Bob George - VP Ron Robinson - CEO and President Dan Malone - EVP and CFO Richard Wehrle - VP, Corporate Controller.

Tyler Etten - Piper Jaffray Mike Shlisky - Seaport Global.

Good day, ladies and gentlemen. Welcome to Alamo Group First Quarter 2016 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions] This conference is being recorded today, Friday, March 4th, 2016.

I would now turn the conference over to Mr. Bob George, Vice President of Alamo Group. Please go ahead, Mr. George..

Thank you. By now you should have all received a copy of the press release, however, if anyone is missing a copy and would like to receive one, please contact us at 212-827-3746 and we will send you a release and make sure you are on the company's distribution list.

There will be a replay of the call which will begin in one hour after the call and run for one week. The replay can be accessed by dialing 1-888-203-1112 with the passcode 9698455. 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, Chief Executive Officer and President; Dan Malone, Executive Vice President and Chief Financial Officer; and Richard Wehrle, Vice President, Corporate Controller. Management will make some opening remarks and then we will open up the line for your questions.

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, competition, weather, seasonality, currency related issues, and other risk factors listed from time-to-time in the company's SEC report.

The company does not undertake any obligation to update the information contained herein, which speaks only as of this date. I would also like to Ron. Ron, please go ahead..

Thank you Bob and we want to thank all of you for joining us here today. Dan, our CFO, Dan Malone will begin our call with a review of our financial results for the first quarter of 2016. I will then provide more comments on the quarter results and following which we will look forward to taking your questions. So Dan, please go ahead..

Thank you Rob. For the quarter 2016 sales of $210.9 million was a record for Alamo Group, beating first quarter 2015 sales of $207.8 million.

Our quarter-to-quarter comparison was helped by continued strength in our Industrial division and stronger mower part sales, partially offset by a negative effect from currency translation and weakness in agricultural markets worldwide.

Industrial division first quarter 2016 sales of $123.3 million represented a 5% increase over the prior year first quarter. Excluding our unfavorable currency translation effect of $1.1 million, sales in this division were up 6% due to improved sales of excavator, street sweeper and mowing products.

Agricultural division first quarter 2016 sales were $48.6 million, up slightly over the prior year quarter, despite continued weakness in demand for most agricultural equipment. The effects of the Herder acquisition and currency translation affectively offset each other and neither had a material effect on the operating results of this division.

European division first quarter 2016 sales were $39 million or about 8% lower than the first quarter of 2015, excluding the unfavorable currency translation effect, this divisions’ local currency sales were down about 4% quarter-to-quarter, reflecting weakness in European agricultural equipment markets.

Our quarter-to-quarter and trailing 12 months margin and income comparisons include cost resulting from the fair value step up of acquired inventories, the confirmation of business acquisitions, information systems convergence and a plant closure in France.

None of these costs impacted first quarter 2016 earnings, but they do affect the prior year first quarter and trailing 12 month results. In my next few comments when I say on an adjusted basis, it simply means that the prior year first quarter or applicable trailing 12 month result excludes these costs.

First quarter 2016 gross margin of $50.3 million was 10% higher than the prior year first quarter, as reported, and up 6% over the first quarter of 2015 on an adjusted basis.

Our first quarter 2016 gross margin was 23.8% of net sales, which compares favorably to 21.9% of net sales for the prior year quarter as reported and 22.8% of net sales for the first quarter of 2015 on an adjusted basis.

These favorable comparisons for the quarter were helped by a better product mix caused by higher parts demand, improved production efficiencies and lower commodity costs.

First quarter 2016 operating income of $16.3 million was 34% higher than the prior year first quarter as reported and up 17% over the first quarter of 2015 operating income on an adjusted basis.

First quarter 2016 operating income was 7.7% of net sales, which compares favorably to 5.8% of net sales for the prior year quarter, as reported, and 6.7% of net sales for the first quarter of 2015 on an adjusted basis.

Net income for the first quarter of 2016 was a record $8.6 million or $0.75 per diluted share, which is a 17% increase over net income of $7.3 million or $0.64 per diluted share for the first quarter of 2015 as reported.

