Alamo Group Inc (ALG) 2020 Q1 法說會逐字稿

Good day, and welcome to the Alamo Group Inc. First Quarter 2020 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ed Rizzuti. Go ahead, sir.

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 1 hour after the call and run for 1 week. The replay can be accessed by dialing 1 (888) 203-1112 with the passcode 3220598.

Additionally, the call is being webcast on the company's website at www.alamo-group.com, and a replay will be available for 60 days. On the line with me today are Ron Robinson, President and Chief Executive Officer; Dan Malone, Executive Vice President, Chief Financial Officer; and Richard Wehrle, Vice President, Treasurer and Corporate Controller.

Management will make some opening remarks, and then we'll open up the line for your questions. During the call today, management may reference certain non-GAAP numbers in their remarks. Reconciliations of these non-GAAP results to applicable GAAP numbers are included in the attachment to our earnings release.

Before turning the 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 safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the company's actual results in future periods to differ materially from forecasted results.

Among those factors which could cause actual results to differ materially are the following: market demand, COVID-19 impact, competition, weather, seasonality, currency-related issues, geopolitical issues and other risk factors listed from time to time in the company's SEC reports.

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

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

Thank you, Ron. The key takeaways from our first quarter 2020 results are net sales were up about 20% due to acquisitions. Organic sales were down 4% due to COVID-19 disruptions and currency translation. First quarter net income was up about 2% with acquisitions accretive, both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28% with acquisitions highly accretive and expanding our EBITDA margins.

Operating cash flow generation continued to run favorable the prior year. Quarter-end cash on hand plus credit availability exceeded $200 million and quarter end backlog of $233 million was down 11% since December. First quarter 2020 net sales of $314.4 million were 20% higher than the prior year first quarter. Without the Morbark and Dutch Power acquisition effects, organic sales were down 4%. Without the unfavorable effects of currency translation, organic sales were down closer to 3%.

While we started the year seeing strong results from our acquisitions on top of organic sales growth, our shipments fell sharply in the last 2 weeks of March mainly due to COVID-19 disruptions. Industrial division first quarter 2020 net sales of $230 million represented a 32.5% increase over the prior year first quarter. Without the impact of the Morbark and Dutch Power acquisitions, this division's organic sales were down 5.8% in U.S. dollars and down about 5.5% without currency translation effects.

Agricultural Division first quarter 2020 sales were $84.5 million, down 4.4% from the prior year first quarter in U.S. dollars and down 2.8% without the effect of unfavorable currency translation. Similar to what we saw at the end of 2019, the first quarter of 2020 reflected organic sales growth from our North American operations and some incremental Dixie Chopper sales, offset by lower European sales. COVID-19 disruptions, mainly in Europe, significantly affected our shipments in the last 2 weeks of March. Net income for the first quarter of 2020 was $15.5 million or $1.31 per diluted share compared to the prior year quarter net income of $15.3 million or $1.30 per diluted share. The Morbark and Dutch Power acquisitions were accretive by $0.01 per diluted share. Our GAAP net income now includes some large noncash 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 Morbark's historical cost and the incremental amortization expense related to the allocation of most of the difference between the total acquisition cost and the fair value of hard assets, to amortizable intangible asset categories.

These acquisition accounting effects require no future cash flow for maintenance outside of ordinary operating expense. If we exclude both the step-up, and incremental amortization, the EPS contribution of these acquisitions would have been over $0.30 per diluted share. First quarter 2020 adjusted EBITDA, which excludes the Morbark inventory step-up charges, was $37 million, up $8 million and 28% over the prior year first quarter.

