Good day, and welcome to the Alamo Group Inc. First Quarter 2020 Conference Call. 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 1-888-203-1112 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 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 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% 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 impact of our Morbark and Dutch Power acquisitions, 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% 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 Europe, significantly affected our shipments in the last two weeks of March. Net income for the first quarter of 2020 was $15.5 million or $1.31 per diluted share compared to the prior year quarter net income of $15.3 million or $1.30 per diluted share. The Morbark and Dutch Power acquisitions were accretive by $0.01 per diluted share. Our GAAP net income now includes some large non-cash expenses stemming from the opening balance sheet allocations of these acquisitions. Most significant of these are changes related to the step-up of inventory values above Morbark historical costs and the incremental amortization expense related to the allocation of most of the difference between the total acquisition cost and the fair value of hard assets to amortizable intangible asset categories. These acquisition accounting effects require no future cash flow for maintenance outside of ordinary operating expenses. If we exclude both the step-up and incremental amortization, the EPS contribution of these acquisitions would have been over $0.30 per diluted share. First quarter 2020 adjusted EBITDA, which excludes the Morbark inventory step-up charges, was $37 million, up $8 million and 28% over the prior year first quarter. Our adjusted EBITDA as a percentage of net sales was 11.7% in the first quarter compared to 11% of net sales in the prior year first quarter. Strong Morbark and Dutch Power results driven this margin expansion, with the two acquisitions contributing more than the total increase in adjusted EBITDA dollars and an above-average adjusted EBITDA margin. Excluding these acquisitions, core business EBITDA was lower than the prior year due to the COVID-19 related plant shutdowns, production tests, and shipping delays. During the first quarter of 2020, we generated $5.6 million of positive operating cash flow compared to $32.4 million of negative operating cash flow in the prior year quarter. Due to the normal seasonality of working capital requirements, we usually have large negative first quarter operating cash flows, which were in the neighborhood of $30 million in each of the past two years. This positive cash flow trend, largely driven by favorable working capital changes, began in 2019 due to slowing sales growth, and we expect it to continue in 2020 due to the impact of COVID-19. At quarter-end, $84.4 million of cash on hand and $119 million of availability under existing credit facilities provided us with over $200 million of liquidity. While we currently have more than adequate liquidity, we cannot forecast the duration and full impact of the COVID-19 pandemic. However, we do not anticipate any near-term liquidity issues. Our order backlog ended the first quarter at $233 million, having declined 11% since December. Backlog is about 10% lower than the prior year first quarter. Dutch Power was included in our prior year first quarter ending backlog, and first quarter 2020, Dixie Chopper backlog is large enough to mention here. So excluding Morbark and Dixie Chopper order books, backlog was about 19% lower than the prior year first quarter. To recap our first quarter 2020 results, net sales were up about 20% due to acquisitions, organic sales were down 4% due to COVID-19 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%, with acquisitions highly accretive and expanding our EBITDA margins. Operating cash flow generation continued to run favorable to prior year. Quarter-end liquidity remained above $200 million, and covering backlog of $233 million is down 11% since December.

