Alamo Group, Inc.

Good day, and welcome to the Alamo Group Incorporated first quarter 2020 conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ed Rehudi. Go ahead, sir.

Thank you. By now, you should have all received a copy of the press release. However, if anyone's missing a copy and would like to receive one, please contact us at 212-827-7000. 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 the passcode 3220598. 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, Chief Financial Officer, and Richard Worley, 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 list of 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, 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 today. Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter of 2020. I will then provide a few comments on the results, and following our formal remarks, we look forward to taking your questions. Dan, please go ahead.

Thank you, Ron. The key takeaways from our first quarter 2020 results are net sales were up about 20% due to acquisitions. Organic sales were down 4% due to COVID-19 disruptions and currency translation. First quarter net income was up about 2%, with acquisitions accretive both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28%, with acquisitions highly accretive and expanding our EBITDA margins. Operating cash flow generation continued to run favorable the prior year, Quarter-end cash on hand plus credit availability exceeded $200 million, and quarter-end backlog of $233 million was down 11% since December. First quarter 2020 net sales of $314.4 million were 20% higher than the prior year first quarter. Without the Moorbark and Dutch Power acquisition effects, organic sales were down 4%. Without the unfavorable effects of currency translation, organic sales were down closer to 3%. While we started the year seeing strong results from our acquisitions on top of organic sales growth, our shipments fell sharply in the last two weeks of March, mainly due to COVID-19 disruptions. Industrial Division first quarter 2020 net sales of $230 million represented a 32.5% increase over the prior year first quarter. Without the impact of the Moorbark and Dutch Power acquisitions, this division's organic sales were down 5.8% in U.S. dollars and down about 5.5% without currency translation effects. Agricultural Division first quarter 2020 sales were $84.5 million, down 4.4% from the prior year first quarter in U.S. dollars, and down 2.8% without the effect of unfavorable currency translation. Similar to what we saw at the end of 2019, the first quarter of 2020 reflected organic sales growth from our North American operations and some incremental Dixie Chopper sales offset by lower European sales. COVID-19 disruptions mainly in Europe significantly affected our shipments in the last two weeks of March. Net income for the first quarter of 2020 was $15.5 million or $1.31 per diluted share. Compared to prior year quarter net income of $15.3 million, or $1.30 per diluted share, the Moorbach and Dutch Power acquisitions were accreted by 1 cent per diluted share. Our gap net income now includes some large non-cash expenses stemming from the opening balance sheet allocations of these acquisitions. Most significant of these are changes related to the step-up of inventory values above Moorbark's historical cost, and the incremental amortization expense related to the allocation of most of the difference between the total acquisition cost and the fair value of hard assets to amortizable intangible asset categories. These acquisition accounting effects require no future cash flow for maintenance outside of ordinary operating expense. If we exclude both the step-up and incremental amortization, the EPS contribution of these acquisitions would have been over 30 cents per diluted share. First quarter 2020 adjusted EBITDA, which excludes the more about inventory step-up charges, was $37 million, up $8 million and 28% over the prior year first quarter. Our adjusted EBITDA as a percentage of net sales was 11.7% in the first quarter compared to 11% of net sales in the prior year first quarter. Strong Warbark and Dutch Bower results drove this margin expansion with the two acquisitions contributing more than the total increase than adjusted EBITDA dollars at an above-average adjusted EBITDA margin. Excluding these acquisitions, core business EBITDA was lower than the prior year core due to the COVID-19-related plant shutdowns, production cuts, and shipping delays. During the first quarter of 2020, we generated $5.6 million of positive operating cash flow compared to $32.4 million of negative operating cash flow in the prior year quarter. Due to the normal seasonality of working capital requirements, we usually have large negative first quarter operating cash flows, which were in the neighborhood of $30 million in each of the past two years. This positive cash flow trend, largely driven by favorable working capital changes, began in 2019 due to swelling sales growth and we expect it to continue in 2020 due to the impact of COVID-19. At quarter end, $84.4 million of cash on hand and $119 million of availability under existing credit facilities provided us with over $200 million of liquidity. While we currently have more than adequate liquidity, We cannot forecast the duration and full impact of the COVID-19 pandemic. However, we do not anticipate any near-term liquidity issues. Our order backlog ended the first quarter at $233 million, having declined 11% since December. Backlog is about 10% lower than the prior year first quarter. Betch Power was included in our prior year first quarter ending backlog. In first quarter 2020, Dixie Chopper backlog is large enough to mention here. So excluding Moorbark and Dixie Chopper order books, backlog was about 19% lower than the prior year first quarter. To recap our first quarter 2020 results, net sales were up about 20% due to acquisitions. Organic sales were down 4% due to COVID-19 and currency translation. First quarter net income was up about 2% with acquisitions accreted both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28% with acquisitions highly accreted and expanding our EBITDA margins. Operating cash flow generation continued to run favorable the prior year. Quarter end liquidity remained above $200 million and quarter end backlog of $233 million is down 11% since December. I'd now like to turn the call back over to Ralph.

