Alamo Group Inc. (NYSE:ALG) Q4 2023 Earnings Conference Call February 23, 2024 10:00 AM ET Company Participants Edward Rizzuti - Executive Vice President, General Counsel & Secretary Jeff Leonard - President & Chief Executive Officer Richard Wehrle - Executive Vice President, Chief Financial Officer & Treasurer Conference Call Participants Mig Dobre - Baird Chris Moore - CJS Securities Mike Shlisky - D.A. Davidson Tim Moore - EF Hutton Edward Rizzuti Jeff Leonard, President and Chief Executive Officer; and ...

SEGUIN, Texas, Feb. 22, 2024 /PRNewswire/ -- Alamo Group Inc. (NYSE: ALG) today announced that Roderick ("Rock") R. Baty will retire from the Board of Directors effective April 30, 2024. Mr. Baty joined the Board in August 2011 and has served in various capacities during his tenure. Mr. Baty was appointed Independent Board Chair on May 3, 2018. Upon Mr. Baty's retirement from the Board, current Board member, Richard ("Rick") W. Parod, will be appointed the new Independent Board Chair effective April 30, 202 ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Alamo Group is a global leader in vegetation management and infrastructure equipment, growing through innovation, cost control, and strategic acquisitions - The company operates **29 plants** and employs approximately **4,350 people** globally[13](index=13&type=chunk) - Operations realigned into **Vegetation Management** and **Industrial Equipment Divisions** in 2021 for synergy[34](index=34&type=chunk) - Growth strategy includes acquisitions, with **Royal Truck & Equipment, Inc.** acquired in 2023 for highway safety expansion[12](index=12&type=chunk)[31](index=31&type=chunk) Replacement Parts Sales Contribution | Year | Percentage of Total Sales | | :--- | :--- | | 2023 | ~17% | | 2022 | ~19% | | 2021 | ~20% | Research & Development Expenditure | Year | Amount (USD Million) | % of Sales | | :--- | :--- | :--- | | 2023 | $13.4 | 0.8% | | 2022 | $14.3 | 0.9% | | 2021 | $11.7 | 0.9% | - Backlog decreased from **$1.0 billion** at the end of 2022 to **$859.8 million** at the end of 2023[59](index=59&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from economic downturns, supply chain disruptions, labor shortages, cybersecurity threats, and regulatory changes - Revenue sensitivity to governmental spending due to substantial reliance on public sector customers[100](index=100&type=chunk) - Dependence on raw material prices and availability, with supply chain disruptions impacting profitability[97](index=97&type=chunk) - Heavy reliance on IT systems exposes the company to significant cybersecurity threats and potential financial loss[104](index=104&type=chunk)[105](index=105&type=chunk) - Acquisition-driven growth carries risks in target identification, financing, and successful integration for synergy realization[115](index=115&type=chunk)[117](index=117&type=chunk) - Stricter engine emission regulations, like EPA Tier 4 and CARB, may impact product sales or raise compliance costs[126](index=126&type=chunk) [Unresolved Staff Comments](index=26&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments to report[145](index=145&type=chunk) [Cybersecurity](index=27&type=section&id=Item%201C.%20Cybersecurity) The company's cybersecurity program, based on CIS and NIST, is overseen by the Audit Committee, with no material incidents to date - Cybersecurity framework based on **CIS Critical Security Controls**, guided by **NIST** and **CISA**[147](index=147&type=chunk) - Audit Committee oversees cybersecurity risks, receiving regular updates and assessments[150](index=150&type=chunk) - No identified cybersecurity risks or incidents have materially affected the company's business or financial condition to date[149](index=149&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) Alamo Group operates **29 manufacturing plants** globally, with **82% owned** and considered well-maintained and adequate Manufacturing Plant Locations | Region | Number of Plants | | :--- | :--- | | United States | 17 | | Europe | 8 | | Canada | 3 | | Brazil | 1 | - Approximately **82%** of the company's manufacturing, warehouse, and office space is owned[157](index=157&type=chunk) [Legal Proceedings](index=30&type=section&id=Item%203.