Core Molding Technologies, Inc.

Thank you, and good morning, everyone. We appreciate you joining us for the Core Molding Technologies conference call to review our fiscal 2026 first quarter results.

Joining me on the call are the company's COO and incoming President and CEO, Eric Palomaki; and CFO, Alex Panda. Dave Duvall, current CEO, will also be on the call for the Q&A session, and this call is being recorded.

This call will also be 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 1995. Forward-looking statements are uncertain 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 assumes no obligation to update or revise any forward-looking statements publicly. Management will refer to non-GAAP measures, including adjusted EPS, adjusted EBITDA, the debt to trailing 12 months EBITDA ratio, free cash flow and return on capital employed.

Reconciliations to the nearest GAAP measures are available at the end of our earnings release, which has been submitted to the SEC on Form 8-K. Now I would like to turn the call over to Eric Palomaki.

Eric?

Thank you, Sandy, and good morning, everyone. Our first quarter of 2026 was a busy one.

While product revenue was lighter, our team was hard at work executing our growth strategy, delivering $17 million in additional new wins, relocating 5 of 9 presses into our new facility in the Monterrey and posting our best gross margin quarter in over a decade. The must-win battle focus on our Mexico expansion is on track, and we continue to execute a flawless launch playbook across 50 already won projects.

As this is Dave's last earnings call as CEO, I want to take a moment to recognize and thank him for his tremendous impact on Core Molding Technologies. Working alongside Dave has been a privilege.

He has been instrumental in shaping our company culture and in my growth as a leader. His leadership, integrity and steady hand help set the direction of this company and his mentorship through challenges, milestones and countless everyday conversations has left a lasting impression.

Dave, thank you for your trust, your support and for setting an example of excellence. As I fully transition into the CEO role this month, we have taken deliberate steps to reinforce operational leadership and continuity, backfilling my COO responsibilities.

We have split the COO role into 2 positions, underscoring our commitment to promoting from within and ensuring organizational readiness. Arnold Alanis now leads our Mexico operations and Mike Gayford oversees the U.S.

and Canada operations. Both leaders exemplify Core's 4 values: being a learning organization, having the courage to challenge, showing mutual respect and operating with transparency.

Speaking about operations, I want to once again recognize our teams for their disciplined execution and exceptional service to customers. In the quarter, we achieved 99.1% on-time delivery and a quality performance of 52 parts per million.

In our business of making large complex composite assemblies, our ability to be trusted with major product launches is a key value proposition and a major reason why Core wins repeat business or why Core is able to grow our wallet share. These results demonstrate our focus on standard work, consistency and operational excellence.

With Arnold and Mike leading our operations, I'm able to spend more time with our commercial and financial leaders or as we like to say, our 2 Alexs: Alex Bance, Core's Chief Commercial Officer; and Alex Panda, our Chief Financial Officer. If you're looking for me, chances are, I'm with one of the Alexs focusing on growing the company.

Turning to first quarter performance. We are very pleased with the continued momentum of our invest for growth initiatives, which generated $17 million in new business wins.

We are also pleased to report gross margins exceeding 20%. While this performance reflects strong execution, Alex will provide more color on our full year margin outlook in a few moments.

The $17 million in new business awards included a significant multiyear battery energy storage system project. These battery energy storage systems are becoming more widely used for reducing power loads, coupling with renewable power generation and adjusting for grid load changes or disruptions.

Within transportation, we continue to support specialty electric truck platforms serving route-based fleets such as coastal vehicles, trash trucks and electric buses, many of which are owned by municipalities. Some of the newest battery enclosure opportunities we are currently working on are tied to grid reliability applications, including grid hardening and load shedding.

While battery adoption has moderated in consumer EVs, demand is expanding rapidly in grid infrastructure, and we're engaged with customers and industry partners to capture that growth. To support our sales pipeline, we've added business development manager during the first quarter and are planning 2 additional hires this quarter.

As part of powersports market, we continue to expand our proprietary skid plate technology, which we developed approximately 2 years ago and launched in the third quarter of 2025. New wins this quarter include a prominent OEM traditionally known for agricultural and farm equipment, further broadening the application of this technology.

As previously discussed, we are seeing meaningful signs of industry recovery with major OEMs launching new product features that include additional core molding components across watercraft, skid plates and cargo boxes. The first quarter marked the third consecutive quarter of year-over-year revenue growth in our powersports market with a year-over-year growth of 46%.