On an adjusted basis, first quarter net income and earnings per share were about flat to prior year quarter, as the very strong operating comparisons described above were largely offset by the effective foreign exchange rate changes on non-operating income and expense, as well as a higher effective income tax rate.

The unfavorable comparison in the non-operating income and expense is primarily due to our Canadian businesses having net monetary asset exposures to the US dollar.

As a result, the strengthening of the US currency vis-à-vis the Canadian currency within a quarter produces a net foreign exchange gains for that quarter, while a weakening US currency produces the opposite effect.

Our quarter-to-quarter comparison was amplified by the fact that we are comparing gains produced by a strong appreciation of the US dollar within the first quarter of 2015 to losses resulting from a weakening of the US dollar within the first quarter of 2016.

Our first quarter 2016 to first quarter 2015 net income and earnings per share comparisons were also affected by changes in our effective income tax rate.

This unfavorable comparison was due in part to certain foreign subsidiary losses for which we did not record a corresponding tax benefit, as well as a general shifting of the company’s’ earnings mix towards higher taxed US jurisdictions. EBITDA continues to grow at a double-digit rate.

First quarter 2016 EBITDA was $21.6 million, up 38% over the prior year quarter. First quarter 2016 EBITDA grew more than 20% over the first quarter of 2015 even on an adjusted basis. Trailing 12 months EBITDA of $94.5 million is up 21% over prior year.

On an adjusted basis, trailing 12 months EBITDA now exceeds $99 million, which is up 16% over the comparable prior year result. Due to the seasonality of our business, we are typically a net user of cash during the first quarter; nevertheless we continue to see very strong growth in our trailing 12 months free cash flow.

As of the end of the first quarter 2016, our trailing 12 month free cash flow totaled $49.6 million, which is a 73% increase over the prior year comparison. This also represents a cash conversion rate of 111% of trailing 12 month net income.

Our backlog in at the first quarter was $153 million, down about 3.8% from the prior year, primarily due to weakness in Europe as well as currency headwinds.

In summary, our first quarter 2016 results were highlighted by record sales and earnings, as continued growth in our industrial division more than offset unfavorable currency translation and weak demand for our agricultural equipment, continued year-over-year improvements in both gross and net operating margins, and continued strong EBITDA and free cash flow growth.

I would now like to turn the call back over to Ron. .

Thank you, Dan.

And as I think you can see, overall we were pleased with the results for the first quarter of 2016, even though the sales growth was quite modest especially given the ongoing headwinds we have been facing for quite a few quarters right now which include a weak global agricultural market, a generally weak European economy, and the continuing effects of the strong US dollar on the translation of our international results back into US dollars.

So despite modest sales growth, we had earnings, which were quite robust, as we continue to benefit from ongoing margin improvement initiatives. I know we are saying the same thing quarter-after-quarter about our initiatives, but each quarter we continue to make a little more progress and it is our intent to stay focused on these initiatives.

We’ve also talked consistently about the inherent stability of our core business, and once again I believe our sales and earnings give evidence of this stability, that while our sales have shown modest growth not only this quarter but even last year, we were pleased with that, because of I think many of our companies in our same sectors are struggling with no sales growth and even revenue declines.

It is interesting to note that in the last year’s first quarter, we commented that the year was off to a slow start due to the strong winter weather conditions, particularly in the northeast US, and it certainly helped our snow business at that time, but hurt our other products since activities like mowing and street sweeping were a little late getting started.

This year winter weather was considerably milder which hurt our snow business, but gave us a boost to activity such as mowing and street sweeping, as customers were getting their equipment in shape earlier and working sooner.

So in a broader sense, I think this shows the benefits and stability of our company and the diversification we have, so we just like it when we did well, when it snowed last year, and we did even better when it didn’t snow this year. So I think it shows the stability and diversification benefits that we’ve enjoyed.

In general, our Industrial division continued to lead the way, with sales in the first quarter up over 5%, as shipments to governmental end users or infrastructure maintenance type equipment remained steady and was able to more than offset continued weakness in demand from non-governmental end users.

