Sandy Martin with Three Part Advisors, and yeah, we're at the kind of the end of the show here. We've got a really good name to talk to you about today: Core Molding Technologies, NYSE company, ticker CMT. We've got Dave Duvall, the CEO, and John Zimmer, the CFO, and I'm going to pass it on over to Dave.
Thank you, Sandy. Can I walk away from the front or not?
Yeah.
Okay, I can walk wherever I want.
Yes.
All right.
There is a clicker here.
Good afternoon, everyone. I appreciate everyone staying till the very end here. I was expecting to come in here and not see anyone, so I'll try to make it entertaining, or at least informative. So I'm Dave Duvall, I'm the CEO for Core Molding Technologies. I'm here with John Zimmer to present our story for Core Molding. Right now, we are an industrial fiber-reinforced plastic composite company. We're about 2023, about $358 million in sales, almost 2,000 employees. We have six plants, one in Canada, two in Mexico, and the rest in the U.S. If I look at really what investment highlights for Core, the market leadership position, I'd say we have 30% market share in truck, probably 85-86% market share in personal watercraft. So we have real strong relationships with large customers, and as you can see, we do large parts.
We can mold an entire personal watercraft hull in one shot, and that's on a 5,500-ton press. Large addressable market, I think we have long-term relationships with blue-chip customers. You know, we see some of our markets down now when you look at personal watercraft and truck, but they're going to be around for a long time to come. Really, I look at a $10 billion addressable market, I'd say we're strong in power sports. We're now looking at golf carts, strong in truck. The other markets where we're really looking at growing, we think we can grow into Con- Ag. We started implementing paint in our plant because Con- Ag usually wants their parts painted, and then packaging, consumer products, and building products. As far as our locations, we have 82 presses. Presses range in size anywhere from about 300-ton up to 5,500-ton.
A 5,500-ton press is about the size of a house. It's a massive machine. So we have plants in Matamoros, Mexico, which is our largest plant, and Columbus, Ohio, which is our headquarters, Gaffney, South Carolina, Cobourg, Monterrey, Mexico, and Winona, Minnesota. If you really look at our relationships with customers, we provide a solution. So our products are custom-designed and unique to the customer's application. So part of that is there's a lot of trust because if our product doesn't work, then their product does not work. You can't build a truck without a roof. You'll stop the entire line. You can actually build a truck without a hood and put it offline, but if you don't have a roof, it shuts down the entire line, and they're not able to sell a truck. We are single-sourced.
The tooling that we use for a truck program could be anywhere to $20-$30 million. So everything that gets produced for Volvo, we produce. Everything that gets produced for the Navistar or International now, trucks that get produced, we produce. Without us producing, they will not be able to produce a truck or a watercraft. So everything we do is critical. What we do is they have to trust us with their brand and their relationship, and that's a big part of our value proposition, that we can be trusted with their product. So a lot of large customers, we supply to really all of them. We do some work with Daimler as well, but really Hino, PACCAR, Volvo, Navistar, we have to change this. They're now International. International would be our largest customer. We're very strong in the power sports with Yamaha, BRP, and Polaris, ATVs, UTVs.
You see a lot with personal watercraft. A big area of opportunity for us there in power sports is you see a big increase in the use of golf carts. Golf carts, 15 years ago, were just a functional product that people beat up. Now they have low road noise tires, mag wheels, stereo systems, refrigerators. They're pretty amazing vehicles now. We do a lot with UFP, or now Deckorators, and then Industrial and Utilities. The key is they're all large customers, large products that are very technical in nature and specific to the use, designed specifically for their use. Really, how do we diversify? We're strong in transportation. We do the hoods, roofs, deflectors, anything you see on the outside of this truck, we're molding. We make the SMC, and we mold it.
Just an example of the, you know, Bill. You've already seen these, but I'm going to pass out. We make this SMC. These two are the same strength. So this one would be for a truck, and this one could be for a personal watercraft. Same strength, half the weight. Everyone in the world will eventually go to the lightweight, but only certain industries will pay for it today. Right? If I want to go two miles an hour faster on a personal watercraft, I'll pay for it. So power sports, you can also see where the value comes in. Are you lightweighting, strength, corrosion resistance? You know, when we look at, there's a new application coming out for ATVs to where they had a problem in the field where when they rode over a stick, the stick would protrude up through the vehicle itself.