We remain focused on scaling the adoption of Core's SMC offerings and topcoat capabilities, which enable us to serve as a preferred supplier of structural molding compound as well as deliver finished installation-ready systems. These value-added capabilities allow us to participate more broadly across the supply chain, supporting applications in construction equipment, agricultural machinery, aerial lifts and other industrial markets.

Our topcoat paint capability differentiates Core by enabling installation-ready systems that reduce total cost and improve manufacturing efficiency for our OEM customers. Together, these investments expand our technical capabilities, deepen customer integration and support durable, higher-value revenue streams that align our long-term growth and margin objectives.

All of Core's proprietary compounds and SMC materials remain on track and are expected to be in production during the second half of 2026. As we previously discussed, we invested $6.5 million in 2025 to expand our operations in Mexico, including a greenfield facility, and we plan to invest an additional $19 million this year.

These projects are ahead of schedule with all work in Monterrey is expected to be completed by the end of the second quarter. We view Monterrey region as a long-term secular growth market strategically positioned closer to key customers.

Our expansion in Matamoros includes the installation of ultra-large 4,500-ton compression molding presses in Matamoros continuing through the second half of 2026. That is 9 million pounds of pressing force per press or 18 million pounds that will be operational by year-end.

We hope you're able to join us in September for our Investor Day, where we'll be able to get up close and see how these massive composite molding systems create 100-plus pound parts for sleeper roof assemblies. Looking ahead, we expect truck market volumes to begin recovering in the second half of 2026.

And when combined with the $63 million in new wins secured in 2025, which will launch throughout '26 and early '27, we maintain visibility into total product revenue that could exceed $300 million in 2027. As a sole supplier on long-term OEM programs, we benefit from long-term customer relationships that provide strong forecasting visibility while recognizing that macro conditions can influence timing.

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

Thank you, Eric, and good morning, everyone. As expected, first quarter revenues declined by 4.7% year-over-year, driven primarily by previously discussed truck cycle dynamics.

In Q1, medium- and heavy-duty truck sales represented 34% of Core's total product sales, which is down from 44% in fiscal 2025. As Eric noted, we delivered strong gross margins of 20.4%, an increase of 120 basis points year-over-year and 520 basis points sequentially.

This performance was driven by a favorable revenue mix, including a shift away from tooling and toward higher-margin product revenue. While pleased with our first quarter margins, we remain comfortable reaffirming our full year gross margin target range of 17% to 19%, particularly given the elevated tooling revenue expected in the fourth quarter.

Our powersports end markets continued to expand during the quarter, delivering 45.7% year-over-year revenue growth. This acceleration likely pulled some volume forward from the second quarter as OEMs prepare for spring demand.

SG&A expense in the first quarter was $11.2 million or 19.1% of sales compared with 14.6% in the prior year period. SG&A this quarter included $2.1 million of Mexico expansion-related expenses and $924,000 of succession-related costs.

Excluding these items, normalized SG&A would have been approximately $8.2 million or 14% of sales. Operating income for the quarter was $764,000 compared to $2.8 million in the prior year period, reflecting the SG&A items discussed.

Net income was $605,000 or $0.07 per diluted share. Adjusted EBITDA was $7.3 million or 12.5% of sales compared to $7.2 million or 11.7% in the prior year period.

Operating cash flow for the quarter was a use of $9.2 million, driven by planned investments in our Mexico growth initiatives, including tooling payments, press relocations and inventory bank builds. Capital expenditures totaled $3.8 million, resulting in an expected negative free cash flow of $13 million, consistent with our budget and investment plan.

For the full year, we continue to expect capital expenditures of approximately $25 million to $30 million with $18 million to $20 million allocated to Mexico organic growth initiatives. These planned investments reflect our confidence in the returns we will earn from our organic growth initiatives and the strong execution delivered by our operating teams.

As of March 31, our balance sheet remains strong with total liquidity of $73.5 million, including $23.5 million in cash and $50 million of availability under our revolver and capital credit lines. Term debt totaled $19.3 million, and our debt-to-EBITDA ratio remains below 1x on a trailing 12-month basis.

Return on capital employed was 6.8% or 7.9%, excluding cash, based on trailing 12-month pretax operating income. As new programs launch and asset utilization improves, we expect ROCE to strengthen.

Additional details, including GAAP to non-GAAP reconciliations are available in our earnings release. Our capital deployment strategies prioritizes organic growth with continued disciplined debt and working capital management.

During the quarter, we repurchased 24,545 shares at an average price of $18.62 per share for a total of $457,000. In March, we increased our share repurchase authorization by $6.5 million and intend to continue opportunistically offsetting dilution from equity compensation.

