plow20230331

plow20230331_10q.htm

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-34728

DOUGLAS DYNAMICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		13-4275891
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

11270 W Park Place Ste 300

Milwaukee, Wisconsin 53224

(Address of principal executive offices) (Zip code)

(414) 354-2310

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	PLOW	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☒		Accelerated filer ☐

Non-accelerated filer ☐		Smaller reporting company ☐

		Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of registrant’s common shares outstanding as of May 2, 2023 was 22,983,965.

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DOUGLAS DYNAMICS, INC.

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PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	3
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022	4
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022	5
Unaudited Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022	6
Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
Item 4. Controls and Procedures	40
PART II. OTHER INFORMATION	40
Item 1. Legal Proceedings	40
Item 1A. Risk Factors	41
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3. Defaults Upon Senior Securities	41
Item 4. Mine Safety Disclosures	41
Item 5. Other Information	41
Item 6. Exhibits	42
Signatures	43

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Douglas Dynamics, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share data)

	*March 31,*		*December 31,*
	*2023*		*2022*
	(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,900	$	20,670
Accounts receivable, net		48,223		86,765
Inventories		184,583		136,501
Inventories - truck chassis floor plan		1,213		1,211
Refundable income taxes paid		3,408		-
Prepaid and other current assets		7,280		7,774
Total current assets		247,607		252,921
Property, plant, and equipment, net		67,461		68,660
Goodwill		113,134		113,134
Other intangible assets, net		128,959		131,589
Operating lease - right of use asset		16,414		17,432
Non-qualified benefit plan assets		9,158		8,874
Other long-term assets		2,555		4,281
Total assets	$	585,288	$	596,891
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	23,081	$	49,252
Accrued expenses and other current liabilities		22,086		30,484
Floor plan obligations		1,213		1,211
Operating lease liability - current		4,888		4,862
Income taxes payable		—		3,485
Short term borrowings		52,000		—
Current portion of long-term debt		11,137		11,137
Total current liabilities		114,405		100,431
Retiree benefits and deferred compensation		15,526		14,650
Deferred income taxes		28,713		29,837
Long-term debt, less current portion		192,298		195,299
Operating lease liability - noncurrent		12,951		14,025
Other long-term liabilities		4,995		5,547
Stockholders’ equity:
Common Stock, par value $0.01, 200,000,000 shares authorized, 22,956,204 and 22,886,793 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		230		229
Additional paid-in capital		165,237		164,281
Retained earnings		43,394		63,464
Accumulated other comprehensive income, net of tax		7,539		9,128
Total stockholders’ equity		216,400		237,102
Total liabilities and stockholders’ equity	$	585,288	$	596,891

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share data)

	*Three Months Ended*
	*March 31,*			*March 31,*
	*2023*			*2022*
	(unaudited)

Net sales	$	82,545		$	102,601
Cost of sales		71,270			81,537
Gross profit		11,275			21,064
Selling, general, and administrative expense		22,442			21,373
Intangibles amortization		2,630			2,630
Loss from operations		(13,797	)		(2,939	)
Interest expense, net		(2,864	)		(2,113	)
Other income, net		35			127
Loss before taxes		(16,626	)		(4,925	)
Income tax benefit		(3,516	)		(1,017	)
Net loss	$	(13,110	)	$	(3,908	)
Weighted average number of common shares outstanding:
Basic		22,906,845			22,982,538
Diluted		22,906,845			22,982,538
Loss per common share:
Basic	$	(0.58	)	$	(0.18	)
Diluted	$	(0.58	)	$	(0.18	)
Cash dividends declared and paid per share	$	0.30		$	0.29
Comprehensive income (loss)	$	(14,699	)	$	330

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

	*Three Months Ended*
	*March 31,*			*March 31,*
	*2023*			*2022*
	(unaudited)

