gross profit was essentially flat at 23.9% compared to the first quarter of 2017. SG&A expenses were $16.1 million for the first quarter of 2018 compared to $14.9 million for the first quarter of last year, based on the investment in new facilities within our Solutions segment and higher variable compensation. We produced adjusted EBITDA of $7.1 million for the first quarter of 2018 compared to adjusted EBITDA of $5.2 million for the first quarter of 2017. Adjusted EBITDA margins increased primarily due to leveraging our cost structure on higher volumes. Turning to net income. For the first quarter of 2018, there was a net loss of $1.9 million or $0.08 per diluted share compared to a net loss of $3.3 million or $0.14 per diluted share in the same period of 2017. On an adjusted basis, net loss was $700,000 or $0.03 per diluted share compared to adjusted net loss of…

Thanks, Sarah. So far, 2018 is unfolding as we expected and we feel positive about our long-term prospects for the future. We are comfortable reiterating our 2018 guidance based on the ongoing stability of the overall economy, continued strength across the truck sector and generally positive demand trends in the markets we serve. Net sales for the full year are expected to be 40 -- $475 million to $535 million. This would produce adjusted EBITDA in the range of $85 million to $115 million, which will translate into adjusted earnings per share of between $1.60 to $2.20. Before turning to Q&A, I wanted to note that we've just been recognized as a Milwaukee Top Workplace for the ninth consecutive year, which is something our team takes great pride in. We were also just named one of Wisconsin's Fastest-Growing Public Companies again this year among a list of excellent world-leading organizations. It is clear to me that these 2 items are closely linked. Employee satisfaction and culture is very important across our company and is critical factor in our ability to maintain our market-leading positions and drive improvements using DDMS. In summary, we firmly believe that we're well positioned to grow and are managing the business effectively. We will continue to leverage DDMS to drive service and quality across all aspects of the business, which will lead to increased shareholder value over the long term. We'll now open the call for your questions. Operator?

[Operator Instructions] Our first question comes from Tim Wojs from Baird.

So maybe just to touch on Solutions a little bit. So I thought, I mean, you obviously, a great performance on the sales side. Is there any way to kind of think about what the new facilities may have contributed? What may be some of the chassis conversion or backlog conversion might have contributed? And maybe if there is a some sort of kind of the same-store or same-facility type metric and (inaudible) out? That might be helpful. Just trying to think of the sustainability of the growth and how we should think about for the year?

Sure. I'll start out and then Jim can also chime in. We saw overall strong demand in our Solutions segment across all the facilities. So we did have growth. And if you think back to Q1 of 2017, that was a more challenged quarter for us last year. When thinking about the new locations, I would say, about half of the growth in the quarter was due to the 4 new locations. Backlog continues to grow at this point.

Yes, Tim, I will just add, we're seeing great demand. I think, we're still experiencing some of the expenses of the investments that we've made and continue to make. So that may marginally put a little pressure on margin percentages, which is okay because we're playing the long game for growth anyway. That's why we're putting in the locations. We, typically, wouldn't do this many locations in one year, but I think, we're just opportunistic on a number of levels. If you're looking at Q2 comparisons, I would say, last year, Q2 Solutions group had a pretty strong quarter after a soft first quarter. So I think we'll be happy with Q2, but it's probably a little bit more close to flat year-over-year in Q2, but at a nice level. I don't think it's -- we're going to sustain at 30% growth every quarter.

Yes, okay. So I guess, if you look at the first half of this year versus the first half last year, you're still kind of up mid-teens. It's shift in timing in terms of the quarter. Is it okay?

It could be a little lumpy. But I think you hit it right there, yes. It will still be -- but it won't be up at that rate.

And then you kind of mentioned -- you mentioned the cost system in the upfit facilities, but that's a tough one to get out. But when we think about, maybe, I guess, at a normalized incremental kind of contribution margin should be for the business? I mean, how do we -- how should we think about that as you kind of think about what's, I guess, normal?

Yes, I think from a margin perspective. On a long term, we should -- when I say long term, I'm saying over a few years. We'd like to get mid-teens on margins, but I think -- early on, we're making some earlier investments in the business that you know you've got the expenses but you don't really have -- you haven't really ramped up the full facility. So you're getting some of the revenue, but you're getting all of the expenses. So I think that probably challenges it a little bit and then, as I said before, we probably did more new facilities in one year than we clearly ever anticipated. So I -- you know those things, probably, create a very short-term drag. When I say short term, you know '18 may be a little into '19. But over time, there is no reason we can't get into the mid-teens.

Okay, okay. No, I think that's fair. And then, maybe switching to the Attachments business. On the core snow and ice, how would you expect the preseason this year to kind of trend relative to prior years? And the reason I ask is, you had the late-season snowfall, which, my guess, sounds like from your comments, probably clear out some channel inventory. And then just with higher steel prices -- yes, I didn't know if some of your dealers and distributors would try to get in front of that price increase in this summer and try to stock up a little sooner?

