# Dear Fellow Shareholders

_Source: `DeepSeekOCR_Ardian_pruned_1k/consumer-cyclical-auto-parts/NYSE_PLOW_2021/NYSE_PLOW_2021.mmd` · pages 1-7_

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Dear Fellow Shareholders,

In almost every way, 2021 was a much better year than 2020 for Douglas Dynamics. We continued to operate safely and effectively despite the ongoing pandemic and the subsequent economic impact and strived to "get better every day" to ensure we exit this unusual period stronger than we entered.

I believe there are three main takeaways from 2021:

• We delivered double-digit net sales growth overall, and record sales in our Work Truck Attachments segment, based on strong demand and equally strong execution from our team.

• Demand in Work Truck Solutions remained strong, and our backlog grew significantly over the record level at the end of 2020. Still, external headwinds hindered our overall performance as the year progressed.

• The strength of our free cash flow generation continues, which allowed us to deliver our  \( 14^{th} \)  increase to the dividend, plus our Board of Directors approved a first-ever share repurchase authorization of up to 50 million.

## Two Years Like No Other Before

As I look back over the past two years from the emergence of the pandemic in the United States, for the first 12 months, we were focused on health and safety, adapting to the unprecedented situation, putting protocols in place, and getting back to work. The second 12 months saw the economic impact come to the forefront, while we were still dealing with new variants and surges in cases. Now, as we enter the third year of disruption, we are optimistic about the future. We know we can operate under any circumstances and believe the pandemic-related economic headwinds will start to dissipate later in 2022.

The macroeconomic headwinds impacting our performance are similar to the issues faced by many sectors and companies today—inflationary pressures, supply chain constraints, and labor shortages. Prices for raw materials, components, and products we source continue to rise, with inflation at 40-year highs. In 2022, global OEMs are expected to produce a similar number of truck chassis to 2021, with supply starting to show slow improvement in the second half of the year.

Finding and keeping skilled employees at all levels continues to be a challenge for every company in America today. Our human resources team has seen success with a variety of creative initiatives put in place last year, plus raising compensation for shop floor associates. Over the years, Linda Evans has built a top-tier human resources team, whose primary focus has been on attracting, developing, and retaining talent. The efforts undertaken, starting before the pandemic, are paying off, and we have now created a true "people-driven" competitive advantage at our Company. I'm confident that in this current environment, we have fared better than most. We have kept our core leadership teams in place during these most difficult times, providing stability and continuity for the people they manage, and helping to focus on delivering improvements to the business over the long-term.

Despite the complex and unusual circumstances in 2021, our teams have endured and adapted to the ever-changing conditions, continuously driving incremental improvement initiatives while remaining focused on serving our customers. The good news is that demand trends remain strong across both segments, and with record backlogs, we are primed and ready to execute as macroeconomic headwinds subside.

## Overall Positive Financial Results

Full-year net sales were \(541 million, which is a 13% increase compared to last year. This was driven by a combination of higher volumes at Work Truck Attachments and price increases implemented across both segments. On an adjusted basis, EBITDA was \)79.5 million for full-year 2021, which is again higher than 2020. We also generated an increased adjusted net income of \(39.4 million, or \)1.67 per share, in 2021. Our improved 2021 results were primarily driven by consistently strong performance from Work Truck Attachments throughout the year.

Thanks to our phenomenal finance team, led by our CFO, Sarah Lauber, our balance sheet today is in a

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great spot with ample liquidity, leverage in line with our targets and lower interest rates which were locked in with our June 2021 debt refinancing.

Over the past two years, we have continued to generate consistently strong free cash flow under even these most difficult operating conditions. For 2021, we produced a higher free cash flow of $49.3 million, almost double the dividend of $26.5 million.

When it comes to capital allocation plans, we remain committed to the dividend, raising it for the fourteenth time in 12 years to $0.29 per share for the first quarter of 2022. This remains our top priority going forward. Additionally, given our consistently strong free cash flow production, the Board approved a $50 million share repurchase authorization, further demonstrating our commitment to deploy excess capital in the years ahead.

Looking ahead, we hope to see one of the blue-chip companies on our target list become available, but we do not see many near-term M&A opportunities today. In the meantime, we will continue to build relationships and conduct due diligence on the logical opportunities that come our way.