Our adjusted EBITDA as a percentage of net sales was 11.7% in the first quarter, compared to 11% of net sales in the prior year first quarter. Strong Morbark and Dutch Power results drove this margin expansion with the 2 acquisitions contributing more than the total increase and adjusted EBITDA dollars had an above-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 tests and shipping delays. During the first quarter of 2020, we generated $5.6 million of positive operating cash flow compared to $32.4 million of negative operating cash flow in the prior year quarter. Due to the normal seasonality of working capital requirements, we usually have large negative first quarter operating cash flows, which were in the neighborhood of $30 million in each of the past 2 years. This positive cash flow trend, largely driven by favorable working capital changes began in 2019 due to slowing sales growth, and we expect it to continue in 2020 due to the impact of COVID-19.

At quarter end, $84.4 million of cash on hand and $119 million of availability under existing credit facilities provided us with over $200 million of liquidity. While we currently have more than adequate liquidity, we cannot forecast the duration and full impact of the COVID-19 pandemic. However, we do not anticipate any near-term liquidity issues. Our order backlog ended the first quarter at $233 million, having declined 11% since December. Backlog is about 10% lower than the prior year first quarter. Dutch 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 Morbark and Dixie Chopper order books, backlog was about 19% lower than the prior year first quarter.

To recap our first quarter 2020 results, net sales were up about 20% due to acquisitions, organic sales were down 4% due to COVID-19 and currency translation. First quarter net income was up about 2% with acquisitions accretive, both on an adjusted and unadjusted basis. First quarter adjusted EBITDA was up nearly 28%, with acquisitions highly accretive and expanding our EBITDA margins. Operating cash flow generation continued to run favorable to prior year. Quarter-end liquidity remained above $200 million, and quarter end backlog of $233 million is down 11% since December.

I'd now like to turn the call back over to Rob.

All right. Thank you, Dan. And as Dan reported, I mean, actually, our first quarter was pretty good, especially until March. But even with the slowdown in March, due to our strong start and benefiting from the acquisitions, we ended up with record sales and earnings for the first quarter and pleased with that, that we were able to achieve that given how soft March was. Certainly, as I said, January and February started off pretty good and really showed the benefits of the acquisitions of Dutch Power and Morbark. But things changed in March as Western Europe and North America really started beginning to get 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 shut down at some point during that time period. And so interestingly, our Netherlands plants, which are the Dutch Power ones, have remained open throughout this period.

In North America, most of our U.S. operations continued to function. So there were some temporary closures and probably our Canadian plant, especially those in Quebec, were the ones most affected by this situation. During April, most of our plants that were closed have now reopened, though at varying levels of operation and though we have about 17% of our workforce, either absent or on some kind of a furlough related to the COVID-19, the majority of these are out of -- people who are out are due to the slowdown in demand as we've been furloughing workers in response to changes in demand. By and large, we are still able to operate in a fairly normal fashion, so obviously there -- we have a lot more precautions being taken to make sure our employees are operating safely and maintaining social distancing. As we have reported, we also have about 500 people working from remotely during this time period. And while we are having a few supply chain issues, generally, our vendors and suppliers are functioning on a basis similar to us. I mean, the reduced scale, but still able to meet most of our requirements, especially 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 continue to be able to function at this level.

