Q1 2020 Earnings Call

Thursday

good day and welcome to the Alamo Group Incorporated first quarter 2020 conference call today is conference is being recorded at this time. I would like to turn the conference over to Ed. Go ahead sir. Thank you. Bye 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 212-827-3746 and we will send you a release and make sure you are on the company distribution list. There will be a recall a recall which will begin one hour after the call and run for one week. The replay can be accessed by dialing 1-800 3132 with the pass code 32598. Additionally the call is being webcast on the company's website at ww.w wage.

I almost gasped group.

Um and a replay will be available for sixty days on the line with me today are Ron Robinson president and chief executive officer Dan Malone Executive Vice President and Chief Financial Officer. And Richard were Vice President Treasurer and corporate controller management will make some opening remarks and then we'll we'll open up the line for your questions during 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 a attachment to our earnings release before turning call over to Rod. 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 Palm 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 Reserve.

The future. To differ materially from forecasted results among those factors which could cause actual results to differ materially are the following Market demands covid-19 impacts competition, whether seasonality currency related issues geopolitical issues and other risk factors listed from time to time in the company's fax 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 juice. Go ahead. Thank you Ed and we want to thank all of you for joining us today then Malone our CFO will begin our call with the review of our financial results 4th 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. So Dan, please go ahead.

Thank you, Robin. The key takeaways from our first quarter 2020 results are net sales were up about twenty percent due to Acquisitions organic sales were down 4% off due to covid-19 disruptions and currency translations. 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 or either. Margins operating cash flow Jake and continued to run favorable to prior-year quarter and cash on hand Plus Credit availability, exceeded $200 and quarter in backlog of $2,033 was down 11% since December first quarter 2020 net sales three hundred fourteen point four million dollars or 20% higher than the dog.

for your first quarter without the more of our

In Dutch power acquisition affects Organics sales were down 4% without the unfavorable effects of currency translation organic sales were down closer to 3% while wage 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 disruption industrial division first quarter $20, net sales a $230 represented a 32.5% increase over the prior year first quarter without the impact of the mortgage in Dutch power Acquisitions. This divisions organic sales were down 5.8% in US Dollars and down about five and half percent without currency translation effects.

Agricultural division first quarter 2020 sales 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 of our North American operations and some incremental Dixie Chopper sales offset by lower European sales covid-19 disruptions mainly in Europe significantly affected our shipment in the last two weeks of March that income for the first quarter of 2020 was 15.5 million dollars or $1.31 cents per diluted share compared to dead at a part of your quarter. Net income of 15.3 million or $1.30 per diluted share the more Barkin Dutch power Acquisitions were created by birth.

$0.01 per diluted share our gaap. 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 to the related to the step-up of inventory values above more bars historical costs and the incremental amortization expense related to the allocation of birth of the difference between the total acquisition cost and the fair value of our assets to amortizable intangible asset categories these acquisition accounting effects require 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 thirty cents per diluted share.

First quarter 2020 adjusted ebitda, which excludes the more of our inventory step-up charges was $37 of $8 and 28% off over the prior-year first quarter or 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 of strong more bark and Dutch power results drove this margin expansion with the 2 Acquisitions contributing more than the total increase in adjusted ebitda dollars had an average adjusted ebitda margin excluding these Acquisitions Core Business. Ebitda was lower than the prior-year than the prior-year quarter due to the covid-19 related plant shutdowns production cuts and shipping delays during the first quarter of 2020. We generated 5.6 million dollars of positive operating cash flow compared to Thursday.

two point four million dollars

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 a neighborhood of $30 in each of the past two years this positive cash flow trim largely driven by favorable working capital changes began in 2019 due to our sales growth and we expect it to continue in 2020 due to the impact of covid-19.

A quarter in Eighty Four Point four million dollars of cash on hand and $119 of availability under existing credit facilities provided us with over two hundred million dollars of liquidity while we currently have more than adequate liquidity. We cannot forecast adoration and full impact of the covid-19 pandemic. However, we do not anticipate any near-term liquidity issues our order backlog into the first quarter at $233 having declined 11% Since December backlog is about 10% lower than the prior-year first quarter that's power was included in our prior year first quarter ending backlog and first quarter 2020 Dixie Chopper backlog is large enough to mention here. So excluding more bark 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 rep about 20% do the Acquisitions organic sales were down 4% due to covid-19 and currency wage inflation. First-quarter. Net income was up about 2% with Acquisitions of creative both on an adjusted and unadjusted basis. First quarter adjusted ebitda was up nearly 28% with Aqueduct is highly accretive and expanding our ebitda margins operating cash flow generation continue to run favorable to prior-year quarter in liquidity remained above $200 and quarter in a backlog of 233 million million dollars is down 11% since December, but now like to turn the call back over the road.

