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.alamogroup.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 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 as follows: Record first quarter net income and earnings per share are up over 12% from the prior first quarter on a GAAP basis and up nearly 3% on an adjusted basis. First quarter sales were down 1% from the prior year first quarter. First quarter operating income was essentially flat to the adjusted prior year result. First quarter and trailing 12-month EBITDA was 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. 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 income was up 2.9% over the adjusted prior year result. Lower interest expense, favorable income tax provision adjustments and lower operating expenses more than offset the non-recurrence of prior year foreign currency and property disposition gains to produce this result. Operating income for the first quarter 2021 was $25.4 million or 8.2% of net sales, which is up from $23.9 million or 7.6% of net sales in the prior year period but essentially flat to the adjusted prior year result that excludes the $2 million of Morbark inventory step-up expense. Lower operating expenses were enough to offset an unfavorable gross margin comparison. Gross margin for the first quarter of 2021 was $76.4 million or 24.6% of net sales compared to $78.9 million or 25.1% of net sales in the prior year first quarter. In the first quarter of 2021, we saw a compression of gross margins due to rising material costs that were not fully offset by favorable product mix and pricing actions. Also, an expected positive impact from higher customer demand on operating leverage has been somewhat limited by the uneven distribution and timing of new order growth across our business units as well as COVID-19 operational and supply chain disruptions. First quarter 2021 EBITDA was $36.7 million, down slightly from the prior year first quarter adjusted EBITDA. Trailing 12-month EBITDA was $145 million, essentially flat to adjusted 2020 EBITDA. First quarter 2021 EBITDA was 11.8% of net sales, which is also flat to the prior year first quarter adjusted results. Favorable product mix, pricing actions and other cost containment measures offset material cost inflation and the negative pandemic impacts. During the first quarter 2021, we saw an $8.6 million net use of cash for operating activities compared to a $5.6 million net provision of cash from operations in the prior year first quarter. While a first quarter build in working capital is seasonal for many of our business units, high current-year order backlogs will continue to drive higher working capital investment to support top line growth. We ended the first quarter with a record $453 million in order backlog, an increase of 95% since the prior year first quarter and nearly 28% higher than year-end 2020. During the quarter, we saw an acceleration of customer demand across the entire range of our industrial and agricultural products. We finished the first quarter of 2021 with order backlogs well above prior year quarter levels in both divisions and for all of our business units. To recap our first quarter 2021 results: 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 were down 1% from the prior year quarter. First quarter operating income was essentially flat to the adjusted prior year result. First quarter and trailing 12-month EBITDA was 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 first quarter and up nearly 28% since year-end 2020.

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 we are certainly living in interesting times. But I'm glad that for Alamo Group, we actually are managing our way through this nicely, as our first quarter results showed, where we had strong sales and record earnings. But there are certainly many ongoing challenges. 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. 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, 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. Certainly, our agricultural division showed the strongest results in the first quarter of 2021 as this market not only remains steady throughout most of this COVID situation and has further benefited from some pent-up demand in the farming sector as a result of several years of weak market conditions and low farm incomes. And this current market strength has also been aided by lower levels of dealer inventories going into this time and above-average farm subsidies in the U.S. And even if subsidies aren't quite as strong this year as they were last year, we think higher agricultural commodity prices and strong demand for equipment will continue to be favorable. The fundamentals of the market are good for not only the rest of 2021, but the next several years as well look very promising. And even though supply chain issues, logistical problems and inflationary pressure all limited our results in the first quarter in our ag sector and continue to impact us today, these should impact us a little less in the second half of the year based on our pricing and the input we're getting from our suppliers. So we're pleased that the outlook is improving. We are also pleased that while our North American ag units are certainly performing the strongest, it is very reassuring to note that our European units are all showing improvement, as well as our Brazilian and Australian operations. So with a good market, record backlogs, the outlook for Alamo's agricultural division is very positive. The same can actually be said for Alamo's industrial division. While our results were not quite as good in the first quarter of 2021 as our ag division on a relative basis, it was still a solid quarter. It started off weak in January as budget issues continued to constrain governmental entities, which is our single biggest market for this division's infrastructure maintenance equipment. But momentum built during the quarter, and we ended with very strong results in March that are continuing on into the second quarter of 2021 as well. We are continuing to benefit from improved governmental budgets, as revenues at city, county, and state levels all seem to be showing better-than-anticipated results. And our bookings and backlog in this sector reflect these improved fundamentals with governmental budgets and the financial health of our customers. As with our agricultural division, our industrial results were constrained by COVID-related operational challenges internally and in the supply chain and logistical issues, preventing us from reaching the record levels, which they could have been without this. However, we believe these issues will be less evident again in the second half of 2021 and feel optimistic that the full-year results for our industrial division should be at record levels for Alamo Group. Certainly, getting operations back to pre-pandemic levels is key to this outlook. But we're also really focused on a big contributor, which is getting the full benefit of the high level of acquisitions we completed in 2019. This is what should drive the record results that we anticipate. These acquisitions of Morbark, Dutch Power, and Dixie Chopper have all performed well, but we have not achieved their full potential primarily due to the pandemic of 2020. And with that, I mean, we feel very optimistic about Alamo Group. It's good to see that, in general, business is returning to more normal levels of activity, among other things, including our acquisition activities, which were definitely curtailed for most of the last 12 months. We're starting to see opportunities and look at opportunities. Acquisitions are a key part of our ongoing strategy, and we're glad to see that. We also constrained our capital spending last year as we focused on cost control and paying down debt, which were very successful initiatives. But with the strong bookings and record backlog, we need to improve our operational capabilities. We are starting to invest more in better manufacturing technologies that will allow us to be more efficient, grow our margins, and meet the increased demand as evidenced by our bookings and backlogs. While we are optimistic about the outlook for Alamo Group, we are also very cognizant that the COVID pandemic is still not fully resolved. It is certainly good to see the growing availability of vaccines, but unfortunately, the number of new cases is still a concern. While we are pleased our markets are showing steady improvement, the supply chain and logistical challenges are ample evidence that COVID is still affecting us all. We hope this situation will continue to show steady improvement, but we will continue to monitor our operations and markets and remain ready to respond to any changes, good or bad, that could affect our company. We believe this responsiveness has helped us navigate through this and other periods of economic upheaval and are committed to reacting quickly as conditions warrant. That's why we feel optimistic about the outlook for Alamo Group. There are always challenges, and we certainly are living in interesting times. By staying focused on our strategy, we feel we can prosper even in challenging times and continue to grow at above-market rates over the long term. Lastly, while, as most of you know, I will soon be retiring as CEO of Alamo Group, I remain very optimistic about the outlook for the company. My replacement, Jeff Leonard, and the whole Alamo team are more than capable of continuing along the path of success we have followed. I look forward to following their continued progress and staying active as a member of the Board of Directors. I want to thank all of you in the investment community for your support over these last nearly 22 years. It's certainly been a great trip. Thank you very much, and I appreciate the help and support all these many years. With that, I would now like to open the floor to any questions you might have.