%20Legal%20Proceedings) The company faces ordinary course legal actions, primarily product liability claims, which are insured and not expected to be material - Most prevalent legal actions are product liability claims, generally covered by insurance after self-insured retention[158](index=158&type=chunk) - Management does not expect current litigation to materially affect the company's financial position[158](index=158&type=chunk) [Mine Safety Disclosures](index=30&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[158](index=158&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Alamo Group's common stock (ALG) trades on NYSE, increased quarterly dividend to **$0.26**, and outperformed key indices - Common stock trades on **NYSE** under symbol **ALG**[159](index=159&type=chunk) - Quarterly dividend increased from **$0.22** to **$0.26 per share** on January 2, 2024[140](index=140&type=chunk)[160](index=160&type=chunk) Five-Year Cumulative Total Return Comparison | Company/Index | 12/31/18 | 12/31/23 | Cumulative Return | | :--- | :--- | :--- | :--- | | Alamo Group Inc. | $100.00 | $278.40 | +178.4% | | S&P SmallCap 600 | $100.00 | $168.73 | +68.7% | | S&P 500 Industrials | $100.00 | $194.31 | +94.3% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Alamo Group achieved record net sales and income in 2023, driven by demand and improved supply, despite a backlog decrease - **2023** was a record year with a **12% increase in net sales** and **34% increase in net income** compared to 2022[167](index=167&type=chunk) Key Financial Metrics (as % of Net Sales) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Gross Profit | 26.8% | 24.9% | 25.1% | | Income from Operations | 11.7% | 9.8% | 8.8% | | Net Income | 8.1% | 6.7% | 6.0% | Net Sales by Division (in thousands) | Division | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Vegetation Management | $979,040 | $937,065 | $812,676 | | Industrial Equipment | $710,611 | $576,551 | $521,547 | | **Total Net Sales** | **$1,689,651** | **$1,513,616** | **$1,334,223** | - Backlog decreased **15%** from **$1.0 billion** in 2022 to **$859.8 million** in 2023 due to order normalization[170](index=170&type=chunk) - Net cash from operating activities significantly increased to **$131.2 million** in 2023 from **$14.5 million** in 2022[189](index=189&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) In 2023, net sales rose **11.6%** to **$1.69 billion**, with gross profit margin improving to **26.8%** and net income increasing **33.7%** - In 2023, net sales increased by **$176.1 million (11.6%)** due to strong demand, pricing, and supply chain improvements[175](index=175&type=chunk) - Gross profit margin improved from **24.9%** in 2022 to **26.8%** in 2023 due to volume, operations, and pricing[177](index=177&type=chunk) - Interest expense increased **81.7%** in 2023 to **$26.1 million**, primarily due to higher interest rates[179](index=179&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is strong with working capital at **$590.0 million** and operating cash flow at **$131.2 million**, supported by a **$655.0 million** credit facility - Working capital increased by **$53.3 million** to **$590.0 million** by year-end 2023, driven by receivables and inventory[189](index=189&type=chunk) - A **$655.0 million** credit facility, comprising a **$255.0 million Term Facility** and **$400.0 million Revolver Facility**, was established in October 2022[192](index=192&type=chunk) - As of December 31, 2023, **$235.2 million** was outstanding on the Term Facility, with **$397.4 million** available on the Revolver Facility[193](index=193&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=37&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from foreign currency fluctuations and variable interest rates, partially mitigated by forward contracts - A hypothetical **10% USD strengthening** would decrease gross profit by approximately **$12.5 million**[207](index=207&type=chunk) - A hypothetical **200 basis point (2%) interest rate change** would alter 2023 interest expense by approximately **$7.0 million**[208](index=208&type=chunk) [Financial Statements and Supplementary Data](index=38&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Consolidated financial statements and supplementary data, audited by KPMG LLP, are incorporated by reference from pages 49-79 - Financial statements and supplementary data are incorporated by reference from pages **49-79**[209](index=209&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective, with no material changes to internal controls identified in Q4 - Management concluded disclosure controls and procedures were effective at