Good day, and welcome to the Alamo Group Inc. First Quarter 2020 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Evan Rizzuti. Go ahead, sir.

Thank you. By now, you should have all received a copy of the press release. However, if anyone is missing a copy and would like to receive one, please contact us at 212 827-3746, and we will send you a release and make sure you are on the company's distribution list. There will be a replay of the call which will begin one hour after the call and run for one week. The replay can be accessed by dialing one 888 203-1112 with the passcode 3220598. Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Ron Robinson, President and Chief Executive Officer; Dan Malone, Executive Vice President, Chief Financial Officer; and Richard Wehrle, Vice President, Treasurer and Corporate Controller. Management will make some opening remarks, and then we'll open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachment to our earnings release. Before turning the call over to Rod, I'd like to make a few comments about forward-looking statements. We will be making forward-looking statements today that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results. Among those factors, which could cause actual results to differ materially are the following: market demand, COVID-19 impact, competition, weather, seasonality, currency-related issues, geopolitical issues and other risk factors listed from time to time in the company's SEC reports. The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would now like to introduce Ron. Ron, please go ahead.

Thank you, Ed, and we want to thank all of you for joining us today. Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter of 2020, I will then provide a few comments on the results, and following our formal remarks, we look forward to taking your questions. Dan, please go ahead.

Thank you, Ron. The key takeaways from our first quarter 2020 results are net sales were up about 20% due to acquisitions. Organic sales were down 4% due to COVID-19 disruptions and currency translation. First quarter net income was up about 2% with acquisitions accretive, both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28% and with acquisitions highly accretive and expanding our EBITDA margins. Operating cash flow generation continued to run favorable to prior year. Quarter-end cash on hand plus credit availability exceeded $200 million and quarter end backlog of $233 million was down 11% since December. First quarter 2020 net sales of $314.4 million were 20% higher than the prior year first quarter. Without the more of our on Dutch Power acquisition effects, organic sales were down 4%. Without the unfavorable effects of currency translation, organic sales were down closer to 3%. While we started the year seeing strong results from our acquisitions on top of organic sales growth, our shipments fell sharply in the last two weeks of March mainly due to COVID-19 disruptions. Industrial division first quarter 2020 net sales of $230 million represented a 32.5% increase over the prior year first quarter. Without the impact of the Morbark and Dutch Power acquisitions, this division's organic sales were down 5.8% in U.S. dollars and down about 5.5% without currency translation effects. Agricultural Division first quarter 2020 sales were $84.5 million, down 4.4% from the prior year first quarter in U.S. dollars and down 2.8% and without the effect of unfavorable currency translation. Similar to what we saw at the end of 2019, the first quarter of 2020 reflected organic sales growth from our North American operations and some incremental Dixie Chopper sales, offset by lower European sales. COVID-19 disruptions, mainly in…

All right. Thank you, Dan. And as Dan reported, I mean, actually, our first quarter was pretty good, especially until March. But even with the slowdown in March, due to our strong start and benefiting from the acquisitions, we ended up with record sales and earnings for the first quarter and pleased with that that we were able to achieve that given how soft March was. Certainly, as I said, January and February started off pretty good and really showed the benefits of the acquisitions of Dutch Power and Morbark. But things changed in March as Western Europe and North America really started beginning to hit hard by the coronavirus pandemic. And the biggest impact for us in March was in Europe as all of our plants in England and France were shut down at some point during that time period. And though interestingly, our Netherlands plants, which are the Dutch Power ones have remained open throughout this period. In North America, most of our U.S. operations continued to function. So there were some temporary closures and probably our Canadian plant, especially those in Quebec were the ones most affected by this situation. During April, most of our plants that were closed have now reopened, though at varying levels of operation and though we have about 17% of our workforce, either absent or on some kind of a furlough related to the COVID-19, the majority of these are out of people who are out are due to the slowdown in demand as we've been furloughing workers in response to changes in demand. By and large, we are still able to operate in a fairly normal fashion to obviously there. We have a lot more precautions being taken to make sure our employees are operating safely and maintaining social distancing, as…

Yeah, absolutely. [Operator Instructions] Our first question is from Mike Shlisky with Dori & Company.