All right. Thank you, Dan. And as Dan reported, I mean, actually our first quarter was pretty good, especially until March. But even with the slowdown in March due to our strong start and benefiting from the acquisitions, we ended up with record sales and earnings for our first quarter. and pleased with that that we were able to achieve that given how soft March was. Certainly, as I said, January and February started off pretty good and really showed the benefits of the acquisitions of Dutch Power and Warbark. But things changed in March as Western Europe and North America really started to get hard by the coronavirus pandemic. And the biggest impact for us in March was in Europe, as all of our plants in England and France were shut down at some point during that time period. And though interestingly, our Netherlands plants, which are the Dutch power ones, have remained open throughout this period. In North America, most of our U.S. operations continued to function, though there were some temporary closures and Probably our Canadian plants, especially those in Quebec, were the ones most affected by this situation. During April, most of our plants that were closed have now reopened, though at varying levels of operation. And though we have about 17% of our workforce either absent or on some kind of a furlough related to the COVID-19 pandemic, The majority of these people who are out are due to the slowdown in demand as we've been furloughing workers in response to changes in demand. By and large, we are still able to operate in a fairly normal fashion, though obviously we have a lot more precautions being taken to make sure our employees are operating safely and maintaining social distancing. As we have reported, we also have about 500 people working remotely during this time period. And while we are having a few supply chain issues, generally our vendors and suppliers are functioning on a basis similar to us. I mean, we do scale, but still able to meet most of our requirements, especially as we're focusing only on our short-term needs. but they're able to meet most of those in a timely manner and seem to be able to continue to be able to function at this level. We have also had a few issues with some customer orders. These have been fairly limited, but we've had a few orders that have been canceled and a few more that have customers where they have requested shipment delays due to some

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 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 today. Dan Malone, our CFO, will begin our call with a review of our financial results for the first quarter of 2020. I will then provide a few comments on the results, and following our formal remarks, we look forward to taking your questions. Dan, please go ahead.

Thank you, Ron. The key takeaways from our first quarter 2020 results are net sales were up about 20% due to acquisitions. Organic sales were down 4% due to COVID-19 disruptions and currency translation. First quarter net income was up about 2% with acquisitions accretive both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28% with acquisitions highly accretive and expanding our EBITDA margins. Operating cash flow generation continued to run favorable the prior year, Quarter-end cash on hand plus credit availability exceeded $200 million, and quarter-end backlog of $233 million was down 11% since December. First quarter 2020 net sales of $314.4 million were 20% higher than the prior year first quarter. Without the Moorbark and Dutch Power acquisition effects, organic sales were down 4%. Without the unfavorable effects of currency translation, organic sales were down closer to 3%. While we started the year seeing strong results from our acquisitions on top of organic sales growth, our shipments fell sharply in the last two weeks of March, mainly due to COVID-19 disruptions. Industrial Division first quarter 2020 net sales of $230 million represented a 32.5% increase over the prior year first quarter. Without the impact of the Moorbark and Dutch Power acquisitions, this division's organic sales were down 5.8% in U.S. dollars and down about 5.5% without currency translation effects. Agricultural Division first quarter 2020 sales were $84.5 million, down 4.4% from the prior year first quarter in U.S. dollars, and down 2.8% without the effect of unfavorable currency translation. Similar to what we saw at the end of 2019, the first quarter of 2020 reflected organic sales growth from our North American operations and some incremental Dixie Chopper sales.

