Good day, and welcome to the Alamo Group, Inc. Second Quarter 2025 Conference Call. I would now like to turn the conference over to Mr. Edward Rizzuti, EVP, Corporate Development and Investor Relations. 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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (877) 344-7529 with the passcode 7888480. 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 Jeff Leonard, President and Chief Executive Officer; and Agnes Kamps, Executive Vice President and Chief Financial Officer. 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 Jeff, 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: adverse economic conditions, which could lead to a reduction in overall market demand, supply chain disruptions, labor constraints, competition, weather, seasonality, currency-related issues, geopolitical events 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 Jeff Leonard. Jeff, please go ahead.

Thank you, Ed. We'd like to thank everyone who's joined us on the conference call today and express our appreciation for your continued interest in Alamo Group. Our second quarter results reflected a strong operating performance, driven by sustained strength in the governmental and industrial markets, supported by further modest improvement in the markets for our vegetation management equipment. Sales increased modestly compared to the second quarter of 2024. However, operating income improved significantly as a result of the efficiency improvement measures we have successfully implemented over the past several quarters. I would now like to turn the call over to Agnes, who will take us through a review of our financial results for the second quarter. I will then provide additional comments on the results and say a few words about the outlook for the balance of 2025. Following our formal remarks, we look forward to your questions. Agnes, please go ahead.

Thank you, Jeff. Good morning, everyone. I am pleased to report that we delivered solid operational performance this quarter, reflecting the strength and resilience of our business model. Our Industrial Equipment division delivered impressive results. Our Vegetation Management division continued its recovery, and we are encouraged by the progress made. Second quarter of 2025 revenue was $419.1 million compared to strong prior year second quarter revenue of $416.3 million. Gross profit for the quarter was $108.3 million with a margin of 25.8% of net sales compared to $108.2 million and margin of 26% for the same period last year. SG&A expenses were $57.1 million, which is a reduction of 6% driven by savings in the Vegetation Management division. Operating income in the second quarter of 2025 was $47.1 million with an operating margin of 11.2% of net sales, reflecting an increase of 83 basis points compared to the second quarter in 2024. Net income for the second quarter was $31.1 million or $2.57 per diluted share compared to net income of $28.3 million or $2.35 per diluted share last year at the same time. Almost 10% increase in the net income was driven by stronger operating results. Interest expense decreased $2.4 million compared to the same period in 2024, driven by significantly lower debt levels. Lower interest expense helped offset the unfavorable impact of the revaluation of U.S. dollar-denominated monetary assets held in our Canadian entities. The provision for income tax was $10.3 million, resulting in an effective tax rate of approximately 24.9% compared to 24.8% in the second quarter of 2024. With that overview, let's take a closer look at the performance of our divisions. Vegetation Management division reported net sales of $178.4 million, a 15.7% reduction compared to the second quarter of 2024. While this was a reduction compared to the strong quarter in 2024, it was an 8.8% sequential improvement as bookings and backlog have stabilized. Operating income for this division was $12.8 million, representing 7.1% of net sales. The impact of lower revenue compared to the second quarter of 2024 was partially offset by savings from the cost reductions taken in 2024. Industrial Equipment division net sales were another record $240.7 million, representing an impressive 17.6% organic growth compared to the second quarter of 2024. Growth in the second quarter was driven by strong sales across the division, especially notable were sales of vacuum trucks as well as snow removal equipment. Operating income was also a record $34.3 million or 14.3% of net sales, which was a 100 basis point improvement compared to the same period last year, a result of growth and our operational excellence initiatives. Moving on to the balance sheet. We maintain a strong financial position and flexibility to support ongoing initiatives and future investments. Our total assets of $1.558 billion at the end of the second quarter increased by $51.7 million compared to last year at the same time. An increase in cash and cash equivalents were partially offset by a decrease in accounts receivable and inventory. We reduced our accounts receivable by $32.3 million to $356.2 million, also representing a reduction in days sales outstanding by about 3 days compared to the same period in 2024. Inventory of $372.1 million was also reduced by $13.1 million compared to last year. Reductions we achieved in Vegetation Management division were offset by an increase in the Industrial Equipment division. Higher inventory in the Industrial Equipment division supports double-digit growth in that division. As a result of our disciplined cash management, the operating cash flow year-to-date was $36.9 million. At the end of second quarter 2025, our total debt was $213.1 million and debt net of cash was $11.3 million. This was an improvement of $163.8 million or 93.5% compared to the second quarter in 2024, driven by strategic debt reduction and strong cash generation. To conclude, I would like to emphasize our commitment to delivering long-term value to our shareholders. We are pleased that our Board has approved a quarterly dividend of $0.30 per share. As we move forward, we remain focused on driving growth and optimization in our operations. Thank you. I'll turn it back over to Jeff.

