Lindsay Corporation

Good morning. My name is Nick, and I'll be your conference operator today. This time, I'd like to welcome everyone to Lindsay Corporation second quarter fiscal year 2020 earnings call. All participants will be in listen-only mode. If you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note the event is being recorded. During this call, management may make forward-looking statements that are subject to risk and uncertainties which reflect management's current beliefs, estimates of future economic circumstances, industry conditions, company performance, and fiscal financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by, followed by, or including the words expectation, outlook, could, may, should, or similar expressions. For these statements, we came the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I'd now like to turn the call over to Mr. Tim Hatzinger, President and Chief Executive Officer. Please go ahead.

Good morning, and thank you for joining our call. With me on today's call is Brian Ketchum, our Chief Financial Officer. I feel it's prudent to mention that Brian and I are sitting together in a conference room more than six feet apart adhering to social distancing guidelines. This quarter in the domestic irrigation business, we saw the resolution of various trade disputes that have been putting downward pressure on farmer sentiment. The market facilitation payments administered through the USDA did significantly contribute to farm income. However, commodity prices did not fundamentally change given the uncertainty that existed in China's expected commodity crop purchases. Until the recent COVID-19 impact, we had observed an incremental improvement in customer sentiment. We continue to make progress, on our innovation and collaboration strategies for FieldNet and FieldNet Advisor. Here today, our penetration rates with our telemetry technology is up 50 plus percent versus the prior year. To enhance the opportunity for farmers to gain access to Lindsay's telemetry technology, and in this case, PivotWatch, Lindsay will be offering this product on Amazon later this spring. Given the do-it-yourself nature of PivotWatch, this option will enhance penetration with growers who want to go online to buy the product and install it themselves. Also, in connection to our collaboration with Farmer's Edge, they recently announced their 2020 Smart Water offering that includes access to FieldNet and FieldNet Advisor for their customer base. Early indications are positive based on their customer acceptance and feedback. In the international irrigation business, the global project market remains active, but largely uncertain regarding timing. In Brazil, we continue to see growth, and we have made several investments to enhance our commercial capabilities. For infrastructure, growth in the road zipper business continues to gain momentum. In this past quarter, we were awarded a contract from Highways England for supply of a movable barrier system for use in Kent, United Kingdom. Highways England plans for the entire system and related traffic management scheme to be fully operational by December 31, 2020. The total value of the contract as awarded is approximately $28 million. Also, We have secured another order from our partner in Japan, Nexco East, for new reactive tension barrier to use with their existing road zipper systems. That order value is approximately $10 million, and we will begin delivery in our fiscal third quarter. These are great examples that we are successfully addressing the need to grow this business and reduce the lumpiness. Last quarter, I shared that our overall sales funnel projects based on a 50% probability of success is at the highest level it has ever been, along with the number of machines being leased on target to be at the highest level ever as well. One additional point I'd like to share is that we now have potential projects in our sales funnel in more countries than ever before. We stated more than two years ago when we launched the Foundation for Growth initiative that for the road zipper business, we wanted to increase our leasing business, be active in more countries, and increase the overall sales. We are achieving these three objectives, and this business is moving in a positive direction. Regarding our Foundation for Growth initiative, we continue to see that the margin improvement projects we implemented are delivering as expected. Lastly, I'd like to address the impact COVID-19 had on our second quarter results and the associated forward view. In our second quarter, COVID-19 did have an impact on product flow in some cases related to scheduled shipments to and from the affected areas. In addition, our plant in China was temporarily shut down, aligned to the country mandate. At the end of the quarter, this plant resumed operations and is fully operational. Overall, the disruption in quarter two was not material to our overall results. Looking forward, Our primary focus is to ensure our employees are safe and to mitigate the various risks connected to the COVID-19 pandemic impacting our business. To the best of our knowledge, we have not had any confirmed cases of employees with COVID-19. We proactively put a number of measures in place to promote employee safety, including eliminating non-essential business travel, implementing return to work restrictions for employees returning from travel, and evaluating whether meetings may be postponed or held virtually. Our company has moved to a work from home direction for roles that can be done at home. And for roles that require the employee to go to the site, we have implemented work restrictions aligned to CDC and Department of Health recommendations, including strict social distancing guidelines that are being deployed in all our sites. Our businesses and products are generally considered business essential to support agriculture and critical infrastructure activity. So our plants will remain operational as long as we have demand for our products, are allowed to remain open by local governments, and can provide for the safety of our employees. At the present time, we have temporarily ceased production in our South Africa irrigation facility for three weeks due to a government mandate. However, we remain open support the service parts business. In order to manage the ongoing challenges, a rapid response team structure is in place across the company to address issues that arise and identify ways to mitigate potential risk to the business going forward. I would like to take this opportunity to thank our employees to continue to keep our manufacturing facilities operational and and allowing us to deliver on our commitments to our customers. I would also like to thank our employees who are working from home supporting all the other functions of our company. I'd like now to turn the call over to Brian to review our second quarter results.

