ALAMO GROUP INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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

                               Three Months Ended                  Six Months Ended
         As a                       June 30,                           June 30,
 Percent of Net Sales          2022              2021             2022             2021
Vegetation Management               64.4  %      61.8  %              62.8  %      60.5  %
Industrial Equipment                35.6  %      38.2  %              37.2  %      39.5  %

Total sales, net                   100.0  %     100.0  %             100.0  %     100.0  %


                                           Three Months Ended                 Six Months Ended
  Cost Trends and Profit Margin, as             June 30,                    

June 30th,

      Percentages of Net Sales              2022              2021         
  2022             2021
 Gross profit                                    25.2  %     25.4  %              24.6  %     25.0  %
 Income from operations                          10.3  %      9.7  %               9.2  %      9.0  %
 Income before income taxes                       9.5  %      9.9  %               8.2  %      8.6  %
 Net income                                       7.2  %      7.5  %               6.2  %      6.6  %



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.

We experienced continued strong demand for our products during the first six
months of 2022 as was reflected in our top line growth. Margins improved due to
the increase in shipments along with pricing actions we began in 2021 which
helped mitigate inflation cost pressures. However, we continue to be constrained
by higher material and inbound freight costs, ongoing supply chain disruptions
and skilled labor shortages.

For the first six months of 2022, the Company's net sales increased by 15%, and
net income increased by 8% compared to the same period in 2021. The increase in
both net sales and net income was primarily due to continued strong customer
demand for our products compared to the prior year and solid cost and expense
discipline. Offsetting the increase were disruptions in our supply chain,
significant input cost inflation (including increased inbound freight and
material costs), and logistics issues.

The Company's Vegetation Management Division experienced a 19% increase in sales
for the first six months of 2022 compared to the first six months of 2021
primarily as a result of increased customer demand as well as pricing actions.
The Division's new orders and backlog improved in all product lines. The
Division's income from operations for the first six months of 2022 was up 30%
versus the same period in 2021, due to increased demand but offset by higher
material and inbound freight costs and supply chain disruptions.

The Company's Industrial Equipment Division sales increased in the first six
months of 2022 by 8% as compared to the first six months of 2021. Industrial
Equipment sales were strong in the excavator and vacuum truck product lines and
were supported by modest increases in our street sweeper, debris collector and
snow removal equipment lines. Negatively impacting this Division in the quarter
were higher input costs and supply chain disruptions. These challenges had a
negative effect on the Division's income from operations which led to a 4%
decline for the first six months of 2022 compared to the first six months of
2021.

Consolidated income from operations was $70.0 million in the first six months of
2022 compared to $59.0 million in the first six months of 2021, an increase of
19%. The Company's backlog increased 78% to $894.0 million at the end of the
second quarter of 2022 versus a backlog of $503.6 million at the end of the
second quarter of 2021. The increase in the Company's backlog was primarily
attributable to strong customer demand for our products in both Divisions as
outlined above.

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The effects of the COVID-19 pandemic continue to impact our business and
operations. In general, we have seen a gradual decline in the number of COVID-19
cases in our facilities despite occasional localized outbreaks. However, new
strains of the disease and/or a significant resurgence of cases could negatively
impact us in the future by, among other things, reducing overall customer demand
for our products or creating significant operational disruptions in our
manufacturing facilities that could lead to delayed deliveries and/or production
inefficiencies and higher costs. The indirect effects of the pandemic, including
supply chain and logistics challenges, the unavailability of certain raw
materials and key product components, input cost inflation and labor shortages,
continue to negatively impact us and seem likely to persist in the near-term.

While the direct and indirect consequences of the COVID-19 pandemic continue to
pose significant challenges, the Company may also be negatively affected by
several other factors such as increases in interest rates, changes in tariff
regulations and the imposition of new tariffs, ongoing trade disputes, further
supply chain issues, changes in U.S. fiscal policy such as changes in the
federal tax rate, weakness in the overall world-wide economy, significant
changes in currency exchange rates, negative economic impacts resulting from
geopolitical events such as the war in Ukraine, changes in trade policy,
increased levels of government regulations, weakness in the agricultural sector,
acquisition integration issues, budget constraints or revenue shortfalls in
governmental entities, and other risks and uncertainties as described in "Risk
Factors" section in our Annual Report on Form 10-K for the year ended
December 31, 2021 (the "2021 Form 10-K").

Operating results

Three months completed June 30, 2022 compared to the three months ended June 30, 2021

Net sales for the second quarter of 2022 were $396.2 million, an increase of
$48.6 million or 14% compared to $347.6 million for the second quarter of 2021.
Net sales during the second quarter of 2022 improved due to strong customer
demand for our products versus the second quarter of 2021. Negatively affecting
the second quarter of 2022 were higher costs for materials and inbound freight,
as well as supply chain disruptions which caused component shortages and related
operational disruptions.

