ALAMO GROUP INC (ALG)

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following tables set forth, for the periods indicated, certain financial data:

Overview

This report contains forward-looking statements that are based on Alamo Group’s current expectations.  Actual results in future periods may differ materially from those expressed or implied because of a number of risks and uncertainties which are discussed below and in the Forward-Looking Information section. Unless the context otherwise requires, the terms "the Company", "we", "our" and "us" means Alamo Group Inc.

Net sales for the second quarter of 2026 were $450.7 million, an increase of 7.6% compared to $419.1 million in the second quarter of 2025. Revenue growth was driven primarily by the addition of Ring-O-Matic and Petersen Industries within the Industrial Equipment Division. Organic revenue growth in the second quarter of 2026 was approximately 1% compared to second quarter of 2025. The Company's backlog at June 30, 2026 was $549.3 million, a 20% decrease from $687.2 million in the prior-year period. The decrease primarily reflects improved lead times and the continued normalization of order patterns following the elevated demand environment experienced over the past several years within the Industrial Equipment Division. While backlog levels declined year over year, customer demand remained generally stable across most of our core markets during the quarter.

Consolidated income from operations in the second quarter of 2026 was $45.8 million, down 3% from $47.1 million in the same period 2025. Results were impacted by approximately $4.3 million of restructuring, acquisition-related and integration expenses incurred during the quarter. Of the $4.3 million, $3.5 million was recorded in SG&A. These costs were primarily associated with recent acquisitions and operational initiatives intended to support future growth and efficiency improvements. Excluding these costs operating performance benefited from contributions from recent acquisitions and operational improvement initiatives.

Net Sales in the Industrial Equipment Division increased by 13% (excluding acquisitions, growth was 3%) in the second quarter of 2026 compared to the same period in 2025. The Division’s backlog declined by 28% as lead times improved and demand normalized following elevated order levels in prior periods. New orders decreased approximately 2% year over year (excluding acquisitions, new orders declined 12%). Income from operations rose 7% versus the prior-year period, reflecting contributions from recent acquisitions and continued improvements in operating efficiency.

Net Sales in the Vegetation Management Division were flat in the second quarter of 2026 compared to the same period in 2025 as growth in agricultural and tree care markets was offset by weakness in municipal markets. The Division's backlog increased 4% and new orders were flat year over year in the second quarter of 2026. Income from operations decreased 30% versus the prior year period primarily due to the impact from lower sales in the municipal mowing businesses.

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As part of our ongoing efforts to optimize operations in both of our Divisions, we have relocated applicable product families, sold the Gibson City, IL facility, repurposed one facility to support other brands, and completed initial setups for portions of the production lines. As we continue our optimization efforts throughout the rest of the year, we expect temporary production inefficiencies, duplicate costs, and shipment-timing effects that may pressure revenue and gross margin, along with potentially one-time expenses related to relocation and facility exit. Following completion, we expect improved capacity utilization, service levels and structural cost reductions. The anticipated timing, costs and benefits are forward-looking and subject to the risks and uncertainties described under “Forward- Looking Information.”

Results of Operations

Three Months Ended June 30, 2026 vs. Three Months Ended June 30, 2025

Net sales for the second quarter of 2026 were $450.7 million, an increase of $31.6 million or 8% compared to $419.1 million for the second quarter of 2025. Net sales during the second quarter of 2026 increased due to contributions from recent acquisitions in the Industrial Equipment Division and modest improvement in agricultural markets within the Vegetation Management Division. Our price/volume analysis indicates 0.4% of the 8% growth was due to currency movement.

Net sales in the Industrial Equipment Division were $271.6 million in the second quarter of 2026 compared to $240.7 million for the same period in 2025, an increase of $30.9 million or 13%. The increase was due to the addition of the Ring-O-Matic and Petersen Industries acquisitions. Organic net sales in the second quarter of 2026 increased 3% compared to the second quarter in 2025. Currency movement impacted sales favorably by 0.1%.

Net sales in the Vegetation Management Division increased by $0.7 million or 0% to $179.1 million for the second quarter of 2026 compared to $178.4 million during the same period in 2025. The increase was due to modest improvements in tree care and agricultural markets which offset lower municipal mowing activity. Currency movement was 0.8% in the second quarter of 2026.

Gross profit for the second quarter of 2026 was $110.9 million (25% of net sales) compared to $108.3 million (26% of net sales) during the same period in 2025, an increase of $2.6 million. Higher net sales in the Industrial Equipment Division supported the increase in gross profit. However, overall gross margin declined by 125 basis points due to lower municipal mowing volumes and temporary production inefficiencies associated with facility consolidation activities.