For fiscal 2026, we continue to expect the following: one, total sales to be flat to up approximately 5% with tooling revenue weighted toward the fourth quarter. Two, the majority of the $63 million new program wins secured in 2025, we expect to contribute to the second half of 2026 and hit full annualized volumes in 2027.

Three, we continue to remain cautiously optimistic as we start seeing order builds for truck cycle recovery in the second half of this year; four, full year gross margins in the range of 17% to 19%. Five, the company incurred $2.1 million of Mexico expansion-related expense during the first quarter and expects to incur approximately $900,000 in the second quarter.

Six, during the first quarter, the company incurred $924,000 of succession planning related costs and expects to incur approximately $900,000 more over the balance of 2026, primarily in the second quarter. Switching to a discussion on tariffs and recent oil prices.

Our customers currently benefit from preferential tariff treatment under the USMCA, which is scheduled for a joint governmental review beginning in July 2026. Any changes could affect demand patterns, and we continue to monitor potential impacts on our customers and end markets.

With respect to recent increases in oil prices, we have contractual mechanisms in place that will allow us to pass through a majority of these costs. And with that, I would like to turn it back to Eric.

Thank you, Alex. We are pleased with the progress of our must-win battle this year, particularly the execution of our Mexico expansion, which remains on schedule and aligned with our budgeted projections.

We believe these organic investments further differentiate Core as a leader in highly specialized large and ultra-large molded solutions. As we grow, we remain anchored in the fundamentals, operating with the highest standards and discipline around safety, people, quality, delivery and cost while staying closely aligned with the voice of our customer.

Our business development pipeline continues to exceed $220 million in high-quality opportunities. With $17 million in new awards secured in the first quarter, we are confident in our target of $50 million in new program awards during 2026.

Importantly, these wins continue to include customers in new and emerging markets for Core and align well with our strategic diversification priorities. Target segments include specialized transportation applications for electric vehicles, inner box panels for electric pickup truck platforms, satellite tracking systems, building products, construction and agriculture, increased demand for SMC compounds and our expanding topcoat paint capabilities.

We remain highly focused on scaling our execution excellence, leveraging our fixed cost base, optimizing our manufacturing footprint and strengthening operational discipline across the enterprise. Our commercial organization is energized and fully supported by the broader company.

As a result, we continue to make progress towards our long-term objective of $500 million in annual revenue while staying intensely focused on profitability, cash flow generation and returns on capital employed. While strong demand in our powersports market benefited from some revenue being pulled into the first quarter, we believe the recovery has momentum.

Combined with continued wallet share expansion and organic sales growth, we are building commercial momentum. We are purposefully targeting large, growing diverse end markets, including construction, energy, industrial, aerospace and medical.

We are increasingly engaging customers earlier in the design cycle. These customers are seeking strategic partners like Core that can deliver design, fabrication and finished installation-ready systems under one roof, backed by a proven track record of flawless launch execution and reliability.

I want to thank our dedicated employees. Your commitment, skill and hard work make all of this possible.

We are equally grateful to our customers, shareholders and Board for their continued confidence and support as we execute our strategy. As we mentioned last quarter, we will host an Investor Day in Brownsville, Texas on September 29 and 30.

As we prepare for our upcoming Investor Day, this event will also serve as a meaningful moment to celebrate a major milestone for our company, Core's 30-year anniversary. Our program will include presentations on the afternoon of day 1 and a tour of our Matamoros facility, including a manufacturing shop floor tour of our manufacturing execution engine on the morning of day 2.

The facility tour will highlight Core's ultra-large composite manufacturing capabilities, which include 2 new 4,500-ton presses I spoke about earlier, which we believe are among the strongest in North America. We plan to distribute a save the date in the next couple of weeks.

If you're interested in attending and do not receive the invitation, please reach out to us. In addition, we will participate in the East Coast IDEAS Conference in New York City on June 10, where we will host a presentation and one-on-one meetings.

Please contact us if you'd like to schedule time with management. With that, we'll open the line up for questions.

Operator?

I wanted to ask powersports very strong. Maybe talk a bit more about -- I think it sounds like there was a little bit of pull forward.

Help us size that and some of the seasonal dynamics. Any thoughts on that market with just fuel prices in general?

And with that pull forward, just help us think about Q2 impacts given that trucking is more of a back half story for pickup.

Yes. And overall for powersports, Chip, I'd say we definitely see the recovery of powersports.

The bust associated with COVID is back. Dealer inventories are back to what they would call moderate and normal levels.

If you look at a lot of our customers, they're very happy with that situation. With our watercraft portion of powersports, we got a pretty good first quarter there.

