Good day, and welcome to the Alamo Group First Quarter 2021 Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Edward Rizzuti, Vice President, General Counsel and Secretary. Please go ahead.

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'll 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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 888-203-1112 with the passcode 1046379. 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; Jeff Leonard, Executive Vice President; 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 attachments to our earnings release. Before turning the call over to Ron, 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 impacts, including operational and supply chain disruptions; 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.

Thanks, 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 2021, and I will then provide a few more comments on the results. Following - and following our formal remarks, we look forward to taking your questions. So Dan, please go ahead.

Thank you, Ron. The key takeaways from our first quarter 2021 results are. Record first quarter net income and earnings per share up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis. First quarter sales down 1% from the prior year first quarter. First quarter operating income essentially flat to the adjusted prior year result. First quarter and trailing 12-month EBITDA also flat to the comparable adjusted prior period performance. First quarter cash flows reflected working capital needs driven by high order backlog and a record order backlog of $453 million, up 95% over the prior year quarter and up nearly 28% since year-end 2020. First quarter 2021 net sales of $311.2 million were 1% lower than the prior year first quarter. While we continue to see a strong rise in order rates and backlog, the COVID-19 pandemic continued to negatively impact our manufacturing efficiencies and inbound supply chain during the quarter, delaying some shipments. Industrial division first quarter 2021 net sales of $211.9 million represented a 7.9% decrease from the prior year first quarter due to pandemic-related impact on customer demand and disruptions to our supply chain and operations. Agricultural division first quarter 2021 sales were $99.3 million up 17.5% from the prior year first quarter. During the quarter, we continued to see strong organic sales growth across this division. The immediate top line benefit of the surge in customer demand was somewhat constrained by the negative impact of the pandemic on inbound supply chain and manufacturing efficiencies, as previously mentioned. Net income for the first quarter 2021 was $17.5 million or $1.47 per diluted share, up over 12% from the prior year first quarter. Excluding the Morbark inventory step-up expense from the prior year result, first quarter net…

Thank you, Dan. I appreciate the financial update. There's an old Chinese curse that I think says "may you live in interesting times." And so I mean, we are certainly living in interesting times. But I'm glad that for Alamo Group, we actually are managing our way through this nicely and as our first quarter results showed, where we had strong sales and record earnings. But there are certainly many challenges that are ongoing. Many of these - most of these are the repercussions from the ongoing COVID pandemic, which is still very much an unresolved issue that is affecting our company, our workforce and the world economy in general. And the many other issues we are facing, including supply chain challenges, logistical disruptions and inflationary pressures, are basically almost extensions of the pandemic. We are certainly not alone in this as nearly all industrial manufacturing companies that we know of are facing these same issues. But despite these issues and distractions, we're very pleased with the way our company has performed in this environment, and we remain diligent in managing these issues to deliver ongoing solid results. We're glad to see that the markets for our products are holding up well and have mostly returned to pre-pandemic levels and in some cases, even better. This is most evident in our bookings and backlog, which are at record levels. And even though if not for these challenges, we could have shipped more in the first quarter, but we would have still finished the quarter with record backlog. Like I said, I think if we didn't have quite as many supply chain issues, our sales would have been a record for the first quarter instead of being down 1%. But even with that, we would have still finished with record backlogs.…

[Operator Instructions]. Our first question comes from Mike Shlisky with Collier Security.

So there was one topic, I mean you kind of touched on it, but didn't mention too much about. I was wondering if we can just dive into it, and that is chassis availability. Have you been having any - has that been a big part of the challenges you've been facing? And do you anticipate having to, at any point, really curtail or shut down temporarily if some of these companies just can't get you the chassis that you're looking for?