All right. Thank you Dan. And as Dan reported, I mean, you know, actually our first quarter was was pretty good especially until March month, but even with the slow down in March due to our strong start and you know benefitting from the Acquisitions, we we ended up with record sales and earnings for a first-quarter am pleased with that. We were able to achieve that given how how soft March was certainly as I said January and February started off pretty good and really showed the benefits of these conditions of Dutch power and more bark but things changed in March as you know, Western Europe and North America really wage started to be getting hit 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 shoved.

down at some point during during the

A time. And they'll interestingly our Netherlands plants which are the Dutch power ones have remained open throughout this period in North America most of our us operations continued to function though. There were some temporary closures and probably are Canadian plants, especially those in Quebec where 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 Thursday. We have about 17% of our Workforce either absent or on some kind of a furlough related to the covid-19. The majority of these are out these people who are out are due to the slowdown in demand and as we have been furloughing workers in response to changes in demand by and large we are still able to operate wage.

Fairly normal fashion, but obviously there we have a lot more precautions being taken to make sure our employees are operating safely and and maintaining social distancing long as we have reported. We also have about five hundred people working from a remotely during this time. And while we are having a few supply chain issues generally our vendors and suppliers are functioning on on a basis similar to us. I mean, you know reduced scale but still able to meet most of our requirements especially long as we were 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 to continue to be able to function at this level. We have also had a few issues with some customer orders. The oldies have been fairly limited but we've had a few orders that have been canceled and and a few more that have dead.

Customers where they have requested shipment delays due to their operational limitations, but for the most part our customers are accepting deliveries and making payments in a normal fashion. The bigger concern is that customers are not placing new orders at quite a normal Pace at this time. Our agricultural products seem to be holding up a little bit better and and the incoming order rate there is held up, you know a little bit better and certainly the farmers are in the field right now, but you know in all of our major markets and and off or you know or functioning and so are you know certainly cutting back but are still ordering products and spare parts on and has needed basis and we're pleased that our inquiry level is actually holding up generally a little pretty good. I mean customers are still seem to be asking, you know inquiring about the deliveries and quote getting quotes dead.

So customers are seem to be contending with the issues of Their Own.

The the stay-at-home directive so with in total that is certainly Limited at our I said bookings in the short-term. We hope that now that these some of these restrictions are loosening the situation will start to improve though. We are concerned that reduced income and budget constraints with some of our customers particularly governmental org customers will continue to have some effect on our markets for for the rest of the year as a result. We have taken a number of initiatives to control costs and conserve cash. We've mentioned several of these actions in our reports including pay cuts restrictions on travel adjusting our staffing levels limiting Capital expenditures delaying some development initiatives getting back on inventory among other actions, and we believe that a result of these and other actions already taken or contemplated become wage.

We are certainly always looking at where we are and what you know, not what we did yesterday, but what we need to do tomorrow and but we believe that with these actions are cash-flow should remain strong even if the business stays stays soft. Certainly. We have a little more debt than usual for our company as a result of the high level of Acquisitions completed last year, but the company is in compliance with all of its Financial covenants and expects to remain solely as a result of our cost control in cash management initiative in the second quarter. We will also continue to benefit from our strong backlog. So while it drops slightly in the first quarter, it is still at a healthy level and but as I noted it's not important bookings maintain a reasonable Pace during the quarter. And as I said, fortunately our agricultural division seems to be holding up reasonably and even in Europe where their starting wage

Get back to work. We're seeing the again the egg bookings holding up pretty reasonably but there's certainly a little softer in Nashville sector is both our governmental and non-governmental customers have been weaker for the last month or so though over the last few weeks interaction with our customers is noticeably improving as people are starting to get back to work and in some cases are functioning more effectively on our remote basis than they were early and that's all these stay-at-home directives. So all-in-all we feel the historic stability of our markets will continue to help Alamo group, but we will certainly not be immune to the challenges. This pandemic is causing globally. Therefore as we have been doing since the situation began. We are continuously responding to the ever-changing conditions and take off.

no reasonable actions to mitigate the problems and yet

Support our customers and their needs we are acting aggressively but trying to avoid the temptation to overreact to the situation, but and I'm really you know, this has been a team effort and I'm very proud and and with of our management team that has really acted tirelessly to sell place to stay on top of this issue to respond daily to the to the many changes and directives that were coming at us hard during you know, the month of March April certainly and the whole staff has really showed a lot of dedicated support to the company and to our this whole situation would certainly been unprecedented for all of us in trying to as we deal with it. We also want to thank our vendors and customers for their continued support in this process in particular.

