alg-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

FOR THE TRANSITION PERIOD FROM ____ TO ____

Commission file number 0-21220


ALAMO GROUP INC.
(Exact name of registrant as specified in its charter)

Delaware						74-1621248
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

1627 East Walnut, Seguin, Texas 78155

(Address of principal executive offices, including zip code)

830-379-1480

(Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:

	Title of each class	Trading symbol(s)	Name of each exchange on which registered
	Common Stock, par value $.10 per share	ALG	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At April 28, 2023, 12,001,034 shares of common stock, $.10 par value, of the registrant were outstanding.

Alamo Group Inc. and Subsidiaries

INDEX


PART I.	FINANCIAL INFORMATION		PAGE

Item 1.	Interim Condensed Consolidated Financial Statements (Unaudited)

	Interim Condensed Consolidated Balance Sheets		3
		March 31, 2023 and December 31, 2022

	Interim Condensed Consolidated Statements of Income		4
		Three Months Ended March 31, 2023 and March 31, 2022

	Interim Condensed Consolidated Statements of Comprehensive Income		5
		Three Months Ended March 31, 2023 and March 31, 2022

	Interim Condensed Consolidated Statements of Stockholders' Equity		6
		Three Months Ended March 31, 2023 and March 31, 2022

	Interim Condensed Consolidated Statements of Cash Flows		7
		Three Months Ended March 31, 2023 and March 31, 2022

	Notes to Interim Condensed Consolidated Financial Statements		8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3.	Quantitative and Qualitative Disclosures About Market Risks		18

Item 4.	Controls and Procedures		19

PART II.	OTHER INFORMATION		19

Item 1.	Legal Proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.	Defaults Upon Senior Securities
Item 4.	Mine Safety Disclosures
Item 5.	Other Information
Item 6.	Exhibits

	SIGNATURES		22

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share amounts)	March 31, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents		$	109,320		$	47,016
Accounts receivable, net		363,525			317,581
Inventories, net		362,593			352,553

Prepaid expenses and other current assets		9,660			9,144
Income tax receivable		318			916
Total current assets		845,416			727,210

Rental equipment, net		36,125			33,723

Property, plant and equipment		341,516			335,078
Less: Accumulated depreciation		(183,128)			(180,071)
Total property, plant and equipment, net		158,388			155,007

Goodwill		196,533			195,858
Intangible assets, net		167,832			171,341
Deferred income taxes		983			969
Other non-current assets		23,935			24,400

Total assets		$	1,429,212		$	1,308,508

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	101,549		$	97,537
Income taxes payable		14,801			6,592
Accrued liabilities		72,890			71,368
Current maturities of long-term debt and finance lease obligations		15,008			15,009

Total current liabilities		204,248			190,506

Long-term debt and finance lease obligations, net of current maturities		356,259			286,943
Long-term tax liability		3,781			3,781

Other long-term liabilities		23,628			23,668
Deferred income taxes		18,948			18,250

Stockholders’ equity:
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,941,738 and 11,913,890 outstanding at March 31, 2023 and December 31, 2022, respectively		1,194			1,191
Additional paid-in-capital		131,657			129,820
Treasury stock, at cost; 82,600 shares at March 31, 2023 and December 31, 2022, respectively		(4,566)			(4,566)
Retained earnings		757,917			727,183
Accumulated other comprehensive loss		(63,854)			(68,268)
Total stockholders’ equity		822,348			785,360

Total liabilities and stockholders’ equity		$	1,429,212		$	1,308,508

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share amounts)	2023		2022

Net sales:
Vegetation Management	$	256,435	$	221,006
Industrial Equipment	155,336		140,999

Total net sales	411,771		362,005
Cost of sales	299,264		275,364
Gross profit	112,507		86,641

Selling, general and administrative expenses	59,668		53,635
Amortization expense	3,815		3,887
Income from operations	49,024		29,119

Interest expense	(5,940)		(2,647)
Interest income	383		72
Other income (expense), net	1,002		(1,752)
Income before income taxes	44,469		24,792
Provision for income taxes	11,120		6,322
Net Income	$	33,349	$	18,470

Net income per common share:
Basic	$	2.80	$	1.56
Diluted	$	2.79	$	1.55
Average common shares:
Basic	11,899		11,860
Diluted	11,962		11,916