## Highlights in Each Segment

The Work Truck Attachments segment produced a tremendous year, and there is one positive factor driving growth in Attachments that I would like to highlight—the expansion of the non-truck product market. Over the past few years, we've seen increased demand for snow and ice control equipment for non-truck applications, namely UTVs and ATVs. A wide array of end-users, from traditional landscapers to maintenance crews on campus environments such as hospitals, universities, and other complexes, need pathways and sidewalks cleared quickly and efficiently in places where foot traffic during snowstorms creates a safety hazard. Historically, these areas were cleared manually. Over the past few years, end-users have begun to migrate towards non-truck equipment, which is more productive and efficient, creating a growth opportunity for our team.

In short, Keith Hagelin, Mark Van Genderen, and the entire Attachments team continue to deliver outstanding financial performance while meeting and exceeding their customer's expectations.

The supply chain and inflationary headwinds impacting many sectors of the economy continue to disrupt our Work Truck Solutions segment, hindering our ability to upfit work trucks efficiently.

However, demand at Dejana and Henderson remains strong, and we are continually breaking backlog records, a testament to the strength of our brands, products, and leadership teams in Solutions. Assuming chassis flow starts to improve later in the year, and we begin moving backlog through our upfit facilities—then we expect that improvements will happen. The fact is that we know that we can upfit and deliver great work trucks for our customers at a fair price that is also profitable for Douglas. Once the headwinds dissipate, we are confident that our diligent execution and the improvements made in recent years will allow us to drive profitable growth as predicted and put us back on track to deliver our long-term financial targets.

## 2022 Financial Outlook

Our 2022 financial outlook, which was issued with our fourth quarter and full year 2021 results, anticipates Net Sales between \(570 million and \)630 million, Adjusted EBITDA between \(70 million to \)100 million, and adjusted earnings per share to be in the range of \(1.25 per share to \)2.15 per share.

By far, the most significant economic headwinds reside in our Work Truck Solutions segment. Computer chip shortages impacting chassis and component supply continue to plague the entire auto industry, causing delays in the work truck chassis we need. We believe supply will start to slowly improve in the second half of 2022, meaning we will enter 2023 in a much better position than we are today. The silver lining is that customers understand that the shortages are across the entire industry and, more importantly, demand is high, and our backlog continues to grow.

Our 2022 guidance also highlights the continued strength and resilience of the Work Truck Attachments segment. While also navigating through supply chain and workforce constraints, the team at Attachments has consistently met the continued strong demand for our market-leading products. The great news is we expect that to continue! Our team continues to perform well in all types of economic and weather conditions and will continue to drive the lion's share of our profits in 2022.

## Long Term Financial Targets

Looking further out, we are also reiterating our long-term financial goal of earnings per share greater than $3.00. We first issued this goal in the fourth quarter of 2019, which was then disrupted by the pandemic mostly in 2020 and the subsequent chassis and component shortages in 2021. We expect these external challenges to start to ease in the latter half of 2022. We believe the hard work we have put in to improve our internal operations means we are in a stronger position today, and we now project reaching that goal in 2025.

## Getting Better Every Day

Reflecting on the past year, we have had important wins to celebrate and have learned valuable lessons. I

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am grateful for the drive and dedication demonstrated by our team, who used creativity and imagination to adapt to the constantly changing circumstances, all with an eye on improving our position and operations over the long term, plus a willingness to put their heads down and grind it out when necessary. I firmly believe that when external headwinds turn in our favor, combined with the operational improvements we have implemented in recent years, we will be ready to deliver, clearly exiting the pandemic stronger than we entered. While a return to pre-pandemic conditions is taking longer than anyone would have hoped, we are drawing on our "get better every day" mindset and know three things remain true:

• We will do everything within our control to improve and won't lose focus on the long-term profit drivers within our business while we manage through the short-term headwinds.

• The fundamentals of our business haven't changed, and we believe that we are well-positioned for long-term success.

• Our team is driven to achieve our goals and ensure we meet long-term expectations.

On behalf of the management team and Board of Directors, I want to thank everyone at Douglas Dynamics for their dedication and relentless pursuit of improvement.

Thank you for your ongoing interest in and support of Douglas Dynamics!
Sincerely,

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Bob McCormick
President & CEO