We have also had a few issues with some customer orders, though these have been fairly limited. But we've had a few orders that have been canceled and a few more that have customers where they have requested shipment delays due to their operational limitation. 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 the incoming order rate there has held up a little bit better. And certainly, the farmers are in the field right now, both in all of our major markets and are functioning. And so are certainly cutting back but are still ordering products and spare parts on an as-needed basis. And we're pleased that our inquiry level is actually holding up generally a little -- is pretty good. I mean, customers still seem to be asking, inquiring about the deliveries and getting quotes and everything. So customers seem to be contending with the issues of their own during the stay-at-home directives. So -- and in total, that has certainly limited our asset bookings in the short term. We hope that now that some of these restrictions are loosening, this situation will start to improve, though we are concerned that reduced income, budget constraints with some of our customers, particularly governmental, (inaudible) customers will continue to have some effect on our markets 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, cutting back on inventory, among other actions. And we believe that a result of these and other actions already taken or contemplated because we are certainly always looking at where we are and what we did yesterday, but what we need to do tomorrow, and -- but we believe that with these actions, our cash flow should remain strong even if the business 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 so as a result of our cost control and cash management initiatives. In the second quarter, we will also continue to benefit from our strong backlog. While it dropped slightly in the first quarter, it is still at a healthy level. And -- but as I've noted, it is 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 they're starting to get back to work. We're seeing, again, the Ag bookings holding up pretty reasonably. But they're certainly a little softer in our industrial sector as both our governmental and nongovernmental 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 a remote basis than they were early in this -- 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 this situation began, we are continuously responding to the ever-changing conditions and taking all reasonable actions to mitigate the problems and yet still support our customers and their needs. We are acting aggressively, but trying to avoid the temptation to overreact to these situations. But -- and I'm really -- this has been a team effort, and I'm very proud and with -- of our management team that has really acted tirelessly and selflessly to stay on top of this issue, to respond daily to the many changes in directives that were coming at us hard during the month of March and April. Certainly -- and the whole staff has really showed a lot of dedicated support to the company and to our -- this whole situation, which has certainly been unprecedented for all of us and trying to deal with it.

We also want to thank our vendors and customers for their continued support in this process. And particularly, we want to thank our shareholders and the investment community in general for their loyalty during this situation as we're all trying to feel our way through this. But with that, I would like now to turn the lines open to any questions you might have. And I say that concludes our formal remarks, but we'd be glad to take any questions. Operator, please go ahead.

(Operator Instructions) Our first question is from Mike Shlisky with Dougherty & Company.

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

Yes. I mean, first of all, it's very difficult to say and predict. I mean, this is sort of a bit of an unprecedented situation. Yes, I think we will hold up a little bit better than many other manufacturing. But we will certainly be impacted. The exact degree, I mean, governmental budgets are under a lot of strain right now. And I think they probably will be for the rest of the year. I don't know. I think things that could affect that is how much relief they get from the Fed -- from the federal government. Since most of our customers are more city-county-state entities, not federal in our industrial sector or in our governmental business. And so I think, like I said, that's some of the wildcards, how bad will their revenues be? How much help will they get from the federal government. But I mean, most of our equipment is deemed essential and then [mix] daily. And they -- and it's wearing out on a regular basis. So I mean, I think that's -- and we're a 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 -- like I said, it's -- everybody is 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. In the next couple -- in the second quarter in general. But like I said, we'll be affected. I think we'll hold up better. I think we're in good shape to deal with the situation. But it's really hard to predict exactly how much we will all be affected.

Okay, great. Then I wanted to shift to the ag business. I mean, some of your comments sounded a little bit more positive, and they'll still be positive, but not as rough as industrial. Maybe contrast some of the row crop farmers against some of the ranches. Maybe first on the row crop side, you are seeing higher acreage, I think, across most of the major costs this year. So I'm curious if that has any impact on your business on a positive side? And then on the rancher side, can you help me kind of figure out the downstream some of the wheat plant shutdowns and corn plant shutdowns, does that have any effect on the upstream farmers at -- towards investments in the near-term?

Yes. Some of this is certainly hard to predict. But you're right, the row crop farmers are in the field. Their acreage under cultivation is holding up steady, and we believe that as long as the acreage under cultivation is holding up steady and that crop prices are -- like certain farm incomes have been down, but as long as they don't go down any -- 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 -- like business they're -- I'm certainly not going to say normal because it's not like they're going into their dealers and kicking tires and everything, they're all trying to social distance. But I think in general -- and our bookings are showing it in that the row crop farmers are acting, I won't say normally, but not too far from normal. The ranchers are -- like I say, that's -- it's tragic what's going on with some of the wheat packing plants and all like that. And I know that's causing some short-term disruptions to that whole thing, but actually, they're already predicting that prices are going to go up on wheat products because there's less availability. And I think -- so farmers and ranchers, like I say, it's more the middleman and the processors that are the kind of the wildcard there is the -- how soon are they going to get their act together, get their plants cleaned up, get back to operating functionally because demand is holding up reasonably well. And so like I said, it's the processing that's I believe the wildcard. But I think that the second quarter could be a little rough on that. But I mean, I think the second half of the year, that should be -- they should have found ways to function effectively and should be back a little bit more normal. I think some ranchers are -- they're not cutting their herds, but they're not adding to them at this point in time. They don't (inaudible) prices are down, but I think they'll hold on. But like I said, I think that will come into more of a balance in the second half of the year, but I think you're going to see more issues in the second quarter.