I'd now like to turn the call back over to Rob. Thank you, Dan. And as Dan reported, 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 we are pleased with 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 getting hit hard by the coronavirus pandemic. 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. Interestingly, our Netherlands plants, which are the Dutch Power ones, remained open throughout this period. In North America, most of our U.S. operations continued to function. There were some temporary closures, but probably our Canadian plant, especially those in Quebec, was the most affected by this situation. During April, most of our plants that were closed have now reopened, though at varying levels of operation. We have about 17% of our workforce either absent or on some kind of furlough related to COVID-19, and the majority of those absent 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, although we have many more precautions being taken to ensure our employees are operating safely and maintaining social distancing. We also have about 500 people working remotely during this time. While we are having a few supply chain issues, generally, our vendors and suppliers are functioning on a basis similar to us. The reduced scale is still able to meet most of our requirements, especially as we are focusing only on our short-term needs. We have also had a few issues with some customer orders. These have been fairly limited, but we've had a few orders canceled and a few more where customers have requested shipment delays due to their operational limitations. For the most part, our customers are accepting deliveries and making payments in a normal fashion. The bigger concern is that customers are not placing new orders at quite a normal pace at this time. Our Agricultural products seem to be holding up a little bit better, and the incoming order rate there has held up a little bit better. Certainly, the farmers are in the field right now in all of our major markets and are functioning. While we are seeing cuts back on orders, they are still ordering products and spare parts on an as-needed basis. We are pleased that our inquiry level is holding up generally well. Customers still seem to be inquiring about deliveries and getting quotes. In total, that has limited our asset bookings in the short term. We hope that now some of these restrictions are loosening, this situation will start to improve, although we are concerned that reduced income and budget constraints with some of our customers, particularly governmental customers, will continue to have some effect on our markets for the rest of the year. As a result, we have taken a number of initiatives to control costs and conserve cash. We've mentioned several of these actions in our reports, including pay cuts, restrictions on travel, adjusting our staffing levels, limiting capital expenditures, and cutting back on inventory, among other actions. We believe that as a result of these and other actions already taken or contemplated, we are certainly always looking at where we are and not what we did yesterday, but what we need to do tomorrow. We believe that with these actions, our cash flow should remain strong even if the business stays soft. Certainly, we have a little more debt than usual for our company as a result of the high level of acquisitions completed last year, but the company is in compliance with all of its financial covenants and expects to remain so as a result of our cost control and cash management initiatives. In the second quarter, we will also continue to benefit from our strong backlog. While it dropped slightly in the first quarter, it is still at a healthy level. It is important that bookings maintain a reasonable pace during the quarter. Fortunately, our Agricultural Division seems to be holding up reasonably well even in Europe where they are starting to get back to work. We are seeing the Ag bookings holding up reasonably well. There is certainly a bit softer in our industrial sector as both our governmental and non-governmental customers have been weaker for the last month. However, over the last few weeks, interaction with our customers is noticeably improving, as people are starting to get back to work and in some cases are functioning more effectively on a remote basis than they were in the early part of the stay-at-home directives. All in all, we feel the historic stability of our markets will continue to help Alamo Group, but we will certainly not be immune to the challenges this pandemic is causing globally. Therefore, as we have been doing since this situation began, we are continuously responding to the ever-changing conditions and taking all reasonable actions to mitigate the problems while still supporting our customers and their needs. We are acting aggressively while trying to avoid the temptation to overreact to these situations. This has been a team effort, and I am very proud of our management team that has acted tirelessly and selflessly to stay on top of this issue, responding daily to the many changes in directives that were coming at us hard during the month of March and April. We also want to thank our vendors and customers for their continued support in this process, and particularly our shareholders and the investment community for their loyalty during this time as we all try to navigate through this. I would like now to turn the line open to any questions you might have. That concludes our formal remarks, but we'd be glad to take any questions. Operator, please go ahead.

Yeah, absolutely. Our first question is from Mike Shlisky with Dori & Company.

So I wanted to ask 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 rarely seen your revenues decline all that much. There was, of course, the Great Recession, but revenues were not impacted as much in the teens or 20s. Do you think that this time will be any different than prior downturns? There is no 50% to 50% kind of decline here in the making; it’s probably more of a more modest downside here. Just kind of your very broad thoughts as to how tough things could get for you.

Yes. First of all, it's very difficult to 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 sectors, but we will certainly be impacted. The exact degree is uncertain, as governmental budgets are under a lot of strain right now, and I think they probably will be for the rest of the year. What could affect that is how much relief they get from the federal government. Since most of our customers are city, county, or state entities, not federal in our industrial sector or in our governmental business. So, like I said, that's a wildcard—how badly will revenues be affected? How much help will they receive from the federal government? Most of our equipment is essential, and it wears out on a regular basis. I think we will hold up a little better, but it's hard to predict exactly how much we will all be affected.

Okay, great. Then I wanted to shift to the Ag business. Some of your comments sounded a little bit more positive than rougher, but not as rough as industrial. Maybe contrast some of the row crop farmers against some of the ranchers. First on the row crop side, you are seeing higher acreage across most of the major crops this year. I'm curious if that has any impact on your business? And then on the rancher side, can you help me understand the downstream plant shutdowns? Does that affect the upstream farmers' investments in the near-term?

Yes. Some of this is certainly hard to predict. You're right; the row crop farmers are in the field. Their acreage under cultivation is holding steady, and we believe that as long as the acreage under cultivation is steady and crop prices do not decrease significantly, we are likely to see a modest improvement in the short-term for row crop farmers. There's more chance for prices to go up than down. However, ranchers are facing challenges due to plant shutdowns, which is causing short-term disruptions. They are predicting a rise in prices because of reduced availability. Farmers are certainly facing difficulties concerning their budgets due to the situation, but we think they will balance out in the second half of the year as the situation stabilizes.

That's great color, Ron. Maybe one last one for me on the debt side. Are any major debt reductions on hold? What's your finance for the year now that this has all happened? At the very least, do you plan to keep extra cash on the balance sheet to potentially bring down net debt?