So why not of asking about the budget situation at the state and local level. I'm sure we're still working through those issues right now across the country. As I look back toward some of the toughest times the last 10 to 15 years in the state and local budget landscape, I have to really seen your revenues now, all that much successfully great recession, too much in the teens or 20s. Do you think that this time would be any different than prior downturns where there's no 50%, 50% kind of decline here in the making, it's probably more of a more modest downside here. Just kind of your just very broad thoughts as to how tough things could get for you.

Yes. I mean, first of all, it's very difficult to say and predict. I mean, this is sort of a bit of an unprecedented situation. Yes, I think we will hold up a little bit better than many other manufacturing. But we will certainly be impacted. The exact degree, I mean, governmental budgets are under a lot of strain right now. And I think they probably will be for the rest of the year. I don't know. I think things that could affect that is how much relief they get from the Fed from the federal government. Since most of our customers are more city county state entities, not federal in our industrial sector or in our governmental business. And so I think, like I said, that's some of the wildcards, how bad will the revenues be? How much help will they get from the federal government. But I mean, most of our equipment is being essential and then mix daily. And they and it's wearing out on a regular basis. So I mean, I think that's and we're a small part of their budgets and sort of a maintenance part of the budget. So I think we will hold up a little bit better, but it's still like I said, it's everybody is going to be effective to some degree. And I think it's going to be real important to how much people start getting back to normal business. In the next couple in the second quarter in general. But like I said, we'll be affected. I think we'll hold up better. I think we're in shape to deal with the situation. But it's really hard to predict exactly how much we will all be affected.

Okay, great. Then I wanted to shift to the ag business. I mean, some of your comments sounded a little bit more positive, and they're still be positive, but not as rough as industrial. Maybe contrast some of the row crop farmers against some of the ranches. Maybe first on the go crop side, you are seeing higher acreage, I think, across most of the major costs this year. So I'm curious if that has any impact on your business on a positive side? And then on the rancher side, can you help me kind of figure out the downstream some of the wheat plant shutdowns and [indiscernible] lant shutdown, does that have any effect on the upstream farmers at toward investments in the near-term?

Yes. Some of this is certainly hard to predict. But you're right, the row crop farmers are in the field. Their acreage under cultivation is holding up steady, and we believe that as long as the acreage under cultivation is holding up steady and that crop prices are like certain farm incomes have been down, but as long as they don't go down, I think there's more chances to go up than down in the short-term for the row crop farmers. And so I think they will like business are certainly not going to say normal because it's not like they're going into their dealers and kicking tires and everything, they're all trying to social distance. But I think in general and our bookings are showing it in that the row crop farmers are acting, I won't say normally, but not too far from normal. The ranchers are like I say, that's it's tragic what's going on with some of the wheat packing plants and all like that. And I know that's causing some short-term disruptions to that whole thing, but actually, they're already predicting that prices are going to go up on wheat products because there's less availability. And I think so farmers and range. Like I say, it's more the middleman and the processors that are the kind of the wildcard there is the how soon are they going to get their act together, get their plants cleaned up, get back to operating functionally because demand is holding up reasonably well. And so like I said, it's the processing that's I believe the wildcard. But I think that the second quarter could be a little rough on that. But I mean, I think the second half of the year, that should be they should have found ways to function effectively and should be back a little bit more normal. I think some ranchers are they're not getting their hurt, but they're not adding to us at this point in time. They don't that prices are down, but I think they hold on. But like I said, I think that will come into more of a balance in the second half of the year, but I think you're going to see more issues in the second quarter.

Okay. That's great color, Ron. Maybe one last one for me. On the debt side, Dan, I guess, are any kind of major debt reduction on hold? What's your finance for the year now that this has all happened and then I mean, at the very least, do you plan to just have extra cash on the balance sheet, at least make should at least potentially bring down net debt. Obviously, if you need the cash flow go get it, it users. But if you don't is the French least to keep that net debt as low as possible?

Yes. I mean, certainly, cash management, keeping net debt continuing to reduce net debt is our major goal. But we will be paying we will be making some debt, paying down debt. We will we actually believe cash flow should start should improve as the year goes on. And that as we're effective at reducing some inventory. I'd like to say with a little softness in sales, we'll also see receivables coming down. So as we turn some receivables and inventory into cash, we will be paying I thought we're not going to just hold all the cash. We will start paying down debt, and we want to keep our we want to keep enough cash balances to meet our needs. And in the short term, I mean, most of our cash is outside the U.S. and but now that it's a little bit easier to repatriate that. We were worried about a month ago, I mean, the U.S. dollar was a little strong, some of this cash outside the U.S. that come down in value. But now that that's gotten back a little bit more into equilibrium. And so yes, we will probably be bringing back more cash over some overseas, and we will bring and we will be paying down debt. We'll still be holding above-average cash balances. But I do foresee that for the rest of the year, you'll see our debt decline.