Net Vegetation Management sales increased by $40.3 million or 19% to $255.0
million for the second quarter of 2022 compared to $214.7 million during the
same period in 2021. The increase was due to strong performance in all product
lines particularly agricultural, forestry and tree care and governmental mowing
equipment in both North America and Europe. Supply chain and logistics
disruptions had an overall negative impact during the second quarter of 2022.

Net Industrial Equipment sales were $141.2 million in the second quarter of 2022
compared to $132.9 million for the same period in 2021, an increase of $8.3
million or 6%. The increase was mainly due to continued solid results in our
excavator and vacuum truck product lines with modest support from other product
lines. This Division was also negatively impacted by ongoing supply chain
disruptions and logistics issues in the second quarter of 2022, including delays
in receiving truck chassis and component parts from supply chain partners.

Gross profit for the second quarter of 2022 was $99.7 million (25% of net sales)
compared to $88.1 million (25% of net sales) during the same period in 2021, an
increase of $11.6 million.  The increase in gross profit during the second
quarter of 2022 compared to the second quarter of 2021 was primarily
attributable to higher sales volume and positive pricing actions. Profitability
in the quarter was negatively impacted by shortages of component parts along
with higher costs of materials and inbound freight. These factors had a negative
effect on the Company's gross margin percentage during the second quarter of
2022.

Selling, general and administrative expenses ("SG&A") were $55.0 million (14% of
net sales) during the second quarter of 2022 compared to $50.9 million (15% of
net sales) during the same period of 2021, an increase of $4.1 million. The
increase in SG&A expense in the second quarter of 2022 compared to the second
quarter of 2021 was attributable to higher administrative, marketing and
engineering expenses as the Company returned to pre-pandemic expense levels.
Amortization expense in the second quarter of 2022 was $3.8 million compared to
$3.7 million in the same period in 2021, an increase of $0.1 million.

Interest charges were $3.2 million for the second quarter of 2022 compared to
$2.9 million at the same time in 2021.

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Other income (expense), net was $0.1 million of expense for the second quarter
of 2022 compared to $3.3 million of income during the same period in 2021.  The
income in 2021 was primarily from the sale of a facility in the Netherlands of
$3.4 million.

Provision for income taxes was $9.2 million (24% of income before income tax) in
the second quarter of 2022 compared to $8.2 million (24% of income before income
tax) during the same period in 2021.

The Company's net income after tax was $28.5 million or $2.39 per share on a
diluted basis for the second quarter of 2022 compared to $26.0 million or $2.19
per share on a diluted basis for the second quarter of 2021.  The increase of
$2.5 million resulted from the factors described above.

Semester completed June 30, 2022 compared to the half-year ended June 30, 2021

Net sales for the first six months of 2022 were $758.2 million, an increase of
$99.5 million or 15% compared to $658.7 million for the first six months of
2021. The increase in net sales was attributable to continued strong customer
demand for our products in both the Vegetation Management and Industrial
Equipment Divisions and improved pricing. Negatively impacting net sales were
higher costs for materials, inbound freight and supply chain and logistical
disruptions.

Net Vegetation Management sales increased during the first six months by $77.5
million or 19% to $476.0 million for 2022 compared to $398.5 million during the
same period in 2021. The increase was due to a strong performance in all product
lines, particularly forestry and tree care and agricultural and governmental
mowing equipment in both North America and Europe. Supply chain disruptions,
logistics issues and unfavorable input cost changes constrained this Division
during the first six months of 2022.

Net Industrial Equipment sales were $282.2 million during the first six months
of 2022 compared to $260.2 million for the same period in 2021, an increase of
$22.0 million or 8%. The increase in sales for the first six months of 2022
compared to the first six months of 2021 was mainly due to the continued solid
results in excavator and vacuum truck product lines, with modest support from
other product lines. Net sales in the first six months of 2022 were also
negatively affected by supply chain disruptions and higher input costs in both
material and inbound freight costs.

Gross profit for the first six months of 2022 was $186.4 million (25% of net
sales) compared to $164.6 million (25% of net sales) during the same period in
2021, an increase of $21.8 million. The increase in gross profit was mainly
attributable to higher sales volume during the first six months of 2022 compared
to the first six months of 2021 as well as improved pricing. Shortages of
component parts along with higher costs of materials and inbound freight
negatively impacted the first six months of 2022.

SG&A expenses were $108.6 million (14% of net sales) during the first six months
of 2022 compared to $98.2 million (15% of net sales) during the same period of
2021, an increase of $10.4 million. The increase in SG&A expense in the first
six months of 2022 compared to the first six months of 2021 was attributable to
higher administrative, marketing and engineering expenses as the Company
returned to pre-pandemic expense levels. Amortization expense in the first six
months of 2022 was $7.7 million compared to $7.3 million in the same period in
2021, an increase of $0.4 million.

