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 one week. The replay can be accessed by dialing 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 nine-month 2020 results are record third quarter sales, up 7.3% with acquisitions, but down 8.5% organically. Record nine-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. Nine-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. Nine-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 to operations and customer demand. Agricultural division third quarter 2020 sales were $95.5 million, up 2% from the prior year third quarter in U.S. dollars and up 2.1% without the effect of unfavorable currency translation. In the third quarter, we continued to see organic sales growth in our North American operations plus some incremental Dixie Chopper sales partially offset by weaker results in Europe. Net income for the third quarter of 2020 was $20 million or $1.69 per diluted share compared to prior year third quarter net income of $17.4 million or $1.47 per diluted share. Third quarter GAAP net income from acquisitions, bearing the full cost of incremental interest, amortization, and inventory step-up expense, was accretive by $0.02 per diluted share. Excluding the inventory step up expense, third quarter accretion from acquisitions would be about $0.07 and EPS would be about $1.74 per diluted share. Net income for nine months – first nine months of 2020 was $48.6 million or $4.10 per diluted share compared to net income of $53.3 million or $4.52 per diluted share for the same prior year period. Nine-month GAAP net income from acquisitions was accretive by $0.09 per diluted share, including the full burden of incremental interest, amortization, and inventory step-up expenses. Excluding the inventory step-up expense, nine-month accretion from acquisitions would be about $0.30 and EPS would be about $4.40 per diluted share. Third quarter 2020 adjusted EBITDA, which excludes the Morbark inventory step-up charges, was $42.8 million, up $11 million or about 35% over the prior year third quarter. Our adjusted EBITDA as a percentage of net sales was 14.3% in the third quarter compared to 11.7% of net sales in the prior year quarter. Higher Morbark margins, favorable product mix, the benefits realized from facility consolidations, and other cost containment measures more than offset the impact of COVID-19 for the quarter. Nine-month 2020 adjusted EBITDA was $114.6 million, which was 17.8% higher than the prior year nine-month results. The nine-month adjusted EBITDA margin was 13.1% of net sales compared to 11.8% for the prior year period. During the third quarter of 2020, we generated $77.3 million of operating cash flow compared to $43.3 million in the prior year third quarter, an increase of 78.4%. Strong operating cash flows continued during the quarter due to management’s emphasis on asset efficiencies and controlling expenses. At quarter-end, we had $93.5 million of cash on hand and $186.3 million of availability under the existing credit facility, maintaining liquidity of almost $280 million. During the quarter, we reduced outstanding debt by $64.8 million and significantly reduced our debt-to-EBITDA leverage ratio. We ended the third quarter with $254.5 million of order backlog, an increase of 17.5% since the end of the second quarter and 18.2% higher than the prior year third quarter. Excluding acquisitions, backlog was only down 1.9% from the prior year quarter. During the quarter, we saw modest organic growth in new order bookings primarily due to higher North American demand for our agricultural products. To recap our third quarter and nine-month 2020 results, record third quarter sales, up 7.3% with acquisitions, but down 8.5% organically, record nine-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. Nine-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. I would now like to turn the call back over to Ron.

Alright. Thank you, Dan. As numbers reported by Dan, 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 from 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 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. I am 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. In fact, a few of our operations are experiencing some shortages as skilled workers are becoming a little short in supply once again, so that’s probably good for the economy. And while some of our markets continue to be constrained by the current adverse economic conditions, we saw our bookings and backlog improve throughout the third quarter. We are particularly pleased that our agricultural division is, in the third quarter, running ahead of last year’s pace as the agricultural sector in general has shown a broad-based improvement and is operating at near pre-COVID levels. While farm incomes are still soft due to weak commodity prices, they are certainly benefiting from higher government support, which has made the overall farm incomes be up this year versus the previous year. Other sides of this are – the fact that acreage under cultivation remains at a very high level, and I think it bodes well for the overall agricultural outlook. Certainly, the agricultural sector has had a lot fewer operational challenges from COVID than many other industries. Our industrial division also showed improving performance in the third quarter, though they are still below the previous year on an organic basis. The products in this division have not improved on a uniform basis. It’s been a little more lumpy, some better than others. For instance, our Morbark forestry products have been well ahead of the curve, improving very nicely, whereas some other products, like our vacuum truck lines, have certainly lagged behind their recovery. Our markets in this sector have experienced a little bit more operational challenges and experienced a few more economic difficulties as well since a large part of our industrial sales are to governmental entities for infrastructure maintenance, and certainly, governmental budgets continue to be affected by revenue shortfalls and spending constraints. We believe that this situation will continue to negatively impact these markets for the remainder of 2020 and well into 2021. However, our business should hold up a little bit better during these adverse times, as they have in prior economic challenges, since our equipment continues to be used and employed, maintenance operations on a fairly regular basis, even during economic downturns and are being worn out and need repair and replacing at a somewhat more steady rate. Our company’s Industrial division has also been helped throughout the current year by the acquisitions we made in 2019 of Dutch Power and Morbark. These two have consistently provided positive contributions to our sales and earnings and have proven to be good additions to Alamo’s overall operations. Although some of our initiatives to fully integrate them into our company have been hindered by operational challenges related to COVID, these efforts are still underway, and we remain confident we will achieve our intended synergies, though it may take a little bit more time than originally envisioned. While we are pleased with Alamo Group’s performance in the third quarter of 2020, we believe our fourth quarter will be a little bit more challenged since it is a seasonally weak quarter for us, in general, as the equipment is a little less utilized in the fourth quarter. We also remain concerned about ongoing issues related to COVID, particularly in Europe and places where they are experiencing a resurgence of COVID issues and are reinstituting some broad restrictions on the economies. This is disconcerting to see, and I’m also concerned that there are areas in the U.S. where we’re seeing negatively impacted COVID situations rather than the improvement we would like to see. So until there is a proven path to recovery, the pandemic will continue to foster an atmosphere of uncertainty in our markets as well as the economy in general. Still, we are optimistic about the outlook for our company with – we’ve seen some positive momentum in our markets. We have a healthy backlog. We have very solid financial stability and the ongoing contributions from recent acquisitions. Our management team has been very proactive in responding to challenges, changing market conditions and other operational issues. With all this positive momentum, we believe we are well poised to prosper despite the uncertain environment in which we are operating. Certainly, to be successful has required a team effort, and we’re very grateful for the dedication and commitment we have had from our – not only our employees but our customers, our vendors, and other stakeholders during these challenging financial times and are appreciative of this ongoing support. With that, I would now like to open the call to any questions you might have.