Thank you, Agnes. I'd like to add a personal welcome to everyone who's on the call with us this morning. In the second quarter, our markets continued to develop in accordance with our expectations and improvements in operating efficiencies, combined with lower costs, contributed to the improved earnings per share. Demand remained robust in the government and industrial contractor segments, and our Industrial Equipment division had another excellent quarter. Sales in the division were up nearly 18% compared to the second quarter of 2024, with all of this growth being organic. Sales of excavators, vacuum trucks, street sweepers, highway safety vehicles and snow removal equipment all improved nicely. Manufacturing facility utilization remained quite strong and resulted in higher efficiencies that supported the expansion of operating margin in this division. The combination of strong sales growth and improved efficiencies contributed to a 100 basis point expansion of the division's operating income. Industrial Equipment division EBITDA of 16.7% improved 60 basis points compared to the second quarter of 2024. The order backlog in the Industrial Equipment division remained quite good at nearly $510 million, providing us very good visibility and confidence through the second half of the year and into the early months of 2026. Second quarter order bookings in this division were up nearly 21% compared to the second quarter of 2024, primarily driven by exceptionally strong orders for vacuum trucks. On a year-to-date basis, Industrial division orders are up over 10% compared to the first half of 2024. Markets for the company's Vegetation Management equipment continued to improve at a modest but steady pace, and there were several positive indicators pointing to improved market conditions that were evident during this quarter. Notably, this was the division's fifth sequential quarter of improvement in order bookings. Second quarter order bookings were nearly 10% higher than the second quarter of 2024, and year-to-date orders are up nearly 14% compared to the first 6 months of last year. Agricultural equipment sales were down compared to the second quarter of 2024, but improved solidly on a sequential basis. Ag equipment orders in the second quarter were up firmly compared to the prior year second quarter and were sharply higher sequentially. Sales of governmental mowers further improved in North and South America, but declined somewhat in Europe compared to the second quarter of 2024. We saw a partly similar pattern in forestry and tree care. Sales in the Forestry and Tree Care group declined relative to the second quarter of 2024, but improved nicely on a sequential basis. Orders in these product lines also increased compared to the second quarter of 2024. We were encouraged to see that U.S. residential housing starts were somewhat higher this quarter, but we continue to believe that an interest rate relief is needed to restore and sustain momentum in this part of the division. Overall, despite the positive improvement in trends and markets for this division's products, they remained under pressure; dealers remain cautious regarding new inventory commitments on their balance sheets because of the higher floor plan interest rates. Although Vegetation Management division sales declined 16% compared to the second quarter of 2024, it was encouraging to note the solid 9% improvement sequentially. Sequential improvement was mostly attributable to better performance from its North American ag equipment business and to a lesser extent, from forestry and tree care. This division's results also benefited from better efficiencies resulting from plant consolidations completed last year as well as from significant reduction in sales, general and administrative costs. The division's operating margin declined 50 basis points to 7.1% of net sales, while EBITDA declined 120 basis points compared to the second quarter of 2024. On a consolidated basis, the company's solid second quarter results aligned with our expectations. Sales increased modestly on a consolidated basis compared to the second quarter of 2024, but rose more than 7% compared to the first quarter of this year, driven by strong organic growth in the Industrial Equipment division. Consolidated operating margin improved 83 basis points to 11.2% and net income improved by nearly 10% compared to the second quarter of 2024. Second quarter earnings per share of $1.57 improved 9% net of a $0.21 per share impact of foreign exchange headwinds from the U.S. dollar revaluation in our Canadian operations. Turning now to our outlook for the balance of 2025. We remain optimistic about the company's prospects for the next several quarters and beyond. While risks and uncertainty associated with tariffs remain, the combination of sustained strength of our Industrial Equipment markets, further recovery in Vegetation Management markets, improving internal efficiencies and a lower administrative cost structure continue to point to positive development of company performance for the next several quarters. We were very pleased to complete the tuck-in acquisition of Ring-O-Matic in the second quarter as their vacuum excavation equipment nicely complements our vacuum truck and excavator product line and offers potential to accelerate growth in our equipment rental business. Ring-O-Matic employs a group of exceptional employees, and we're thrilled to have them join the Alamo Group team. With the company's net debt approaching zero, we're in a strong position to exploit our increasingly active M&A pipeline. We're encouraged by the quantity and quality of the actionable corporate development opportunities we've identified and are pursuing to accelerate corporate growth. This concludes our prepared remarks. We are now ready to take your questions. Operator, please go ahead.