Yes. I mean, certainly, chassis availability, the lead times have really grown. There's several manufacturers who have announced they're going through some temporary shutdowns. The chip issue we're all hearing about that's affecting the auto industry is certainly affecting chassis deliveries. Fortunately - I mean, we certainly missed some deliveries, missed some shipments. Our shipments have been delayed because of some issues. But by and large, we've been able to deal with it pretty effectively. And even though, I mean - and we're having ongoing regular discussions with our chassis suppliers. And while like they've come out, like I said, down to some plant closures. But they seem to be, number one, doing a little bit better than they said they were going to do, and the outlook seems to be a little bit - not quite as bad as they implied. Yes, there will be, as I've already said, we're going to have supply chain issues in the second quarter and all. And - but I mean, I think we've tried to get a little bit more resourceful in sourcing chassis and looking outside some of our normal channels, successfully. And so I mean, it is an issue and it will affect our deliveries, but we think that we can still achieve - have good results and very positive and still meet a lot of the deliveries. But certainly, there will be some challenges and some missed deliveries. But by and large, I mean, I think we're in better shape than I thought we would be right now.

Got it. And just curious, have you seen any company - any customers come back with any cancellations from the backlog? Or has anybody threatened or actually switched brands to other companies? Just give me some of your thoughts about, is everyone kind of in the same boat as Alamo right now?

Yes. As I said in my comments, I mean, everybody is pretty well in our same boat. And we don't - I mean, yes, we have not lost any orders. That's - like I say, I mean, our backlog is - it shows. And yes, I mean, customers want the product. But I mean, I don't think anybody's in any particular better shape than we are. And so I mean we don't see losing orders or we don't see cancellations or anything like that being a big concern. I mean - but that's why - I mean, I commented our backlog is very good, almost too good just because I don't like to see our lead times growing like they are. But like I said, I think if you've been following some of our competitors, especially the public ones, their lead times are or the same or worse than ours.

Yes. Yes. Got it. And then in an environment like this, if folks can't get new equipment, do you anticipate seeing, especially in Q2, more parts and service activity than you have seen in the past?

Yes. And we are seeing it. Any time that it usually is following a sort of a year of economic downturns and all parts tend to hold up better, and they have held up better, and we're seeing a little bit better. But yes, there's supply [Technical Difficulty]. But yes, they are holding up well and a little bit better, and I expect they will continue to do a little bit better than whole goods in the short term.

Okay. And then we've heard some good, positive comments from other companies that are public on the tree care world at the moment. Can you give us an update on how things are going at Morbark specifically? Any good positives or challenges there in the demand for that product?

Yes. Morbark is - probably has one of the largest increases in backlog of any of our units. They - as you said, tree care products are holding up well. The demand, there's growing and new, diverse demand for those types of products, and we are very much experiencing that. So yes, we're very pleased to have Morbark part of our group. They've opened up some new avenues for growth for us and I think even that new avenues for acquisitions and other things like that. So we're pleased that tree care is holding up well, and the outlook looks very good for that. And like I say, our backlog is strong, and again, almost too strong. Morbark, we had a couple - that's one of the plants we've had some COVID issues internally, I mean, where we've had some cases ourselves. And so that shutdown a department for like a week or something. So some more - a few more internal disruptions. But there - we're very optimistic about the outlook for Morbark.

Okay. And then maybe lastly, Ron, not going to let you go without saying a big thank you for all the great information and answers over the last bunch of years. I appreciate it, and best of luck. Congrats to you.

Thank you very much. I appreciate it, Mike.

Our next question comes from Chris Moore with CJS Securities.

Just one more on the $453 million backlog, how much of that would you consider extended? And is that extended portion still growing?

Yes, it's still growing. And I mean, like I said, normally, we like about a quarter's worth of backlog. We're certainly well beyond that. I mean it's between - it's not like two quarters, but I mean, it's - but that's why we're going to - we're picking up a little bit R&D spending - I mean, CapEx spending to bring some more capabilities into our plants. So that we can meet it and not only meet the improved demand, but do it very efficiently. There's some supply chain issues that are causing some of it to be a little longer than we would like. But it's still - I think, like I say, we're not out - out longer than I'd like to be, but not out - there's not like there's a bunch of long-term things. I mean everything will ship this year or should still ship this year. And like I said, a little bit longer, but reasonable. Some of that will be tied to supply chain issues. I mean we certainly know what the supply chain issues we have today. We just hope there's not particularly new ones tomorrow. But our purchasing people are really on top of that. Certainly, logistics are a problem. I mean getting ships, getting items out of the ports is taking - is certainly taking - logistics are as much as supply chain issues in the short term. It's very hard to get - not only is it expensive, but it's hard to get trucks to get stuff inbound and even get stuff outbound. So yes, all in all - but like I said, I don't think our - like I say, I don't think our backlog is too far out there.

