Core Molding Technologies Inc (CMT) 2026 Q2 法說會逐字稿

Good morning, everyone.

Welcome to the Core Molding Technologies fiscal 2026 2 quarter financial results conference call.

(Operator Instructions)

I want to now turn the call over to Sandy Martin, Tree Part Advisors, please go ahead.

Good morning, everyone, thank you for joining us for the Core Molding Technologies conference call to review our fiscal 20,262 quarter results.

Join me on the call today are the company's President and CEO Eric Palomaki, and CFO Alex Panda.

This call is also being webcast and can be accessed through coreMt.com via an audio link on the investor relations events and presentations page.

Please be advised that any time sensitive information may no longer be accurate as of the date of any replay or transcript reading.

Statements made in today's discussion that are not historical facts, 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 1,995.

Forward-looking statements are certain and outside the company's control.

Actual results may differ materially from those expressed or implied, and today's earnings release includes our forward-looking disclosures, risk factors, and other uncertainties are described in detail in the company's filings with the Securities and Exchange Commission.

Core Molding Technologies assumed no obligations 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 new Scap measures are available at the end of our earnings release, which has been submitted to the SEC on Form 8k, now I would like to turn the call over to President and CEO Eric Palomai.

Eric?

Thank you, Sandy.

Good morning, everyone.

Before we cover progress on our initiatives and second quarter results, I'd like to share that Core story is being featured this month in the American Executive magazine.

The article highlights our transformation from a turnaround story into a growing execution-driven enterprise as we reflect on more than 30 years of operational progress in a cyclical industry, we see how the foundation we built positions us for continued success.

Looking ahead, we do so with confidence, excitement.

And momentum as we pursue the opportunities before us.

Additionally, I want to remind everyone that we are hosting an investor day in September.

We look forward to welcoming both our long-standing shareholders and prospective investors to see firsthand the value we create every day, and yes, they'll also get a chance to look close at the scale of our operation, including some truly impressive manufacturing equipment.

Now, turning to our second quarter results, we delivered solid performance that reflects the continued resilience of our diversified portfolio and the ongoing execution of our Invest for growth strategy.

We continue to build on our commercial momentum, securing nearly 26 million of net wins in the first half of 2026 and remaining on track to achieve our full year objective of 50 million in additional new business awards.

Over the past 2 years, we have secured more than 112 million in new business wins, a growing a number of end markets, while many of our programs have longer quote to cash cycles, we continue to gain traction with customers seeking our SMC compound as their proprietary advanced composite material.

Producing this raw material compound typically offers shorter commercialization timelines to support our top-line momentum and to capitalize on the growing sales pipeline, we strategically added 2 business development managers, one dedicated to the construction and agricultural markets, and another focused exclusively on expanding relationships with customers seeking proprietary SMC compounds, we remain focused on broadening our presence in attractive new and addressable markets, and our team continues to identify and engage

New customer opportunities every day.

This year's must-win battle includes our Greenfield build in Monterrey, Mexico, where construction was completed in less than 9 months, both on time and on budget.

Our Monterey facility is now in production of structural foam, structural web, and DCPD products, including installed prime paint and topcoat paint application systems.

Turning to our facility in Matamoros, which will be on full display at our investor day in September, the plant expansion continues to make impressive progress and will increase our large molding capacity with 2 additional 4,500-ton machines during the second half of 2026.

Importantly, our Mexico project installations and footprint optimization have not disrupted our existing operations and progress throughout this process, we have maintained flawless customer delivery and quality performance, demonstrating our team's ability to successfully execute significant growth initiatives without compromising operational excellence.

I am incredibly proud of and grateful for our team's hard work, long hours, and unwavering commitment to making this achievement possible.

Together, these strategic investments totaling 25 million across our Mexico operations, position us closer to our customers and align our business to capitalize on long-term growth opportunities.

Operationally, our focus on disciplined execution continues to deliver results during the quarter, we achieved 99.2% on-time delivery and a quality performance 49.

Parts per million, our quality performance was 49 PPM, meaning fewer than 50 defective parts for every 1 million parts produced.

This level of performance is considered top tier within the automotive supply chain and compares favorably with the quality expectations of leading OEM customers.