Want to thank our shareholders and the investment community in general for the their loyalty loyalty during this situation as we're all trying to feel our way through this page with that. I would like now to turn the lines open to any questions you might have and, you know say that concludes our formal remarks, but we're not going to have any taking questions and operator, please go ahead. Absolutely. If you would like to ask a question, please signal by pressing star one on your telephone keypad key. 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 * 1 to ask a question and we'll pause for just a moment to talk about everyone an opportunity to signal for a questions.

Our first question is from Mike's Whiskey & Company.

Hey guys, good morning. Wow.

So if you want to know if asking about the 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 as I look back at some of the the toughest times in the last ten fifteen years in the state and local budget, you know landscape. I haven't really seen your revenues down all thoughts except for the Great Recession, you know too much in the teens or twenties. Do you think that this time would be any different than than you know, prior downturns where you know, there's no 58% kind of decline here in the in the you know, making it's probably more of a more modest, you know downside here just kind of you're just very broad thoughts as to how how stuff. That for you.

Yeah, I mean, you know the first of all it is very difficult to say and predict. I mean this is sort of a bit of an unprecedented situation. Yeah. Yeah. I think we will hold up a little bit better off than you know many other manufacturing but we will certainly be impacted the exact degree. I mean Budget governmental budgets are under a lot of strain right now and and I think you know, they probably would 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 feds from the federal government, you know, since most of our customers are more South County State entities not not federal in in our industrial sector or in our governmental business. And so I think you know, like I said, you know that some of the wildcards how bad will their revenues be how much help will they get from the federal government? But but I mean, you know, most of our equipment is deemed acceptable.

daily

And they uh, and it's wearing out on a regular basis. So I mean, I think you know, that's some and we're small part of their budgets and sort of a maintenance part of the budget. So I think we will hold up a little bit better, but it's still you know, like I said, it's everybody's going to be affected to some degree and I think it's going to be real important to how much people start getting back to normal business back in the next couple, you know in in the second quarter in general, but you know, like I said, you know will be affected I think will hold up better. I think we're in you know in good shape to deal with the situation, but it's really hard to predict exactly how how much we will all be affected.

Okay, great. Did I want to speak to the business? I mean some of your comment sounded a little bit more positive than they're still positive but not as rough as industrial wage of the farmers are going to come with the the ranchers very first in the in the from the row-crop side. You are seeing higher acreage. I think across the most of the major profit this year. So I'm curious if that has any impact on your life on a on a on the positive side. And then on the other side, I'll be kind of figure out the downstream some of the beef plant shutdowns before crashing down on the Upstream Farmers attitude towards investments in the near-term. Yeah, you know I've done some of this is is certainly hard to predict but you're right the row crop farmers are in the fields. They you know acreage under cultivation is holding up steady and we believe Thursday.

That you know, it was owns. The acreage under cultivation is holding up steady and that crop prices are you know, you know like say farm incomes have been down but as long as they don't throw down any you know, I think there's more chance they'll go up and down in the short term for the row crop farmers. And so I think they will, you know, like business there. I want them certainly not going to say normal because you know, it's not like they're going into their dealers and kicking tires off everything that all trying to social distance, but but but I think in in general and and then our bookings are showing it and that that the row crop farmers are acting I don't think normally but but but not too far from normal the ranchers are you know, like say that's what you know, it's tragic what's going on with some of the meat packing plants and all and and all like Thursday in a in a know that's causing some short-term disruptions to you know, to to that whole thing, but but it's but you know, actually that, you know, they're already predicting that prices are going to go up and down.

On on meat products because of less availability and I think so, you know the farmers and ranch or like, you know, like say it's more the the month the middleman and then the the processors that that are the kind of the wild card. There's is are you know, how soon are they going to get their act together get their plans cleaned up get back to operating function because demand is holding up reasonably well, and so, you know, like I said, it's the processing that's the I believe the wild card but and I think that the, you know, I could be a little rough on that. But I mean, I think you know the second half of the year, that should be

You know, they they should have found ways.