Again, we are continuously responding to the ever-changing conditions and taking all reasonable actions to mitigate the problems and yet still support our customers and their needs. We are acting aggressively but trying to avoid the temptation to overreact to these situations. This has been a team effort and I'm very proud of our management team that has really acted tirelessly and selflessly to stay on top of this issue, to respond daily to the many changes and directives that were coming at us hard during you know, the month of March and April. Certainly, and the whole staff has really showed a lot of dedicated support to the company and to this whole situation, which has certainly been unprecedented for all of us in trying to deal with it. We also want to thank our vendors and customers for their continued support in this process. And particularly, we want to thank our shareholders and the investment community in general for their loyalty during this situation as we're all trying to feel our way through this. But with that, I would like now to turn the lines open to any questions you might have. And I'd say that concludes our formal remarks, but we'd be glad to take any questions. Operator, please go ahead.

Absolutely. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for a question. Our first question is from Mike Schlitzke with Daughtery and Company.

Hey guys, good morning. Good morning, Mike. So I wanted to ask you about the budget situation at the state and local level. I'm sure we're still working through those issues right now across the country. As I look back towards some of the toughest times in the last 10, 15 years in the state and local budget landscape, I haven't really seen your revenues down all that much, except for the Great Recession, you know, too much in the teens or 20s. Do you think that this time would be any different than, you know, prior downturns where, you know, there's no 50%, 50% kind of decline here in the making? It's probably more of a more modest, you know, downside here. Just kind of your very broad thoughts as to how tough things could get for you.

Yeah, I mean, first of all, it's very difficult to say and predict. I mean, this is sort of a bit of an unprecedented situation. Yeah, I think we will hold up a little bit better than many other manufacturing, but we will certainly be impacted to the exact degree. I mean, governmental budgets are under a lot of strain right now, and I think they probably will be for the rest of the year. I don't know. I think things that could affect that is how much relief they get from the federal government. Since most of our customers are more city, county, state entities, not federal, in our industrial sector or in our governmental business. I think, like I said, that's some of the wild cards. How bad will their revenues be? How much help will they get from the federal government? But, I mean, most of our equipment is deemed essential and then mixed daily, and it's wearing out on a regular basis. So, again, we are continuously responding to the ever-changing conditions and taking all reasonable actions to mitigate the problems and yet still support our customers and their needs. We are acting aggressively but trying to avoid the temptation to overreact to these situations. This has been a team effort and I'm very proud of our management team that has really acted tirelessly and selflessly to stay on top of this issue, to respond daily to the many changes and directives that were coming at us hard during the month of March and April. certainly, and the whole staff has really showed a lot of dedicated support to the company and to this whole situation, which has certainly been unprecedented for all of us in trying to deal with it. We also want to thank our vendors and customers for their continued support in this process, and particularly we want to thank our shareholders and the investment community in general for their their loyalty during this situation as we're all trying to feel our way through this. But with that, I would like now to turn the lines open to any questions you might have. And I'd say that concludes our formal remarks, but we'd be glad to take any questions. Operator, please go ahead.

Absolutely. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for a question. Our first question is from Mike Schlitzke with Daughtery and Company.