You can see that in the numbers. We wouldn't necessarily expect that to maintain through the next few quarters.

But the skin plate that we launched last year is now at full run rate. That will continue throughout the year.

So, in general, you should see powersports up, Q1 being maybe up a little bit more than what we would expect the rest of the year. But that's not to say a massive decrease in Q2 or anything to expect there, just a really good first quarter.

Got it. That's helpful.

And maybe just on new business, you outlined some of the investments there and targets, just what you're excited about and maybe the battery opportunity in general. It sounds like you got a nice win there.

Just how large do you think that market can be for you?

Yes. So, I'll start on just specifically the awards for the first quarter.

One of those was that battery energy system customer, and that's a $9 million a year, and they committed to 3 years of that volume at a minimum also with us. So very nice.

Sometimes we're very excited about the big OEM business that has 5- to 10-year lengths on it, but having a customer like this commit to 3 years of volume additionally is a very nice thing to have when we're in these diversified markets. We're working with a couple of other customers in the same category of battery energy system, but the first one is a pretty sizable one of that $17 million, $9 million of it is made up of that customer.

We won another product that leverages, the SkidPlate technology that we developed 2 years ago. That's worth a couple of million in the powersports world.

And we won another aero truck roof deflector that's worth another $5 million. The nice thing about that one is it's with a truck OEM that we don't do a lot of typical business with.

So, we're expanding a little bit with some other customers in the truck and transportation space. But really big panels on a roof or an air deflector are perfect for us.

So that's another very nice project worth a little under $5 million a year when it launches in 2028.

That's great color. And that battery win, that $9 million per year, is this transport?

Or is this on the grid side that you were referencing?

Yes, grid side. So stationary batteries where you build a very large bank and building of batteries to load shed or to cover for different types of energy situations.

Yes. Interesting.

Yes, a great market opportunity.

Similar technology to like a EV battery, but you don't have the same requirements of crash ratings and things like that. So, SMC is a perfect composite solution to build a very large battery pack and then they're just basically stacked in racks, not in the data center, but sometimes are supporting data centers in terms of -- instead of generation, like there are a lot of natural gas generators that are added to data centers everywhere.

This is an alternative to that. If you thought you needed to cover for an hour of power shortage or 3 hours of power shortage, you could do it with batteries instead of natural gas generators.

Yes. excellent.

To your point, SMC, are you effectively getting sold out there? Or what are you thinking on future capacity?

We're focused on launching the 4 that we talked about at the end of last year that we won. We've got 3 more of those still to launch here over the next 90 to 120 days.

So that's really the team's focus. But we continue to find new customers for SMC compounds.

So not sold out yet, but continue to be very bullish in terms of our SMC compound offering.

Excellent. Okay.

And Mexico, it sounds like you're running ahead of schedule. Anything to call out there to pay attention to or all systems go, it sounds like, for completing here in the near-term?

Yes. All systems go.

Our whole executive team and myself spent a week down there 2 weeks ago and just super proud of our team and the work that they have done. It's pretty awesome to stand up a building fill it full of equipment in just a few short months.

So they're on schedule, and we should have the Monterrey facility, basically all moved and consolidated under one roof by the end of the second quarter, and we'll start to get everything consolidated in the third quarter and see those -- the benefits associated with all of that move in the fourth quarter. And the Matamoros team has cleared out the space for the Volvo launch that'll happened in 2027 and all that equipment is being built and will be installed during the third and fourth quarter.

So still a lot of work to do there in our Matamoros facility with a lot of that capital investment. And that we'll start to see the returns from that in the second half of '27 -- or first half of '27 as it launches.

Well, we'll look forward to late September again there. I think we're in a great place.

A couple of questions. First of all, relative to the powersports strength, is that tied primarily to the new program wins?

Or is it primarily a rebound in purchasing because inventories are now at a more reasonable level?

It's both, Bill, and I'll make sure I add color to that. There's definitely a push for watercraft on an annual cycle.

So, they want to get those units out there to dealers in the spring because most of North America has sort of a summer boating season. And so, you get -- we got a pretty good push there on the watercraft side.

But then also the overall recovery of powersports has underlined that we see it in all the mix. So, it doesn't matter whether it's an off-road vehicle or a watercraft, we see that base increase.

And then I would add one to you as a third portion, a third leg of it. You'll remember the launch of the skid plate technology in Q3 of '25.

We still are on a year-over-year. So, until we get to Q3, year-over-year, we'll have be incrementally adding that skid plate technology.