Okay. That's great color, Ron. Maybe one last one for me. On the debt side, Dan, I guess, are any kind of major debt reduction on hold? What's your plan for the year now that this has all happened and then -- I mean, at the very least, do you plan to just have extra cash on the balance sheet, at least make should at least potentially bring down net debt. Obviously, if you need the cash flow go get it and go use it. But if you don't (inaudible) to keep that net debt as low as possible?

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

I just want to confirm, do we pay down the debt more than just a minimum, there'll be a chunk.

Yes.

Our next question is from Joe Mondillo with Sidoti & Company.

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

We have given that we go through dealers, it is hard to get a feel for the breakdown of between, say, ranchers, farmers, hobby farmers, the orchard farming, the many -- the subsectors within Ag that we don't have really definitive breakdown of our sales, but certainly, you're right. I think if there's overproduction in corn and the ethanol, I think corn prices could be under some -- could see some weakening. But I think with the acreage under cultivation, and there's already a fair bit in storage, I mean, I think farmers are going to probably still be selling, be sellers because they've got too much in storage already. And I also feel that the farm incomes, while you got to remember, I mean, they're 30% below where they were 5, 6 years ago already. And so I mean, I don't think there's -- I still feel farm income should hold up reasonably well. Because, I mean, they've been at that fairly constrained crop prices. So I think that barring any -- we got to show that the whole network can get this to market and get this to process and get this to the consumers. But actually -- so I think there's still, even given where we are with farm incomes, I actually think there's still slightly more upside than downside and with ranchers, too. I mean, I think that like they would sort of benefit by -- lower corn prices, helps the ranchers as well. The other used a lot for feedstock. So yes, I guess where we are in the Ag cycle, I still feel that we're so low in it that I feel that there's still not much downside, some upside, even though I know what you're saying about ethanol and corn and everything, but I still feel where we are, there's slightly more upside than downside. But even at the downside, it should total up a lot better than, like I say, as long as farmers have so much acreage under cultivation, and that's the interesting thing as was pointed out, acreage under cultivation is holding up reasonably well. I mean it's strong, and we feel that they have to have equipment to farm that much acreage in almost whatever the crop prices are. And certainly, they have -- the better they are, they'll spend more. But I think that's why I think theirs could be a little more upside not a lot of downside with that kind of acreage under cultivation, but we're at such a low point to begin with.

So (inaudible).

Yes, that's right.

So I was -- wanted to start to understand it a little bit better on when exactly did you start to see really the severity of the downturn? And relative to that timing, how long or when did you put in place a large serious cost management measures that you spoke about?