The function of effectively and should be back a little bit more normal one. I think you know some ranchers are you know, they're not cutting the Hertz but they're you know, they're not adding to them at this point in time. You know, they don't want to tell them why the Point prices are down, but I think they'll hold on but you know, like I say, I think that'll come into more of a balance the second half of the year and but I think you're going to see more issues in the second quarter.

Okay, that's that's great color wrong. Maybe one last one for me on the deck side and I guess are any kind of major debt reductions on hold off. What's your plan for the year now that this is all happened. And then I mean at the very least you plan to just head extra cash on the balance sheets at least make your to at least potentially bring down net dead. Obviously if you need the cash flow go get it will use it. But if you don't defensive at least keep that neck that as well as possible. Yeah, I mean certainly cash cash management keep that that you know continuing to reduce that debt is our is our major goal, but we will be Bank we will be making some debt paying down debt off. You know, we will we we actually believe cash flow should start it. We should improve as the year goes on and and that has we're in effective at reducing.

Some inventory like you say with a little softness and sales will also see receivables coming down. So as we turn some receivables and inventory and to cash we will we will be paying, you know, it's not we're not going to bring all the cash. We will start paying down debt and you know, we want to keep you know, we want to keep enough cash balances to meet our needs and then the short-term. I mean, you're most of our dashes outside the US and but now that it's a little bit easier to to repatriate that we worried about a month ago. I mean, I was a little strong some of the you know, this this cash out decide to come down in value, but now that's gotten back a little bit more into equilibrium. And so yes, we will probably be brought back more Castro was from overseas and we will bring in we will be paying down debt will still be holding above average cash balances, but but I do foresee that for years.

Rest of the year. You'll see our debt decline.

Just looking firm to be paying down the debt more than just a minimum. It would be system. Okay? Okay. Well great. Thank you so much for answering my questions. Thank you.

Our next question is from Joe Mondello with sidoti & Company.

Like a morning run and then hope you're doing well. Thank you, Joe.

Need to follow up on one of my questions there regarding the ad business and I'm just curious if you know to what degree maybe you don't have to quantify exactly. But to what degree does a farmer make up of your act segments and I'm just particularly asking because as I'm sure you know that the ethanol markets are really I think Weighing on oil 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 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 whole part of the uh,

Tag business or sector makes up of your segments, you know, we have given the wheel through dealers. It is hard to get a feel for you know, the breakdown between say ranchers Farmers hobby farmers of you know, the the Orchard Farm, you know, the mini the sub-sectors within that we don't have a really definitive breakdown of of our sales, but certainly yeah, you're right. I think if there's you know, there's if there's overproduction Thursday morning and I know you know, the ethanol I think corn prices could could be under some, you know, good-good see some weakening but I think you know with the acreage under wage privation, you know, and and there's already a fair bit and storage. I mean I think farmers are going to you know, probably still be selling and and we said

Cuz they got too much in in storage already and I also feel that you know, that that farm incomes while you know, you know, you got to remember I mean, there's thirty percent below where life. Six years ago and already and so I mean, I don't think there's I still feel farm incomes should hold up reasonably. Well because I mean, you know, they they've been at that, you know, fairly constrained prices. So I think that, you know, barring any money, you know, what we we got to show that the whole network can can get this to Market and get this processed and get this to the consumers. But but actually, you know, so I think there's still even though, you know given where we are with farm incomes actually think they're still slightly more upside than downside and and and with ranchers to birth

I think that if you don't like say they would sort of benefit lower. You know lower corn prices helps helps the the the ranchers as well. That's the other day, you know used a lot for feedstocks. So yeah, you know like I guess where we are in in the egg cycle, I still feel you know that we're so low in it that that I feel that they're still dead, you know, not much downside some upside even though I know what you're saying about ethanol and corn and and everything but I still feel where we are. It's there's slightly off upside and downside but but even at the downside, you know, it should towed up a lot better than the you know, like say as long as Farmers have so much acreage and activation and that's an interesting thing is was pointed out a a courage under cultivation is holding up reasonably. Well, I mean, you know, it's strong and we feel that job

Yeah, they have to have equipment to the farm that much acreage.

