Good day and welcome to the Alamo Group Inc. Third Quarter 2020 Conference Call. Today’s conference is being recorded. At this time, I would like to turn the call over to Ed Rizzuti, Vice President, General Counsel and Secretary. Please 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 1 week. The replay can be accessed by dialing one 1-888-203-1112 with pass code 1987728. 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 and Chief Financial Officer; and Richard Wehrle, Vice President, Treasurer and Corporate Controller. Management will make some opening remarks and then we will 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 attachments to our earnings release. Before turning the call over to Ron, I would 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 here today. Dan Malone, our CFO, will begin our call with a review of our financial results for the third quarter, and then I will provide a few more comments on the results, following which we would look forward to taking your call, so any questions you may have. So Dan, please go ahead.

Thank you, Ron. The key takeaways from our third quarter and 9-month 2020 results are record third quarter sales, up 7.3% with acquisitions, but down 8.5% organically. Record 9-month sales up 6.8% with acquisitions, but down 11.8% organically, third quarter 2020 adjusted EBITDA, up over 35% from the prior year quarter and at 14.8% of net sales compared to 11.7% the prior year. 9-month 2020 adjusted EBITDA, up 17.8% from the prior year period and at 13.1% of net sales compared to 11.8% the prior year. Third quarter net income and earnings per share both up 15% from the prior year quarter and included accretive acquisition results. Third quarter operating cash flow, over $77 million, up 78% over the prior year quarter. Outstanding debt was reduced by nearly $65 million during the quarter. Quarter end cash on hand plus loan availability increased to almost $280 million, up nearly 25% since the end of June and third quarter ending backlog of $254.5 million, up 17.5% since the end of the second quarter. Third quarter 2020 net sales of $291.8 million was a company record and 7.3% higher than the prior year third quarter. Without acquisitions, organic sales were down 8.5%. Without the favorable effect of currency translation, organic sales were down 8.8%. The organic sales decline was primarily due to the COVID-19 impact. 9-month 2020 net sales of $874.8 million, was a company record and 6.8% higher than the prior year with the contribution of acquisitions. Without acquisitions, organic sales were down 11.8%. Without the unfavorable effects of currency translation, organic sales were down 11.6%. Industrial division third quarter 2020 net sales of $196.2 million represented a 10.1% increase from the prior year third quarter. Without the impact of acquisitions, this division’s organic sales were down 14.4% due to COVID-19 disruptions…

Alright. Thank you, Dan. As numbers reported by Dan, look, we are very pleased with Alamo Group’s 2020 third quarter results, certainly, particularly given the many ongoing challenges we are facing. Our sales continued to improve from the soft conditions we experienced in the second quarter. And we finished the third quarter at record levels of sales, certainly helped by the acquisitions we completed last year. Our earnings also rebounded nicely where, again, we benefited by both improving sales, along with the accretive contributions from our recent acquisitions. But there was so much more in the quarter than just the sales and earnings. Our cash flow was very strong. We paid down nearly $65 million in debt in the quarter and nearly doubled that in the year – in the last two quarters. While still – and yet we still ended the quarter with a strong level of cash of over $90 million. Our balance sheet also continues to be very healthy and was further strengthened in the third quarter. So, despite the impacts of the COVID situation on our markets and the economy in general, our company showed strong and improving results in almost every measure of financial performance. Also pleased that most of the operational issues we faced in the second quarter showed continued improvement in the third quarter and allowed us to return to near-normal operating conditions. All of our manufacturing plants are open and operating, and we have called back nearly all of the employees we had on furlough or temporary layoff. And in fact, a few of our operations are experiencing some shortages as skilled workers are getting to be in a little short supply, once again, so it’s probably good for the economy. And while some of our markets continue to be constrained by…

Thank you. [Operator Instructions] Our first question comes from Mike Shlisky, Colliers Securities.

Hey, good afternoon guys. Can I get a little bit more color about some of your comments on ag, Ron? Can you give us a sense as to what might be some of the stronger products or stronger areas? Is it the large row crop farmer? Is it the rancher or is it the large acreage that’s kind of driving most of the upside currently?