Operator Instructions. And our first question will come from Chris Moore with CJS Securities.

Congrats on a great quarter. Maybe we'll just follow up on some of the stuff you're talking about, Jeff. So from a visibility standpoint, it sounds like Industrial is looking good, at least into early '26. Can you maybe just talk a little bit more about Vegetation for Q4 and your thoughts in terms of this improving orders continuing that trend?

Yes. I think we're likely to see that trend continue for the next several quarters at least, Chris. I mean we're coming from a very low point, as you know. So the climb out has to be consistent, and I think it will be. I was very encouraged to see how much the ag market recovered during this quarter. It was actually a little better than I thought. And forestry was maybe not quite as good as I thought it was going to be. But forestry is the bigger ticket, more expensive items, and there we definitely could benefit from some interest rate relief, which I'm hoping one of these days we're going to see. But all in all, the activity level is improving, and I think the dealer sentiment is slowly improving as well despite ongoing headwinds in ag. Commodity pricing still isn't brilliant at the moment. But overall, we're encouraged. And I think that's partly just because there's so much inelasticity in our pipeline at the moment. I've shared with you in previous quarters that our pipeline is exceptionally low of inventory in the field. So it doesn't take much to drive the orders higher at this point. So we feel very good about where we're going. The reduction in the cost structure is significant in that division, and we're maintaining it. And the plant consolidations are finally starting to see the efficiency improvements we were counting on, particularly in ag. The consolidation of our two big ag plants late last year is finally starting to show real benefits we expected to see. So overall, I'm encouraged. The markets were a little bit better in that space than I thought. And I think the climb out is clear, and I think it will continue for at least several quarters from what I can see.

Terrific. So far, direct pain points from tariffs, including shifting production from Canada to the U.S., have been manageable. The issue you've talked about in the past is the potential inflationary impact on demand. Just curious what you're seeing at this point. Are there kind of specific product lines that would be more at risk?

The biggest risk overall is to our snow removal group, and it's really a U.S.-Canada issue, as I've told you before. But we've largely mitigated that risk by shifting a good deal of that production from Canada into the U.S. into our plant here in Ohio. We're at the Gradall facility today for what that's worth. So I don't see that being too bad. And the inflation side has been actually pretty decent. In other words, the pressure on our purchase prices has been far less significant than I think Agnes and I anticipated. So, so far, we're navigating the tariffs pretty effectively, and I'm very happy with that.

Got it. Perfect. And maybe just last one. We're at better than $1.6 billion this year, 925-plus Industrial. Just wondering from an Industrial standpoint, how much existing infrastructure can handle from a revenue standpoint before you'd have to add a little capacity?

I think we're fine for now because our plant in Wisconsin is not overwhelmed. We still have some capacity there. Our Ohio plant, where we are currently, is definitely busy. The backhaul product line has been performing very well, leading to a noticeable increase in sales across that line. However, we still have ample capacity in Wisconsin that we can tap into. Additionally, our Huntsville facility also has some available capacity. So we aren't feeling too much pressure at this point, Chris. I believe labor is the main constraint again. We're beginning to see labor tightening up, similar to what we experienced during the pandemic, and that is something we are monitoring closely.

Operator Instructions. Our next question will come from Mig Dobre with Baird.

Back to Vegetation Management, what's the right way to think about revenue here in the back half of the year? And I'm wondering in terms of both how you've seen demand play out, but also in theory, there should be some seasonality here that we have to kind of take into account.

Yes. I think the seasonality will start to show up again in the fourth quarter, Mig. But I think as long as we can keep building the backlog it will be in a better position. The book and bill has been over 1% again, which is nice to see. So the business is re-inflating not as fast as we'd like, obviously. But I think you're going to see a slow build of inventory. I don't think it's going to be dramatic for the remainder of this year, but I think it will start to build again. As we've seen, we've seen that for the past several quarters. We keep talking about the sequential improvements, and I think those will continue.

So I'm sorry, just to be clear here, your $178 million of revenue in Q2, you're saying that we continue to build sequentially here in Q3 and into Q4 as the year progresses?

I believe there is still some uncertainty in the forestry sector, although not as much in agriculture. We have observed some order cancellations in forestry, so we are not entirely out of the challenges there. However, I anticipate that revenue will gradually increase in that division, albeit at a slow pace.