Selling, general and administrative expenses (“SG&A”) were $60.1 million (13% of net sales) during the second quarter of 2026 compared to $57.1 million (14% of net sales) during the same period of 2025, an increase of $3.0 million attributable primarily to recent acquisitions and restructuring-related costs. Amortization expense in the second quarter of 2026 was $5.0 million compared to $4.1 million in the same period in 2025, an increase due to addition of the Ring-O-Matic and Petersen Industries acquisitions.

Interest expense was $4.8 million for the second quarter of 2026 compared to $3.7 million during the same period in 2025 due to increased debt related to the Petersen Industries acquisition.

Other net income (expense) was $0.62 million of expense in the second quarter of 2026 compared to $3.2 million of expense during the same period in 2025, primarily due to lower foreign currency transaction losses.

Provision for income taxes was $10.7 million (26% of income before income tax) in the second quarter of 2026 compared to $10.3 million (25% of income before income tax) during the same period in 2025. The slight increase in the tax rate in the second quarter of 2026 was due to a lower expected R&D credit for 2026.

The Company’s net income after tax was $30.9 million or $2.55 per share on a diluted basis for the second quarter of 2026 compared to $31.1 million or $2.57 per share on a diluted basis for the second quarter of 2025, reflecting the factors discussed above, including restructuring, acquisition and integration expenses, lower municipal mowing volumes, and higher interest expense.

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Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025

Net sales for the first six months of 2026 were $867.9 million, an increase of $57.9 million or 7% compared to $810.0 million for the first six months of 2025. The increase in net sales during the first six months of 2026 was driven primarily by the acquisitions of Ring-O-Matic and Petersen Industries in the Industrial Equipment Division, along with improvement in agricultural and tree care markets within the Vegetation Management Division.

Net sales in the Industrial Equipment Division were $513.4 million during the first six months of 2026 compared to $467.8 million for the same period in 2025, an increase of $45.6 million or 10%. The increase in net sales for the first six months of 2026 compared to the first six months of 2025 was mainly due the acquisition of Ring-O-Matic and Petersen Industries.

Net sales in the Vegetation Management Division increased during the first six months by $12.3 million or 4% to $354.5 million for 2026 compared to $342.2 million during the same period in 2025. The increase was due to improvements in the agricultural and tree care businesses, partially offset by weakness in the municipal mowing markets.

Gross profit for the first six months of 2026 was $215.7 million (25% of net sales) compared to $211.1 million (26% of net sales) during the same period in 2025, an increase of $4.6 million. The increase in gross profit was mainly attributable to higher sales coming from the acquisitions in the Industrial Equipment Division. However, gross margin declined 122 basis points due to weakness in municipal mowing markets and temporary production inefficiencies associated with facility consolidation activities.

SG&A expenses were $117.8 million (14% of net sales) during the first six months of 2026 compared to $111.5 million (14% of net sales) during the same period of 2025, an increase of $6.3 million attributable primarily to recent acquisitions, including Ring-O-Matic and Petersen Industries, as well as restructuring-related costs. Amortization expense in the first six months of 2026 was $9.9 million compared to $8.1 million in the same period in 2025, an increase due to acquisitions.ease of $0.0 million.

Interest expense was $9.4 million for the first six months of 2026 compared to $6.9 million during the same period in 2025, an increase of $2.5 million following acquisition of Petersen Industries in January 2026.

Other income (expense), net was $0.6 million of expense during the first six months of 2026 compared to $3.8 million of expense in the first six months of 2025, primarily due to lower foreign currency transaction losses.

Provision for income taxes was $20.5 million (25% of income before income taxes) during the first six months of 2026 compared to $20.3 million (24% of income before income taxes) during the same period in 2025. The increase in the effective tax rate was primarily due to a lower expected R&D credit in 2026.

The Company's net income after tax was $60.1 million or $4.96 per share on a diluted basis for the first six months of 2026 compared to $62.9 million or $5.21 per share on a diluted basis for the first six months of 2025. The decrease of $2.8 million reflected restructuring, acquisition and integration expenses, lower municipal mowing volumes and higher interest expense associated with the financing of the Petersen Industries acquisition.

Liquidity and Capital Resources

In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to operate the business, including inventory purch

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary and Outlook

This report contains forward-looking statements that are based on Alamo Group’s current expectations. Actual results in future periods may differ materially from those expressed or implied because of a number of risks and uncertainties which are discussed below and in the Forward-Looking Information section beginning on page 14.