Our Ag division sales in the first quarter were basically flat, but this certainly outpaced the Ag market in general, which continues to be weak and suffer from the declining farm incomes and low commodity prices.

And 2016, there’s likely to be another year of declining farm incomes, still we have steady on sales and as in 2015 feel we can continue to show margin improvement even throughout 2016, even with little to no sales increase. In Europe, our sales were down in the first quarter by 8% with nearly half of this decline related to currency affects.

Europe is still faced with a stagnant economic outlook, and our Ag markets there are facing the same weak market conditions as in North America.

As a result of these factors, we saw some delays and weakness in our pre-season ordering in the first quarter, but again with activities like the plant consolidation which we announced in the fourth quarter concerning one of our facilities in France, we feel we are in better shape to improve margins going forward even if sales show modest growth.

And it is not just margins that are benefiting from our ongoing initiatives, but our asset utilization continues to improve and our cash flow is also growing nicely. As Dan commented, our trailing 12 month EBITDA at nearly 95 million is up 21% over the prior year, and our free cash flow is up even more.

All-in-all we continue to like where we are as a company. Sales growth is likely to remain modest throughout 2016 to the ongoing headwinds, but the bottom line has the potential to outpace this growth as a result of further margin improvement. In addition, our backlog while down a little in the first quarter remains at a healthy level of 153 million.

We would certainly like to see some improvement in our markets, but feel that is unlikely to happen in 2016, and we feel Ag at best should not start to see much rebound until 2017. And when things like the US Presidential election and the UK upcoming vote on whether or not exit the European Union.

These types of events have created some uncertainty in our markets, which is creating some delays in business and hopefully these will be behind us and things will settle down a little bit as we move later on in to this year. But either way, we feel very good about where Alamo is as a company.

We remain committed to our long term growth plans and feel confident in our ability to continue to move forward. With that we would like to close the formal comments, and entertain any questions you may have. .

[Operator Instructions] First question comes from Tyler Etten from Piper Jaffray. Please go ahead. .

Could we start with Europe, what do you think needs to change in Europe to get more positive charged about the demand side of things or what are you seeing outside of a fragile economy that’s making things difficult in the region..

The double thing is a fragile overall economy, but in particular very weak Ag economy in Europe just like it’s a weak Ag economy here. So I think while sale were down less in local currencies and in dollars, but again we saw combine sales in England alone were like down 25%, compared to a weak market last year.

So I think we’re going to have to see some improvement in the overall prospects for the Ag sector and then as I said, I think there is a lot of uncertainty with things like the vote on England leaving the EU that has caused some delays in peoples outlook and we’re seeing dealers, they are not stocking up at the same levels they were.

It’s not like that their sales is necessarily down or that their prospect is just that they are being, they want to order more when they are closer to demand rather than in anticipation of demand, just due to the uncertainty and concerns. I think there’s delays - some things, there’s been delays in farm subsidy payments that hasn’t helped.

As I said, we’re still talking about modest interest rate increases in the US and then Europe to talk about negative interest rates. I think they just got to get - take some further actions to get some stability in the economies and get some growth in the economies because they’re struggling with no growth over there right now..

To dig into it a little bit more, what happens to your business if UK did leave the European Union?.

That no one knows. There’s a lot of speculation and any kind of - if it was - it would take years for an exit to be fully affected. At the end of the day I don’t think a lot would change. There could be some uncertainty, they talked about that pound could drop if -.

There’s lots of speculation on what could happen, there’s a lot of people who are saying all, you know the sky is falling, but for instance the UK is a net importer of goods from Europe. They import more from Europe and they export to Europe. So I think it’s in Europe’s interest that they weren’t in.

But they have picking good trade agreements between the two, because there’s too much - like they both have too much at stake. So I think at the end of the day, whether they did or not, I think things will settle down and things will be okay. It’s just the short term uncertainty that’s creating the issues. .