Yes. There is a lot of questions and a lot of themes. I will try and simplify it, and if I miss one of your questions, we'll figure that out. Right now because the great snowfall in March, we ended up as an average year. But after the 2 previous year, average fields pretty done good, which is terrific. How that plays out in preseason is, I would certainly expect preseason to be a little bit stronger than previous years. For us, we're not entirely sure, as you know, and we've always said that most of our distributors and dealers don't speculate with what they order. They typically order somewhere between 55% and 65% of what they're going to need in the year. How that translates into preseason this year, we're not entirely sure other than -- so far this year, the orders are coming in very nicely and we're very encouraged by that. But again, it's a little bit early for us to draw conclusions from that other than -- it's going to be a nice year. From a steel perspective, one of the things that we've done with our preseason orders actually in this segment is knowing where still was going, we actually took a temporary surcharge on preseason orders any shipments. Now the way that we order steel is that the new prices actually show up, probably, in the next couple of months. However, we know on the backside that it was good to take the surcharge before we actually felt the impact of the steel in the commercial snow and ice group. So I don't think anybody was trying to get ahead of that because rather than playing that game within our industry, we just decided that, in fairness to all of our distributors, it was easy to put the temporary surcharge on all of the product.

Okay. Okay. And relative to -- it's been a while since we've had some inflation. And so relative -- I mean, historically, you've been able to kind of pass on price increases to your distributors. I mean, any change to that at all, philosophy or kind of competitive dynamics? Just for color there.

I don't see that much of a change. Again, it's never fun and it's never easy, but we do it because it's the right thing to do. And I -- I think, the industry, in general, understands it because almost all businesses are, one way or another, being touched by some level of inflation. So everyone is really participating in it.

Our next question comes from the line of Michael Shlisky from Seaport Global.

This is Ryan Amberger on for Mike. So just a few quick ones. So in the Work Truck Solutions, what types of truck configurations are seeing the most growth? And is there any benefit or negative impact from the sales mix either in the first quarter or going forward?

What was the second question? I could not hear that very clearly.

I will just repeat it. So what types -- in the Work Truck Solutions, what types of truck configurations are seeing the most growth? And is there any benefit or negative impact from the sales mix, either in the first quarter or going forward?

Yes. Actually, it's been pretty level with all vehicles. And so as a result, we're not seeing really positive or negative in the mix.

Okay, great. And one other one, quick. In the Attachments, you had a number of new products rolling out in Q1. As you take orders for these, could there be a challenging year; 1, from margin perspective, either from warranties or manufacturing efficiencies? And is a year 2 or 2019, the timing might pursue some DDMS strategies for these new product lines?

To answer your first question, no, typically not. New products, in general, don't create a negative margin impact. Yes, we'd, probably, not as efficient in manufacturing, the first year. Having said that, we typically manage that whole process up to the manufacturer pretty effectively. So -- therefore, there are very few surprises. And secondly, as you get into '19 and beyond, absolutely, we've already got teams looking at, not only existing products but new products, as that we've just introduced in terms of how can we make them faster, better, more efficient than the ones we've made 2 weeks ago. So that's an ongoing process for us.

Our next question is from the line of Steve Dyer from Craig-Hallum.

Ryan Sigdahl on for Steve. So you talked a little bit about the timing of dealers stocking this summer and some uncertainty there. But historically, I think, it's kind of being that 55-45 split between Q2 and Q3. If that's what you said, is that kind of a reasonable assumption to go with this year as well?

It is -- Q2 will be stronger this year than Q3. You know what -- I guess, at this particular point, what I say is, it will be 55-45. It might even be just a little stronger than that. We could get up to 57-- I can't do the math, Sarah, 57-43. But it could be just a little bit stronger this year, but materially, what we look at is the entirety of the preseason period, which is Q2 and Q3. And that's really what's most important to us as a company.

Great. Then switching gears to Henderson. Is the chassis issues there got any worse in all Class A demand? And is that still at record levels? Or is it kind of a similar trend to what you guys were seeing at the end of last year?

You know it's similar with the exception of one company, which I won't name, but it's a major player. The availability of their product to the entire industry has gotten even tighter, and as a result, most of the people in the Work Truck industry are trying to determine how to get more product out of that OEM or to try and determine how to move some other orders to the other manufacturers who have a little bit better availability.

Our next question comes from Chris McGinnis from Sidoti & Company.

I guess, just maybe a couple of things. If you said them, I apologize, but maybe just, can you talk about the allotments within the Solutions? And is there any headwinds for the year?

I think, it's a terrific question. As we've talked about it internally, there are always some mix issues that we run into. But at this particular point, it falls quite a way down on the list of things that keep us awake at night. So yes, there is some, but at this particular point, Chris, I just don't see it as being that material.

Okay. Great. And I may have misheard you. But did you talk about Kansas City facility that you're expecting more than just the ship-thrus? Was that correct? Or was I wrong in hearing that?

No, at this point, we're expecting ship-thru of these medium and large vans.

Okay. So I thought you were adding more services?

No.

It's just that, okay. And then lastly, I guess, just -- how many new products that you introduce this year versus maybe last year? And can you just touch on that a little bit more?

Sure. We call out just a couple of new products because many of our products are line extensions and we don't want to get hung up in our nomenclature as to whether something is a new product or it's an extension of another one. But what I would consider to be vastly new, we look at them as innovative products. I would say that, for FISHER and WESTERN, we've introduced, probably, 3 new products. And then, we've also introduced a whole line of snow plows the UTVs, which is utility vehicles. So it's -- the number of new products is probably a little bit less, but the magnitude of the new products is probably more.

[Operator Instructions]

Yes, sir, I am showing no further questions at this time.

Okay. To all of you on the phone, thank you for your interest in Douglas Dynamics, and we look forward to speaking with you again in early August for our second quarter earnings announcement. Thanks, again, and have a good day.

Thank you, again, participants, for joining us today. This does conclude our program and you now disconnect. Everyone, have a good day.