Interest charges were $5.8 million for the first six months of 2022 compared to
$5.5 million over the same period in 2021, an increase of $0.3 million.

Other income (expense), net was $1.9 million of expense during the first six
months of 2022 compared to $2.6 million of income in the first six months of
2021. The expense in 2022 is primarily from an excise tax audit and to a lesser
extent, changes in exchange rates. The income in 2021 is primarily from changes
in exchange rates and the sale of a facility in the Netherlands for $3.4
million.

Provision for income taxes was $15.5 million (25% of income before income taxes)
in the first six months of 2022 compared to $13.3 million (23% of income before
income taxes) during the same period in 2021.

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The Company’s net profit after tax was $46.9 million Where $3.94 per share on a diluted basis for the first half of 2022 compared to $43.5 million Where
$3.66 per share on a diluted basis for the first six months of 2021. The increase in $3.4 million results from the factors described above.

Cash and capital resources

In addition to normal operating expenses, the Company has ongoing cash
requirements which are necessary to operate 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 anticipation of the spring and fall
selling seasons. Accounts receivable historically build in the first and fourth
quarters of each year as a result of pre-season sales and year-round sales
programs. These sales, primarily in the Vegetation Management Division, help
balance the Company's production during the first and fourth quarters.

As of June 30, 2022, the Company had working capital of $558.7 million which
represents an increase of $139.1 million from working capital of $419.6 million
at December 31, 2021. The increase in working capital was primarily a result of
volume-driven and inflation-driven increases in accounts receivable as well as
an increase in inventory to support the Company's higher backlog levels.

Capital expenditures were $15.0 million for the first six months of 2022,
compared to $9.4 million during the first six months of 2021. The Company
expects to approve a normalized capital expenditure level of approximately $30.0
million for the full year of 2022. The Company will fund any future expenditures
from operating cash flows or through our revolving credit facility, described
below.
Net cash used for investing activities was $16.8 million during the first six
months of 2022 compared to $- million during the first six months of 2021.
Net cash provided by financing activities was $97.0 million and $26.3 million
during the six month periods ended June 30, 2022 and June 30, 2021,
respectively. Higher net cash provided by financing activities for the first six
months of 2022 relates to increased borrowings on the Company's revolving credit
facility used for increased working capital needs in support of elevated backlog
levels.

The Company had $70.9 million in cash and cash equivalents held by its foreign
subsidiaries as of June 30, 2022. The majority of these funds are at our
European and Canadian facilities. The Company will continue to repatriate
European and Canadian cash and cash equivalents in excess of amounts needed to
fund operating and investing activities in these locations, and will monitor
exchange rates to determine the appropriate timing of such repatriation given
the current relative value of the U.S. dollar. Repatriated funds will initially
be used to reduce funded debt levels under the Company's current credit facility
and subsequently used to fund working capital, capital investments and
acquisitions company-wide.

On October 24, 2019, the Company, as Borrower, and each of its domestic
subsidiaries as guarantors, entered into a Second Amended and Restated Credit
Agreement (the Credit Agreement) with Bank of America, N.A., as Administrative
Agent. The Credit Agreement provides the Company with the ability to request
loans and other financial obligations in an aggregate amount of up to $650.0
million and, subject to certain conditions, the Company has the option to
request an increase in aggregate commitments of up to an additional $200.0
million. Pursuant to the Credit Agreement, the Company borrowed $300.0 million
pursuant to a Term Facility repayable at a percentage of the initial principal
amount of the Term Facility equal to 5.0% per year along with interest payable
quarterly. The remaining principal amount is due in 2024. Up to $350.0 million
is available under the Credit Agreement pursuant to a Revolver Facility. The
Agreement requires the Company to maintain two financial covenants, a maximum
consolidated leverage ratio and a minimum consolidated fixed charge coverage
ratio. The Agreement also contains various covenants relating to limitations on
indebtedness, limitations on investments and acquisitions, limitations on sale
of properties and limitations on liens and capital expenditures. The Agreement
also contains other customary covenants, representations and events of defaults.
The expiration date of the Term Facility and the Revolver Facility is October
24, 2024. As of June 30, 2022, $371.8 million was outstanding under the Credit
Agreement, $258.8 million on the Term Facility and $113.0 million on the
Revolver Facility. On June 30, 2022, $2.1 million of the revolver capacity was
committed to irrevocable standby letters of credit issued in the ordinary course
of business as required by vendors' contracts resulting in $185.7 million in
available borrowings. The Company is in compliance with the covenants under the
Agreement as of June 30, 2022.