Almost whatever the prices are and certainly they have the better. They are they'll spend more but but I think that's why I think there's could be a little more upside than you know, not a lot of Bounce out with that kind of Life reach under cultivation, which we're at such a low point to begin with.

Yeah, yeah, that's right. I was wanted to try to understand just a little bit better on when exactly did you happen to see really the severity of the downturn and relative to that timing? You know, how long or when did you put in place with a large, you know, the serious cost management measures that you spoke about?

March I mean I'm you know, January January and February, we're both strong months for our company, you know, like I said record results even with even with a week, March Thursday, but but March things started hitting heavy and fast, I mean, you know, that's when all the you know, the the shutdowns were coming Europe was kind of well, you know, Italy was all in bad shape for earlier than that, but but I mean it was March when when France and England and all started really, you know, like you say it started at all. They're restricting measures that's wage, you know in March was when all of our plants and in England and France were shut down for some period of time that's when he even in the US, you know, we when our first case has started to show up in in in not allowing with us. We've actually been fortunate to have very not a lot of cases in fact dead.

Interesting most of the ones we have had our our now back to work but that you know, like I said, it was March that's when people started working from home all these stay-at-home orders off and and and and and and that made it kind of, you know, like responding kind of difficult because governmental is aren't set set up to work from home, you know, of course our products we can't build from home. I mean, you know, so well, we have people working from home and our customers do excuse me. It's a it's a fairly unique situation and like dead-on presidents situations. We've all tried to adapt to these changes and and you know, like I said, that's the good thing now, even though it was you know, you know, like I said, very little effect our business in January February, but March, you know, so almost of the effect all the the softness showed up their continuing a little in April but life

Said you're now that we are moving into May we're starting to see like say all of our plants in Europe are now open back open at some basis like say the the the level of production. There's more unlimited with us in the market that then by the covid-19 the but but you know, I think you know 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. We're seeing, you know, like people are trying to figure out how to log out of function either remotely or as they start getting getting back to work. So, I mean, I think that's why I say the to me the second quarter is very important just to see how you know, how much money you get back to the normal like you said, there's going to be budget constraints. There's going to be, you know, something some, you know, Financial weaknesses out there, but but I think if God

it's just if the

World especially Western Europe North America start, you know functioning a little bit back to to some base, you know normal basis with you know 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 I'm at this point. I'm not my focus is really almost more than third-quarter trying to you know, see what's going to happen there and in Powell things will respond and and get back to normal. In fact, it's amazing how much normal business is continuing to go on new orders are coming in at a slow pace. But but at a steady pace and like I said, we saw we've seen a little bit of pick up in a very nice bookings months and I and and but but 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 Dead

The whole the rest of the year for the whole country.

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 metal talks about well and is Richard said I mean we started seeing these, you know, like it didn't the whole thing. First two months later in February were good months for us March started off good March into 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 Thursday. And also I mean, you know, we respond to you know, as soon as it's everything started hitting hard how hard and heavy the second half of March and we responded in the second half of life.

Okay, and then last question for me regarding the backlog in your order friends, just wanted to try to get a clear indication of what you're worth seeing because some of your commentaries would contradict a little bit and you you stated in the prepared remarks that you know, excluding the Acquisitions your backlog lost ninety 19% wage, 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 friends at all? Or could you just help sort of clarify that distinguish? Well, yeah, I mean when I say backlogs fairly healthy for our needs for for the second quarter, it's as I said, I mean the middle of March and you know, the second half of March and the first and early April, you know communication with God

customers communication

General got very difficult. And you know, there's nobody everybody who was responding. I mean, I know it's the second half of March early April. We you know, there was some new directive from State some counties some cities some country, you know regarding shutdowns and now I mean, I mean multiple of these daily and and trying to respond wage, you know given that we operate in so many states and so many, you know with plants 30 plants around the world and and you know everyone so I mean it was I mean, you know daily we were trying to respond to changes and and and and the operating conditions where we were communication with customers, you know became was challenged because like I said some of these customers from now stay at home and as long as I said some of our customers the governmental aren't really set up to work from home, so it was a very challenging environment and and yet you know, like I said orders were still coming.