Our first question comes from Mike Shlisky with Collier Securities.

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 are 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, 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 we're having ongoing regular discussions with our chassis suppliers. While they've come out, like I said, down to some plant closures, they seem to be, number one, doing better than they originally stated, 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. 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. It is an issue and it will affect our deliveries, but we think that we can still achieve good results and meet a lot of the deliveries. But certainly, there will be some challenges and some missed deliveries. But by and large, 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 in our same boat. We don't see losing orders. Our backlog shows that. Customers want the product. But I don't think anybody's in any particular better shape than we are. We don't see cancellations being a concern. Our backlog is very good, almost too good, as I don't like to see our lead times growing like they are. But if you've been following some of our competitors, especially the public ones, their lead times are 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. We are seeing it. Any time that it usually follows a year of economic downturns, parts tend to hold up better, and they have held up better, and we're seeing that trend continuing. But yes, they are holding up well, and I expect they will continue to do 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 probably has one of the largest increases in backlog of any of our units. Tree care products are holding up well. The demand is growing, and we are very much experiencing that. We're very pleased to have Morbark as part of our group. They’ve opened up new avenues for growth for us. Our backlog remains strong, and we are 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. Normally, we prefer about a quarter's worth of backlog. We're certainly well beyond that. I mean it's between not exactly two quarters, but that's why we're picking up a little bit of R&D spending and CapEx to bring more capabilities into our plants to meet the demand. There are some supply chain issues causing longer lead times than we would like, but I believe everything should still ship this year. However, getting things out of the ports and transportation are significant challenges.

Got it. Okay, that's helpful. So industrial revenue was down 7.9% in Q1. Can you break that out between lower demand from state, local, and municipal governments on the one hand versus things like logistics and supply chain and weather and COVID quarantine?

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. Last year was a national election year, and this election was not settled until January, which caused governmental organizations in the U.S. to react strongly and sit on the sidelines until they knew the direction things were heading. Additionally, the February storms in the Southern United States delayed our various product lines, which affected our parts business. Although we still have plenty of demand, we are cautious for Q2 due to supply chain limitations. There's a lot of strengthening in our bookings across all product lines in the industrial sector.

If we didn't have those many supply chain issues, we would have achieved record sales in the industrial division in the first quarter. But customers were a little soft going into 2021 due to the reasons Jeff mentioned. However, as the quarter progressed, momentum built nicely, and it continued into the second quarter.

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

In terms of the supply chain constraints, are there any particular components or parts that are more of an issue? And are there specific product lines being impacted more than others?

It's fairly broad-based issues. Chassis, gearboxes, and drivelines are more affected, but the components we source from China are functioning well. Logistics issues, especially getting containers, are causing significant delays. While we are facing some pricing increases, the general availability matters at the moment.

The acquisitions in 2019 were a little before my time. What were the projected revenue and EBITDA contributions?

If you look just at the three acquisitions, they would have added almost like 25% to our top line. We don't provide margin information but at the time of Morbark's acquisition, it had about $240 million in sales and over $40 million in adjusted EBITDA trailing.

We did disclose those numbers back at the time of the Morbark acquisition. We have not disclosed figures on the smaller acquisitions.

Have you quantified the synergy projects or the efficiency and integration projects?

We have quantified internally and are working to achieve synergies. Even Morbark's margins were higher than our average, without doing much. We had some synergies, especially in supply procurement. But the full-level synergy has not yet been achieved. We think by the second half of this year, we will start getting to the expected level. All units, including Dutch Power, show good promises for the integration, and we are pleased we are seeing synergies occur.

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 may not be on that call, but I appreciate your support and look forward to following the company's progress under Jeff's leadership. Thank you. Have a good day.

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