I just want to confirm, do we paying down the debt more than just a minimum, there'll be a chunk.

Yes.

Okay. Okay. Well, great, thank you so much for answering my questions.

Thank you.

Our next question is from Joe Mondillo with Sidoti Company.

Hi, good morning, Ron and Dan hope you're doing well.

Yeah, morning. Thank you, Joe.

Just wanted to follow-up on one of my questions there regarding the Ag business. And I just curious is to what degree maybe you don't have to quantify exactly, but to what degree does the row crop farmer makeup of your Ag segment? And I'm just particularly asking because as I'm sure you know, the ethanol markets are really, I think, weighing on consumption and the fact that they're planting a lot of corn this year, you could be looking at a situation later in the year a lot of supply, not a lot of demand because of the ethanol markets, which could result in some lower crop prices, which we've already sort of seen already. So I'm just curious how much that part of the Ag business or Ag sector makes up of your segment?

We have given that we go through dealers, is it is hard to get a feel for the breakdown of between, say, ranchers, farmers, hobby farmers, the orchard farming, the many the subsectors within Ag that we don't have really definitive breakdown of our sales, but certainly, you're right. I think if there's overproduction in corn and the ethanol, I think corn prices could be under some could see some weakening. But I think with the acreage under cultivation, and there's already a fair bit in storage, I mean, I think farmers are going to probably still be selling and we mean that sellers and because they've got too much in storage already. And I also feel that the farm incomes, while you got to remember, I mean, they're 30% below where they were five, six years ago already. And so I mean, I don't think there's I still feel farm income should hold up reasonably well. Because, I mean, they've been at that fairly constrained crop prices. So I think that barring any we got to show that the whole network can get this to market and get this process and get this to the consumers. But actually so I think there's still even given where we are with farm incomes, I actually think there's still slightly more upside than downside and with ranchers, too. I mean, I think that like they would sort of benefit by lower corn prices, apply helps the ranchers as well. So that's the other used a lot for feedstock. So yes, I guess where we are in the Ag cycle, I still feel that we're so low in it that I feel that there's still not much downside, some upside, even though I know what you're saying about ethanol and corn and everything, but I still feel where we are, there's slightly more upside than downside. But even at the downside, it should total up a lot better than like I say, as long as farmers have so much acreage under cultivation, and that's the interesting thing as was pointed out acreage under cultivation is holding up reasonably well. I mean it's strong, and we feel that they have to have equipment to farm that much acreage in almost whatever the crop prices are. And certainly, they have the better they are, they'll spend more. But I think that's why I think there's could be a little more upside not a lot of downside with that kind of acreage under cultivation, but we're at such a low point to begin with.

Yeah. From a top

Yes, that's right.

So I was wanted to start to understand it a little bit better on when exactly start to see really the severity of the downturn? And relative to that timing, how long or when did you put in place a large serious cost management measures that you spoke about?

March. I mean, I mean, January and February were both strong ones for our company. Like I said, record results, even with the weak March. But March, things started getting heavy and fast. I mean, that's when all the shutdowns were coming. Europe was kind of well, Italy was already in bad shape more earlier than that, but I mean, it was really March when France and England and all started really, like I say, started all there restricting measures. That's when March was in all of our plants in England and France were shut down for some period of time. That's when even in the U.S., when our first cases started to show up in not only with us, we've actually working to have very not a lot of cases in fact, it's interesting. Most of the ones we have are now back to work. But that like I said, it was March that's when people started working from home, all these stay at home orders. And that made it kind of like responding kind of difficult because governmental aren't set up to work from home. Of course, in our products, we can build from home on. I mean so while we have people working from all and our customers do. It's fairly unique situation and like the unprecedented situation we've all tried to adapt to these changes. And like I said, that's the good thing now, even though it was like I said very little affect our business in January and February, but March saw most of the effect, all the softness showed up there. Continuing a little into April, but like I said here now that we're moving into May, we are starting to see, like I say, all of our plants in Europe are now open…

This is Richard. We actually started making cost adjustments toward the tail end of March and the first two to three weeks in April.