They had originally looked at metal. We worked with BRP to make it out of a composite, and now starting next year, all BRP ATVs will have a skid plate out of a composite. Industrial and utilities, this is a pretty interesting application. So along all rail lines, you see all the Brightline high-speed rail lines going in. Along that rail line, they have to have data transmission and power transmission for the signals. This used to be made out of concrete. So you would need a crane to install those along the track. You'd have to shut the rail line down. We can make those out of a composite that fits together like Legos. You can install it with two people, and it installs 10 times faster.
The cost per foot is a little more than what concrete would be, but being able to install it 10 times faster, the total cost is 15% less. The ability to get skilled trades, ability to get equipment, and not have to shut down a line is significant. Stormwater drains. This used to be concrete. You can see the person picking that entire drain up and moving it. Again, it's a solution sale. When you show somebody this, they're like, "I use concrete, it works." But once you start using it, and once they start seeing the solution, they see the benefits. So the big part of where Core is today, when you look at Core, if you look back at 2019, we went through a turnaround. You see the financials, we were in bank default. We did a lot with really making Core a better place to work.
People's retention was terrible. We were probably 50% retention. Now we're below 9%. So it's a significant change. We worked a lot with the retention, making it a place better for people to be, development plans, succession plans, and it just feels different, right? I mean, you got to be a part of something bigger than yourself, and that's what we worked on. We worked on the operations, to turn the operations around. We worked on the supplier deliveries, supplier quality. We've won the 10 PPM award from PACCAR. We've gotten a gold award from BRP. And then we had to go into all of our contracts. We weren't making money on the contracts. Our last must-win battle last year was really working on the pass-through cost on our contracts and changing the price on the contracts. So that's all done.
So where we are today, when I look at strategy, it's, you know, people want to talk about what strategy they want to grow the business. To me, if you can't execute, then you need to be able to execute first. You need to be able to put the execution systems in place, the people systems in place before you start deciding what strategy you're going to do. So where we are today is invest for growth. We've got the organization and plants prepared for growth. We've got the continuous improvement systems across all of our locations. We've got the productivity where we need it. We're profitable. We have cash to invest, whether that's acquisition or assets. And we're really driving the voice of the customer into the organization. That's a key part of the next part of the strategy. You know, people don't want to buy composites.
They want a solution. Composite is just the way to get to that solution. So investing for growth, we've increased our sales force. We've added, doubled the size of our key account managers. So those are the people that need to know the customer better than the customer knows themselves. They know engineering. They know purchasing. They know what they're working on. And it's funny, a lot of these large companies, most of them don't even talk internally in knowing what each other's doing. But having somebody there that's always available, who are you going to call? Core. That's the key. And it's because we sell a solution. We're providing a product that solves their problem. So we've invested in our sales function. We've added a chief commercial officer. We put all the execution systems in place from quote to cash.
Now how do we leverage that into the market, and that's really the driver today. We're going to focus on grow wallet share with high-value solutions. We have these big customers. You know, why do we have 85% market share in personal watercraft but no golf carts? That doesn't make sense. What do we have to do to fix that? Strengthen Core's technology functions, so when a customer has a problem and you're solving that problem, you have to do the prototypes. You have to work with the customer on how are you going to solve that problem. So the first one drives demand for technical solution. The second one is provides the resources for technical solutions, and then you're growing wallet share, and now sales channel access and footprint expansion through acquisitions and diversification. Grow those initial customers and then grow wallet share with those customers.
We talk about our strategy. We just went through and redid our strategy. Now this is our strategy house at the highest level really to communicate it. The key point here for us is that the strategy is the same that we just talked about, these three pillars: grow wallet share, solve customer problems, and then grow that industry. So grow an industry, get in, grow wallet share, and solve their problems. One, two, three. So if I look at some of the new sales growth, when we talk about the new industries that we're getting into, so truck, we're strong. This is a roof of a truck. That's actually probably about 15 different components, molded parts into that roof. Doing the beds and tailgates for ATV, UTVs. These are all products that we currently do. That's grow wallet share.
