# Dear Fellow shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_PLOW_2018/NYSE_PLOW_2018.mmd` · pages 1-7_

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Dear Fellow shareholders,

This is the ninth shareholder letter I have written, and it will also be my last. As I sign off, I am pleased to report that our Company delivered a strong performance in 2018 and is well positioned to succeed in 2019 and beyond. Hopefully without sounding too self-important, one of the biggest changes to occur at Douglas Dynamics during 2018 was the leadership transition we announced in August. As such, my role changed at the end of the year from Chairman, President and CEO to Executive Chairman.

I joined the Company in 1992 as Director of Sales of Western Products, and also served as General Manager of our Western Products division and Vice President of Marketing and Sales. I served as President and Chief Executive Officer and a Director of the Company for approximately 19 years, and became Chairman of the Board of Directors in 2014, a role which I continue in today.

During my nearly 27-year career at Douglas Dynamics, we have grown from a relatively small company, with approximately 250 employees and approximately \(34 million in net sales in 1992, to a NYSE-listed public company with approximately 1,700 employees and net sales of over \)520 million for 2018. In addition, the decision to embark upon a journey of continuous improvement has paid off in more ways than I could have imagined when we began. These efforts evolved into the Douglas Dynamics Management System, or DDMS, which has really become the cornerstone of our corporate culture and identity, and continues to be one of the main reasons for our ongoing success.

While the stock price has increased more than 300% since our IPO less than nine years ago, and we have generated more than $750 million in free cash flow since I became President of the Company, I am probably most proud of the strength of the team I have helped build and lead. This is highlighted by the fact we have been named as one of the best places to work by the Milwaukee Journal Sentinel for 10 consecutive years! This fantastic achievement really is a testament to the commitment to our corporate values of accountability, excellence, innovation, leadership and fostering a collaborative environment.

Given the strength of the Company's financial and operating position, the successful integration of our recent acquisitions, plus the quality and depth of the overall management team, 2018 was a great time to implement the leadership transition. Consistent with our long-term succession plan, our former COO and CFO, Bob McCormick, assumed the President and CEO role at the start of 2019. Bob really is the best and natural choice for the job, given his demonstrated success and achievements in his previous roles at Douglas, plus his proven ability to enhance culture and ensure that our customers remain at the center of our strategy. As expected, Bob has hit the ground running and I have no doubts he will be successful in the years ahead. We have forged a strong and effective working partnership over the past 15 years, which will continue going forward.

As Executive Chairman, I am now primarily focused on the company's strategy development, mergers and acquisitions, investor relations, and executive talent development. It really has been my privilege to lead this great team of people for the past 19 years, many of whom I hold dear, and I look forward to continuing to serve the Company in the years ahead.

Looking back at 2018, it is fair to say we produced robust annual results, including record net sales in 2018 of \(524 million, a 10 percent increase over last year. On an adjusted basis, net income increased significantly to \)47.4 million, or \(2.04 adjusted earnings per diluted share, from \)33.5 million, or \(1.45 in 2017. This excellent performance is based on broad and continued strong demand in both segments, coupled with the

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dedicated hard work of everyone at Douglas Dynamics. While the chassis availability issues continue, we are pleased at how well our teams are navigating through the supply chain to meet our customers' expectations.

We experienced below average snowfall across the country during the fourth quarter of 2018. As such, sales of our commercial snow and ice control equipment were negatively impacted by weather, which were partially offset by increased demand for recently introduced non-truck mounted equipment, such as plows for skids steers and UTVs. This is a nice, growing market for us, albeit at lower margins than our truck mounted products.

However, we also benefited from the strong performance in the first three quarters of 2018. Snowfall levels reverted to historical averages during the winter ended in March 2018, after two previous years of below average snowfall across North America, which created stronger demand and robust pre-season orders. Overall, 2018 was a good year for our commercial snow and ice products.

In addition to snowfall, the other secondary demand drivers remain generally positive. In January, we completed our regular dealer field inventory and the data indicated inventories were slightly elevated, which is in line with our expectations. Additionally, sales of select pick-up trucks continue to be favorable, increasing two percent in 2018, when compared to full year 2017.

Sales of our municipal products exceeded expectations during the fourth quarter of 2018, and margins improved based on continued strong demand, which helped end the year on a positive note. Chassis availability was and continues to be an issue, but we have seen improved visibility and predictability in the delayed supply from most truck manufacturers. While lead times continue to run nine to twelve months, the improved predictability is helping our team plan ahead, and they did a fantastic job adjusting and managing around the constraints in the fourth quarter.

While exact timing is difficult to predict, at this stage, we believe the long lead times for class eight chassis will continue in 2019, but begin returning towards normal levels during 2020. Assuming the improved predictability we are seeing continues in 2019, we are well positioned to drive improved margins for these products as our teams can plan ahead and adapt.