Okay. Okay. I was just trying to determine how quick you are to sort of react to the changes in the cost measures that you talked about?

Well, and as Richard said, I mean we started seeing these like you didn't the whole two first two months January and February were good months for us. March started off good. March ended poorly, but then by the middle of March, we were already announcing salary debts and travel restrictions and cutting back on CapEx and also, I mean, we responded as soon as it everything started hitting hard, hard and heavy in the second half of March, and we responded in the second half of March.

Okay. And then last question for me. Regarding the backlog and your order in, just wanted to try to get a clear indication of what you're sort of seeing? Because some of your commentary to predict a little bit. I mean, you stated in the prepared remarks that excluding the acquisitions, your backlog is up 19%, which is a fairly sizable number. But you also sort of described the backlog is fairly healthy. So have you seen any change in the order trend at all? Or could you just help sort of clarify that listing?

Well, yes, I mean, when I say backlog is fairly healthy for our needs for the second quarter. It's as I said, I mean, in middle of March and second half of March and the first and early April, communication with customers, communication in general, we got very difficult, nobody everybody was responding. I mean, I know it's the second half of March, early April. There was some new directive from some states, some county, some cities, some country regarding shutdowns. I mean, multiple of these daily and trying to respond wherever given that we operate in so many states and so many with plants, 30 plants around the world and everyone so I mean, it was I mean, daily, we were trying to respond to changes in the operating conditions of where we were. Communication with customers became was challenged because, like I said, some of these customers will now stay at home. And as I said, some of our customers governmental's aren't really set up to work from home. So it was a very challenging environment. And yes, like I said, the orders were still coming in, but there was but not at the same pace. And certainly, like I say, communication was difficult. That's why I'm saying now, I think we're seeing communication start to improve, Ag ordering, Ag bookings in April, certainly, were better than they were at the second half of March. And they're so doing reasonably right now, even though this isn't one of our big order times. I mean, in Ag, I mean, like I said, our biggest orders come in the second half of the year. But they are functioning and are operating on I say nothing is a normal basis, but a little bit better basis, communications improving. Governmental's are still…

Yes. No, I understand. A lot of uncertainty. If I could just quick throw one last question and just oil and gas, what does that make up of your business in 2019?

Again, it's hard to say exactly. I mean and we don't have that kind of detail of the ELA vacuum truck to a contractor. I mean, a lot of that's in our vacuum truck business. And we sell it to a contractor, we don't know who all he's working for. But yes, I mean I think even going back around 2016, when oil and gas had dropped in, I mean, we saw a noticeable decline in our rental business of vacuum trucks. Since then, I mean, we have diversified that base more to where but oil and gas is still in it. I mean, oil and gas, I wouldn't think account of our Alamo's total business is certainly low single digits. So it's not a big thing, but it is certainly under stress right now. I mean they oil and gas has really been impacted by like say, we get the COVID-19, they've got the oversupply in the Saudi Russian battle. And so I mean, there's lots of things going on in oil and gas, not on what's pretty good are good in the short term. So I think that is going to be soft. It won't impact us as much as it did in 2019 downturn. But it's certainly it's going to help us, but it's a little bit hard for us to breakout between oil and gas, construction, mining and some of these other sort of non-governmental applications, mostly in our vacuum truck area. And a little bit in some of our other areas, excavators and this kind of stuff. But so yes, I think that's going to be like I say, it isn't going to help, but construction is soft mining is soft, everything is soft right now.

I got good luck with everything guys and stay safe and well thank you very much and appreciate it as well.

All right.

[Operator Instructions] And our next question is from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning guys.

Good morning.

May be stay on the kind of order outlook for a moment. So one of the things you talked about was even if the pandemic outlook improves, still could be a lag in the second half unless orders improve near term. Can you just kind of remind me in terms of the products that have the longest lead times where that becomes that much more crucial for article near term? And secondly, are those lead times a little bit more under your control these days or still there's supply chain issues that spectrum?