Operating activities
Net loss	$	(13,110	)	$	(3,908	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,357			5,189
Gain on disposal of fixed asset		(60	)		(51	)
Amortization of deferred financing costs and debt discount		145			121
Stock-based compensation		957			1,900
Adjustments on derivatives not classified as hedges		(172	)		(172	)
Provision for losses on accounts receivable		175			75
Deferred income taxes		(1,125	)		978
Non-cash lease expense		1,018			1,198
Changes in operating assets and liabilities:
Accounts receivable		38,367			27,902
Inventories		(48,082	)		(39,820	)
Prepaid assets, refundable income taxes and other assets		(3,376	)		(1,059	)
Accounts payable		(24,891	)		(9,315	)
Accrued expenses and other current liabilities		(11,882	)		(8,883	)
Benefit obligations and other long-term liabilities		(237	)		(148	)
Net cash used in operating activities		(56,916	)		(25,993	)
Investing activities
Capital expenditures		(2,748	)		(2,198	)
Net cash used in investing activities		(2,748	)		(2,198	)
Financing activities
Repurchase of common stock		-			(3,001	)
Payments of financing costs		(334	)		-
Dividends paid		(6,960	)		(6,748	)
Net revolver borrowings		52,000			12,000
Repayment of long-term debt		(2,812	)		(2,812	)
Net cash provided by (used in) financing activities		41,894			(561	)
Change in cash and cash equivalents		(17,770	)		(28,752	)
Cash and cash equivalents at beginning of period		20,670			36,964
Cash and cash equivalents at end of period	$	2,900		$	8,212

Non-cash operating and financing activities
Truck chassis inventory acquired through floorplan obligations	$	1,042		$	713

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Condensed Consolidated Statements of Shareholders’ Equity

(In thousands)

	*Common Stock*						*Additional Paid-in*			*Retained*			*Accumulated Other Comprehensive*
	*Shares*			*Dollars*			*Capital*			*Earnings*			*Income (Loss)*			*Total*
Three Months Ended March 31, 2023
Balance at December 31, 2022		22,886,793		$	229		$	164,281		$	63,464		$	9,128		$	237,102
Net loss		—			—			—			(13,110	)		—			(13,110	)
Dividends paid		—			—			—			(6,960	)		—			(6,960	)
Adjustment for postretirement benefit liability, net of tax of $19		—			—			—			—			(53	)		(53	)
Adjustment for interest rate swap, net of tax of $540		—			—			—			—			(1,536	)		(1,536	)
Stock based compensation		69,411			1			956			—			—			957
Balance at March 31, 2023		22,956,204		$	230		$	165,237		$	43,394		$	7,539		$	216,400

Three Months Ended March 31, 2022
Balance at December 31, 2021		22,980,951		$	230		$	163,552		$	51,881		$	(1,053	)	$	214,610
Net loss		—			—			—			(3,908	)		—			(3,908	)
Dividends paid		—			—			—			(6,748	)		—			(6,748	)
Adjustment for pension and postretirement benefit liability, net of tax of $14		—			—			—			—			(41	)		(41	)
Adjustment for interest rate swap, net of tax of ($1,503)		—			—			—			—			4,279			4,279
Repurchase of common stock		(81,731	)		(1	)		(3,000	)		—			—			(3,001	)
Stock based compensation		76,930			1			1,899			—			—			1,900
Balance at March 31, 2022		22,976,150		$	230		$	162,451		$	41,225		$	3,185		$	207,091

See the accompanying notes to condensed consolidated financial statements.

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Douglas Dynamics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(In thousands except share and per share data)

1.	Basis of presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year-end financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the financial statements and related footnotes included in our 2022 Form 10-K (Commission File No. 001-34728) filed with the Securities and Exchange Commission on February 21, 2023.

The Company conducts business in two segments: Work Truck Attachments and Work Truck Solutions. Under this reporting structure, the Company’s two reportable business segments are as follows:

Work Truck Attachments. The Work Truck Attachments segment includes commercial snow and ice management attachments sold under the FISHER®, WESTERN® and SNOWEX® brands, as well as our vertically integrated products. This segment consists of our operations that manufacture and sell snow and ice control products.

Work Truck Solutions. The Work Truck Solutions segment includes manufactured municipal snow and ice control products under the HENDERSON® brand and the up-fit of market leading attachments and storage solutions under the HENDERSON® brand, and the DEJANA® brand and its related sub-brands.

See Note 15 to the Unaudited Condensed Consolidated Financial Statements for financial information regarding these segments.