March. I mean, January and February were both strong months for our company. Like I said, record results, even with the weak March. But March, things started hitting heavy and fast. I mean, that's when all the shutdowns were coming. Europe was kind of -- well, Italy was already in bad shape earlier than that, but I mean, it was really March when France and England and all started really, like I say, started all their restricting measures. That's when all -- in March was when all of our plants in England and France were shut down for some period of time. That's when even in the U.S., when our first cases started to show up in -- not only with us, we've actually working to have very -- not a lot of cases in fact, it's interesting. Most of the ones we have are now back to work. But that -- like I said, it was March, that's when people started working from home, all these stay-at-home orders. And that made it kind of like responding kind of difficult because governmentals aren't set up to work from home. Of course, and our products, we can't build from home. I mean so while we have people working from home, and our customers do, it's a fairly unique situation and like the unprecedented situations, we've all tried to adapt to these changes. And like I said, that's the good thing now, even though it was, like I said, very little effect to our business in February, but March saw almost the effect, all the softness showed up there. Continuing a little into April, but like I said here now that we're moving into May, we are starting to see, like I say, all of our plants in Europe are now open -- back open at some basis, like say, the level of production there is more limited by us in the market than by the COVID-19. The -- but I think businesses are starting to adapt to the situation. Things are opening up a little bit more, we're seeing a little bit more communication with our customers, we're seeing -- people are trying to figure out how to function either remotely or as they start getting back to work. So I mean, I think that's why I say, to me, the second quarter is very important just to see how much we get back to normal, like I said, there's going to be budget constraints, there's going to be some, I think, financial weaknesses out there. But I think if the world, especially Western Europe, North America start functioning a little bit back to some normal basis in the second quarter, I think that will be very important. We have a pretty good backlog to carry us through the second quarter. But like I said, I think at this point, my focus is really almost more the third quarter, trying to see what happens there and how things will respond and get back to normal, it's amazing how much normal business is continuing to go on, new orders are coming in at a slow pace but at a steady pace. And like I said, we saw -- we've seen a little bit of pickup and had some very nice bookings, one in Ag and -- but I like to say, to me, the second quarter is going to be really important, not just for our second quarter results, but for the whole, the rest of the year for the whole country.

This is Richard. We actually started making cost adjustments towards the tail end of March and the first 2 to 3 weeks in April.

Okay. Okay. I was just trying to determine how quick you are to sort of react to the changes in the cost measures that you talked about?

Well, and as Richard said, I mean we started seeing these -- like you didn't -- the whole 2 -- first 2 months January and February were good months for us. March started off good. March ended poorly, but then by the middle of March, we were already announcing salary cuts and travel restrictions and cutting back on CapEx and also, I mean, we responded as soon as it -- everything started hitting hard, hard and heavy in the second half of March, and we responded in the second half of March.

Okay. And then last question for me. Regarding the backlog and your orders in, just wanted to try to get a clear indication of what you're sort of seeing? Because some of your commentary conflicted a little bit. I mean, you stated in the prepared remarks that excluding the acquisitions, your backlog is up 19%, which is a fairly sizable number. But you also sort of described the backlog as fairly healthy. So have you seen any change in the order trend at all? Or could you just help sort of clarify that listing?

Well, yes, I mean, when I say backlog is fairly healthy for our needs for the second quarter. It's -- as I said, I mean, in middle of March and second half of March and the first and early April, communication with customers, communication in general, it got very difficult, nobody -- everybody was responding. I mean, I know it's the second half of March, early April. There was some new directive from some states, some counties, some cities, some country regarding shutdowns. I mean, multiple of these daily and trying to respond wherever -- given that we operate in so many states and so many plants, 30 plants around the world and everyone -- so I mean, it was -- I mean, daily, we were trying to respond to changes in the operating conditions of where we were. Communication with customers became -- was challenged because, like I said, some of these customers were now staying home. And as I said, some of our customers governmentals aren't really set up to work from home. So it was a very challenging environment. And yet, like I said, the orders were still coming in, but there was -- but not at the same pace. And certainly, like I say, communication was difficult. That's why I'm saying now, I think we're seeing communication start to improve, Ag ordering, Ag bookings in April, certainly, were better than they were at the second half of March. And they're so doing reasonably right now, even though this isn't one of our big order times. I mean, in Ag, I mean, like I said, our biggest orders come in the second half of the year. But they are functioning and are operating on -- I say nothing is a normal basis, but a little bit better basis, communications improving. Governmentals are still ordering, they're still taking deliveries, they're trying to delay some deliveries. We haven't had much cancellations, but like I say, they're trying to figure out where they are, their budgets. And so there's just a lot of unknowns out there. But as I said, I think communication is starting to improve, and I think that's good because I think the stability of the ordering cycle, I mean, most of our equipment is still -- is being used on a regular basis. They're still out cleaning, dealing with the infrastructure. And so we're seeing that holding up reasonably well, and we think that it will respond a little quicker when things start to get back to normal. But there's a lot of unknowns, and like we assume, like I say, I think that's why I say the second quarter to me is going to be very important to really set the pace for how this recovery is going to go. I mean we certainly hope there's not going to be any kind of a remission or a second wave of this or anything. And so I mean, I hope people don't get too far ahead of themselves, but yes, I mean, we think that -- like I say, we're trying to just react daily to changing conditions and avoid overreacting that we -- like I say, we're still in it. We're functioning, we're meeting the needs of our customers, we're worried -- making sure our plants are not only clean and safe, but operating that our supply chain is working that, like I say, we have -- while 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 are just trying to react daily to changing conditions without overreacting daily.