period-end[209](index=209&type=chunk) - Internal control over financial reporting effectiveness as of **December 31, 2023**, audited by **KPMG LLP**[210](index=210&type=chunk) PART III [Directors, Compensation, Security Ownership, and Accountant Fees](index=39&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) Items 10-14, covering directors, compensation, security ownership, and accountant fees, are incorporated by reference from the 2024 proxy statement - Information on Directors, Executive Officers, and Corporate Governance (**Item 10**) incorporated by reference from **2024 proxy statement**[213](index=213&type=chunk) - Executive Compensation details (**Item 11**) incorporated by reference from **2024 proxy statement**[216](index=216&type=chunk) - Security ownership (**Item 12**) and equity compensation plan details incorporated by reference from **2024 proxy statement**[217](index=217&type=chunk) - Principal Accountant Fees and Services (**Item 14**) for **KPMG LLP** incorporated by reference from **2024 proxy statement**[221](index=221&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=41&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section indexes consolidated financial statements and lists all exhibits, including governance documents and material contracts - Provides an index to Consolidated Financial Statements, starting on page **44**[224](index=224&type=chunk) - Lists filed exhibits, including governance documents, material contracts, and executive compensation plans[227](index=227&type=chunk)

For: Alamo Group Inc. Contact: Richard Wehrle Executive Vice President & CFO 830-372-9615 Financial Relations Board Joe Calabrese 212-827-3772 ALAMO GROUP ANNOUNCES RECORD 2023 FOURTH QUARTER AND YEAR END RESULTS SEGUIN, Texas, February 22, 2024 -- Alamo Group Inc. (NYSE: ALG) today reported results for the fourth quarter and year ended December 31, 2023. Highlights • Ninth consecutive quarterly record for sales and earnings • Fourth quarter net sales of $417.5 million, up 8% • Fourth quarter operating inco ...

Despite weak commodity prices and high costs marring the near-term outlook of the Zacks Manufacturing - Farm Equipment industry, it will gain from sustained demand for agricultural equipment required to feed a growing population.Major players like Deere (DE) , Kubota (KUBTY) , Alamo Group (ALG) and Lindsay (LNN) are well-poised to benefit from this demand by expanding their product offerings. The industry’s emphasis on revolutionizing agriculture with technology to make farming automated and more precise is ...

Group 1 - Companies such as Lennar, Plains All American Pipeline, TD Synnex, and Alamo Group have raised dividends at double-digit rates in early January 2024, indicating a potential shift back to dividend stocks as investors seek income [2][4] - The Vanguard Dividend Appreciation ETF underperformed the S&P 500 in 2023, while growth-focused tech stocks like Nvidia and Meta led the market, making income-generating stocks less attractive [3] - Analysts from Morgan Stanley suggest that dividend stocks may rebound in 2024 as investors look for durable, higher-yielding dividends amid expected market volatility [4] Group 2 - Lennar's stock increased by 1.5% following its first dividend increase in two years, along with a boost in its share buyback program [5] - Plains All American Pipeline raised its dividend on January 8, resulting in an 8.1% dividend yield, with the stock up 1.4% since the increase [5] - TD Synnex declared a first-quarter dividend of 40 cents per share, a 14% increase, with a consensus price target of $111 indicating a potential upside of 6.58% [6][7] Group 3 - Alamo Group increased its shareholder payout to 26 cents per share, an 18.2% rise from the previous dividend, although its stock has faced selling pressure [7] - Despite Alamo Group's current "Buy" rating, top analysts have identified five other stocks as better investment opportunities [7]

U.S. stock markets have retreated in January after a sharp rally in 2023. The euphoria surrounding technology stocks evaporated as the yield on the benchmark 10-Year U.S. Treasury Note returned northward, trading above 4%.This was primarily owing to the uncertainty regarding the time when the Fed would initiate the first cut in the benchmark interest rate. Recently, a few key Fed FOMC members said that although they believe that the rate hike regime is over, they are yet to be convinced that the economic co ...