Simply put, more than 99.995% of the products we ship meet customer requirements.

These results reflect a strong focus on repeatable operational excellence, a culture of continuous improvement and the dedication of teams across all our facilities.

This operational discipline has enabled us to improve profitability, diversify.

Business, expand into new markets and continue investing in productivity, capacity, and continuous improvement innovations.

New business wins totaling nearly 26 million in the first half of 2026 continue to transform and diversify core molding sales profile.

These awards further broaden our revenue base, reducing our exposure to historically cyclical land markets such as trucking and power sports, which improves our consistency of earnings.

Importantly, 100% of new business awards this year represent new opportunities rather than replacement programs, and approximately 65% originated outside of our traditional truck and power source markets.

74% of this business will be produced with our existing US manufacturing footprint, allowing us to leverage installed capacity, improve returns on invested capital, drive profitable growth and generate stronger cash flow.

As we have previously discussed, our team has secured approximately 112 million in incremental new business awards over the past 24 months, providing a clear line of sight to production revenue opportunities that could exceed 300 million in 2027.

Just as importantly, many of these programs are supported by long-term customer relationships and sole source production of highly engineered components.

This gives us visibility into demand, confidence in our growth trajectory and a strong foundation for creating sustainable long-term value for our shareholders.

With that, I'll now turn the call over to Alex to review the financials in more details.

Thank you, Eric, and good morning, everyone.

For the second quarter, production sales declined 1.2% year over year as strong growth across power sports, building products, and industrial utilities and markets largely offset the current softness in medium and heavy-duty truck.

Excluding truck production sales across our remaining end markets increased significantly, up 20.8%, reflecting the diversification efforts Eric discussed in the strength of our commercial execution.

To provide additional context, truck represented 40% of total product sales during the quarter.

A significant market declined by 23% compared with the prior year period.

While truck remained a headwind to consolidated growth, beginning to see production volumes improve and expect sales to continue ramping through the second half of 2026.

Our power sports and markets continued to perform well, generating 7% year over year revenue growth.

Building products, while still a smaller portion of our overall portfolio delivered exceptional growth of 36% compared with the prior year period, driven by the successful launch of previously awarded programs and increasing customer demand.

We delivered meaningful gross margin of 20.3% in the second quarter, an improvement of 220 basis points compared with the prior year period.

Gross margin benefit from a capacity charge received from a customer during the quarter, excluding this item, gross margin was 19.4%, which remains at the high end of our targeted full year range of 17 to 19% and reflects the strength of our operational execution, product mix, and manufacturing performance.

SG&A expense was 10.4 million or 16.6% of sales, excluding 1.8 million of Mexico expansion and secession-related expenses, SG&A was 13.8% of sales compared to 11.5% in the prior year period.

These investments support our long-term growth initiatives and leaderships, leadership succession planning while we continue to maintain disciplined cost management.

Operating income for the quarter was 2.3 million compared to 5.2 million in the prior year period, ref reflecting the elevated SG&A investments discussed above.

Net interest expense was 60,000 in the second quarter compared to 32,000 in the prior year quarter.

During the quarter, we recognized the non-cash loss of 88,000 related to the extinguishment of term loan debt and a gain of 170,000 associated with the termination of our interest rate swap.

Net income was 1.8 million or $0.21 per diluted share, adjusted EBITDA was 7.6 million, representing 12.2% of sales compared with the 12% in the prior year period.

Despite the continued softness in truck, our adjusted EBITA margin remained stable, reflecting the resiliency of our diversified portfolio and ongoing operational discipline.

Net cash provided by operating activities was 7.1 million during the first half, while capital expenditures to date totaled 12.1 million, primarily related to our Mexico expansion initiatives.

For full year 2026, we continue to expect capital expenditures of approximately 25 million to $30 million with 18 million to 20 million dedicated to our strategic investments in Mexico.

Our balance sheet remains a significant competitive 12.1 in cash and no outstanding debt.

In early July, we amended and extended our credit facility.

The amendment increased our debt capacity to 100 million.

Consisting of a 50 million revolving credit facility and a 50 million delayed raw term loan.