Thank you. 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 subsidies that farmers are receiving are to the big farmers, not – they don’t go to hobby farmers. But so we’ve seen that. Certainly, the small horsepower tractor sales in the U.S. are up nicely, with double-digit increases in sales there, which I think means even in the hobby farmer sector, there’s been some. But some of the ranching sectors and row crop farms, it’s been fairly broad-based. There was a little bump in probably the second quarter and early third quarter from, I think, landowners who were at home more during COVID than they typically were. There was a big bump in small horsepower tractors and some related type implements, like our single-spindle mowers. Acreage under cultivation is holding up well. The subsidy payments to farmers are at record levels, which has helped the big row crop farmers. So it’s been a very broad-based improvement, 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, have the snow orders 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 11th 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 yes, we think that we are seeing some benefits there. Certainly, I think actually, fires have had an impact on us as well. Some of our forestry products have been needed in the clean-up and remediation of those areas. Snow products are off to a good start. Forestry products are off to a good start, somewhat related to fires. Hurricanes, yes, there seems to be a little bit more activity. I don’t think – while it’s been bad, it has not been quite as severe like the Katrinas. We have not seen a big influx from hurricanes that have offset the soft vacuum truck business, which has been that way throughout most of this period. Gradually improving, but still 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 leveraged right now on net debt, if my calculations are correct. I guess first, Dan, is this area comfortable for you? And then 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, we would start feeling like we have a lot of dry powder. I will let Ron.

Yes. As Dan said, balance sheet-wise, you’re right. We’re very comfortable. And yes, we would say that’s not holding us back from acquisitions. There are a lot of other things holding us back on acquisitions. There hasn’t been much activity. I think a lot of people have been on the sidelines for the last couple of quarters. People are starting to get more interested and looking at bringing some things to market. However, as opposed to maybe some high-tech or healthcare sectors, which I think have seen more M&A activity going on, our industrial space is going to lag a little bit. It’s still hard to physically visit assets. While we all think valuations are a little hard because we don’t know – we think 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 a little harder to value industrial-type products and prospects for acquisitions. We are starting to look at things coming up, but it’s a little bit more challenging in this environment.

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 in, it moves us to continue to do what we are doing.

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

Thank you.

Thank you, Mike.

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 revenue standpoint, was Morbark revenue down meaningfully year-over-year in the quarter or just kind of any sense there that it’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 provided that information out. But yes, we’re seeing a nice pickup with them, both in sales as well as orders and backlog.

Yes. Morbark, in the 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 by the midway through the third quarter, they were actually one of the above-average in one of our stores. I think they are still running slightly behind last year’s pace, but they picked up nicely in the third quarter, but they 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.

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 information.

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. The biggest strengthening was in Ag. They are well ahead of last year. Europe is lagging a little bit. I am worried a little bit. There are concerns that there’s a lot of shutdown measures to deal with COVID in places like France and England. The U.S. organically has even been up more than that couple of percent, and I think it should continue nicely. But there’s always some uncertainty. The backlogs are good, the outlook is positive and commodity prices are still a little weak, and we would prefer to see farm incomes improving more from their basic incomes rather than subsidies. That’s always subject to change.

Chris, we like where it’s going. The ag market has been really tough the last couple of years, so we like where it’s going. However, it has not rebounded to the levels we have seen before.

Commodity prices are still a little soft, and the China situation is still – all those commitments China made to buy agricultural commodities from the U.S. have certainly not been fulfilled as they were supposed to. That’s still a wildcard.

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. Again, I appreciate you all being on the call today. We are pleased with the progress we are making, and appreciate your ongoing support. 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.