Thank you, Tim, and good morning, everyone. My comments regarding second quarter comparisons will refer to adjusted results for the prior year, which omit the impact of Foundation for Growth costs that were incurred in that period. Adjusted results for the prior year are detailed in the Regulation G disclosure at the end of the press release. No adjustments were made to current period results. Total revenues for the second quarter of fiscal 2020 were $113.8 million, compared to $109.2 million in the same quarter last year. Net earnings for the quarter were $5.5 million, or 51 cents per diluted share, compared to net earnings of $200,000, or two cents, per diluted share in the same quarter last year. Irrigation segment revenues for the second quarter of fiscal 2020 were $92.1 million, compared to $95.8 million in the same quarter last year. North America irrigation revenues of $65.7 million increased $8 million, or 14%, compared to $57.7 million in the same quarter last year. The increase resulted primarily from higher sales of replacement parts, increased irrigation equipment unit volume, and higher revenue from engineering project services. Average selling prices for irrigation equipment were slightly higher compared to the second quarter last year. Higher sales of replacement parts were due to the timing of deliveries under our fall restocking program as we saw a shift in a portion of our sales from first quarter to second quarter. In the international irrigation markets, revenues were $26.4 million compared to $38.1 million in the same quarter last year. The decrease resulted primarily from a large project sale in a developing market in the prior year that did not repeat. In addition, approximately $1.1 million of the decrease resulted from differences in foreign currency translation rates. As previously mentioned, current year project sales in developing markets have been impacted by delays in start dates and are now being further impacted by delivery constraints created by travel restrictions, as well as border closings in some countries. as part of efforts to contain the spread of the coronavirus. Total irrigation segment operating income for the second quarter of $9.6 million was $2.1 million higher than the prior year, and operating margin improved to 10.4% compared to 7.9% in the prior year. Operating income and margin improvement resulted from higher North America sales and from improved cost and pricing performance. These improvements were partially offset by the impact of incremental costs of approximately $1 million incurred during the quarter, including severance and commercial development expenses. Infrastructure segment revenues for the second quarter of fiscal 2020 were $21.7 million, an increase of $8.3 million, or 62%, compared to the same quarter last year. The increase resulted from higher road zipper system sales and lease revenues and an increase in sales of road safety products compared to the prior year. Infrastructure segment operating income for the second quarter was $6.4 million compared to an operating loss of $400,000 in the prior year. Operating margin for the quarter was 29.3% of sales Operating income and margin improvement resulted primarily from increased sales in higher margin product lines and from improved cost and pricing performance. In addition, operating income for the quarter included a gain of $1.2 million on the sale of a building that had been held for sale. Turning to the balance sheet and liquidity, Lindsay is well positioned with a strong balance sheet and sufficient liquidity as we face the uncertainty and challenges presented by the global coronavirus pandemic. Our total available liquidity at the end of the second quarter was $170 million, with $120 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Our total long-term debt was $116.5 million at the end of the second quarter, And of that amount, $115 million matures in 2030. At the end of the quarter, we were well within the financial covenants of our borrowing facilities, including a funded debt to EBITDA leverage ratio of 2.0 compared to a covenant limit of 3.5. At this time, I would like to turn the call over to the operator to take your questions.