Yeah, but there was you know, but not a not at the same pace and certainly like you say communication was difficult. That's why I'm saying now. I think we're seeing communication start to approve ordering bookings in in April. Certainly. We're better than they were at the, you know, second half of March off of the and and they're showing, you know doing reasonably right now, even though this isn't one of our big order times. I mean in a guy mean, you know, like I said, our biggest order is coming second half of the year, but you know, they are are functioning and our operating, you know on the you know, like say nothing's a normal basis but a little better basis Communications improving governmental are are sort of still ordering. They're still taking deliveries, you know, they're trying to delay some deliveries. They we haven't had much wage.

Cancellations but you know like say it's it's they're they're you know, they're trying to figure out where they are and their budgets and so there's just a lot of unknowns out there, but I thought it was said I think the communication is starting to improve and I think that's good because I think the stability of our our the ordering cycle. I mean most of our equipment still is being used in a regular basis that you know, they're still out, you know, cleaning the, you know, dealing with the infrastructure and and so we're seeing that whole thing up reasonably well and and we think that you know, it'll it'll respond, you know a little quicker when things start to get back to normal but you know, there's a lot of unknown and and you know, like, you know, we assume like 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 a dog.

How old is recovery is?

Want to go I mean, you know, and we certainly hope there's not going to be any kind of a remission or a second wave of this or or anything. And so I mean, you know people don't get too far ahead of themselves, but but yeah, no, I mean, you know, we we think that like say we're we're trying to just react daily to change and conditions and avoid reacting that way, you know, they take you know, like say we're still in it we're functioning we're meeting the needs of our customers. We're worried, you know, making sure our plants or are not clean and safe but but operating that our supply chains working that uh that I don't like say we have you know, why we're trying to cut back on inventory. We want to make sure we have the inventory. We need to meet customer demand. So like I say, we're just trying to you know, react daily to to changing conditions and without overreacting daily.

No, I understand a lot in 30 if I could just quick throw one last question and just oil and gas. What did that make up of your business in 2019 volt, you know again that we it's hard to say exactly. I mean, you know, if we in we you know, we don't have that kind of detail of their food back up to a contractor. I mean a lot of us in our vacuum truck business and you know, if we sell to a contractor, we don't know who all he's working for. But but yes, I mean, you know, I think even going around 2016, you know, when when the oil and gas dropped in. I mean we saw noticeable decline in our our rental business vacuum trucks since then, I mean you we have Diversified That Bass more where you know where you know, but but you know oil and gas is still in it. I mean all in gas, you know, I wouldn't think account of our palomo's total business wage.

Is certainly you know low single-digits so it's not a big thing. But but it is certainly under under stress right now. I mean, you know, they they oil and gas is really odd been impacted by you know, like say forget the covid-19. They've got the, you know oversupply the Saudi Russian battle and and so I mean there's there's lots of things going on and off the gas none of them, which pretty good are good. Then the short-term so, you know, I think that is going to be solved that won't impact us as much as it did in 2019. But it certainly going to help us but it's a little bit hard for us to break out between oil and gas construction and Mining and you know, some of the you know, these other sort of non-governmental applications mostly in our vacuum truck area and and you know a little bit in somewhere other areas excavators and this kind of stuff but so yeah, I think it it that's going to be dead.

Like say it didn't go to.

Help but but constructions solved mining the soft, you know, like say everything soft right now.

I got you. Good luck with everything guys and stay safe. And well, thank you very much. Appreciate it. Thanks. God has a reminder, please press star one. If you'd like to ask a question on our next question is from Chris more with CJ Securities, please go ahead.

Hey, good morning Gus. Yeah, maybe maybe going to stay on the good morning kind of order out look for a moment. So, you know, one of the one of the things you talked about was even if the the pandemic Outlook improves still could be a lag in the second half unless you know or is improving your term. Can you just kind of remind me in terms of the products that have the long lead times where you know that becomes that much more crucial, you know to for order flow near-term and secondly are those lead times a little bit more under your control these days or or still there's you know, the pricing issues that that strict.

Yeah, the the order lead time for us. I mean, you know, usually, you know, Thirty to sixty days takes us to to sort of Builder. You know what I mean? You know, sometimes we'll be out as much as 90 days on certain products. But but you know, usually fairly short and like I said, I mean, you know, we, you know given we have going into this head probably get a little bit too much inventory to begin with and so with some softness I think, you know, we've got a lot of inventory and that we want actually work down the the lead times. I wouldn't say wage, 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 and certainly the the whole vehicle industry has, you know had a lot of plant closures and and cutting back they're starting to reopen a little bit.