I would say it’s been fairly broad-based. Certainly, the financial – the subsidies that farmers are receiving are to the big farmers, not – they don’t go to hobby farmers. So I mean, but – so we’ve seen that. But certainly, the small horsepower tractor, sales in the U.S. are up nicely, like double-digit increases in sales there, which I think – so that means even in the hobby farmer sector, there’s been some. But some of the ranching sectors, row crop farm, it’s been – I think that’s been sort of good that it’s been fairly broad-based. And so like I say, no one sector. Certainly, there was a little bump in probably the second quarter and early third quarter from, I think, like landowners who were at home more during COVID than they typically were. And we actually – and there was a big bump in small horsepower tractors and some related type implements, like our single-spindle mowers. But as I said, acreage under cultivation is holding up good. The subsidy payments to farmers, is at record levels. And so I mean – which has helped the big row crop farmers, the big branches. But – so it’s been a pretty – that’s been fairly – it’s been very broad-based, which has been a welcome situation.

Great. Thanks. I wanted to turn to some weather impacts on the order patterns. In snow, you’ve always said that if you see a heavy snow season, oftentimes, the next year is pretty good for snow plow orders. I guess, first, I’m curious whether that’s happened this year, for the snow orders, have been – met your expectations? And then secondly, this has been a very active hurricane season. I think one hit the southeast U.S. just yesterday, and it sounds like the 11 of the year. Do you think hurricanes will have any effect on your vacuum trucks or your forestry equipment once the hurricane season is over? Could the government start to plan ahead for next year saying, we really should be more prepared for next year’s storms with some more equipment?

Yes. Weather impacts on snow removal, first of all, snow is actually starting off quite good for us this quarter. So I mean – so yes, we think that we are seeing some benefits there. And certainly, I think actually, fires have had an impact on us as well. I mean, certainly, some of our forestry products that have been needed in the clean-up and remediation of those type areas. So snow products are off to a good start. Forestry products are off to a good start, like I said, somewhat related to fires. Hurricanes, yes, I mean, there seems to be a little bit more activity. I don’t think – while it’s been bad, not only have been quite as severe like the Katrina’s or this kind of stuff. So – and we have not really seen – I mean our vacuum truck business, as I stated earlier, is actually been one that has been softer. I think it’s because a lot of – especially where we rent vacuum trucks is to some of the non-governmental customers. And some of those areas have been soft, so like oilfield and some construction and mining, these type of things. So they have been a little soft. So I have not seen a big influx from hurricanes, that has offset that. So I’m not saying we haven’t benefited a little. It’s kind of a little early to benefit from the one yesterday. But – so yes, that will help us a little bit. Like I say, vacuum trucks are soft and have remained soft throughout most of this period. I mean it’s gradually improving but, still, that’s been one of the softer sectors.

Okay. And then turning to the balance sheet, looking at your debt and your leverage ratio, it has gotten relatively low. You’re probably around 2x levered right now on net debt, if my calculations are correct. I guess first, Dan, is this area comfortable for you? And then kind of secondly, since you’re in this range, is it now time to go out and look for your next good-sized M&A deal?

I think we’d like a little more certainty in the marketplace before we’re really motivated. But the debt level is not an issue right now. It’s been brought down. We’d like – if we were in a certain market, it would – we’d start feeling like we got a lot of dry powder. I will let Ron.

Yes. No, I think there is – as Dan said, I mean, balance sheet-wise, you’re right. We’re very comfortable. And yes, I mean, we would say, yes, that’s not holding us back from acquisitions. There is a lot of other things holding us back on acquisitions. There are some – there hasn’t been much activity. I think a lot of people have been on the side lines for the last couple of quarters. And people are starting to get more interested and looking at bringing some things to market. But I think as opposed to maybe some high-tech or as opposed to maybe healthcare, which I think have seen more M&A activity going on, I think it’s sort of our industrial space is going to lag in a little bit. It’s hard, still hard to physically visit assets. It’s still hard to – while we all think valuations are a little hard because we don’t know – we think it’s got to be – they will recover from the COVID lows, but the timing is still very suspect. Until we have a clear path to recovery, I think it would be – it’s a little harder to value industrial-type products, the prospects of industrial – of acquisitions of industrial-type companies. So – but yes, we’re starting to open our eyes to things that are coming up there. And like I say, acquisitions are definitely still part of our strategy and we’re comfortable with our balance sheet. But I think it’s still – the right – take the right circumstances for us to move ahead at this time. But we’re starting to look, but yes, it’s a little bit more challenging environment.