We're now getting into working with; it's actually called Dock in a Box, the marine docks, so all the marine docks, say from the Midwest North, where they pull them out of the water, composites is a perfect solution for that. EV battery trays. This is an actual steel battery tray. We've made that out of that material that I sent around. That is SMC. It's fireproof, flame retardant, and UV resistant. It's sitting on top of a postal truck or top of a bus. It drives in, they pull it off, put it into a charger, put a new one, put a new one on top of it, and then it goes. Company called Evolv, the scanners that you would see going into a stadium. We make the outside of those panels, and then a big one for us, getting into a new industry in medical.
So you see a lot. We see a lot of applications in either in medical equipment, hospital beds. These are the panels that would go underneath the cushion that articulate up and down. It's probably taken us three years to get our first win here, but then once we get the win, now we can keep growing that business. And then this was pretty neat. It's a refrigerated display base. So you see all these convenience stores. They rent these or buy these. The refrigeration unit goes on top. We make all the bases for those refrigeration units. Same thing, we do that with Generac for all the generators, and you see a lot of energy storage with all the data centers coming up. That's a big one. So when we talk about solutions, the key here is, you know, what we're providing is specific to the use. Right?
It is a solution. So how can we design that solution? If I look at it, we can mold an entire hull in one shot. So we can get a hull every two minutes. A good example when I talk about a solution, so this is called the BRP Switch. It's the mix between a personal watercraft and a pontoon boat. So it has the drive of a personal watercraft and a layout of a pontoon boat. So the hull on this product is the red. That's a fiber-reinforced plastic. Needs the strength. You're mounting the motor inside of that, as well as all the fittings, and it takes the wave action. It's a configurable product that you can lengthen, increase the length on this. The gray part doesn't take the same load. It's structural foam. So it's a lower-cost alternative to the fiber-reinforced plastic.
So only Core can do this because we're early in the design phase with the customer, and we design this with the customer to where you have fiber-reinforced where the strength where you need it, and then you have structural foam where you don't need the strength, and nobody else could do that. So again, everything is dedicated to the customer, to a solution. Another example when we talk about lightweighting and what it really means, when you go to a gas station or you're at a stoplight and you see the cover where you have all the controls under that, what's under that is a vault where the controls are and a cover. The cover has to meet Tier 15, Tier 22 requirements so that a truck can park on top of it. So usually you see them concrete with rebar.
So we've been able to make that out of the SMC. That's the same material you see. And we run fiberglass rebar molded in with that to get the strength. So you actually mold in fiberglass rebar in with the SMC itself. That's 90 pounds. So you need a machine to put it in, and ours is 25 pounds. So you don't need a machine. You can do it by hand. Same thing when you look at water drainage systems. This is what you would have normally in your water drainage system. You can see him picking up that water drainage and fitting it together. So it's much less labor required to install it. And that's what lightweighting means. Now, this one I really like.
And when you look at that hull that we were talking about, these are the engine motor mounts molded into the hull itself and all the fasteners. So working with the customer, you're able to reduce the complexity of the part that you're supplying to them. That's what's reducing the total cost. A running board on a truck was 43 parts. When we redesigned it for the customer, we got one part out of it. So when I look at Core and I say, you know, why Core Molding, I'd say we have engaged teams that make it happen. I mean, it's a lot of what we do takes people. And it's creating that environment to where people want to be successful. And you create the environment where they can be successful. And what does that mean? We provide technical products to customers that have critical applications.
You have to be trusted. You can't have a roof come off a truck going down the road. They can't leak. 10 PPM award from PACCAR. We got the Supplier Gold Award from BRP. I think our team really drives the solutions, and where you can see it as well, over 99% on-time delivery and less than 8%, less than 9% turnover. Manufacturing is a tough work environment. You get a lot of turnover. Being below 9% is quite an accomplishment. If I look at industry leader, we're able to mold large products. This is a 19-foot haul in one shot. Multi-composite design. I'd say we have the largest portfolio of processes in the industry, which allows us to create unique solutions. Over 82 presses. You can see a person right there. Combination of parts, large parts. You can see another press. This is a 5,500-ton press.