The Work Truck Solutions segment generated increased revenue in 2018 and I'm pleased to report that demand and backlog continue to grow. While chassis supply for class four through six trucks is generally less constrained than it is for class seven and eight trucks, it is unpredictable in both quantity and types of products, mainly due to supply line issues and component shortages at all major truck manufacturers. We expect this situation to continue in 2019 and start to improve in 2020. It is important to remember, that as a key partner to the truck manufacturers, Dejana is well placed to receive chassis as soon as they are available.

There are three key factors to remember: First, we are very encouraged by the robust demand, backlog and order trends, which we expect will continue to grow in the coming months. Second, while external headwinds have impacted our ability to drive improvements, we firmly believe the foundation of continuous improvement we are establishing through DDMS with our Municipal Snow and Ice Control offering, and at Work Truck Solutions, will pay off in the long run. Third, the margins in these businesses have stabilized, and are starting to improve, and we expect continued margin gains during 2019. The bottom line is this; the industry-wide limitations do not impact the long-term growth prospects for our businesses.

Our 2018 performance once again produced strong cash flow, and we continue to deploy our excess capital strategically. After thorough review, we believe our best use of capital is to maintain and grow the dividend in a sustainable manner. As such, we recently announced that the dividend will increase to \(0.2725 per share for the first quarter of 2019. This equates to a projected full year annual increase of three cents and is the eleventh consecutive increase in approximately nine years since our IPO.

Our additional priorities continue to be paying down our debt, and strategic acquisitions. We are currently not focused on near-term acquisitions, as we believe there are plenty of opportunities to drive revenue and earnings growth within our current operations.

We continue to reduce our Net debt, which stands at approximately \(278 million at year end following a \)30 million pre-payment we made during the year. Also, we recently announced an additional $30 million payment on our debt in February of this year, which means our net debt leverage ratio has declined from 3.3 times last year to 2.8 times today.

While 2018 presented our team with some external challenges, we are pleased about this past year's overall results and are very encouraged about the company's prospects for 2019 and beyond. We recently issued our initial 2019 guidance and expect to deliver Net sales

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between \(510 and \)570 million, adjusted EBITDA in the range of \(90 to \)115 million and adjusted earnings per share between \(1.60 and \)2.40.

This guidance considers several key factors and assumptions including demand trends, dealer sentiment, backlog and order trends, plus the ongoing stability of the overall economy. As always, we assume average snowfall and a similar level of ongoing chassis supply issues.

We believe our 2019 guidance reflects the positive long-term outlook for the Company. We are focused on the factors within our control, such as expanding margins in both of our segments during 2019, through the execution of DDMS and efficiency gains. Although tempered with the backdrop of chassis supply concerns and material inflation as we enter the year, we are confident that our outlook for 2019 has us well positioned to drive meaningful top and bottom-line growth over the long-term.

Over the past few years, we have broadened and diversified our product and service offering, providing increased stability and balance. Even though supply headwinds will continue in 2019, we take comfort that when chassis constraints start to ease, we will emerge much stronger and more efficient, with improving margins across all of our businesses. We are proud of the way our teams have stepped up to the challenges and continue to see tremendous opportunities in the years ahead. We are invigorated by the possibilities we see in 2019 and will do everything within our power to successfully deliver for our customers, strengthening relationships, and building our brand power.

As 2019 enters the final phase of the snow season, we are focused on launching new products for our commercial snow and ice products and effectively executing our expansion plans for the municipal snow and ice control offering and Work Truck Solutions. We just concluded the National Truck Equipment Association (NTEA) Work Truck Show in Indianapolis. Once again, our amazing sales and marketing teams put on a great show, highlighting our market leadership, innovation, and the breadth and depth of our product offering across five distinct brands.

It has truly been my honor to lead such an amazing company for the past 19 years, and as we continue to grow and evolve, we are ready to seize the opportunities and face the challenges ahead. I am deeply appreciative for every person that works hard on behalf of our company every day. It really is a team effort! My business partner for the past 15 years, Bob McCormick, is not just a great colleague and business leader, but a great human being who is quickly becoming a great CEO. There are too many people I would like to thank to mention in this letter, but I hope they all know how much I appreciate them and their contributions to Douglas Dynamics.

Finally, I've been reminded recently of several short phrases that I am known to repeat, which have served me well:

• It's your dream, make it big!

• Good leaders can see around corners!

• It's not just what we do, or how we do it, but who we do it with!

For me, these are words to live by and a good way to sign off. Thank you for your ongoing support of Douglas Dynamics! The future for our Company has never been brighter!

Sincerely,

![](images/3_0.jpg)

James J. Janik
EXECUTIVE CHAIRMAN

JAMES L. JANIK
EXECUTIVE CHAIRMAN