I would agree with that. Maybe if I could add something. I would agree with that. We are feeling a little more confident on the ag side. Orders have been growing pretty nicely over there and productivity in the plant after consolidation has been improving. So on the ag side, we're feeling a little bit better, but I would agree with what Jeff had mentioned about forestry.

And then my follow-up, you mentioned in the press release that the margin in Vegetation still reflected some of the effects of the recent facility consolidation costs. Maybe it would be helpful to call out what these costs are, maybe magnitude, the nature of the cost. I mean you're obviously not adjusting them out. And at what point in time should we expect this drag to be done with? And implicitly, what would that mean for margins going forward as you kind of lap all of this?

Yes. I will take this one. What we're referring to in terms of gross margin is productivity. As these plants have consolidated, there were a couple of capital projects needed to complete and simple learning curve. And that has been improving. So in our plant in the U.S. ag in Selmer, that certainly has been improving and productivity will improve in the second half. And we're still working. We still have a little more lift in our plant in the forestry in Winn, Michigan. So that's related to productivity.

Can you quantify that? Let me ask the question differently. If for Jeff's comments, we're thinking that revenue maybe gets a little bit better in Q3 and in Q4, is it reasonable to expect margins to improve sequentially relative to Q2 as well?

I wouldn't say that, as we currently have a rather unfavorable mix in forestry. I mentioned on the previous call that the large forestry equipment is still down, while the tree care segment is recovering well. However, the margins in tree care, particularly for the smaller products, are not comparable to those of the large industrial machines. Thus, the mix in forestry is still relatively unfavorable, and we are still addressing some demand challenges with inventory, including dealer cancellations. Therefore, I wouldn’t anticipate much margin improvement for the next quarter. Any improvement is likely to be more of a Q4 event for the forestry and tree care sectors. We can attempt to quantify it, but I believe it's better to hold off on that during this call and possibly address it afterward.

Okay. I have one final question. Jeff, we've discussed your plans to retire and the search for your replacement. It's August now, and I haven't heard any updates on that. I'm curious how your thoughts have changed and what the situation is regarding both internal and external candidates, and how the Board is approaching this.

I can provide a satisfying response to that. Our Board of Directors is meeting here in Ohio this week, and the process is proceeding exactly as planned. You can expect it to conclude in the third quarter, so it's definitely getting closer. This brings both happiness and sadness for me personally. Our M&A pipeline is very active, and I want to see the company successfully navigate that. I’ve offered to remain involved as much or as little as needed moving forward. That’s about all I can share, but the succession process is well advanced at this point.

Operator Instructions. Our next question will come from Mike Shlisky with D.A. Davidson.

I guess a couple of quick ones here. Well, maybe the first one is not that quick. It's about capital allocation. I know you're pursuing some M&A deals. It sounds like despite the strong orders in Industrial and the backlog, you're not pursuing any large capacity additions there. I was wondering if you had any thoughts about trying to enter any new product categories with the amped up R&D budgets or other ways to put capital to work in an organically positive way.

We are consistently looking for growth opportunities, Mike. We generally don't discuss specifics about our R&D pipeline publicly. However, we expect some growth from acquisitions as well as from internal organic development. We are particularly pleased with the Ring-O-Matic acquisition, which will enhance our rental business significantly. The feedback from our customers has been very encouraging, and we are optimistic about how this will develop under our management. Regarding our R&D efforts, we've had to adjust our focus. While we were heavily investing in electrification, the urgency and demand for that have slowed for now. Additionally, we need to prepare for upcoming changes in emission standards over the next couple of years, which will require increased R&D spending for product advancement. As for new product verticals that we might develop internally, I don’t have any significant plans to share at this moment. We are confident in the growth from our current initiatives, so our capital allocation is primarily focused on mergers and acquisitions for the time being, and I anticipate this will continue for the rest of the year.

Great. And then I also wanted to touch on your snow business, you've done quite well for several years in a row here. And it sounds like you've got pretty decent orders last rest of this year into next. Curious on the legs of that, how much of your business has become chassis plus blade and how much is still just like the blade? That's been a large part of the growth. So I kind of want to get a feel for whether there's more than one year of growth left in your snow business.

The snow business remains very active for us. It's somewhat unpredictable; we receive large orders followed by quieter periods. However, activity is currently strong, particularly in Canada, where there are still significant orders to come. The U.S. market has been stable. I've closely followed the Douglas earnings call, and they reported an increase in snow activity, which we are also experiencing. From my perspective, there seems to be plenty of growth potential left in that market, and I don't anticipate any slowdown.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Please go ahead.

Thank you. This concludes our preparation for today's meeting. We look forward to speaking with you again on our third quarter conference call in November.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.