Yes. No, I understand. A lot of uncertainty. If I could just quick throw 1 last question in, just oil and gas, what does that make up of your business in 2019?

Again, it's hard to say exactly. I mean -- and we don't have that kind of detail of the -- if we sell a vacuum truck to a contractor. I mean, a lot of that's in our vacuum truck business. And we sell it to a contractor, we don't know who all he's working for. But yes, I mean I think even going back around 2016, when oil and gas had dropped in, I mean, we saw a noticeable decline in our rental business of vacuum trucks. Since then, I mean, we have diversified that base more to where but oil and gas is still in it. I mean, oil and gas, I wouldn't think account of our Alamo's total business is certainly low single digits. So it's not a big thing, but it is certainly under stress right now. I mean they -- oil and gas has really been impacted by, like I say, to COVID-19, they've got the oversupply in the Saudi Russian battle. And so I mean, there's lots of things going on in oil and gas, not only what's pretty good -- are good in the short term. So I think that is going to be solved. It won't impact us as much as it did in 2019 downturn. But it's certainly it's going to help us, but it's a little bit hard for us to break out between oil and gas, construction, mining and some of these other sort of non-governmental applications, mostly in our vacuum truck area. And a little bit in some of our other areas, excavators and this kind of stuff. But -- so yes, I think that's going to be -- like I say, it isn't going to help, but construction is soft, mining is soft, everything is soft right now.

(Operator Instructions) And our next question is from Chris Moore with CJS Securities.

Maybe stay on the kind of order outlook for a moment. So one of the things you talked about was even if the pandemic outlook improves, still could be a lag in the second half unless orders improve near term. Can you just kind of remind me in terms of the products that have the longest lead times where that becomes that much more crucial for oil for near term? And secondly, are those lead times a little bit more under your control these days or still there's enough supply chain issues that (inaudible)?

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

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

It's holding up reasonably well. It's -- I mean, some of their big products -- we've had a few more issues there. So that people have either kind of -- especially Canadian dollar units that people are saying, "Hey, the economics -- I need to see how this -- both situations develops on the economics. So we've had a few delays there. And so -- but yes, but it's interesting there already. I say I commented that we're getting a little bit more feedback from customers. I mean, I know they, just in the last couple of weeks, have had a big influx of inquiries about, all right, what's the -- what are lead times today? And so I mean, like I said, I think they were a little bit slower initially as all this was hitting and -- but a little bit -- like I say, they're getting -- we actually think they'll probably be one of better units to respond to come -- they'll come -- come back a little quicker. So -- but that's certainly they've been effective like that evolving effect, especially big-ticket items are getting a little more scrutiny.

Last one for me is you've talked about again in the prepared remarks, in addition to cost-cutting and cash conservation measures already implemented here we're doing other potential (inaudible) actions. Can you talk a little bit more about what some of those might be?

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

(Operator Instructions) And right now, there are no further questions in the telephone queue. I'll turn it back to management for closing remarks.

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