Management believes that the Company’s agreement and ability to internally generate funds from operations should be sufficient to meet the Company’s cash requirements for the foreseeable future. However, the future

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challenges affecting the banking sector and credit markets in general could potentially lead to changes in the availability of credit, which creates a level of uncertainty.

Critical accounting estimates

Management's Discussion and Analysis of Financial Condition and Results of
Operations are based upon our Consolidated Financial Statements, which have been
prepared in accordance with GAAP.  The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities.  Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources.  Actual results may differ from these
estimates under different assumptions or conditions, particularly given the
uncertainty created by the COVID-19 pandemic.

Critical accounting policies

An accounting policy is deemed to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimate is made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur periodically, could materially impact the financial statements.
Management believes that of the Company's significant accounting policies, which
are set forth in Note 1 of the Notes to Consolidated Financial Statements in the
2021 Form 10-K, the policies relating to the business combinations involve a
higher degree of judgment and complexity. There have been no material changes to
the nature of estimates, assumptions and levels of subjectivity and judgment
related to critical accounting estimates disclosed in Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of the
2021 Form 10-K.

Off-balance sheet arrangements

There are no off-balance sheet arrangements that have or are likely to have a material current or future effect on our financial condition.

Forward-looking information

Part I of this Quarterly Report on Form 10-Q and the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in Item
2 of this Quarterly Report contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  In addition, forward-looking statements may be made
orally or in press releases, conferences, reports or otherwise, in the future by
or on behalf of the Company.

Statements that are not historical are forward-looking.  When used by or on
behalf of the Company, the words "estimate," "anticipate," "expect," "believe,"
"intend", "will", "would", "should", "could" and similar expressions generally
identify forward-looking statements made by or on behalf of the Company.

Forward-looking statements involve risks and uncertainties.  These uncertainties
include factors that affect all businesses operating in a global market, as well
as matters specific to the Company and the markets it serves.  Particular risks
and uncertainties facing the Company include changes in market conditions; the
ongoing direct and indirect impacts of the COVID-19 pandemic; changes in tariff
regulations and the imposition of new tariffs; a strong U.S. dollar; increased
competition; negative economic impacts resulting from geopolitical events such
as the war in Ukraine or trade wars; decreases in the prices of agricultural
commodities, which could affect our customers' income levels; increase in input
costs; our inability to increase profit margins through continuing production
efficiencies and cost reductions; repercussions from the exit by the U.K. from
the European Union (EU); acquisition integration issues; budget constraints or
income shortfalls which could affect the purchases of our type of equipment by
governmental customers; credit availability for both the Company and its
customers, adverse weather conditions such as droughts, floods, snowstorms, etc.
which can affect buying patterns of the Company's customers and related
contractors; the price and availability of raw materials and product components;
energy cost; increased cost of governmental regulations which effect
corporations including related fines and penalties (such as the European General
Data Protection Regulation and the California Consumer Privacy Act); the
potential effects on the buying habits of our customers due to animal disease
outbreaks and other epidemics; the Company's ability to develop and
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manufacture new and existing products profitably; market acceptance of new and
existing products; the Company's ability to maintain good relations with its
employees; the Company's ability to successfully complete acquisitions and
operate acquired businesses or assets; the ability to hire and retain quality
skilled employees; cyber security risks affecting information technology or data
security breaches; and the possible effects of events beyond our control, such
as political unrest, acts of terror, natural disasters and pandemics, on the
Company or its customers, suppliers and the economy in general. The Company
continues to experience the impacts of COVID-19 on its markets and operations
including, most notably, supply chain disruptions, input cost inflation and
skilled labor shortages. The full extent to which COVID-19 will continue to
adversely impact the Company's business depends on future developments, which
are highly uncertain and unpredictable.

In addition, the Company is subject to risks and uncertainties facing the
industry in general, including changes in business and political conditions and
the economy in general in both domestic and international markets; weather
conditions affecting demand; slower growth in the Company's markets; financial
market changes including increases in interest rates and fluctuations in foreign
exchange rates; actions of competitors; the inability of the Company's
suppliers, customers, creditors, public utility providers and financial service
organizations to deliver or provide their products or services to the Company;
seasonal factors in the Company's industry; litigation; government actions
including budget levels, regulations and legislation, primarily relating to the
environment, commerce, infrastructure spending, health and safety; and
availability of materials.

The Company wishes to caution readers not to place undue reliance on any
forward-looking statements and to recognize that the statements are not
predictions of actual future results.  Actual results could differ materially
from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described above, as well as others
not now anticipated.  The foregoing statements are not exclusive and further
information concerning the Company and its businesses, including factors that
could potentially materially affect the Company's financial results, may emerge
from time to time.  It is not possible for management to predict all risk
factors or to assess the impact of such risk factors on the Company's
businesses.

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