Both maturing in 2031.

This refinancing enhances our financial flexibility, lowers our cost of capital and provides substantial capacity to fund future organic and inorganic growth opportunities while maintaining a conservative balance sheet.

Return on capital employed was 5.7% or 6.2% excluding cash.

Based on trailing 12-month pre-tax operating income.

As recently awarded programs launch, production volumes increase and asset utilization improves, we expect return on capital employed to strengthen to our long-term goal of 14%.

Additional details, including GAAP to non-GAAP reconciliations are available in our earnings release.

During the first half of 2026, we repurchased 24,545 shares at an average price of $18.

$0.62 per share, representing approximately 457,000 of capital returned to shareholders.

No shares were purchased in the second quarter.

Earlier this year, we increased our share repurchase authorization by 6.5 million and intend to continue deploying capital strategically to invest in future growth and offset shared dilution.

Today we are reiterating our fiscal 2026 guidance and continue to expect the following.

1, total sales to be flat to up approximately 5% year over year with project-based tooling revenue weighted toward the 4th quarter.

2, the majority of the 63 million new program awards secured in 2025, began contributing meaningfully in the second half of 2026 and reach full annualized run rates during 2027.

3, truck production volumes continue improving through the second half of this year.

4, full year gross margin in the range of 17 to 19%, although individual quarters may fall above or below that range based on product mix, volume, and timing.

Regarding non-recurring costs, Mexico expansion costs were 3.4 million through the first half of the year, and with the majority of the work now complete, we do not expect a material increase to those costs during the balance of 2026.

In addition, we incurred 1.4 million of secession-related expenses through the first half and do not anticipate significant additional costs for the remainder of the year.

Turning to regulatory and macroeconomic developments while the policy environment remains dynamic, we continue to work closely with customers across North America and have not experienced any material disruption to production schedules related to ongoing USMCA discussions.

Our focus remains on managing the factors within our control, and we believe our diversified manufacturing footprint, strong balance sheet, and long-standing customer relationships, position as well as trade policies evolve.

Looking further ahead, discussions surrounding the USMCA review have increasingly centered on strengthening North American manufacturing and expanding regional sourcing.

Regarding recent increases in oil prices, we maintain contractual raw material pass through mechanisms that are expected to substantially mitigate the related cost impacts.

Overall, we remain confident in our outlook.

Significant available capacity and a balance sheet that provides flexibility to continue investing in long-term growth.

With that, I will turn the call back over to Eric.

Thank you, Alex.

As we look ahead, we're increasingly aligned with some of the most compelling growth opportunities in North America.

Our customers and their customers are making critical investments in utility, modernization, communications infrastructure, grid resiliency, and energy transition initiatives, we have secured programs supporting projects funded by the Build America Buy America Act, and other infrastructure Investment and Jobs Act initiatives while the ongoing expansion of high-speed broadband networks continues to create opportunities for our advanced composite solutions during the quarter we secured.

A significant award for battery energy storage systems and continue to pursue opportunities tied to accelerating power demand due in part to AI data center development, utility infrastructure modernization, grid reliability, and load shedding solutions.

These markets require durable, lightweight, and highly engineered composite products, areas where Core has set the standard in differentiated capabilities with longstanding customer relationships.

Many of these opportunities are concentrated within our industrial and utilities and markets.

Where we continue to scale adoption of our proprietary SMC technologies.

We are particularly encouraged when customers design our proprietary components and materials into their branded products, serving both consumers and critical infrastructure markets.

Once engineered into an application, our solution often becomes integral to the performance and value proposition of the end product, creating long-term customer relationships and opportunities to partner and grow alongside them.

Our power sports and utilities markets provide strong examples of this strategy in action in Power Sports, our OEM customers incorporate proprietary advanced composite materials into their watercraft, where durability, light weighting, and performance are important differentiators for consumers.

These attributes help our customers strengthen their brand and distinguish their products in highly competitive markets.

In utilities and industrial applications, customers increasingly utilize composite solutions as an alternative to traditional materials such as concrete.

The benefits include enhanced durability, lower transportation and installation costs, reduced storage requirements and improved worker safety.