I'm going to hand it over to John to go through the financials. I do want my piece back.
Thank you, Dave. As Dave said, about three years ago, four years ago, we were going through a turnaround, struggling financially. We did the operational turnaround, which is the key to the financials. We're now in a position where we have about $42 million of cash on the balance sheet, and coming into this year, we decided that we need to kind of look at our allocation, our capital allocation strategy, and, you know, come up with a process that we felt very comfortable that we could do multiple things. For several years, we felt like, hey, we got to conserve our cash. We were going through a turnaround. We were spending all our money on the turnaround, but now we're very comfortable.
You can see our four pillars of our capital allocation strategy. Number one is always going to be CapEx, or is going to be organic growth. When customers come to us with a program and they need a $20 million program, but they need the assets to be in a certain location, we always want to have the capital there to basically execute on that program. It could be that we have to add some presses to a certain location. So we're always going to have, number one is our capital is going to go to our organic growth. On any given year, we spend about 3% of what we call sustaining CapEx. That's just kind of keeping the presses up to date, those types of things. So 3% of revenues is going to go to that.
And then any other growth CapEx is really going to be driven by customer programs that we know about. We're not going to go do a lot of speculative. We're not going to do any speculative growth CapEx. Usually a customer has come to us, has signed a contract and told us that we have a five-year agreement to do parts, and then we'll add growth CapEx is what we call it. The next piece will be M&A. We're looking to do M&A transactions. Again, we went through the operational turnaround. At that time, all our operations were, all our operational people were focused on turning the business around. We now have systems that are the same in every one of our plants, business systems in all six plants. We're now ready to go back out and starting to grow the business through M&A.
Types of transactions, we're not going to over-lever the balance sheet or use too much of our cash in this. We're looking for single locations, maybe dual locations, expand our footprint, customer expansion, customer industry expansion. Somewhere in the $10 million to probably $50 million is actually where we would be looking to do that. Do one a year, maybe ramp that up as we go forward. Return our capital to our shareholders. We've really been looking at our stock price. We believe that we can use a piece of our cash that we've generated over the time to start buying back some shares. The goal is to at least buy back the number of shares that we put out there as an equity program so that we have no dilution.
We will decide that sometimes it's actually, you know, with the cash we're generating during the year, like this year, which has real strong cash flows, that we'll buy back a little bit more shares than that. And so far this year, we've spent, we've bought back about $2.3 million in shares this year so far. And then, of course, maintain a strong balance sheet. We have about $22 million of debt on the balance sheet. It's fixed at about 4.95%. So we're not really looking to pay it off. It has a very short or a very long payoff time period. So if we add to that, that would be where the last piece goes. Our financial situation, you can see over the last five years, we as a company did ride a little bit of the COVID benefit during a period of time where everybody stayed home.
We got to a spot. You can see in 2022, where the number of personal watercrafts, the number of ATVs, the, you know, the number of lattice fencing that was being bought was significant. We peaked out in 2022. We are seeing a little bit of the COVID downfall, but really this year's probably hitting us a little bit more of the interest rates also. We do deal with industries that have some interest rate sensitivity, but we're okay with that. You know, our goal is that we look at the Adjusted EBITDA. We want to be able to still kick out strong cash flows, strong earnings, even when our revenues are down. About 70-75 cents on the dollar of our cost is variable.
The nature of our business model, or the key to our business model, is, as revenue falls, how fast can we get rid of the variable costs? If we get rid of it very quickly, with about 40%-50% of it being material costs, then there's direct labor, then there's variable overheads. If we get rid of it very quickly, even when revenues come down, because we don't control our own revenues, as Dave mentioned, we're sole source for our customers, but if PACCAR's not building a certain truck, we're not going to build that part. Our job is how fast can we actually adjust our costs?
You can see on the far side, our adjusted EBITDA, which really kind of flows into our cash flows, that even being at $314 million versus $377 million two years ago, we're driving $34.4 million of EBITDA, adjusted EBITDA, versus where we were just two or three years ago. And then the last piece is, because we are a capital-intensive company, we want to make sure that we're very disciplined. We don't want to go out and add a lot of assets to generate revenues and not earn a return on those assets. So as a company, we have a hurdle rate of about 16% return on capital employed. We're pretty proud that we're really disciplined in that area.
