Core Molding Technologies, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. The company molds thermoplastic and thermoset structural products for truck, powersports, building products, industrial, utilities and other markets, operating six facilities in the United States, Canada and Mexico.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $101.6 | $81.0 | $290.9 | $234.3 |
| Gross margin | $13.3 (13.1%) | $6.4 (7.9%) | $40.9 (14.1%) | $32.9 (14.0%) |
| Operating income (loss) | $4.6 | $(2.4) | $15.0 | $9.1 |
| Net income (loss) | $1.3 | $(3.3) | $7.4 | $4.2 |
| Diluted earnings (loss) per share | $0.16 | $(0.41) | $0.87 | $0.50 |
- Cash flow: Nine-month cash from operations was $8.5 million, versus $5.0 million a year earlier. Capital expenditures were $12.3 million, versus $8.3 million; operating cash flow less capital expenditures was negative $3.8 million. Working-capital changes reduced operating cash flow by $11.4 million, mainly reflecting higher receivables, partly offset by payables.
- Cash and liquidity: Cash was $0.5 million at September 30, down from $6.1 million at year-end 2021. Current assets were $88.6 million and current liabilities $59.0 million. Management said cash from operations and available credit would be sufficient for current needs.
- Debt: The balance sheet reported $1.2 million current term debt, $4.1 million revolving debt and $23.3 million long-term debt, net of deferred loan costs. The debt note reports $24.9 million of term loans, including the small Leaf Capital loan, plus the separately reported $4.1 million revolver. The Huntington facility provides up to $75 million: $25 million each for a term loan, capex borrowing and revolving credit. The capex facility was undrawn; $20.9 million of the revolver was available. The company reported covenant compliance.
- Other metrics: The nine-month effective tax rate was approximately 38.7%; Q3’s was 48.7%. Total assets were $202.5 million and stockholders’ equity $108.7 million at quarter-end.
Changes versus the prior comparable period
- Sales rose 25% in Q3 and 24% for the first nine months. Product sales increased while tooling sales declined: Q3 tooling revenue was $9.3 million versus $13.4 million; nine-month tooling revenue was $15.4 million versus $18.4 million.
- Management attributed sales growth mainly to stronger medium- and heavy-duty truck and powersports demand, price increases related to input-cost inflation, and new program launches. Q3 product sales increased particularly in truck and powersports; building products and industrial and utilities were lower.
- Q3 gross margin improved to 13.1% from 7.9%, helped by selling-price/raw-material changes and fixed-cost leverage, partly offset by product mix and production inefficiencies. Nine-month gross margin was nearly unchanged at 14.1% versus 14.0%.
- Q3 net income turned positive from a year-earlier loss. Nine-month net income increased to $7.4 million from $4.2 million.
- SG&A was $8.7 million in Q3 and $25.9 million for nine months. Comparisons require care: 2021 SG&A included Batavia facility closure costs of $1.8 million in Q3 and $2.0 million for nine months. Excluding those costs, SG&A increased, primarily from labor and benefits, professional fees and insurance.
Outlook, commentary and risks
- Outlook: Based on customer forecasts, launches and price increases, the company expected Q4 2022 sales to increase versus Q4 2021. It cited higher forecast truck demand and new or anticipated powersports and utilities programs. No quantified sales or earnings guidance was provided.
- Costs and operations: Supply chains had become more stable, but raw-material costs remained elevated, including thermoset resins and fiberglass. The company reported recovering some increases and continuing to pursue customer price adjustments. Labor constraints were improving, though wage inflation was expected to continue.
- Refinancing and unusual items: In July 2022, the company refinanced its Wells Fargo and FGI debt with the secured Huntington facility. It recorded $1.2 million to write off deferred loan costs and approximately $0.3 million in FGI prepayment fees (combined $1.6 million of reported debt-extinguishment loss). Management said lower rates after refinancing contributed to lower interest expense. A swap hedges $25 million of term debt by fixing the SOFR component at 2.95% through July 2027.
- Investment plans: The company expected approximately $18 million of 2022 capital spending, including a DLFT capacity expansion in Mexico and press additions in Minnesota and Ontario.
- Key risks: Demand and order changes, customer supply-chain disruptions, inflation and raw-material availability, labor availability and costs, manufacturing inefficiencies and program launches, foreign exchange, variable-rate borrowing, and reliance on major customers. Five customers—BRP, Navistar, PACCAR, UFP and Volvo—met the filing’s major-customer threshold. A significant loss of business from them could materially affect results.
- The Huntington debt is secured by substantially all U.S. and Canadian assets and specified equity interests in Mexican subsidiaries. The company reported no material change in risk factors, no material adverse legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether forecast truck demand, new program launches and expected Q4 sales growth materialized.
- Whether price recoveries continue to offset elevated material and wage costs, and whether production efficiencies improve.
- Receivables and working-capital trends, given the cash decline and negative operating-cash-flow-after-capex result.
- Debt balances, borrowing availability, covenant headroom and interest-rate exposure under the Huntington facility.
- Customer concentration and the sustainability of growth across truck, powersports and other end markets.
- The impact of the high reported tax rates and U.S. valuation allowance on future earnings and cash taxes.