Hey, guys. Good morning. Good morning, Mike. So, while I'm asking about the budget situation at the state and local level, I'm sure we're still working through those issues right now across the country. As I look back towards some of the toughest times in the last 10, 15 years in the state and local budget landscape, I haven't really seen your revenues down all that much, except for the Great Recession, you know, too much in the teens or 20s. Do you think that this time would be any different than, you know, prior downturns where, you know, there's no 50%, 50% kind of decline here in the making? It's probably more of a more modest, you know, downside here. Just kind of your very broad thoughts as to how tough things could get for you.

Yeah, I mean, first of all, it's very difficult to say and predict. I mean, this is sort of a bit of an unprecedented situation. Yeah, I think we will hold up a little bit better than many other manufacturing, but we will certainly be impacted to the exact degree. I mean, governmental budgets are under a lot of strain right now, and I think they probably will be for the rest of the year. I don't know, you know, I think things that could affect that is how much relief they get from the federal government. You know, since most of our customers are more city, county, state, while the prices are down, but I think they'll hold on. But, you know, like I said, I think that'll come into more of a balance in the second half of the year, but I think you're going to see more issues in the second quarter.

Okay, that's a great call, Ron. Maybe one last one for me on the debt side, Dan. I guess are there any kind of major debt reductions on hold? What's your plan for the year now that this has all happened? And then, I mean, at the very least, do you plan to just have extra cash on the balance sheet to at least potentially bring down net debt? Obviously, if you need the cash, you'll go get it or you'll go use it. But if you don't, is the plan to at least keep that net debt as low as possible?

Yeah, I mean, certainly cash management, keeping net debt, continuing to reduce net debt is our major goal. But we will be making some debt, paying down debt. We actually believe cash flow should improve as the year goes on and that as we're in effective at reducing some inventory. Like I say, with a little softness in sales, we'll also see receivables coming down. So as we turn some receivables and inventory into cash, we will be paying. We're not going to just hold all the cash. We will start paying down debt. And we want to keep enough cash balances to meet our needs. And in the short term, I mean, most of our cash is outside the U.S., But now that it's a little bit easier to repatriate that, we were worried about a month ago. I mean, the U.S. dollar was a little strong. Some of this cash outside the U.S. had come down in value. But now that's gotten back a little bit more into equilibrium. And so, yes, we will probably be bringing back more cash from overseas. And we will be paying down debt. We'll still be holding above-average cash balances, but I do foresee that for the rest of the year, you'll see our debt decline.

I just want to confirm, you'll be paying down the debt more than just any minimum? Oh, yes. Okay. Okay, well, great. Thank you so much for answering my question.

Sure. Thank you, Mike.

Our next question is from Joe Mondello with Siderian Company.

Hi, good morning, Ron and Dan. Hope you're doing well.

Yeah, very good. Thank you, Joe.

Just wanted to follow up on one of Mike's questions there regarding the ag business. And I'm just curious, you know, to what degree, maybe you don't have to quantify exactly, but to what degree does the row crop farmer make up of your ag segment? And I'm just particularly asking because As I'm sure you know, the ethanol markets are really, I think, weighing on consumption and, you know, the fact that they're planting a lot of corn this year. You could be, you know, looking at a situation later in the year of a lot of supply and not a lot of demand because of the ethanol markets, which, you know, could result in some lower crop prices, which we've already sort of seen already. So I'm just curious how much that part of the – ag business or ag sector makes up of your segment?

You know, we have, you know, given that we go through dealers, it is hard to get a feel for, you know, the breakdown of between, say, ranchers, farmers, hobby farmers, you know, the orchard farming, you know, the many subsectors within ag that we don't have really definitive By the point prices are down, but I think they'll hold on. But, you know, like I said, I think that'll come into more of a balance in the second half of the year, but I think you're going to see more issues in the second quarter.

Okay, that's a good call, Ron. Maybe one last one for me on the debt side, Dan. I guess are there any kind of major debt reductions on hold? What's your plan for the year now that this has all happened? And then, I mean, at the very least, do you plan to just have extra cash on the balance sheet to at least potentially bring down net debt? Obviously, if you need the cash, you'll go get it and you'll go use it. But if you don't, is the plan to at least keep that net debt as low as possible?