We continued to experienced strong demand for industrial equipment products in 2025, while demand for vegetation products was mixed. Agricultural, tree care and recycling markets remained weak. Operating margins declined as strong performance in the Industrial Equipment Division only partially offset lower margins in the Vegetation Management Division. Market conditions continue to be mixed. Demand for governmental and industrial products is healthy and vegetation product demand remains weak by soft commodity pricing, elevated interest rates, and reduced housing construction activity.

2025 Performance

In 2025, the Company's net sales decreased by 2% and net income decreased by 10% compared to 2024. The decrease in net sales was primarily driven by the ongoing lower demand in tree care and recycling markets and operational challenges in the Vegetation Management Division related to consolidation of certain operations. Additionally, the sale of Herschel Parts on August 16, 2024, had an unfavorable impact on year-over-year sales, though immaterial for total Company results for the year. These challenges were only partially offset by strong sales growth in the Industrial Equipment Division.

Net income was impacted by the CEO transition costs, acquisition and integration expenses, and ongoing restructuring efforts. Additional pressure on net income resulted from market-driven revenue declines and production inefficiencies in the Vegetation Management Division. Strong demand and solid margins in the Industrial Equipment Division only partially offset these challenges.

The Company's Vegetation Management Division experienced a 17% decrease in net sales and a 59% decline in income from operations for the full year of 2025 compared to 2024. While continued market weakness and operational challenges led to lower revenue, the Division’s backlog increased 6% reflecting potential market stabilization. The Company continues to implement cost-saving initiatives and enhancement of operational efficiencies in an effort to improve operating margins.

The Company's Industrial Equipment Division reported a 13% increase in net sales for the full year of 2025 compared to 2024. Sales growth was strong in all product lines, led by excavators, vacuum trucks and snow, followed by sweepers & safety. Income from operations for 2025 rose 19% versus 2024, driven by increased demand, greater operational efficiencies, and an improvement in supply chain performance.

Consolidated income from operations was $152 million for the full year of 2025 compared to $165 million for the full year of 2024, a decrease of 8%, impacted by CEO transition costs, acquisition and integration expenses, and ongoing restructuring efforts.

As part of our ongoing efforts to optimize operations in both of our Divisions, we have relocated applicable product families, sold the Gibson City, IL facility, repurposed one facility to support other brands, and completed initial set-ups for portions of the production lines. Over the next approximately one to two quarters, we plan to finish the remaining line installations and increase production. During this transition, we expect temporary production inefficiencies, duplicate costs, and shipment-timing effects that may pressure revenue and gross margin, along with potentially one-time expenses related to relocation and facility exit. Following completion, we expect improved capacity utilization, service levels and structural cost reductions. The anticipated timing, costs and benefits are forward-looking and subject to the risks and uncertainties described under “Forward- Looking Information.”

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The following discussion should be read in conjunction with the consolidated financial statements of the Company and the notes thereto included elsewhere in this Annual Report on Form 10-K.

The following tables set forth, for the periods indicated, certain financial data:

Results of Operations

Fiscal 2025 compared to Fiscal 2024

The Company’s net sales in the fiscal year ended December 31, 2025 (“2025”) were $1,603.7 million, a decrease of $24.8 million or 1.5% compared to $1,628.5 million for the fiscal year ended December 31, 2024 (“2024”). The decrease in sales was attributable to continued weaknesses in tree care and recycling markets and operational challenges related to consolidating certain operations, partially offset by sustained strong demand for industrial equipment.

Vegetation Management net sales were $654.1 million in 2025 compared to $785.2 million in 2024, a decrease of $131.1 million or 16.7%. The decline was attributable to sustained weakness in the tree care and recycling markets as well as operational challenges in consolidating certain operations. The sale of Herschel Parts on August 16, 2024 also impacted results compared to 2024, though it was immaterial to the year-over-year sales decrease.

Industrial Equipment net sales were $949.7 million in 2025 compared to $843.3 million in 2024, representing an increase of $106.4 million or 12.6%. The increase was driven by the strong ongoing demand across the division in excavators, vacuum trucks, sweepers, and snow removal equipment.

Gross profit for 2025 was $397.8 million (24.8% of net sales) compared to $412.5 million (25.3% of net sales) in 2024, a decrease of $14.7 million. The decrease in gross profit was driven by lower revenue and production inefficiencies in the Vegetation Management Division, partially offset by the healthy demand in Industrial Equipment Division.