And and so far we've not had you know, except not missed any deliveries or anything problems of any major nature with unlike faiths truck chassis and and you know with our inventory and with 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 the point in in the short-term or you know, the next couple of quarters that being a major issue. I know caterpillars cut back on some engine engine manufacturer of people, you know, get guns people like that. We're already trying to sort out, you know, we already are working with them on forecasted demand for later in the year to make sure that we have, you know, adequate engines and especially I mean like morbark our new one day they you know, there's a lot of engines they they put onto there's you know as opposed to dead.

Jesse's they they buy a lot of

Let's build the the equipment build the equipment. So, you know like 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 you know, making deliveries on or meeting, you know our orders even though we cut back on orders that are seem to be a functioning on a almost normal basis. So, you know, so like I said, we don't see a whole lot of change into the into the lead times. There's a couple key components like say truck chassis and this kind of stuff but that it's important they do get back to working but you know, at least like I say most manufacturing businesses are working on it. It's it's interesting in Europe. We get some components out of Italy and certainly, you know certainly dead.

And the 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 and like I 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 in a lead times or order flow. I mean, like I said, so we're working but we are working with our vendors daily to to you know, focus on any any areas critical areas of concern for us.

Got it. Looks like we had or was having very good q1. You see anything different there versus kind of The Office Products through April and into May is is more bark, you know kind of in the same boat as it holding up a little better than some of the, you know, kind of cool Industrial Products.

You know it it's holding up reasonably. Well it it's I mean some of their big products, you know, we we've had a few more issues there some you know, that that people have either kind of, you know, especially million-dollar units that people are saying hey, you know, the the economics I need to see how this whole situation develops on the economic situation had a few delays there and so but but yeah, you know, but it's interesting there already. You know, I say said a comment that we're getting a little bit more feedback from customers. I mean, I know they just in the last couple of weeks of had a a big influx of of inquiries about all right, what's the what what are lead times today? And so I mean, like I said, I think they were a little bit slower, you know initially as all this was hitting and but a little bit like say they're they're getting a little

we actually think they'll probably

Would be one of the better units to respond, you know to come they'll come come back a little quicker. So but that's certainly they've been affected like we've all been affected but that's a big ticket items or or getting a little more scrutiny.

Unless one for me is you know, you talked about again in March in addition to cost-cutting and cash conservation measures already implemented your name another 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 the thing comes down to people and so we are daily reviewing our staffing levels and you know working in deciding how many people we need. I mean, you know, we feel that you know, like say we've already taken some salary cuts at the salary level. There's you know, we we feel that the things you know, like say about one of the things on tables actually do more but we're as opposed to that versus the headcount but you know, we're trying to control it more with headcount in the short-term, you know off that like say we delayed some development initiatives. We've you know, we've been doing some stock BuyBacks. We've we we've stopped that for the short-term or you know home so I mean, you know, like I said, it's I don't other than you know, most of it deal 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 to go on but I mean, you know, we're not doing any international travel and we're not and we're going very limited domestic travel. But other than that, you know, like say it's yeah, I mean we're reviewing all kinds of every level of cost but those are the you know, really good 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 in the short-term and wage breaking changes daily and especially is now people are starting to you know, open up a little bit more and making plans to open up a little bit more. You know, we're we're we're you know trying to be ready to respond to the customer needs and that but I think you know, like I say most of our sales people they're not on the road right now. They're they're mainly Servicing customer.

Phone calls and and emails and texts and and all and so, you know at some point we'll try to probably loosen that a little bit but you know, I I don't want I don't want this whole country to to to to you know, jump to reopen before because the statistics don't really support it in some places yet. But God, but but anyway, like I said, I mean, I think we're looking at all cost. But but you know mainly it comes down to people.

Got it.

Appreciate it. I'll jump back in line. Thanks guys.

And as a final reminder, please press star one if you'd like to ask a question.

And right now there are no further questions in the telephone que. 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 in support of the company. And and I mean, like I said, I mean this is a certainly an unprecedented and a terrible situation. But but you know, I want to just assure everybody that we use a company or doing our I mean you say on top of of everything and trying to work very diligently to respond to conditions long as they change good and bad and but you know, so we, you know, we feel good about our ability to continue to perform and function and and all and like I said Thursday, the 2nd quarter is going to be very interesting and critical for, you know, like say not just us, but I mean, I think the the our whole country and our whole industry, so, but we thank you and and we'll try to get you appraised of how they were 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 home phone.

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Thursday

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