alg-20230630

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 JUNE 30, 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 July 28, 2023, 12,010,532 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
		June 30, 2023 and December 31, 2022

	Interim Condensed Consolidated Statements of Income		4
		Three and Six Months Ended June 30, 2023 and June 30, 2022

	Interim Condensed Consolidated Statements of Comprehensive Income		5
		Three and Six Months Ended June 30, 2023 and June 30, 2022

	Interim Condensed Consolidated Statements of Stockholders' Equity		6
		Three and Six Months Ended June 30, 2023 and June 30, 2022

	Interim Condensed Consolidated Statements of Cash Flows		7
		Six Months Ended June 30, 2023 and June 30, 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		19

Item 4.	Controls and Procedures		20

PART II.	OTHER INFORMATION		21

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		23

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Balance Sheets

(Unaudited)


(in thousands, except share amounts)	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents		$	112,061		$	47,016
Accounts receivable, net		378,675			317,581
Inventories, net		369,319			352,553

Prepaid expenses and other current assets		10,979			9,144
Income tax receivable		937			916
Total current assets		871,971			727,210

Rental equipment, net		36,375			33,723

Property, plant and equipment		352,233			335,078
Less: Accumulated depreciation		(188,799)			(180,071)
Total property, plant and equipment, net		163,434			155,007

Goodwill		197,445			195,858
Intangible assets, net		164,376			171,341
Deferred income taxes		1,053			969
Other non-current assets		23,105			24,400

Total assets		$	1,457,759		$	1,308,508

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	116,287		$	97,537
Income taxes payable		11,284			6,592
Accrued liabilities		72,266			71,368
Current maturities of long-term debt and finance lease obligations		15,008			15,009

Total current liabilities		214,845			190,506

Long-term debt and finance lease obligations, net of current maturities		332,576			286,943
Long-term tax liability		2,464			3,781

Other long-term liabilities		22,804			23,668
Deferred income taxes		19,128			18,250

Stockholders’ equity:
Common stock, $0.10 par value, 20,000,000 shares authorized; 11,958,938 and 11,913,890 outstanding at June 30, 2023 and December 31, 2022, respectively		1,196			1,191
Additional paid-in-capital		133,598			129,820
Treasury stock, at cost; 82,600 shares at June 30, 2023 and December 31, 2022, respectively		(4,566)			(4,566)
Retained earnings		791,669			727,183
Accumulated other comprehensive loss		(55,955)			(68,268)
Total stockholders’ equity		865,942			785,360

Total liabilities and stockholders’ equity		$	1,457,759		$	1,308,508

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except per share amounts)	2023		2022		2023		2022

Net sales:
Vegetation Management	$	261,346	$	255,003	$	517,781	$	476,009
Industrial Equipment	179,348		141,211		334,684		282,210

Total net sales	440,694		396,214		852,465		758,219
Cost of sales	322,620		296,497		621,884		571,861
Gross profit	118,074		99,717		230,581		186,358

Selling, general and administrative expenses	59,858		55,009		119,526		108,644
Amortization expense	3,824		3,792		7,639		7,679
Income from operations	54,392		40,916		103,416		70,035

Interest expense	(6,837)		(3,189)		(12,777)		(5,836)
Interest income	357		57		740		129
Other income (expense), net	(1,046)		(134)		(44)		(1,886)
Income before income taxes	46,866		37,650		91,335		62,442
Provision for income taxes	10,492		9,178		21,612		15,500
Net Income	$	36,374	$	28,472	$	69,723	$	46,942

Net income per common share:
Basic	$	3.05	$	2.39	$	5.85	$	3.95
Diluted	$	3.03	$	2.39	$	5.82	$	3.94
Average common shares:
Basic	11,921		11,880		11,910		11,870
Diluted	11,993		11,938		11,977		11,927

Dividends declared	$	0.22	$	0.18	$	0.44	$	0.36

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Net income	$	36,374	$	28,472	$	69,723	$	46,942
Other comprehensive income, net of tax:
Foreign currency translation adjustments, net of tax expense of $(241) and $(654), and $(414) and $(904), respectively	7,616		(19,822)		12,162		(18,155)
Recognition of deferred pension and other post-retirement benefits, net of tax (expense) and benefit of $(99) and $59, and $(164) and $314, respectively	283		205		565		411
Unrealized income (loss) on derivative instruments, net of tax benefit and (expense) of $0 and $(371), and $59 and $(738), respectively	—		1,045		(414)		2,897


Other comprehensive income (loss), net of tax	7,899		(18,572)		12,313		(14,847)
Comprehensive income	$	44,273	$	9,900	$	82,036	$	32,095

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)


For six months ended June 30, 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





Other comprehensive income	—	—		—		—		36,374		7,899		44,273
Stock-based compensation expense	—	—		1,869		—		—		—		1,869

Stock-based compensation transactions	17	2		72		—		—		—		74


Dividends paid ($0.22 per share)	—	—		—		—		(2,622)		—		(2,622)
Balance at June 30, 2023	11,876	$	1,196	$	133,598	$	(4,566)	$	791,669	$	(55,955)	$	865,942

See accompanying notes.