For example, composite enclosures for underground transmission can often be installed by 2 technicians without a crane, simplifying deployment while reducing the risk of injury.

Equally important, these products are increasingly being marketed around sustainability and performance benefits, including long-term resistance to chemicals, water, and chipping.

Whether serving retail customers or sporting large scale infrastructure and hyperscale construction projects.

These applications demonstrate how our proprietary materials create value for customers while expanding our opportunities for long-term growth.

As Alex discussed on building products, we secured significant customer wins in 2025 that have now entered production and are generating revenue.

We win programs well before revenue is realized as design.

Tooling, validation testing, and production launch occur over multiple phases, our building products revenue in the second quarter grew more than 35% year over year, reflecting the successful conversion of commercial efforts into meaningful revenue and earnings growth.

At the same time, we are beginning to see improved demand trends in the truck market and expect production volumes to continue to strengthen 2026 and are forecasted to increase into 2028, combined with the growth of our newer end markets, these activities create a broader and more balanced platform for future performance.

Looking ahead, we remain confident in the long-term strength of our business and the significant opportunities ahead.

Our disciplined capital allocation strategy continues to balance investment in organic growth initiatives with a thoughtful approach to acquisitions that can enhance our scale, capabilities, and market reach.

Well we are broadening our evaluation of potential M&A opportunities, including larger transactions, are financial, we are pursuing opportunities that are a creative, strategically aligned, and capable of creating long-term shareholder value, supported by a motivated commercial organization, a strong operational foundation and our reputation as a trusted partnering comprehensive, fabrication, and finish assembled solutions, we continue to make progress towards our long-term revenue objective of 500 million at the same time.

Time, we remain focused on profitability, cash flow generation, return on capital employed, and serving customers across attractive and markets, including truck, power sports, construction, energy, industrial, aerospace, and medical.

I want to thank our dedicated employees for their hard work, commitment, and unwavering focus on excellence.

We are celebrating our 30-year anniversary this year after 3 decades of continuous operations, we know that people are our greatest competitive advantage and the driving force behind our success.

I also want to thank our customers, shareholders, and board for their continued confidence and support as we execute our long-term strategy.

Before I close, I want to mention our upcoming investor day and plant tour in Brownsville, Texas, on September 29th and 30th.

I'm excited for investors to see firsthand what makes Core unique, our people, our culture, our manufacturing capabilities and the operational discipline that drives our performance.

We have received tremendous interest and already have a strong group of investors registered.

Capacity is limited, but a small number of openings remain, and we would welcome the opportunity to showcase our business to anyone interested in learning more about our long-term value creation story, with that, we'll open the line for questions, operator.

We will now begin the question-and-answer session.

(Operator Instruction)

Our first question today is from Chip Moore with Roth MKM.

Please go ahead.

Hi, good morning, thanks for taking the question.

Morning, Chip.

Hey, I wanted to ask on, trucking, it sounds like you're starting to see some encouraging signs and you expect that to continue here in the backup, just maybe you can expand on that and provide a little color on, sort of what you're seeing and, what your expectations are for go forward.

Yeah, sure, on the truck side, certainly the first half would have been on the lower side for us, and we see that recovering second half of this year, and if you go to industry forecasts, that's over the next 2.5 years, we'll continue to see increases, and so both from, I would say, very specifically from that forecasting and industry knowledge perspective, we see that increasing as well as in the order books in the day to day action that's happening today, we see that across all of our truck customers that the second half will be.

Stronger.

Okay, good to hear, and maybe on the flip side, right, the momentum in non-trucking, non-power sports, he called out,

Some winds there and, how you're broadening and diversifying, just, any more color around some of those markets, how they're trending and what's the opportunity, over the next couple of years.

Yeah, I'll touch on, some of the new wins, and then I'll let Alex touch on, the quarter over quarter and improvements in some of those other industries, on a new wins or up to 25 million, at 25.8 million, just shy of 26 million for the first half, and those are, I think I mentioned in the script 65%, of those are outside of what we call the traditional truck and power sports business, so in new industries, some of those are in the utilities market where we're trying.