Got it. Okay. That's helpful. So industrial revenue was down 7.9% in Q1. Probably not easy to do, but if you would look to kind of break that out between lower demand from state, local and muni governments on the one hand versus things like logistics and supply chain and weather and COVID quarantine. I'm just trying to get a sense how much of that was from the lower demand piece of it from the state and local and muni government's funding issues.

Yes. I'll let the guy who runs our industrial division and will soon run all of Alamo Group, Jeff Leonard, answer that one.

Yes, that's a really good question. There are several things going on in the quarter that you should keep in mind. I mean, one, last year was a national election year. And this election was not settled really until January, and some might argue, it took a little bit longer than it probably should have to settle it. Governmental organizations in the U.S. react to that very strongly, and they kind of sit on the sidelines until they know which way the winds are going to blow. So that's factor number one. Factor number two was the February storms in the Southern United States. Typically, one of our bellwether businesses is our mowing businesses, which start mowing in the Southern states already in late January and early February. So we had a delayed start to that, which also affected our parts business a little bit adversely in those product lines, those specific product lines. As we move forward, lead times are stretching out, to Ron's point. If you look at our industrial truck businesses, lead times for chassis have stretched out, we're not in any kind of a crisis yet. We've been very fortunate, our dealers who supply trucks to us have been able to pretty much keep with our demand, but with - albeit with a little bit longer lead times. So I think that the backlog does reflect the strengthening of the business. January was soft, as Ron said, February was better, March was very strong and April has started off fairly strong as well. So I think we'll see an improving situation. All of that is tempered by the supply chain, which is wobbly right now and even getting such as containers to export products is a problem at the moment. And that's holding up some of our shipments. So I think we're a little bit cautious on Q2, not because we don't believe the demand is there, no, we have plenty of demand. I think it really just is our ability to ramp up and meet the supply and get all the parts and components in from our suppliers that we need to build product. But I think those - some of those issues are related to the winter storm, shortages of plastics, containers in the wrong place and so on. And I think those will progressively start to clear out as we move through Q2. So I think Q2 will be good. And I think as we move forward a little bit more, some of these pressures will start to ease.

So - and as he said, the supply chain - I mean, if we didn't have those many supply chain issues, we would have had record sales in the industrial division in the first quarter. So I mean - but I mean, still bookings - I mean, the customers were a little soft going into the year for some of the reasons he mentioned, elections and just the ongoing pandemic and budget constraints and everything else. So things started getting - even started the year off a little slow, but built momentum nicely as the quarter developed and as the second quarter is developing.

Got it. All right.

And that strength in bookings has gone across all of our product lines in industrial.

Got it. That's helpful. I'll leave it at there. But I also want to say, Ron, congratulations and thanks for all your help over the last few years. Appreciate it.

Well, thank you, Chris. I appreciate your support all these years, too.

[Operator Instructions]. Your next question comes from Greg Burns with Sidoti & Company.

In terms of the supply chain constraints, I know you mentioned like a crisis mode on the chassis supply. But is there any other particular components or parts that are more of an issue? And are there any specific product lines that are being impacted more than others?