When I say that, if you go to actually our operations people, you go to our salespeople, you go to our finance people, everybody will answer that question the same way. They know what capital we're looking to basically earn every single year. It goes into all our allocation of our capital and those things. And you can see we've grown it. This year it's come down because of the earnings come down. But one of the big things that's really caused it is we did actually accumulate $42 million of cash at this point. So if I back out the cash, which, you know, our job is to go restart to redeploy that cash through acquisitions and organic growth, we're about 14.4% when you back out that cash on return on capital employed. And that's still within our target ranges, which I'll go over here in a second.
Cash flow and reinvestment. I gave you a three-year history there, but really the numbers I'll look at the most is that nine months right there at the bottom. So this year alone, we've driven about $30.2 million of operating cash flows. You can see where that kind of ranks us and how that's actually trended up from 2021. We've spent about $6 million on sustaining CapEx, $1.1 million on capital growth CapEx for a free cash flow of $23.1 million. That's for nine months so far this year. You can compare that to last year, $24.2 million if you add back the growth CapEx. So one of the real benefits of the turnaround is that, again, we can deliver strong cash flows even when revenues go down. We do have capacity in place. We don't have to go out and buy a lot of new capacity.
We have capacity in place to do $425-$475 million of revenue, so as we ramp the business back up, we're not going to have to add a lot of capacity back as long as we have it in the right location, but we do have significant capacity to grow this business, and then our long-term goals, the interesting thing is we set our long-term goals, I think originally in 2022, and then we updated them in 2023. We set them in 2022, and then these have 2023 numbers. When we set these goals, and these goals are known throughout our organization, we're looking to drive the revenues from $358-$500 million. This is the goal that's probably changed the most over the last couple of years. We hit $377 million. We had a lot of demand from COVID and those types of things.
In order to get to the $500 million, we now do believe we'll probably have to do a little bit more acquisitions, and a little bit less will come from organic growth. We do think over the next three to five years, we'll do a couple of transactions that probably make up about $100 million, and then the rest come from organic growth from the diversification strategy that Dave talked about, and then growing the wallet share with our current customers. When we set the 8%-10% operational numbers, we were at 4.8%. A lot of people thought we were crazy. Last year, we did 7.4%. We knew that we still had operational improvements that we could see and that they were coming out, and so we're pretty comfortable with the 8%-10% long-term, and then you can see last year we did 16.4% return on capital employed.
Our goal is 14%-16% at this point. So for two of the three, we're really in good shape and on hitting our targets for the three- to five-year. The revenue one has just changed a little bit, and we'll do it a little bit more through acquisitions than organic growth. And we see those really starting, the acquisitions starting to happen starting next year is really with some of the targets we have out there. So with that, I guess we'll turn it over to questions. I appreciate it.
Yeah, Bill. That lightweight business with BRP, where is Polaris at in terms of their mindset of steel versus composite, particularly for that lightweight that's going to be needed?
Right now, they had started out with steel, like all of them, just because they think in steel.
We are working with Polaris to show them the benefits and show them what BRP is doing. I think showing them what BRP is doing is probably a bigger incentive than showing them composite. Same thing with Yamaha. So all of them have to go to it. I think steel was just their first solution. Even BRP's, until we talked with them and showed them the benefit. Yeah, the challenge with steel is that when you're running over gravel and you think of an ATV, all the gravel hitting the bottom of it, it makes a lot of noise. Right, they hear you coming. And so is that in essence kind of what Polaris and Yamaha would want to buy composite for, is really solving the noise problem?
We put the noise in there, but really the problem is that the way the force requirement is, it's an impact plus a load. It's got to take an impact, which is the composite does that, but then we have to make additives to the composite to handle the longer-term load. If I hit a stick real quick, it can't crack, but if I hit a stick and I drive up on it and the vehicle rests on it, it's got to be able to take that part of the load as well. We did add additives to the composite to be able to do that, to take the impact was easy, but to be able to take the long-term load, we did have to modify the composite. Yep. Thanks, Bill.