Yes. The order lead time for us, I mean, usually 30 to 60 days takes us to sort of build a product. I mean, sometimes we'll be out as much as 90 days on certain products but usually fairly short. And like I said, I mean, we going into this, probably a little bit too much inventory to begin with. So that some softness, I think, we've got a lot of inventory that we want to actually work down. The lead times, I wouldn't say are changing a lot. I mean, we've been certainly, a lot of our products like vacuum trucks, street sweepers, some excavators, our used truck chassis, we buy truck chassis, and certainly, the whole vehicle industry has had a lot of plant closures and cutting back. They're starting to reopen a little bit. And so far, we've not had any, like I said, not missing deliveries or anything problems of any major nature with on like sourcing truck chassis and with our inventory and with the with their lead times. I mean, I think I could see lead times getting a little bit longer, but I don't really see the in the short-term next couple of quarters, that being a major issue. I know Caterpillars got back on some engine manufacturing people coming to people like that. We're already trying to sort out. We already are working with them on forecasted demand for later in the year to make sure that we have adequate engines, especially, I mean, like Morbark are new one day. They there's a lot of engines, they put on to there as opposed to bank chassis, they buy a lot of engines and then build the equipment to build the equipment. So, like I say, we're already on top of that. We're…

Got it. Helpful. Let's like Morbark had or was having very good Q1. Is you see anything different there versus kind of the core industrial products through April into May is Morbark kind of in the same goal? Is it holding up a little better than some of the kind of core industrial products?

It's holding up reasonably well. It's I mean, some of their big products we've had a few more issues there. So that people have either kind of especially Canadian dollar units that people are saying, "Hey, the economics I need to see how this most situation develops on the economics. So we've had a few delays there. And so but yes, but it's interesting there already. I say I commented that we're getting a little bit more feedback from customers. I mean, I know they, just in the last couple of weeks, have had a big influx of inquiries about, all right, what's the what are lead times today? And so I mean, like I said, I think they were a little bit slower initially as all this was hitting and but a little bit like I say, they're getting we actually think they'll probably be one of better units to respond to come they'll come back a little quicker. So but that's certainly they've been effective like that evolving effect, especially big-ticket items are getting a little more scrutiny.

Last one for me is you've talked about again in the prepared marks, in addition to cost-cutting and cash conservation measures already implemented here we're doing other potential for short actions. Can you talk a little bit more about some of those might be?

Sure. I mean, a lot of, of course, the things comes down to people. And so we are daily reviewing our staffing levels and working and deciding how many people we need, I mean, we feel that like say, we've already taken some salary cuts at the salary level. There's we feel that things, I'd say, one of the things on [indiscernible] is to actually do more but we're as opposed to that versus the headcount, but we're trying to control it more with headcount in the short term. Other than that, like I said, we've delayed some development initiatives. We've been doing some stock buybacks, we stopped that for the short term. So I mean, what you said it's I don't most of it deal with people and salaries. We've already kind of eliminated most travel. I mean, there's some central that has to go along with them. And we're not doing any international travel, and we're not and we're doing very limited domestic travel. But other than that, like I say, it's yes, I mean reviewing all kind ever level of cost, but those are the really, for us, it comes down to pop. And that's the one we're trying to adjust our staffing levels to have what we need, but not have more than we need in the short term, and we're making changes daily. And especially as now people are starting to open up a little bit more and making plans to open up a little bit more. We're trying to be ready to respond to the customer needs and that. But I think, like I say, most of our salespeople, they're not on the road right now. They are mainly servicing customers through phone calls, and emails, text and Allan. So at some point, we'll try to probably loosen that a little bit. But I don't want I don't want this whole country to jump to reopen before the statistics don't really support it in some places yet. But like I said, I mean, I think we're looking at all costs, but mainly, it comes down to people.

Appreciate it. I'll jump back in the line. Thanks guys.

Thank you.

[Operator Instructions] And right now, there are no further questions in the telephone queue. I'll turn it back to management for closing remarks..

Okay. Well, again, thank you all. We really appreciate you joining us today and your interest and support of the company and I mean, like I said, I mean, this is certainly an unprecedented and a terrible situation, but I want to just assure everybody that we as a company are doing or I mean, say, on top of everything and trying to work very diligently to respond to conditions as they change, good and bad. And but so we feel good about our ability to continue to perform and function and all. And like I said, I think the second quarter is going to be very interesting and critical for, like I say, not just us, but I mean, I think our whole country and our whole industry. So but we thank you, and we'll try to keep you appraised of how we're developing, and we look forward to speaking with you on our second quarter conference call in July. So have a good day. Thank you very much.

This concludes today’s call. Thank you for participation. You may now disconnect.