And now having won another one with another OEM that's going to use that same technology on another side-by-side that we'll launch in '27. Very excited to continue to use that -- our ability to make that large and ultra-large part in a single shop.

And so if we're hearing you correctly, the powersports market is feeling like it is back to normal after the boom bust COVID, post-COVID. And now we're into what we just call normal cycle tied to powersports.

Is that a fair interpretation of your comments?

Yes. And that's for Core's version of powersports.

Being a consumer myself, I can tell you there are some parts of powersports that probably are still weak. But the fact that like our off-road segment is very much on the utility vehicle side, utility vehicles are still selling very well.

The stuff that contractors are using, municipalities, school districts that people are doing work with them versus a pure recreation product. Those continue to be very good sellers, and we have a lot of content on those products.

So, we have a good mix in the powersports world.

And then I don't want Alex to feel left out here. So, I'm going to ask a couple of balance sheet questions, please.

So, accounts receivable were up significantly from the fourth quarter. And then interestingly, the contract liabilities were up a lot also.

So, wondering if there's some sort of a deferred revenue phenomenon taking place. But Alex, would you help us out with those 2 items, please?

Yes. Good question.

So that's a direct relation to our billing of a progress payment to Volvo. So, the large tolling job that will close in Q4 of 2026.

We had a progress billing that went out at the very end of Q1, and so will be paid in Q2 ideally. And then that offset is down in contract liabilities.

Okay. So, they're one and the same essentially.

Correct. Correct.

First of all, I got to say congratulations to David. If you've been around the stock a long time, the last 2 truck cycles, the stock went down to low-single digits, and we seem to have maneuvered through this one pretty successfully through your watch.

So, congratulations on that.

Thank you, Lawrence. We have a good team.

Yes. You've really done a great job through this part of the cycle.

Question on the Mexico expansion. I just noticed in the financials, you threw in as addition to the financial statement that you -- looks like you expensed, the expansion down there for, I don't know, $3 million.

Would that normally be capitalized? And why would that be an adjustment to earnings?

Yes. So, there is a -- as part of the expansion, we are moving our presses in 2 locations.

So, in our current Monterrey facility, we are moving 6 structural foam machines to the new facility in Monterrey. And then our DCPD business that's in Matamoros that is also moving to the new Monterrey facility.

And so, as part of just accounting rules, we have to expense those expenses mainly because it doesn't add any new value to the piece of equipment. We do review all of those expenses.

And if we are doing improvements or upgrades to those machines as part of the move, we will capitalize those. But the straight rigging costs, uninstallation and reinstallation because there's no true value add, we cannot capitalize those expenses.

And so, they're onetime expenses that we add back for -- that won't be reoccurring.

Okay. I guess my second question or last question will be for Eric.

When sometimes when you get a new CEO in a company who wants to make a big splash and go out and make a big silly acquisition or and often don't turn out to be very successful. I guess I'd like to know what your thoughts are and strategy is.

I know we've talked about acquisitions with David in the past, and he's really kept -- stayed out of that game. And I guess I'd like to know what Eric's thoughts are on that going forward.

Sure, Lawrence. Thanks for the question.

I think an interesting part to make sure you're aware of is that Dave and I started roughly the same time 7.5 years ago. So of course, been around the business for all of that time and part of the executive team on Dave's team and been part of building the strategy.

And so, I don't come in as an outsider as the new CEO, as you certainly have seen happen in plenty of Fortune 500 right now recently. So no big splash, no major change as far as the strategy, as far as our execution engine and really as far as our customers and our team is concerned.

I'm quite proud of our team as well as the Board as well as Dave and the succession work that we've done, we haven't surprised anybody, whether it's internal stakeholders, external stakeholders or our customers, we've done a pretty good job staying consistent. So, I would leave you with no major changes, just a shift and a continuation of the strategy and continue to grow the business and leverage the execution engine that we've worked so hard to protect.

Being able to go through a truck cycle the way we have, as you suggested, is a huge change to the business over the years, and it's putting us in a spot where we can make different decisions and different investments. I think you may know this, Lawrence, but Dave is an adviser for the next 18 months for us as well.

So, he'll continue to be around to be able to advise me, answer questions, support us in an advisory role through all of '27.

Yes. I think one -- as we've talked about in the past, sometimes just buying back your stock when it's trading at a really inexpensive valuation is the best thing to do with your really nice balance sheet that you've accumulated.

We've learned our lesson from not having a strong balance sheet from the beginning.

Yes. If you remember the last cycle, I hope so.

That changes your decision process.

Thank you for your interest in our company. We look forward to providing an update on our progress when we report our second quarter results in a few months.

Have a great day.