Dividends declared	$	0.22	$	0.18

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2023		2022
Net income	$	33,349	$	18,470
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax expense of $(173) and $(250), respectively	4,546		1,667
Recognition of deferred pension and other post-retirement benefits, net of tax (expense) and benefit of $(65) and $255, respectively	282		206
Unrealized income (loss) on derivative instruments, net of tax benefit and (expense) of $59 and $(367), respectively	(414)		1,852


Other comprehensive income, net of tax	4,414		3,725
Comprehensive income	$	37,763	$	22,195

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


For three months ended March 31, 2023

	Common Stock			Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stock- holders’ Equity
(in thousands)	Shares	Amount
Balance at December 31, 2022	11,831	$	1,191	$	129,820	$	(4,566)	$	727,183	$	(68,268)	$	785,360





Other comprehensive income	—	—		—		—		33,349		4,414		37,763
Stock-based compensation expense	—	—		1,699		—		—		—		1,699

Stock-based compensation transactions	28	3		138		—		—		—		141


Dividends paid ($0.22 per share)	—	—		—		—		(2,615)		—		(2,615)
Balance at March 31, 2023	11,859	$	1,194	$	131,657	$	(4,566)	$	757,917	$	(63,854)	$	822,348

See accompanying notes.


For three months ended March 31, 2022

	Common Stock			Additional Paid-in Capital		Treasury Stock		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stock- holders’ Equity
(in thousands)	Shares	Amount
Balance at December 31, 2021	11,791	$	1,187	$	124,228	$	(4,566)	$	633,804	$	(48,990)	$	705,663





Other comprehensive income	—	—		—		—		18,470		3,725		22,195
Stock-based compensation expense	—	—		1,371		—		—		—		1,371

Stock-based compensation transactions	20	2		82		—		—		—		84


Dividends paid ($0.18 per share)	—	—		—		—		(2,133)		—		(2,133)
Balance at March 31, 2022	11,811	$	1,189	$	125,681	$	(4,566)	$	650,141	$	(45,265)	$	727,180

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2023		2022
Operating Activities
Net income	$	33,349	$	18,470
Adjustment to reconcile net income to net cash (used in) provided by operating activities:
Provision for doubtful accounts	313		339
Depreciation - Property, plant and equipment	5,521		5,236
Depreciation - Rental equipment	2,105		1,890
Amortization of intangibles	3,815		3,887
Amortization of debt issuance	176		167
Stock-based compensation expense	1,699		1,371
Provision for deferred income tax	436		2,797
Gain on sale of property, plant and equipment	(1,716)		(22)
Changes in operating assets and liabilities:
Accounts receivable	(44,825)		(58,231)
Inventories	(8,703)		(34,139)
Rental equipment	(4,502)		(1,227)
Prepaid expenses and other assets	380		(3,989)
Trade accounts payable and accrued liabilities	4,564		7,979
Income taxes payable	8,783		(382)

Other assets and long-term liabilities, net	(189)		869
Net cash provided by (used in) operating activities	1,206		(54,985)

Investing Activities

Purchase of property, plant and equipment	(8,999)		(4,358)
Proceeds from sale of property, plant and equipment	2,533		33

Net cash used in investing activities	(6,466)		(4,325)

Financing Activities
Borrowings on bank revolving credit facility	91,000		128,000
Repayments on bank revolving credit facility	(18,000)		(21,000)
Principal payments on long-term debt and finance leases	(3,753)		(3,763)


Dividends paid	(2,615)		(2,133)
Proceeds from exercise of stock options	877		474

Common stock repurchased	(736)		(390)
Net cash provided by financing activities	66,773		101,188

Effect of exchange rate changes on cash and cash equivalents	791		284
Net change in cash and cash equivalents	62,304		42,162
Cash and cash equivalents at beginning of the year	47,016		42,115
Cash and cash equivalents at end of the period	$	109,320	$	84,277

Cash paid during the period for:
Interest	$	5,065	$	2,619
Income taxes	3,042		3,574

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)

March 31, 2023

1. Basis of Financial Statement Presentation

General

The accompanying unaudited interim condensed consolidated financial statements of Alamo Group Inc. and its subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022 (the "2022 10-K").

2. Accounts Receivable

Accounts receivable is shown net of sales discounts and the allowance for credit losses.

At March 31, 2023 the Company had $24.5 million in reserves for sales discounts compared to $19.9 million at December 31, 2022 related to products shipped to our customers under various promotional programs.