To move underground data cables, infrastructure, networking, things like that into neighborhoods, residentials, moving all of this data that has got to be transmitted to AI data centers and, all of the modernization of those internet connections, all of those need interconnect boxes, and so we have had, a number of years now of success, and again this quarter another customer, that's trusting us with our composite solution, it, it's a better replacement than concrete, it's

Lighter, 2 people can put it in without a crane, you don't have any kind of corrosion or cracking problems, like you do with wood or wood rotting, or metals corroding, so the composite solution we have provides good structure as well as a lighter product that's easier to install, and so it's really kind of taking off, with multiple customers that are building composite solutions for anything that requires underground data cables being buried, on top.

On top of that, we had another SMC compound win this quarter, and that one, is inside the trucking business, so we're excited, for that one, as well as, an electric vehicle, tailgate cover, but, we also won this quarter, so number of good products, some of them inside that traditional business, sometimes some of them outside, but we'll continue to grow those and diversify, and finally, I'd want to add Chip, the, you, you'll remember that we always TRY to use the assets we have.

And so 74% of it being on our US facilities that have existing presses where we don't need to buy or make a large capital investment, we just run those products on an existing asset is a very good, win for us this year, so we're excited about that metric.

Yeah, and I think the growth.

It's exciting to see the wins, that we've talked about over the last couple of years are starting to come through on the P&L, right?

You have power sports year over year, we have the skid plates launch that launched in Q3 of the previous year, so year every year that's a, that's an increase, then also in building products, the door skins that we launched in Q2, the end of Q2 of last year, we get a full quarter this year, and so you see an increase in.

Products and then the last one I'll mention is in the other category,

Automotive, we've run an automotive program for a while now, and we saw some pretty significant increases, on that program in Q2, so that was just a demand increase.

Got it, very helpful and good to hear, great caller, and maybe just my last one, guys, just around, I think you called out, M&A scope sort of broadening or maybe.

Even looking at some larger stuff out there, just to walk us through what you're thinking about on the acquisition front.

Yeah, Alex and I have had the chance to visit a number of opportunities, already we're averaging about 1 a month, and, some of those have been smaller in scale than what we've looked at and some of them a little bit larger in scale, but really the focus isn't necessarily on specifically the size that's how it can be a creative, how it can add diversification to our portfolio, how we can make it a very good, return on capital employed opportunity, that fits with core molding, I think that's the most important thing is that.

We stay disciplined to something that fits our culture, our processes, our sort of DNA.

Very good, appreciate it, thanks very much.

Thanks, Chip.

Again, if you have a question, please press 1, please go ahead.

Thank you, a couple of questions.

First of all, relative to the, growth that you've experienced this quarter and in the first half, and I'd like you to tie that back to the year ago Q2, having nearly 18 million of tooling is that, or was that a leading indicator for this growth, or, really unrelated in this case.

Yeah, so Bill, thanks for the question, so in this specific case, no, they are not connected, the large tooling project that we closed in Q2 last year and in Q4 of last year related to an international truck job, that job will be launching here in the beginning of 2027, and it is, it's a replacement program, and so.

I would say normally, yes, right, if we're recognizing revenue, tooling revenue, project revenue that.

Product sales revenue will follow, in this case though, specifically, they're not connected.

Okay, that's helpful, and maybe you can use this to educate me what would be the normal lag in time between the tooling revenue and having production revenue, if it were, if it were a normal circumstance and not this one that we're talking about here.

Yeah, Bill, I would say on average is 12 to 24 months, that's a pretty big range for you, but, even a big program like the one Alex just talked about, an international truck program, that's probably a, yeah, close to a year late as far as the truck launch, so we're, we've been ready as far as we being a tier one supplier, a key tier one to the truck OEM, but if they're not ready with all of their suppliers and don't launch the vehicle, in this case it's not a big impact to revenue for us because it's replaced.

Replacement, so we would, we just keep building the old vehicle, but, as they transition to the new one, there's a lot of great quality improvements and optional improvements that come along with that transition, so we're looking forward to that launch, coming up at the end of this year or early next year.