Yeah, I mean, certainly cash management, keeping net debt, you know, continuing to reduce net debt. is our is our major goal but we will be paying we will be making some debt uh paying down debt uh you know we will uh we actually believe cash flow should start it should improve as the year goes on uh and and that as we're in the effective at reducing some inventory like i say with a little softness in sales we'll also see receivables coming down so as we turn some receivables and inventory into cash we will be paying. We're not going to just hold all the cash. We will start paying down debt. We want to keep enough cash balances to meet our needs. In the short term, most of our cash is outside the U.S., but now that it's a little bit easier to repatriate that, we were worried about a month ago. The U.S. dollar was a little strong. Some of this cash out side of the U.S. have come down in value, but now that's gotten back a little bit more into equilibrium, and so yes, we will probably be bringing back more cash from overseas, and we will be paying down debt. We'll still be holding above-average cash balances, but I do foresee that for the rest of the year, you'll see our debt decline.

I just want to confirm, you'll be paying down the debt more than just any minimum. There will be Oh, yes. Okay. Okay. Well, great. Thank you so much for answering my question.

Sure. Thank you, Mike.

Our next question is from Joe Mondello with Fedorian Company.

Hi. Good morning, Ron and Dan. Hope you're doing well. Yeah.

How are you, Joe? Thank you, Joe.

Just wanted to follow up on one of Mike's questions there regarding the ag business, and I'm just curious to what degree, maybe you don't have to quantify exactly, but to what degree does the row crop farmer make up of your ag segment? And I'm just particularly asking because, as I'm sure you know, the ethanol markets are really, I think, weighing on consumption and the fact that they're planting a lot of corn this year. You could be looking at a situation later in the year of a lot of supply and not a lot of demand because of the ethanol market, which could result in some lower crop prices, which we've already sort of seen already. So I'm just curious how much that part of the ag business or ag sector makes up of your segment.

You know, we have – you know, given that we go through dealers, it is hard to get a feel for, you know, the breakdown of between, say – ranchers farmers hobby farmers uh uh in france and england and all started really you know like to say started all their uh restricting measures that's when all you know in march was when all of our plants in in england and france uh were shut down for some period of time um that's when even in the u.s uh you know when our first cases uh started to show up in Not only with us, we've actually been fortunate to have not a lot of cases. In fact, it's interesting, most of the ones we have had are now back to work. But like I said, it was March. That's when people started working from home, all these stay-at-home orders. And that made responding kind of difficult because governmentals aren't set up to work from home. you know, of course, in our products, we can't build from home. You know, so while we have people working from home and our customers do, excuse me, it's a fairly unique situation and like the unprecedented situations, we've all tried to adapt to these changes and, you know, like I said, that's the good thing now even though it was, you know, like I said, very little effect to our business in January and February but March, So most of the effect, all the softness showed up there. Continuing a little into April, but like I said here, now that we are moving into May, we're starting to see, like I say, all of our plants in Europe are now back open at some basis. Like I say, the level of production there is more limited by us in the market than by the COVID-19. But I think... Businesses are starting to adapt to the situation. Things are opening up a little bit more. We're seeing a little bit more communication with our customers. People are trying to figure out how to function either remotely or as they start getting back to work. That's why I say to me the second quarter is very important just to see how much we get back to to normal. Like I said, there's going to be budget constraints. There's going to be some financial weaknesses out there. But I think if the world, especially Western Europe, North America, start functioning a little bit back to some normal basis in the second quarter, I think that'll be very important. We have a pretty good backlog that carry us through the second quarter. But like I said, I think at this point, my focus is really almost more the third quarter, trying to, you know, seeing what's going to happen there and how things will respond and get back to normal. And, you know, it's amazing how much normal business is continuing to go on. New orders are coming in at a slow pace, but at a steady pace. And like I said, we've seen a little bit of pickup and had some very nice booking months in ag. But like I say, to me, the second quarter is going to be really important, not just for our second quarter results, but for the rest of the year for the whole country.