Two more questions if I may, and then I’ll pass it along. With the French consolidation what could you quantify for us, what cost savings that actually is for the margin in Europe.

And then for Ag, since the season got a little bit sooner because of the shorter winter, do you believe that some of those sales that was supposed to be in the second quarter got pulled through the first quarter? Any color would be helpful, thank you. .

I’ll answer the second one first; it’s like last year we had sort of a weak first quarter, a record one, but it was from our point of view a little on the weak side.

It seems like some of the governmental mowing budgets, governmental street sweeping budgets they got eaten up by a snow removal budgets, and so I think it wasn’t just that the second quarter, like it was delayed, some of it was actually lost because they spent all on snow, they weren’t sweeping soon. So they didn’t wear out equipment as soon.

So conversely I don’t think that having a better first quarter is going to rob from the second quarter. I don’t feel that at all. What was the --. .

On French consolidation. .

The French consolidation. We said we spent a couple of million dollars on the consolidation and actually it’s a fairly good payback. But we have not broken that out as a quantifiable number that we’ve released. .

[Operator Instructions] The next question comes from Mike Shlisky from Seaport Global. Please go ahead. .

Let me start off with a broad question, so if we don’t see your markets come back in ’16 or even in [2017] to say things don’t get all that great the next two years.

The question is, if you had opportunities to cut cost further or to do some further rationalization, if we don’t see any growth there, there’s no other chance you can get to that 10% operating margin level going forward, but you need to actual volumes if you can estimate that work. .

There’s a lot of things that depends on volume, it depends on mix, and certainly I think we can get there without much improvement in volume, but it will take - I’m not sure we can get there in a year or two. It might take a little bit longer, but I don’t think we need a lot of volume just need a little bit of real volume and we can get there sooner.

So it’s hard to say and it depends on which product and what mix and if we - I’d say it’s a fairly complicated answer, but even with little to know volume, I think we can get there, but we can just there quickly with some volume. .

I also want to ask about your cash. This is your highest cash I’m looking back for more than a year, is that ever your higher in this quarter cash balance for at least three or four years.

And I was wondering if you could go over some of your priorities for your use of cash and I think what’s in there, and part two of that question is going to be, can you update us on the M&A market, is there’s any good looking targets out there?.

Like a lot of the cash on our balance sheet is sitting in foreign jurisdiction, where we have it over in Canada and then in Europe, it’s the main places. So generally we don’t like to just repatriate, because it was quite a tax penalty to pay when we do that.

And we like to leave in those jurisdictions, especially as long as we feel there are opportunities to utilize it in acquisitions. Our use for cash anyway is focused on acquisitions. We raised the dividend a little this year, CapEx is going to be sort of give or take in line with where we have been recently, and things like that.

But the main use of cash that would change anything is acquisitions and that’s -. And as far as acquisitions go, like I commented last time, last year we lifted a [loss], but we didn’t think pricing was particularly attractive to, I don’t think shareholders want to speak doing acquisitions that have single digit returns.

I think this year, we’re lucky we’re seeing less opportunities, but I think pricing is getting a little bit more attractive from our point of view, I think it probably goes there, the interest rate I think there’s a feeling they’re going to head up a little.

Just that whole environment, and there’s people getting tired of single digit returns on acquisitions. So I think we are seeing fewer opportunities but more reasonable ones.

And while there’s certainly nothing eminent, we feel optimistic that this year and early in the next year we’ll be able to find some reasonable acquisitions at pricing that is we feel could be nicely accretive to our results. So nothing eminent, but we’re still very active.

We’re not seeing as much, pricing is a little bit better and I’d like to say from a cash flow point of view - and we’re looking everywhere. That’s why we’re looking in Europe, we’re looking in North America, we’re looking in other places that we operate or want to operate. So they are fairly optimistic about acquisitions. .

[Operator Instructions] And it appears that there are no further questions at this time. So I’d like to turn the conference back to management for any additional or closing remarks. .

That’s all of our comments for today. We much very much thank you for joining us and we look forward to speaking with you on our second quarter call coming up in first week of August. Thank you very much and have a good day..