Interim Condensed Consolidated Financial Information

The accompanying Condensed Consolidated Balance Sheet as of March 31, 2023, the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and the Condensed Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2023 and 2022, and the Condensed Cash Flows for the three months ended March 31, 2023 and 2022, have been prepared by the Company and have not been audited.

The Company’s Work Truck Attachments segment is seasonal and, consequently, its results of operations and financial condition vary from quarter-to-quarter. Because of this seasonality, the results of operations of the Work Truck Attachments segment for any quarter may not be indicative of results of operations that may be achieved for a subsequent quarter or the full year, and may not be similar to results of operations experienced in prior years. The Company attempts to manage the seasonal impact of snowfall on its revenues in part through its pre-season sales program. This pre-season sales program encourages the Company’s distributors to re-stock their inventory of Work Truck Attachments products during the second and third quarters in anticipation of the peak fourth quarter retail sales period by offering favorable pre-season pricing and payment deferral until the fourth quarter. Thus, the Company’s Work Truck Attachments segment tends to generate its greatest volume of sales during the second and third quarters. By contrast, its revenue and operating results tend to be lowest during the first quarter, as management believes the end-users of Work Truck Attachments products prefer to wait until the beginning of a snow season to purchase new equipment and as the Company’s distributors sell off Work Truck Attachments inventory and wait for the pre-season sales incentive period to re-stock inventory. Fourth quarter sales vary from year-to-year as they are primarily driven by the level, timing and location of snowfall during the quarter. This is because most of the Company’s Work Truck Attachments fourth quarter sales and shipments consist of re-orders by distributors seeking to restock inventory to meet immediate customer needs caused by snowfall during the winter months. In addition, due to the factors noted above, Work Truck Attachments working capital needs are highest in the second and third quarters as its accounts receivable rise from pre-season sales. These working capital needs decline in the fourth quarter as the Company receives payments for its pre-season shipments.

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2.	Revenue Recognition

Revenue Streams

The following is a description of principal activities from which the Company generates revenue. Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company generates all of its revenue from contracts with customers. Additionally, contract amounts represent the full amount of the transaction price as agreed upon with the customer at the time of order, resulting in a single performance obligation in all cases. In the case of a single order containing multiple upfits, the transaction price may represent multiple performance obligations.

Work Truck Attachments

The Company recognizes revenue upon shipment of equipment to the customer. Within the Work Truck Attachments segment, the Company offers a variety of discounts and sales incentives to its distributors. The estimated liability for sales discounts and allowances is calculated using the expected value method and recorded at the time of sale as a reduction of net sales. The liability is estimated based on the costs of the program, the planned duration of the program and historical experience.

The Work Truck Attachments segment has two revenue streams, as identified below.

Independent Dealer Sales – Revenues from sales to independent dealers are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon shipment. In these instances, each product is considered a separate performance obligation, and revenue is recognized upon shipment of the goods. Any shipping and handling activities performed by the Company after the transfer of control to the customer (e.g., when control transfers upon shipment) are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.

Parts & Accessory Sales – The Company’s equipment is used in harsh conditions and parts frequently wear out. These parts drive recurring revenues through parts and accessory sales. The process for recording parts and accessory sales is consistent with the independent dealer sales noted above.

Work Truck Solutions

The Work Truck Solutions segment primarily participates in the truck and vehicle upfitting industry in the United States. Customers are billed separately for the truck chassis by the chassis manufacturer. The Company only records sales for the amount of the upfit, excluding the truck chassis. Generally, the Company obtains the truck chassis from the truck chassis manufacturer through either its floor plan agreement with a financial institution or bailment pool agreement with the truck chassis manufacturer. Additionally, in some instances the Company upfits chassis which are owned by the end customer. For truck chassis acquired through the floor plan agreement, the Company holds title to the vehicle from the time the chassis is received by the Company until the completion of the up-fit. Under the bailment pool agreement, the Company does not take title to the truck chassis, but rather only holds the truck chassis on consignment. The Company pays interest on both of these arrangements. The Company records revenue in the same manner net of the value of the truck chassis in both the Company’s floor plan and bailment pool agreements. The Company does not set the price for the truck chassis, is not responsible for the billing of the chassis and does not have inventory risk in either the bailment pool or floor plan agreements. The Work Truck Solutions segment also has manufacturing operations of municipal snow and ice control equipment, where revenue is recognized upon shipment of equipment to the customer.