For six months ended June 30, 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





Other comprehensive income	—	—		—		—		28,472		(18,572)		9,900
Stock-based compensation expense	—	—		1,750		—		—		—		1,750

Stock-based compensation transactions	15	2		(251)		—		—		—		(249)


Dividends paid ($0.18 per share)	—	—		—		—		(2,139)		—		(2,139)
Balance at June 30, 2022	11,826	$	1,191	$	127,180	$	(4,566)	$	676,474	$	(63,837)	$	736,442

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Interim Condensed Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
(in thousands)	2023		2022
Operating Activities
Net income	$	69,723	$	46,942
Adjustment to reconcile net income to net cash provided by (used in) operating activities:
Provision for doubtful accounts	244		315
Depreciation - Property, plant and equipment	11,270		10,648
Depreciation - Rental equipment	4,259		3,765
Amortization of intangibles	7,639		7,679
Amortization of debt issuance	351		334
Stock-based compensation expense	3,568		3,121
Provision for deferred income tax	105		349
Gain on sale of property, plant and equipment	(2,058)		(69)
Changes in operating assets and liabilities:
Accounts receivable	(57,260)		(74,024)
Inventories	(13,273)		(37,185)
Rental equipment	(6,889)		(2,501)
Prepaid expenses and other assets	(415)		(2,992)
Trade accounts payable and accrued liabilities	17,435		2,263
Income taxes payable	4,586		(1,028)
Long-term tax payable	(1,317)		(1,972)
Other assets and long-term liabilities, net	(784)		966
Net cash provided by (used in) operating activities	37,184		(43,389)

Investing Activities
Acquisitions, net of cash acquired	—		(2,000)
Purchase of property, plant and equipment	(18,238)		(14,965)
Proceeds from sale of property, plant and equipment	2,931		181

Net cash used in investing activities	(15,307)		(16,784)

Financing Activities
Borrowings on bank revolving credit facility	117,000		162,000
Repayments on bank revolving credit facility	(64,000)		(53,000)
Principal payments on long-term debt and finance leases	(7,504)		(7,521)


Dividends paid	(5,237)		(4,272)
Proceeds from exercise of stock options	1,204		547

Common stock repurchased	(989)		(712)
Net cash provided by financing activities	40,474		97,042

Effect of exchange rate changes on cash and cash equivalents	2,694		(3,090)
Net change in cash and cash equivalents	65,045		33,779
Cash and cash equivalents at beginning of the year	47,016		42,115
Cash and cash equivalents at end of the period	$	112,061	$	75,894

Cash paid during the period for:
Interest	$	12,140	$	5,998
Income taxes	19,891		17,615

See accompanying notes.

Alamo Group Inc. and Subsidiaries

Notes to Interim Condensed Consolidated Financial Statements - (Unaudited)

June 30, 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 June 30, 2023 the Company had $24.0 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)	June 30, 2023			December 31, 2022


Finished goods		$	330,952		$	312,726
Work in process		28,976			22,273
Raw materials		9,391			17,554
Inventories, net		$	369,319		$	352,553

Inventory obsolescence reserves were $9.4 million at June 30, 2023 and $13.2 million at December 31, 2022.

4. Rental Equipment

Rental equipment is shown net of accumulated depreciation of $23.7 million and $22.3 million at June 30, 2023 and December 31, 2022, respectively. The Company recognized depreciation expense of $2.2 million and $1.9 million for the three months ended June 30, 2023 and 2022, respectively and $4.3 million and $3.8 million for the six months ended June 30, 2023 and 2022, respectively.

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 June 30, 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 six months ended June 30, 2023:


(in thousands)	Vegetation Management			Industrial Equipment			Consolidated
Balance at December 31, 2022		$	127,562		$	68,296		$	195,858
Translation adjustment		1,223			364			1,587

Balance at June 30, 2023		$	128,785		$	68,660		$	197,445

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	June 30, 2023		December 31, 2022
Definite:
Trade names and trademarks	15-25 years	$	69,148		$	68,797
Customer and dealer relationships	8-15 years	129,815			129,338
Patents and drawings	3-12 years	28,517			28,437
Favorable leasehold interests	7 years	4,200			4,200
Total at cost		231,680			230,772
Less accumulated amortization		(72,804)			(64,931)
Total net		158,876			165,841
Indefinite:
Trade names and trademarks		5,500			5,500
Total Intangible Assets		$	164,376		$	171,341

The Company recognized amortization expense of $3.8 million and $3.8 million for the three months ended June 30, 2023 and 2022, respectively, and $7.6 million and $7.7 million for the six months ended June 30, 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 June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Finance lease cost:
Amortization of right-of-use assets	$	2	$	6	$	5	$	19
Interest on lease liabilities	—		—		—		1
Operating lease cost	1,482		1,434		2,940		2,931
Short-term lease cost	305		334		629		633
Variable lease cost	75		103		151		212

Total lease cost	$	1,864	$	1,877	$	3,725	$	3,796

Rent expense for the three and six months ended June 30, 2023 and 2022 was immaterial.

Maturities of operating lease liabilities were as follows:


Future Minimum Lease Payments
(in thousands)	June 30, 2023			December 31, 2022
2023	$	2,833	*		$	5,177
2024	4,666				4,099
2025	3,858				3,294
2026	2,962				2,728
2027	1,886				1,780
Thereafter	1,748				1,743
Total minimum lease payments	$	17,953			$	18,821
Less imputed interest	(1,245)				(1,287)
Total operating lease liabilities	$	16,708			$	17,534
*Period ended June 30, 2023 represents the remaining six months of 2023.

Future Lease Commencements

As of June 30, 2023, there are additional operating leases, primarily for buildings, that have not yet commenced in the amount of $3.4 million. These operating leases will commence in fiscal year 2023 with lease terms of 2 to 3 years.

Supplemental balance sheet information related to leases was as follows:


Operating Leases
(in thousands)	June 30, 2023		December 31, 2022
Other non-current assets	$	16,414		$	17,249

SEC Form 10-Q filed by Alamo Group Inc.