Financial Data and Key Metrics Changes - Consolidated net sales for Q3 2023 were $419.6 million, an increase of 14% compared to $368.8 million in Q3 2022 [7] - Gross margin percentage expanded by 220 basis points, with gross margin increasing by just under $22 million compared to Q3 2022 [7] - Operating income for Q3 2023 was $49.8 million, up 39% from $35.8 million in Q3 2022, with operating income as a percentage of sales just under 12% [7] - Consolidated net income for Q3 2023 was $34.9 million or $2.91 per diluted share, a 35% increase from $25.8 million or $2.16 per diluted share in Q3 2022 [8] - The company's backlog at the end of Q3 2023 was just under $891 million, virtually unchanged from Q2 2023 but down 2% compared to Q3 2022 [11] Business Line Data and Key Metrics Changes - Vegetation Management Division net sales were $246.9 million, an 8% increase from $228.5 million in Q3 2022, with operating income rising to $30.3 million, up 12% [8] - Industrial Equipment Division net sales were $172.7 million, a 23% increase from $140.3 million in Q3 2022, with operating income soaring to $19.5 million, up 124% [9] Market Data and Key Metrics Changes - Demand for governmental and agricultural mowing equipment in North America, the UK, and Europe drove sales in the Vegetation Management Division despite labor shortages [8] - Order bookings in the Vegetation Management Division were down slightly compared to Q3 2022 but sharply higher than Q2 2023 [15] - Orders received in South America set an all-time company record during the quarter, driven by demand for agricultural and forestry products [17] Company Strategy and Development Direction - The company remains optimistic about future growth, anticipating that investments by governmental entities will remain elevated and that markets served by the Vegetation Management Division will stabilize in 2023 and gradually regain momentum in 2024 [21] - The recent acquisition of Royal Truck and Equipment will be integrated into the Industrial Equipment Division, enhancing safety and innovation in their product offerings [20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as persistent inflation, higher interest rates, and ongoing labor constraints but expressed satisfaction with record quarterly results [6] - The company plans to focus on further improving supply chain performance and reducing inventory levels while maintaining strong cash flow [12] Other Important Information - The Board approved a regular quarterly dividend of $0.22 per share for Q3 2023 [13] - The trailing 12-month EBITDA reached a record of just over $245 million, up 25% compared to the end of 2022 [12] Q&A Session Summary Question: Commentary on orders between segments and margin headwinds - Management indicated that Vegetation Management can maintain margins while Industrial continues to gain momentum, with snow removal performing exceptionally well [24][25] Question: Thoughts on increasing margin targets - Management is considering adjusting margin targets and will discuss this during the upcoming budget round [26][27] Question: Potential for increased debt reduction - Management anticipates further debt reduction in Q4 and is focused on maintaining strong cash flow [28][29] Question: Drivers of demand in the government sector - Demand remains strong due to municipalities investing in infrastructure maintenance, with high margins and good backlog in the mowing side of the business [39][40] Question: Expectations for backlog and normalized levels - Management indicated that backlog is returning to a more normal cadence, with expectations for steady sales through Q4 [49][51] Question: Impact of UAW strike on supply chain - Management noted no significant impact from the UAW strike, with chassis supply remaining tight but manageable [57][58] Question: Expectations for revenue and margin trends in Q4 - Management is optimistic about maintaining or exceeding Q3 revenue levels and continuing the trend of sequential margin improvement [60][61]

Alamo Group Inc. Investor Presentation | November 2023 1 Alamo Group | Investor Presentation | November 2023 Our Business At A Glance Alamo Group is a leading manufacturer of high-quality maintenance equipment for managing natural vegetation, industrial ...

PART I. FINANCIAL INFORMATION [Item 1. Interim Condensed Consolidated Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Interim%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The unaudited interim financial statements for the period ended September 30, 2023, show significant growth compared to the prior year, with total assets increasing to **$1.46 billion**, net sales rising **13%** to **$1.27 billion**, and net income surging **44%** to **$104.6 million**, resulting in a diluted EPS of **$8.73** [Interim Condensed Consolidated Balance Sheets](index=4&type=section&id=Interim%20Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2023, the company's balance sheet reflects growth, with total assets reaching **$1.46 billion**, up from **$1.31 billion** at the end of 2022, driven by increased current assets, cash, receivables, and inventories, while total liabilities and stockholders' equity also grew Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$1,455,514** | **$1,308,508** | **+11.2%** | | Cash and cash equivalents | $113,534 | $47,016 | +141.5% | | Accounts receivable, net | $378,107 | $317,581 | +19.1% | | Inventories, net | $371,748 | $352,553 | +5.4% | | **Total Liabilities** | **$567,780** | **$523,148** | **+8.5%** | | Total debt | $323,900 | $301,952 | +7.3% | | **Total Stockholders' Equity** | **$887,734** | **$785,360** | **+13.0%** | [Interim Condensed Consolidated Statements of Income](index=5&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Income) The company reported strong year-over-year growth in both the third quarter and the first nine months of 2023, with net sales increasing by **12.9%** to **$1.27 billion** and net income rising by **43.8%** to **$104.6 million** for the nine-month period Q3 2023 vs Q3 2022 Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $419,644 | $368,793 | +13.8% | | Gross Profit | $114,143 | $92,365 | +23.6% | | Income from Operations | $49,753 | $35,840 | +38.8% | | Net Income | $34,915 | $25,821 | +35.2% | | Diluted EPS | $2.91 | $2.16 | +34.7% | Nine Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | Nine Months 2023 | Nine Months 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Total Net Sales | $1,272,109 | $1,127,012 | +12.9% | | Gross Profit | $344,724 | $278,723 | +23.7% | | Income from Operations | $153,169 | $105,875 | +44.7% | | Net Income | $104,638 | $72,763 | +43.8% | | Diluted EPS | $8.73 | $6.10 | +43.1% | - Dividends declared per share increased to **$0.22** in Q3 2023 from **$0.18** in Q3 2022, a **22.2%** increase[10](index=10&type=chunk) [Interim Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) For the nine months ended September 30, 2023, comprehensive income was **$104.5 million**, a significant increase from **$33.2 million** in the prior-year period, primarily driven by higher net income and a minimal other comprehensive loss of **$0.2 million** - Foreign currency translation adjustments had a much smaller negative impact in the first nine months of 2023, resulting in a loss of **$0.6 million**, compared to a loss of **$43.1 million** in the same period of 2022[13](index=13&type=chunk) [Interim Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Total stockholders' equity increased by **$102.4 million** during the first nine months of 2023, reaching **$887.7 million**, primarily driven by net income of **$104.6 million**, partially offset by dividends paid of **$7.9 million** Changes in Stockholders' Equity (Nine Months Ended Sep 30, 2023, in thousands) | Component | Amount | | :--- | :--- | | Balance at Dec 31, 2022 | $785,360 | | Net Income | +$104,638 | | Other Comprehensive Loss | -$159 | | Dividends Paid | -$7,861 | | Stock-based compensation | +$7,753 | | **Balance at Sep 30, 2023** | **$887,734** | [Interim Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Interim%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first nine months of 2023, the company generated **$77.0 million** in cash from operating activities, a significant turnaround from a **$21.2 million** use of cash in the same period of 2022, resulting in a **$66.5 million** increase in cash and cash equivalents Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $77,031 | $(21,179) | | Net cash used in investing activities | $(23,957) | $(24,972) | | Net cash provided by financing activities | $14,266 | $87,239 | | **Net change in cash and cash equivalents** | **$66,518** | **$33,193** | [Notes to Interim Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Interim%20Condensed%20Financial%20Statements) The notes provide details on key financial statement components, including increased inventories to **$371.7 million**, stable goodwill at **$195.9 million**, total debt rising to **$323.9 million**, and a significant subsequent acquisition of Royal Truck & Equipment, Inc. for approximately **$28 million** - Net inventories increased to **$371.7 million** at September 30, 2023, from **$352.6 million** at December 31, 2022, with finished goods making up the largest component[25](index=25&type=chunk)[26](index=26&type=chunk) - Total debt stood at **$323.9 million** as of September 30, 2023, with **$312.6 million** in available borrowings under the bank revolving credit facility[37](index=37&type=chunk) Segment Performance (Nine Months Ended Sep 30, in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | Income from Ops 2023 | Income from Ops 2022 | | :--- | :--- | :--- | :--- | :--- | | Vegetation Management | $764,683 | $704,520 | $102,320 | $78,261 | | Industrial Equipment | $507,426 | $422,492 | $50,849 | $27,614 | - On October 10, 2023, the Company acquired Royal Truck & Equipment, Inc. for approximately **$28 million**, marking an entry into the highway safety equipment market[48](index=48&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the strong performance in the first nine months of 2023 to robust customer demand, effective pricing actions, and improved manufacturing efficiencies, resulting in **13%** net sales growth and **44%** net income increase, while maintaining a strong liquidity position - For the first nine months of 2023, net sales increased by **13%** and net income by **44%** compared to the same period in 2022, driven by strong customer demand, positive pricing, and cost discipline[53](index=53&type=chunk) - The company's backlog at the end of the first nine months of 2023 was **$890.9 million**, slightly down from **$908.9 million** at the same point in 2022[55](index=55&type=chunk) Profitability Margins | Margin (% of Net Sales) | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Gross profit | 27.1% | 24.7% | | Income from operations | 12.0% | 