What's the timeline between the customer's size?
They want to do some programming in the one-year shape.
Yeah, it can be a long time. So if I look at a truck customer, maybe it's three years between when you win a program to when you'd actually see cash. If I look at the BRP skid plates, which goes underneath of all ATVs starting next year, that would be maybe seven months, eight months. But it varies a lot depending on what the product, like the medical bed, that might have been six months, eight months. So it depends a lot on the product and how much validation is required. So vehicle-level validation, ATVs, trucks, usually longer. Something that's not vehicle-level is shorter. You're making progress for EV battery trays in that? Yeah, so we're doing now, we got the EV battery trays for the bus and for the postal trucks.
So it's almost like buying a battery out of the store. It's completely encapsulated and it's made out of SMC that's fire retardant and explosion-proof and UV resistant. Yeah, they'll make the, I think they're going to make some of the vehicles. There's a couple of them out there that are doing that, that and the last mile trucks, what we call them. But yeah, I mean, the buses and the postal trucks, I think they're government-related, so that's just, we're going all EV. So that's a big opportunity for us. We've looked at other applications in automotive. Usually they're getting, it's the volumes that they come up with are usually a little different than what they really are, and it's a huge capital investment. But when you look at postal and bus, you know the volumes are there. You know how many they're going to do.
I guess how do you think about acquisitions in terms of multiples and product expansions, the volumes of the idea? Is that actually about that?
Yeah, I've had that question a few times. Probably the best way to explain it is, I'd explain the perfect acquisition. So to me, the perfect acquisition would be somewhere in the west of the U.S., say Texas area, or could be in the west of Mexico where some of our customers are. It'd be $30-$50 million. It would have sales channels into areas that we really want, so medical, industrial, utilities, wastewater treatment, and would have a process similar to ours or complementary to ours. So that could be extrusion, it could be molding. It would not be small part injection molding.
It would always have to be a large part to be, yeah, when you start looking at small part injection molding, you get a lot of commodities. And we're all large, ultra-large in technical parts. Bill?
All right, so on your conference call, you referenced $100 million of negotiated pipeline. So two questions relative to that. Number one, historically, what proportion of business or prospects that make it to that negotiation stage don't actually convert the revenue? And then secondarily, of this $100 million pipeline that you have, how do the products look relative to some of the slides you showed us in the different categories?
Yeah, I'd say it's similar to what we showed up there. We're doing a lot more. We have some business that's out there to where we're looking at selling just the SMC. So we make this and formulate the SMC.
So this normally we use for ourselves. We do supply this to Yamaha, but it's a special SMC for their application, the real light SMC. We are looking at selling just the SMC to companies that do door skins and things like that. So most exterior doors are SMC on the outside and inside with a foam or a cardboard on the inside. So some of that business is that, some of it's truck. You see a lot more in medical and industrial and utilities. Yeah, I would say normally, yeah, we're at $100 million that's sitting in the negotiation phase. I would say normally it's probably 40% of that. You would have it more up into the top of that pipeline. But what we're seeing is that either they don't want to spend the money now because their revenues are down, so they want to hold off.
When they kick us off, when we get a purchase order, at the time that they give us a purchase order is when they have to spend money on tooling, and tooling could be anywhere from $1 million-$20 million, so by saying, "Yes, go," they spend a lot of money, and they usually are. I don't know if they're waiting until the end of the year, but it's an inverted pipeline. I'm going to ask that question a little bit because it's slightly different to a sponsor. Okay.
Once they've reached the negotiation stage, how many say, "No, you know what, actually I decided I'm not going to do this product," or, "I'm going to go to a competitor." So in essence, is that $100 million business that you will receive, it's just a question of timing or historically has a quarter of it fallen out even at the negotiation stage?
Yeah, I would say that we win, in our data, we win about 20% through the pipeline. I don't know. I would expect it to be a little more than that if it's all in negotiation. Because it's already there, you're not dropping out in the rest of the pipeline. Yeah, just a little more or close to 100%? I wouldn't say 100%.