This is Richard. We actually started making cost adjustments towards the tail end of March and the first two to three weeks in April.

Okay. I was just trying to determine how quick you were to sort of react to the changes and, you know, the cost measures that you talked about.

Well, and as Richard said, I mean, we started seeing these, you know, like it didn't. The whole first two months, January and February, were good months for us. March started off good. March ended poorly. But then by the middle of March, we were, you know, already, you know, announcing salary cuts and travel restrictions and cutting back on CapEx. We responded as soon as everything started hitting hard and heavy the second half of March and we responded in the second half of March.

Last question for me regarding the backlog and your order plans. I just wanted to try to get a clear indication of what your sort of seeing because some of your commentary contradict a little bit. I mean, you stated in the prepared remarks that, you know, excluding the acquisitions, your backlog is up 19%, which is, you know, a fairly sizable number. But you also sort of described the backlog as fairly healthy. So, have you seen any change in the order trend at all? Or could you just help sort of clarify that distinctly?

Well, I'd say the backlog is fairly healthy for our needs for the second quarter. As I said, in the middle of March and the second half of March and the first and early April, communication with customers, communication in general, got very difficult. Everybody was responding. I know it's the second half of March and early April. we, you know, there was some new directive from some states, some counties, some cities, some country, you know, regarding shutdowns. And now, I mean, multiple of these daily and trying to respond wherever, you know, given that we operate in so many states and so many, you know, with plants, 30 plants around the world and, you know, everyone. So, I mean, it was, I mean, you know, daily we were trying to respond to changes and the operating conditions of where we were. Communication with customers was challenged because, like I said, some of these customers would now stay at home. And as I said, some of our customers, the governmentals aren't really set up to work from home. So it was a very challenging environment. And yet, like I said, orders were still coming in, but not at the same pace. And certainly, like I say, communication was uh was difficult that's why i'm saying now i think we're seeing communication start to approve uh ag ordering ag bookings in in april certainly were better than they were at the you know second half of march uh the and the and they're so you know doing reasonably right now even though this isn't one of our big order I mean, in ag, like I said, our biggest orders come in the second half of the year, but they are functioning and are operating on, like I said, nothing's a normal basis, but a little bit better basis. Communication's improving. Governmentals are still ordering. They're still taking deliveries. They're trying to delay some deliveries. We haven't had much cancellations, but, you know, like I say, they're trying to figure out where they are in their budgets. And so there's just a lot of unknowns out there. But as I said, I think communication is starting to improve, and I think that's good because I think the stability of the ordering cycle, I mean, most of our equipment is still being used on a regular basis. You know, they're still out. you know, cleaning, you know, dealing with the infrastructure. And so we're seeing that holding up reasonably well. And we think that, you know, it'll respond, you know, a little quicker when things start to get back to normal. But, you know, there's a lot of unknowns. And, you know, like we assume, like I say, I think that's why I say the second quarter to me is going to be very, important to really set the pace for how this recovery is going to go. I mean, we certainly hope there's not going to be any kind of a remission or a second wave of this or anything. And so, I mean, I hope people don't get too far ahead of themselves. But, yeah, no, I mean, we think that, like I say, we're trying to just react daily to changing conditions. and avoid overreacting. Like I say, we're still in it. We're functioning. We're meeting the needs of our customers. We're making sure our plants are not clean and safe, but operating, that our supply chain's working. Like I say, while we're trying to cut back on inventory, we want to make sure we have the inventory we need to meet customer demand. Like I say, we're just trying to... you know, react daily to changing conditions without overreacting daily.

No, I understand. A lot of uncertainty. If I could just quick throw one last question in, just oil and gas, what did that make up of your business in 2019?