9.4% | | Net income | 8.2% | 6.5% | [Results of Operations](index=17&type=section&id=Results%20of%20Operations) Comparing the first nine months of 2023 to 2022, net sales rose **13%** to **$1.27 billion**, gross profit increased by **$66.0 million** to **$344.7 million** with margin expanding from **25%** to **27%**, and net income increased by **$31.8 million** to **$104.6 million** despite nearly doubled interest expense - In Q3 2023, net sales increased **14%** YoY to **$419.6 million**, driven by strong demand and pricing, with Vegetation Management sales growing **8%** and Industrial Equipment sales growing **23%**[57](index=57&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk) - Gross profit margin for the first nine months of 2023 improved to **27%** from **25%** in the prior year period, attributed to higher sales volume, positive pricing, and improved efficiencies as supply chain conditions eased[66](index=66&type=chunk) - Interest expense for the first nine months of 2023 increased to **$19.5 million** from **$9.6 million** in the prior year, mainly due to higher interest rates[67](index=67&type=chunk) [Liquidity and Capital Resources](index=19&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity remains strong, with working capital increasing by **$117.3 million** to **$654.0 million** as of September 30, 2023, and significant available borrowings of **$312.6 million** under its **$655.0 million** credit agreement - Working capital was **$654.0 million** at September 30, 2023, an increase of **$117.3 million** from year-end 2022, driven by volume and inflation-related increases in accounts receivable and inventory[71](index=71&type=chunk) - The company's 2022 Credit Agreement provides for **$655.0 million** in financing, consisting of a **$255.0 million** Term Facility and a **$400.0 million** Revolver Facility, expiring in October 2027[74](index=74&type=chunk) - As of September 30, 2023, **$325.0 million** was outstanding under the credit agreement, and the company was in compliance with all financial covenants[74](index=74&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risks](index=22&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risks) The company is exposed to market risks primarily from foreign currency fluctuations and interest rate changes, with a hypothetical **10%** strengthening of the U.S. dollar impacting gross profit by an estimated **$9.6 million** and a **two-percentage-point** change in interest rates altering Q3 interest expense by approximately **$1.6 million** - A uniform **10%** strengthening of the U.S. dollar relative to currencies in which the company operates would result in a change in gross profit of **$9.6 million** for the nine months ended September 30, 2023[88](index=88&type=chunk) - A **two percentage point** change in the average interest rate on variable-rate borrowings would have changed the company's Q3 2023 interest expense by approximately **$1.6 million**[89](index=89&type=chunk) [Item 4. Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20and%20Procedures) Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were effective as of the end of the reporting period, with no material changes to internal control over financial reporting during the last fiscal quarter - The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the end of the reporting period[92](index=92&type=chunk) - No material changes to internal control over financial reporting occurred during the last fiscal quarter[93](index=93&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) The report refers to the company's Annual Report on Form 10-K for the year ended December 31, 2022, for a description of legal proceedings - For information on legal proceedings, the company directs readers to its 2022 Form 10-K[93](index=93&type=chunk) [Item 1A. Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes from the risk factors that were previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors have occurred since the filing of the 2022 Form 10-K[93](index=93&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any of its common stock during the three months ended September 30, 2023, with approximately **$25.9 million** remaining for purchase under its publicly announced repurchase plan Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Maximum Dollar Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | July 2023 | — | — | $25,861,222 | | August 2023 | — | — | $25,861,222 | | September 2023 | — | — | $25,861,222 | [Item 3. Defaults Upon Senior Securities](index=23&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - None[94](index=94&type=chunk) [Item 4. Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not Applicable[95](index=95&type=chunk) [Item 5. Other Information](index=23&type=section&id=Item%205.%20Other%20Information) The company did not file any reports on Form 8-K during the quarter, and no directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the period - No Form 8-K reports were filed during the period[95](index=95&type=chunk) - No directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement during the reporting period[96](index=96&type=chunk) [Item 6. Exhibits](index=24&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, which include certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as XBRL data files - Exhibits filed include CEO and CFO certifications and XBRL interactive data files[97](index=97&type=chunk)