No. I mean it's pretty well fairly broad-based as far as problems go. I mean - and so yes, chassis - steel is pretty well available and things like other kinds of raw materials. It's more the manufactured stuff, I mean, like I say, chassis or gearboxes, drivelines, those kind of things. But interesting, like the components that we source from China are actually pretty well, those factories are working, and we're getting components from there. But those are the ones that are being affected more by the logistical issues, the backup in the ports and the transportation and all. I mean I can tell you, part of our spending variances was flying gearboxes around the world, which is not very efficient. But like I said, there's no one thing. We're actually probably even seeing like - things like steel, while it's almost like doubled in price, but it's probably softening a little bit right now, like it may have dropped a couple of cents in the last month or so. So - but no, it's - I wouldn't say - like I said, it's fairly broad-based and no one thing in particular.

All right. And then the acquisitions in 2019 were a little bit before my time. So I was just trying to get a sense of maybe what the projected revenue and EBITDA contributions for those acquisitions were at the time. What were they doing and maybe where we are relative to that now? Just trying to get a sense of this idea that we're not yet seeing the full benefit of these acquisitions in '20. And trying to get a feel for maybe what the revenue and margin upside this year for those acquisitions.

Well, first of all, I mean, if you just took the 3 acquisitions and a 12-month sales level, they would have added almost like just 25% to our top line. We don't usually give margin information by it. But I don't know, Dan, you...

Well, we did disclose at the time of the - we closed the Morbark acquisition, we disclosed there were about $240 million in sales and over $40 million in adjusted EBITDA, trailing. So that - we did disclose that number back then. We did not - we have not disclosed numbers on the smaller acquisitions.

Okay. And then when you - sorry, go ahead. Okay. And then when you look at maybe the synergy projects or the efficiency and integration projects you have around Morbark and the other 2, have you quantified kind of a number around what you hope to achieve from those? Or maybe how much - how many like incremental basis points of margin leverage you might get from those? Just trying to get a feel for where you are at in the integration process and maybe what the potential incremental benefit might be this year or next year.

Yes. Again, we certainly have internally quantified it and internally have targets and goals. We don't usually give much of that publicly. Though we had said even like in Morbark case, their actually operating profit margins were higher than our average operating profit margin. So I mean, like I said, even doing nothing, we thought they should help improve our overall margins. And with the synergies, we also said things like millions of dollars of synergies just in supply like in procurement. And we believe - and we're pleased that pretty well the synergies on all of this, we're achieving them, but not at the level we anticipated. The purchasing one - the procurement ones for Morbark, for instance. I mean, two, we had to work down some of their old inventory that was at the higher prices. And secondly, up until now, we hadn't really - they haven't been producing at the same level. So we haven't been buying as much. So we were getting the synergies that we identified, but not at the full level. We think by the second half of this year, we'll start getting it more at the full level. So we got them integrated into our operating system, our ERP system. We've - like I say, we're putting them on our benefit structure and other things like this. So I mean we've achieved most of the other synergies we have. Probably the one - the procurement one, just not at the same level yet. The only area we were going to do more, Morbark is very North American focused. And we - through our network, we were going to try to take them a little more internationally. That one, we're - certainly have not achieved the full level we wanted there just because we're still not allowing anybody to travel internationally so - across the ocean. So I mean, that one's taking been a little bit slower in developing. But by and large, the synergies are. We also - and like in Dutch Power, I mean, good - I mean, we announced in the fourth quarter, a plant consolidation from 3 plants to 2, which will have a very good payback. We've already - even the one plant, we're proposing to close. We've actually already sold it and actually closed on the sale here in the second quarter of this year already. And so I mean, that whole plant consolidation has about a 1-year payback, I mean, let alone improving our overall margins for there. So yes, we believe that when all this is done, we should definitely see overall margin improvement for Alamo Group, even though we have not sort of detailed each unit and each opportunity. But we're pleased that they are occurring. And we're - like I said, we haven't achieved the dollars we wanted to at this point due to COVID, but we believe we'll still achieve all the synergies we anticipated.

There are no additional questions at this time. I'd like to now turn it back to management for closing remarks.

Okay. Well, again, thank you for joining us today. We look forward to speaking with you at our second quarter call in August. And again, I personally - even though I probably won't be on that call, I very much appreciate your support and look forward to following the company's progress under Jeff's leadership. Thank you very much. Have a good day.

Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.