You know, again, it's hard to say exactly. I mean, you know, we don't have that kind of, detail of if we sell a vacuum truck to a contractor. I mean, a lot of that's in our vacuum truck business. And, you know, if we sell it to a contractor, we don't know who all he's working for. But, yes, I mean, you know, I think even going back to around 2016, you know, when oil and gas dropped in, I mean, we saw a noticeable decline in our rental business of vacuum trucks. Since then, I mean, you know, we have diversified that base more. We're you know, to where, you know, but, you know, oil and gas is still in it. I mean, oil and gas, you know, I wouldn't think of our Alamo's total business is certainly, you know, low single digits. So it's not a big thing, but it is certainly under stress right now. I mean, you know, oil and gas has really been impacted by, you know, like I say, if we get to COVID-19, they've got the, you know, oversupply and the Saudi-Russian battle. And so, I mean, there's lots of things going on in oil and gas, none of them which are good in the short term. So, yeah, I think that is going to be solved. It won't impact us as much as it did in 2019 downturn, but it certainly isn't going to help us. But it's a little bit hard for us to break out between oil and gas construction, mining, and some of these other sort of non-governmental applications, mostly in our vacuum truck area. and, you know, a little bit in some of our other areas, excavators and this kind of stuff. So, yeah, I think that's going to be, like I said, it isn't going to help, but construction is soft, mining is soft, you know, like I said, everything is soft right now.

I got you. Good luck with everything, guys, and stay safe and well.

Thank you very much. Appreciate it. Thank you.

As a reminder, please press star 1 if you'd like to ask a question. And our next question is from Chris Moore with CJS Securities. Please go ahead.

Hey, good morning, guys. Yeah, maybe I'll stay on the third morning on the kind of order outlook for a moment. So, you know, one of the things you talked about was even if the pandemic outlook improves still could be a lag in the second half unless, you know, orders improve near term. Can you just kind of remind me in terms of the products that have the longest lead times where, you know, that it becomes that much more crucial, you know, for Oracle near term? And secondly, are those lead times a little bit more under your control these days or still there's, you know, supply chain issues that strips them?

Yeah, the order lead time for us, I mean, you know, usually 30 to 60 days takes us to sort of build a product. I mean, you know, sometimes we'll be out as much as 90 days on certain products. But, you know, usually fairly short. And like I said, I mean, you know, going into this, I had probably a little bit too much inventory to begin with. So with some softness, I think. You know, we've got a lot of inventory that we want to actually work down. The lead times, I wouldn't say are, you know, changing a lot. I mean, we've been, you know, certainly a lot of our products like vacuum trucks, street sweepers, some excavators are, you know, used truck chassis. We buy truck chassis. And certainly the whole vehicle industry has, you know, had a lot of plant closures and cutting back. They're starting to reopen a little bit. And so far, we've not had any, you know, except not missing deliveries or anything, problems of any major nature with, on like sourcing truck chassis and with our inventory and with their lead times. I mean, I think, you know, I could see lead times getting a little bit longer, but I don't really see that in the short term or, you know, next couple quarters, that being a major issue. I know Caterpillar's cut back on some engine manufacturing, people, you know, people like that. We're already trying to sort out, you know, we already are working with Elm on forecasted demand for later in the year to make sure that we have, you know, adequate engines, especially, I mean, like Morbark, our new one, they, you know, there's a lot of engines they put onto theirs as opposed to buying chassis. They buy a lot of engines and then build the equipment. So like I say, we're already on top of that. We're working with that. It's interesting, as we've said, we get some components out of places like China, and they're back now seem to be making deliveries or meetings You know, our orders, even though we've cut back on our orders, they seem to be functioning on an almost normal basis. So, you know, like I said, we don't see a lot of change into the lead times. There's a couple key components, like truck chassis and this kind of stuff, that it's important they do get back to working. But, you know, at least like most manufacturing businesses, are working on it's it's interesting in europe we get some components out of italy and certainly uh you know certainly in in march and you know starting in february and march and in april they were you know lots of lots of problems there and a lot of things shut down but even now most of those plants are now starting to reopen and like say so with our backlog and the fact that our vendors even on a reduced scale, are at least getting back to working. We feel that we don't see a huge change in lead times or order flow. Like I said, we are working with our vendors daily to focus on any critical areas of concern for us.