When we talk about that lag, it's why we sometimes note about SMC compounds we're finding that we can get all of that testing and validation done in the 6 month range, we have done, we're doing one tooling project for a call it more of a mold and ship, there's no assembly, no complicated add-ons, and we're doing that in about 7 months, 6 to 7 months, so we've had a few wins that we've gotten well under that 12 months, but when you think of the bigger assembled products, a hood, a roof, a watercraft, they're all in the

12 to 24 months, from that point of tooling to the point of, production revenues and product, what we would call product revenues.

That's very helpful.

Thank you, and then, you talked a little bit about the truck market, and that the anticipation, with, from an industry perspective is that there will be growth over the next, say, 2.5 years, would you please tie that into the current, new regulations that are or are not coming in and just what are the moving pieces here and how do you see that,

Regulatory environment affecting the moves to new models.

Yeah, so truck market recovering second half of this year or improving, exactly how much that will grow, we have to determine in the second half, but definitely seeing the second half stronger than the first half, the industry predicts annual volumes for the next 5 years, and they see, the next 2.5 years of continued growth of both Class 8 and medium duty trucks, you do touch correctly on the wild card that is out there that maybe none of us know what that wild.

Car is exactly going to be if somebody changes it, but January 1st of 27, so, 5 months away, 6 months away from now, the emissions regulations do change, and that will require power trains differences, for all of the OEM, so that added cost or added price on a sale of a truck could create a, I will call, short-term, quarter over quarter, impact to volume, but likely not change that overall annual trend over the next 2.5 to 3 years.

There's lots of conversations out in the industry about whether that emissions regulation, we have, slight changes to it, tweaks to it likely won't change drastically, but it will, could change its timing, could change some of the details around it, we don't have any formal insight onto exactly what that is, but as of right now, it goes into effect January 1st of 27th.

And even if they were to roll back some of the standards, the hardware changes are.

Already done in the design, they, the OEMs won't be changing any hardware because of it.

That's helpful, and not to get too granular here, but it is, do the regulations apply to trucks?

Produced.

After January 1st, ordered after January 1st or delivered, what, what's actually the cutoff and where I'm going with this is there currently, given the fluctu, the regulations potentially being in flux and the rumors out there.

Does that create an incentive for the buyers literally to wait, as late in December as possible, placed their order, and then we see volume from a course's perspective, increasing in the first half of next year, it, what's the reality?

That's a great question, and I will tell you what I think to be the case, Bill, but, important that somebody validate this, I think it is when they issue the VIN number onto the engine, not even just the chassis, so it's finishing of the engine is where I think the emissions reg happened, so that has to, when that is produced relative to December 31st or January 1st, so you can still deliver that truck that was built, December 15th, you can deliver that two months later or have it set at a dealership or something like that, it still qualifies as a 2026.

Emissions regulation versus if it was built, the block stamped and, finished the engine into, 27, so that was one of your questions, as far as, overall, some of those industry forecasts TRY to predict how much pre-buy is the term given to it, so are you waiting until the last of the year to place your order, are you willing to take orders earlier, what happens is the build slots start to fill up, and that will force a buyer into order.

Ordering a truck, even as early as November or October, or back into September, there could be some of that that's creating some of the increase in run rates right now today that people are actually starting to build more trucks, in August right now because of those build slots filling up at the end of the year.

And apologies for taking a little extra time here, but if we heard you correctly and if you're understanding this correctly, is correct, that the incentive then would be for the manufacturers to produce as many trucks as possible prior to December 31st, have that VIN number on the engine and the 2 year, and then they can actually either sell that truck next year, at a lower price.

Or they can actually take some higher margin, with, basically an umbrella pricing under the 27 regs, is that, are we thinking about that right?

Yes, I would tell you there is data that on the prior emissions changes, suggest exactly what you just suggested, that behavior exists and has existed in the past, so we would anticipate it to happen again on this emissions change.

Great, thank you for taking the questions.

Perfect, thanks Bill.

This concludes our question-and-answer session.

I would like to turn the conference back over to Eric Palomaki for any closing remarks.

Thank you for your continued interest in our company.

We look forward to providing an update on our progress when we report our 3rd quarter results in a few months.

Have a great day.

The conference is now concluded.

Thank you for attending today's presentation.

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