3. Inventories

Inventories are stated at the lower of cost or net realizable value. Net inventories consist of the following:


(in thousands)	March 31, 2023			December 31, 2022


Finished goods		$	320,071		$	312,726
Work in process		32,912			22,273
Raw materials		9,610			17,554
Inventories, net		$	362,593		$	352,553

Inventory obsolescence reserves were $11.4 million at March 31, 2023 and $13.2 million at December 31, 2022.

4. Rental Equipment

Rental equipment is shown net of accumulated depreciation of $23.2 million and $22.3 million at March 31, 2023 and December 31, 2022, respectively. The Company recognized depreciation expense of $2.1 million and $1.9 million for the three months ended March 31, 2023 and 2022.

5. Fair Value Measurements

The carrying values of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, approximate their fair value because of the short-term nature of these items. The carrying value of our debt approximates the fair value as of March 31, 2023 and December 31, 2022, as the floating rates on our outstanding balances approximate current market rates. This conclusion was made based on Level 2 inputs.

6. Goodwill and Intangible Assets

The following is the summary of changes to the Company's Goodwill for the three months ended March 31, 2023:


(in thousands)	Vegetation Management			Industrial Equipment			Consolidated
Balance at December 31, 2022		$	127,562		$	68,296		$	195,858
Translation adjustment		530			145			675

Balance at March 31, 2023		$	128,092		$	68,441		$	196,533

The following is a summary of the Company's definite and indefinite-lived intangible assets net of the accumulated amortization:


(in thousands)	Estimated Useful Lives	March 31, 2023		December 31, 2022
Definite:
Trade names and trademarks	15-25 years	$	68,971		$	68,797
Customer and dealer relationships	8-15 years	129,513			129,338
Patents and drawings	3-12 years	28,484			28,437
Favorable leasehold interests	7 years	4,200			4,200
Total at cost		231,168			230,772
Less accumulated amortization		(68,836)			(64,931)
Total net		162,332			165,841
Indefinite:
Trade names and trademarks		5,500			5,500
Total Intangible Assets		$	167,832		$	171,341

The Company recognized amortization expense of $3.8 million and $3.9 million for the three months ended March 31, 2023 and 2022, respectively.

7. Leases

The Company leases office space and equipment under various operating and finance leases, which generally are expected to be renewed or replaced by other leases. The finance leases currently held are considered immaterial. The components of lease cost were as follows:


Components of Lease Cost
	Three Months Ended March 31,
(in thousands)	2023		2022
Finance lease cost:
Amortization of right-of-use assets	$	3	$	13
Interest on lease liabilities	—		1
Operating lease cost	1,458		1,497
Short-term lease cost	324		299
Variable lease cost	76		109

Total lease cost	$	1,861	$	1,919

Rent expense for the three and three months ended March 31, 2023 and 2022 was immaterial.

Maturities of operating lease liabilities were as follows:


Future Minimum Lease Payments
(in thousands)	March 31, 2023			December 31, 2022
2023	$	4,195	*		$	5,177
2024	4,581				4,099
2025	3,774				3,294
2026	2,901				2,728
2027	1,869				1,780
Thereafter	1,744				1,743
Total minimum lease payments	$	19,064			$	18,821
Less imputed interest	(1,365)				(1,287)
Total operating lease liabilities	$	17,699			$	17,534
*Period ended March 31, 2023 represents the remaining nine months of 2023.

Future Lease Commencements

As of March 31, 2023, there are additional operating leases, primarily for buildings and autos, that have not yet commenced in the amount of $0.5 million. These operating leases will commence in fiscal year 2023 with lease terms of 2 to 5 years.

Supplemental balance sheet information related to leases was as follows:


Operating Leases
(in thousands)	March 31, 2023			December 31, 2022
Other non-current assets	$	17,397			$	17,249

Accrued liabilities	4,907				4,685
Other long-term liabilities	12,792				12,849
Total operating lease liabilities	$	17,699			$	17,534











Weighted Average Remaining Lease Term	4.44 years				4.66 years

Weighted Average Discount Rate	3.69		%		3.30		%

Supplemental Cash Flow information related to leases was as follows:


	Three Months Ended March 31,
(in thousands)	2023		2022

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases	$	1,304	$

SEC Form 10-Q filed by Alamo Group Inc.