Like our goal is to continue to be diligent to pay debt down as we move forward. So as Ron said, that’s correct, like with the environment that we’re at, it moves us to continue to do what we are doing.

Okay, got it. Well, guys thanks again. I appreciate as always.

Thank you.

Thank you, Mike.

[Operator Instructions] Our next question comes from Chris Moore with CJS Securities.

Hey, good afternoon guys. So just trying to get a sense, it sounds like Morbark is one of the bright spots on the industrial side. Organic growth was down I think you said 14.4%, you didn’t own Morbark in Q3 of last year. Roughly, in terms of – from a revenue standpoint, was Morbark revenue down meaningfully year-over-year in the quarter or just kind of any sense there that’s doing better than the overall industrial segment?

Chris, they were a little slow this quarter and it did pick up from – I should say, slow in Q2. It actually picked up here in Q3. But compared to last year, we’ve not given you that information out. And – but yes, we’re seeing a nice pickup with them, both in sales as well as orders and backlog.

Yes. Morbark, in second quarter, I mean, since they have some really big-ticket items, they were off a little bit more early in the second quarter, probably more than the average. But like I said, by the – midway by the third quarter, they were actually one of above-average in one of our stores. I think they are still running slightly behind last year’s pace, but it picked up nicely in the third quarter, but that had a weak second quarter.

Got it. Alright. Thank you. Dan, I might have missed it, but parts and services as a percentage of revenue and how big of an impact did that have on margins this quarter?

I mean, certainly, it helps margins. The mix of parts was higher than last year, but it helped – it was one of our favorable product mix impacts.

Yes. As is typical in a downturn, parts hold up better than whole goods, and that has certainly been the case here.

Yes, both second and third quarter to that way, Chris.

Right. And roughly, what percentage of the revenue was that?

We don’t provide that [indiscernible]

Got it.

It’s a little over 20.

Year-to-date, we don’t have.

Got it. Yes. And just from the ag perspective, that’s obviously doing pretty well. Is – Ron, is that level low single-digits, 1% to 2% organic growth, is that – from where you are sitting today, is that reasonable over the near term?

Yes. I mean, I think so. I think ag, you saw the strengthening in our backlog. I can tell you the biggest strengthening was in Ag. The biggest strengthening in the backlog was in our ag. They are, in fact, well ahead of last year. So Europe is lagging a little bit. And as I just said, Europe is actually – you may have seen that France is reinstituting a lot of shutdown measures to deal with COVID. The word is England will follow suit by the weekend. And so I mean, I am worried a little bit. That’s a big part, good ag sales in England and France and Europe, but – so a little bit concerned there. But right now – so actually, the U.S. organically has even been up more than that couple of percent, and I think it should continue nicely. But like I say, there’s always some uncertainty. But the backlogs are good, the outlook is good and commodity prices are still a little weak, and we would rather see farm incomes be improving more from – that their basic incomes are improving, not that their subsidies are improving. So I mean, that’s always subject to change.

Chris, we like where it’s going. If you go back to the last couple of years, it’s been really a decline, because the market, the ag market has been really tough. So we like where it’s going. It’s not rebounded to the levels we have seen before in the past.

Yes. Commodity prices are still a little soft. And the China situation is still – all those commitments China made to buy cultural commodities from the U.S. have certainly not been fulfilled at the way they said they were going to. So I mean, that’s still a bit of a wildcard there.

Got it. I appreciate it, guys. I will jump back in line.

Thank you.

We have no further questions in the queue at this time. I would like to turn the call back over to management for closing remarks.

Okay. Well, again, I appreciate you all being on the call today joining us. We are – like I said, we are pleased with the – even though as I said, still a lot of challenges out there, but pleased with the progress we are making, and appreciate your ongoing support. So thank you for joining us today, and we look forward to speaking with you when we report our 2020 year end results. Thank you much. Have a good day.

Thank you. Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.