Selling, general and administrative expenses (“SG&A”) were $229.7 million (14.3% of net sales) in 2025 compared to $231.5 million (14.2% of net sales) in 2024, a decrease of $1.8 million attributable to labor cost savings actions taken in Vegetation Management, offsetting the additional costs related to the CEO succession, and acquisition and integration expenses. Amortization expense in 2025 was $16.5 million compared to $16.2 million in 2024, an increase of $0.3 million due to the acquisition of Ring-O-Matic.

Interest expense for 2025 was $14.9 million compared to $20.5 million in 2024, a decrease of $5.6 million or 27.6% primarily related to debt reduction.

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Interest income for 2025 was $5.6 million compared to $2.6 million in 2024, an increase of $3.0 million or 111.2%, related to higher cash on hand.

Other income (expense), was a net expense of $2.8 million during 2025 compared to income of $2.7 million in 2024. The expense increase was primarily driven by foreign exchange transaction losses, offset by gains related to the sale of former Rhino Ag facility in Gibson City, IL.

Provision for income taxes was $35.7 million (25.6% of income before income taxes) for 2025 compared to $33.7 million (22.5% of income before income taxes) in 2024. The tax rate was impacted by stock compensation related to the CEO transition, lower R&D credit, and a large release of a valuation allowance in 2024.

Net income for 2025 was $103.8 million compared to $115.9 million in 2024, with the decrease in 2025 net income resulting from the factors described above.

Fiscal 2024 compared to Fiscal 2023

The Company’s net sales in the fiscal year ended December 31, 2024 (“2024”) were $1,628.5 million, a decrease of $61.2 million or 3.6% compared to $1,689.7 million for the fiscal year ended December 31, 2023 (“2023”). The decrease in sales was attributable to weaker market demand in forestry, tree care, and agricultural mowing markets, partially offset by continued strong demand for industrial equipment.

Vegetation Management net sales were $785.2 million in 2024 compared to $979.0 million in 2023, a decrease of $193.8 million or 19.8%. The decline was primarily driven by the sustained weakness in forestry, tree care, and agricultural mowing markets. The sale of Herschel Parts on August 16, 2024 was immaterial to the year-over-year sales decrease.

Industrial Equipment net sales were $843.3 million in 2024 compared to $710.6 million in 2023, representing an increase of $132.7 million or 18.7%. The increase was a result of strong performance in all product lines including excavator and vacuum trucks, sweepers & safety, and snow removal equipment.

Gross profit for 2024 was $412.5 million (25.3% of net sales) compared to $453.6 million (26.8% of net sales) in 2023, a decrease of $41.1 million. The decrease in gross profit was primarily attributable to the decline in Vegetation Management market demand, production inefficiencies, and the impact of costs to reduce capacity and separation expenses as the Division adjusted to market conditions. In addition, profitability was also impacted by the five-week strike at Gradall in Ohio, which negatively affected the Industrial Equipment Division.

Selling, general and administrative expenses (“SG&A”) were $231.5 million (14.2% of net sales) in 2024 compared to $240.2 million (14.2% of net sales) in 2023, a decrease of $8.7 million. The decrease in SG&A expenses in 2024 was attributable to labor cost savings actions taken in Vegetation Management partially offset by additional costs from the acquisition of Royal Truck. Amortization expense in 2024 was $16.2 million compared to $15.5 million in 2023, an increase of $0.7 million due to Royal Truck acquisition in the fourth quarter of 2023.

Interest expense for 2024 was $20.5 million compared to $26.1 million in 2023, a decrease of $5.6 million or 21.3%. The decrease in interest expense in 2024 was primarily due to debt reduction.

Interest income for 2024 was $2.6 million compared to $1.5 million in 2023, an increase of $1.1 million or 77.6%. The increase in 2024 was primarily due to higher cash on hand.

Other income (expense), net was income of $2.7 million during 2024 compared to income of $1.8 million in 2023. The increase was primarily driven by foreign exchange transaction gains, offset by fixed asset losses.

Provision for income taxes was $33.7 million (22.5% of income before income taxes) for 2024 compared to $39.0 million (22.2% of income before income taxes) in 2023.

Net income for 2024 was $115.9 million compared to $136.2 million in 2023, with the decrease in 2024 net income resulting from the factors described above.

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Liquidity and Capital Resources

In addition to normal operating expenses, the Company has ongoing cash requirements which are necessary to conduct the Company’s business, including inventory purchases and capital expenditures. The Company’s accounts receivable, inventory and accounts payable levels, particularly in its Vegetation Management Division, build in the first quarter and early spring and, to a lesser extent, in the fourth quarter in antic

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