Revenues from the sales of the Work Truck Solutions products are recognized net of the truck chassis with the selling price to the customer recorded as sales and the manufacturing and up-fit cost of the product recorded as Cost of sales. In these cases, the Company acts as an agent as it does not have inventory or pricing control over the truck chassis. Within the Work Truck Solutions segment, the Company also sells certain third-party products for which it acts as an agent. These sales do not meet the criteria for gross sales recognition, and thus are recognized on a net basis at the time of sale. Under net sales recognition, the cost paid to the third-party service provider is recorded as a reduction to sales, resulting in net sales being equal to the gross profit on the transaction.

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The Work Truck Solutions segment has four revenue streams, as identified below.

State and Local Bids – The Company records revenue of separately sold snow and ice equipment upon shipment and fully upfit vehicles upon delivery. The state and local bid process does not obligate the entity to buy any products from the Company, but merely allows the entity to purchase products in the future, typically for a fixed period of time. The entity commits to actually purchasing products from the Company when it issues purchase orders off of a previously awarded bid, which lists out actual quantities of equipment being ordered and the delivery terms. On upfit transactions, the Company is providing a significant service by assembling and integrating the individual products onto the customer’s truck. Each individual product and installation activity is highly interdependent and highly interrelated, and therefore the Company considers the manufacture and upfit of a truck a single performance obligation. Any shipping and handling activities performed by the Company after the transfer of control to the Customer (e.g., when control transfers upon shipment) are considered fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.

Fleet Upfit Sales – The Company enters into contracts with certain fleet customers. Fleet agreements create enforceable rights without the issuance of a purchase order. Typically, these agreements outline the terms of sale, payment terms, standard pricing, and the rights of the customer and seller. Fleet sales are performed on both customer owned vehicles as well as non-customer owned vehicles. For non-customer owned vehicles, revenue is recognized at a point in time upon delivery of the truck to the customer. For customer-owned vehicles, per Topic 606, revenue is recognized over time based on a cost input method. The Company accumulates costs incurred on partially completed customer-owned upfits based on estimated margin and completion. The Company books an adjustment to account for revenue over time related to customer owned vehicles, which increased revenue by $291 and increased revenue by $634 for the three months ended March 31, 2023 and 2022, respectively.

Dealer Upfit Sales – The Company upfits work trucks for independent dealer customers. Dealer upfit revenue is recorded upon delivery. The customer does not own the vehicles during the upfit process, and as such revenue is recorded at a point in time upon delivery to the customer.

Over the Counter / Parts & Accessory Sales – Work Truck Solutions part and accessory sales are recorded as revenue upon shipment. Additionally, customers can purchase parts at any of the Company’s showrooms. In these instances, each product is considered a separate performance obligation, and revenue is recognized upon shipment of the goods or customer pick up.

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Disaggregation of Revenue

The following table provides information about disaggregated revenue by customer type and timing of revenue recognition, and includes a reconciliation of the disaggregated revenue with reportable segments.

Revenue by customer type was as follows:

Three Months Ended March 31, 2023	*Work Truck Attachments*		*Work Truck Solutions*		*Total Revenue*
Independent dealer	$	19,246	$	30,512	$	49,758
Government		-		17,590		17,590
Fleet		-		12,868		12,868
Other		-		2,329		2,329
Total revenue	$	19,246	$	63,299	$	82,545

Three Months Ended March 31, 2022	*Work Truck Attachments*		*Work Truck Solutions*		*Total Revenue*
Independent dealer	$	45,776	$	30,251	$	76,027
Government		-		12,010		12,010
Fleet		-		11,723		11,723
Other		-		2,841		2,841
Total revenue	$	45,776	$	56,825	$	102,601

Revenue by timing of revenue recognition was as follows:

Three Months Ended March 31, 2023

Work Truck Attachments

Work Truck Solutions

Total Revenue

Point in time

SEC Form 10-Q filed by Douglas Dynamics Inc.