Yes. Certainly, cash management and keeping net debt reduction is our major goal. We will be paying some debt, and we believe cash flows should improve as the year progresses. As we effectively reduce inventory, we will also see receivables coming down. We will not just hold cash; we aim to pay down debt while maintaining sufficient cash balances to meet our needs. Most of our cash is outside the U.S., and now that it is a little easier to repatriate, we will bring back more cash from overseas and use it to pay down debt. We will be reducing net debt more than just the minimum.

I just want to confirm, are we talking about paying down the debt more than just the minimum? There will be a chunk?

Yes.

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.

I just wanted to follow-up on one of my questions regarding the Ag business. To what degree, maybe without needing a specific quantification, does the row crop farmer make up your Ag segment? I am particularly curious because the ethanol markets are really weighing on consumption and you could be looking at a situation later in the year where there is a lot of supply and not much demand, leading to lower crop prices.

We have given that we go through dealers; it's hard to get a feel for the breakdown between ranchers, farmers, hobby farmers, and orchard farmers. We do not have a definitive breakdown of our sales. However, you're correct. If there is an overproduction in corn and the ethanol issue persists, corn prices could weaken. That said, as long as farmers have adequate acreage under cultivation, prices may not decline severely. With ranchers, the ongoing issues with packing plants are causing disruptions. However, they are already predicting a rise in prices. The processing is the wildcard here. We believe that demand is holding up, and as we normalize from these challenges, we expect a balancing out in the second half of the year.

I wanted to understand when exactly we will start to see the severity of the downturn. Relative to that timing, when did you implement significant cost management measures?

In March. January and February were strong months for our company with record results, but March saw most of the effect. Starting mid-March, we began announcing salary cuts, travel restrictions, and cutting back on capital expenditures. We responded quickly to these challenges. Though we had little effect in January and February, we started seeing a slowdown in the second half of March.

I am trying to understand your backlog and order trend. You stated in the prepared remarks that excluding acquisitions, your backlog is down 19%, which is sizable. But you described your backlog as fairly healthy. Can you clarify?

Yes. When I say backlog is fairly healthy it is for our needs for the second quarter. However, in mid-March, communication with customers degraded significantly. Many customers were unresponsive due to shutdowns. New orders were still coming in but at a reduced pace. Communication is now improving, and we view this as optimistic. While still not one of our big ordering times, Ag bookings in April have been better than those in the second half of March, and we are cautiously optimistic as we work to meet customer needs.

I just wanted to ask about oil and gas. What does that represent of your business in 2019?

It's tough to quantify as we don’t have precise data. Oil and gas accounts for a small portion of our overall business, probably in the low single digits. Even in the downturn around 2016, we noticed a notable decline in our vacuum truck rental business. Although it’s impacted, we have diversified more recently. I would expect there will be challenges in oil and gas, but the impact on our overall performance would be limited.

Thank you very much, guys, and stay safe and well. Good luck.

Alright.

Operator, please go ahead.

Hey, good morning, guys.

Good morning.

I'd like to stay on the order outlook. You mentioned that even if the pandemic outlook improves, there could still be a lag unless orders improve in the near term. Can you remind me which products have the longest lead times and how that plays into the current scenario?

Generally, lead times for us range between 30 to 60 days for order builds, although it can extend to 90 days for specific items. We are currently slightly oversupplied with inventory, and we're focused on reducing that. We don't foresee significant changes in lead times shortly, though there are key components like truck chassis that we are monitoring. Mostly, our vendors are recovering from shutdowns and meeting our requests. We don’t foresee significant issues with lead times; however, we will keep monitoring our vendors to ensure they operate efficiently.

Morbark had a strong Q1. Are you seeing anything different there against your core industrial products through April into May?

Morbark is holding up reasonably well. There have been delays on big-ticket items. Many customers are under scrutiny at the moment, but inquiries have increased recently, and we think they will respond effectively. They seem to be recovering at a faster pace than others.

You mentioned considering other short-term actions alongside cost-cutting measures. Can you elaborate?

The main actions are focused on people; we are daily reviewing staffing and how it aligns with our needs. We have taken salary cuts and limited travel, like I said most of our cutbacks are personnel-related. We are looking at all costs closely and adapting our strategy as needed.

I appreciate it. I will jump back into the queue.

Thank you.

And with no further questions in the queue, I will turn it back to management for closing remarks.

Okay. Again, thank you all. We really appreciate you joining us today and your interest and support of the company. This is certainly an unprecedented and terrible situation, but I assure you that we as a company are diligently working to respond to conditions as they change, for better or worse. We feel confident about our ability to continue to perform and function. I think the second quarter will be crucial not just for us but for the entire country and industry. Thank you, and we look forward to speaking with you on our second quarter conference call in July.

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