Got it. Looks like Norbark had or was having a very big Q1. Do you see anything different there versus kind of the core industrial products through April and into May? Is Norbark kind of in the same boat? Is it holding up a little better than some of the kind of core industrial products?

You know, it's holding up reasonably well. I mean, some of their big products, you know, uh we we've had a few more issues there so you know that that people have either kind of you know especially million dollar uh units that people are saying hey i'm you know the economics i i need to see how this whole situation develops on the economics so we've got a few delays there uh and so but uh but yeah you know but it's interesting they're already I commented that we're getting a little bit more feedback from customers. I mean, I know they, just in the last couple weeks, have had a big influx of inquiries about, all right, what are lead times today? And so, I mean, like I said, I think they were a little bit slower initially as all this was hitting, but a little bit, like I say, they're getting a little... We actually think they'll probably... be one of the better units to respond. They'll come back a little quicker. But certainly, they've been affected like we've all been affected, but especially big picket items are getting a little more scrutiny.

Last one for me is, you talked about again in the Threat Marks in addition to cost cutting and cash conservation measures already implemented. you're reviewing other potential future actions. Can you talk a little bit more about some of those might be?

Sure. I mean, you know, a lot of course comes down to people and so we are daily reviewing our staffing levels and, you know, working and deciding how many people we need. I mean, you know, we feel that, you know, like I say, we've already taken some salary cuts at the salary level. One of the things I'm able to do is actually do more as opposed to that versus headcount, but we're trying to control it more with headcount in the short term. Other than that, like I said, we've delayed some development initiatives. We've been doing some stock buybacks. We stopped that for the short term. so I mean, you know, like you said, I don't, other than, you know, most of it deals with people and salaries. You know, we've already kind of eliminated most travel. I mean, you know, there's some essential that has to go on, but then, you know, we're not doing any international travel and we're not, and we're doing very limited domestic travel. But other than that, you know, like I say, it's, yeah, I mean, we're, reviewing all kinds of every level of costs, but those are the big, you know, really for us, it comes down to people. And that's, that's the one we're trying to adjust our staffing levels to have what we need, but, but, you know, not have more than we need in the short term. And we're making changes daily. And especially as now people are starting to react, you know, open up a little bit more and making plans to open up a little bit more. Uh, you know, we're, we're, we're, you know, trying to, uh, be ready to respond to the customer needs and that. But I think, you know, like I said, most of our salespeople, they're not on the road right now. They're mainly servicing customers through phone calls and emails and text and all. And so, you know, at some point we'll try to loosen that a little bit. But, you know, I don't want this whole country to, you know, jump to reopen before the because the statistics don't really support it in some places yet. But, you know, like I said, I mean, I think we're looking at all costs, but, you know, mainly it comes down to people.

Got it. Appreciate it. I'll jump back in line. Thanks, guys. Thank you, Chris.

And as a final reminder, please press star 1 if you'd like to ask a question. And right now, there are no further questions in the telephone queue. I'll turn it back to management for closing remarks.

Okay. Well, again, thank you all. We really appreciate you joining us today and your interest and support to the company. And, I mean, like I said, I mean, this is certainly an unprecedented and a terrible situation, but I want to just assure everybody that we as a company are doing our, I mean, say, on top of everything and trying to work very diligently to respond to conditions as they change, good and bad. We feel good about our ability to continue to perform and function and all. Like I said, I think the second quarter is going to be very interesting and critical for not just us, but I think our whole country and our whole industry. We thank you and we'll try to keep you appraised of how this developing and we look forward to speaking with you on our second quarter conference call in July. So have a good day. Thank you very much.

This concludes today's call. Thank you for your participation. You may now disconnect.