Lindsay Corporation

Good morning. My name is Eric, and I will be your conference operator for today. At this time, I would like to welcome everybody to the Lindsay Corporation third quarter fiscal year 2020 earnings call. All participants today will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. If you wish to withdraw your question, you may press star, then two. During this call, management may make forward-looking statements that are subject to risks and uncertainties which reflect management's current beliefs, estimates of future economic circumstances, industry conditions, company performance, and 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 claim the protection of the safe harbor and forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would now like to turn the conference over and Mr. Tim Hassinger, 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 will start with addressing the impact of COVID-19 to our employees and business. Our highest priority continues to be our employee health and safety. To the best of our knowledge, we've had nine employees globally with confirmed cases of COVID-19. Fortunately, I can report that eight of these employees have recovered and one was just diagnosed. We continue to proactively implement health and safety measures according to health organization recommendations and local government regulations. At our sites, key actions that we have taken include ensuring employees are practicing social distancing according to guidelines, use of face coverings, enhanced cleaning and sanitation efforts, and staggered production schedules. Our company continues to work from home for roles that can be done outside of the Lindsay site. Our businesses continue to be classified as business essential, and as a result of that, All nine manufacturing plants are operational and running according to the local demand level. In terms of business impact related to COVID-19 in the third quarter, the primary impact has been some project delays, but not cancellations. We continue to operate the rapid response team structure across the company that was put in place to address COVID-19 related issues and mitigate potential risk to the business going forward. Before I provide an update on each of the businesses, I'd like to take this opportunity to thank our employees who continue to deliver our commitments to our customers in this new environment. The third quarter in the domestic irrigation business had an earlier spring in most of our key regions. At the end of the quarter, USDA corn planted acreage estimate was 93% complete versus 64% the prior year. This past quarter has seen several unfavorable factors such as reduced ethanol use that has driven commodity prices to a lower level. Even though we have seen farmer sentiment reflect this significant decline in commodity prices, our year-to-date sales in the domestic business is on par with the prior year. In last quarter's earnings call, I mentioned that our year-to-date new device growth for field net was up 50-plus percent versus the prior year. Since then, we have continued to advance the pivot watch strategy with an offering through Amazon targeted towards the do-it-yourself market segment. Another important action this quarter was the acquisition of net irrigate. NetIrrigate has coverage in 37 states and two Canadian provinces with an installed base share of the U.S. remote monitoring market of approximately 5%. This acquisition aligns to our strategy and it strengthens the market leadership position Lindsay has in the IoT space specifically as it relates to remote monitoring capabilities. In combining NetIrrigate's market share With the organic growth Lindsay has generated, year-to-date growth in new devices is 200% versus the prior year. In the international irrigation business, the global project market remains active. The delays we were experiencing in this market that I mentioned in the last quarter's earnings call have improved. Although some restrictions that need to be managed are still in place, in general, We saw the international borders open during this quarter, primarily in Africa and the Middle East. There has been an increase in new project inquiries driven by food security concerns. In Brazil, we continue to see growth, and our recent investments to enhance our commercial capabilities have been instrumental in achieving this increase. For infrastructure, the Highways England project for supply of a movable barrier system for use in tent United Kingdom is currently being fulfilled. We have successfully leveraged our global manufacturing footprint to mitigate risk and because of this action, our delivery of product is on schedule. Overall, we continue to see good progress being made in our infrastructure business. However, we did see some project delays that are connected to COVID-19. Approximately 12 million in sales that were expected to occur in quarter three have been delayed for this reason. Regarding our Foundation for Growth initiative, we continue to see that the margin improvement projects we implemented are delivering as expected. I'd now like to turn the call over to Brian to review our third quarter results.

Thank you, Tim, and good morning, everyone. My comments regarding third 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 third quarter of fiscal 2020 increased 2%, to $123.1 million compared to $121.1 million in the same quarter last year. Net earnings for the quarter were $10.1 million or 93 cents per diluted share compared to net earnings of $5.5 million or 50 cents per diluted share in the same quarter last year. During the third quarter of fiscal 2020, Shipment and project delays related to COVID-19 impacted consolidated revenues by approximately $14 million. In addition, higher production costs were partially offset by lower costs in other areas, such as travel and entertainment. The impact on net earnings for the quarter regarding these items is estimated to be approximately $4.5 million, or 42 cents per diluted share. Irrigation segment revenues for the third quarter of fiscal 2020 were $93.5 million compared to $98.6 million in the same quarter last year. North America irrigation revenues were $60.9 million compared to $63 million in the same quarter last year. The decrease resulted primarily from lower irrigation equipment unit volume which was partially offset by the impact of higher average selling prices. A portion of the reduction in unit volume was the result of fewer storm damage replacement orders compared to the prior year. In the international irrigation markets, revenues were $32.6 million compared to $35.6 million in the same quarter last year. Higher volumes in Brazil and certain other regions were more than offset by unfavorable effects of foreign currency translation of approximately $3.5 million and COVID-19 related shipment delays of approximately $2 million. We expect the revenue from these delayed orders to be realized in the fourth quarter. Total irrigation segment operating income for the third quarter of $15 million was $3.4 million higher than the prior year, and operating margin improved to 16.1 percent compared to 11.7 percent in the prior year. Operating income and margin improvement resulted primarily from improved cost and pricing performance attributed to the Foundation for Growth initiative, as well as from increased margin contribution from technology products and services. Infrastructure segment revenues for the third quarter of fiscal 2020 were $29.6 million, an increase of $7.1 million, or 32%, compared to the same quarter last year. The increase resulted from higher road zipper system sales and lease revenues, which were partially offset by lower sales of road safety products in Europe. In addition, sales of approximately $12 million were impacted by COVID-19 related project delays. We expect at least a portion of this revenue to be realized in the fourth quarter with the potential of some of it moving to fiscal 2021. Infrastructure segment operating income for the third quarter of $8.6 million was $5 million higher than the prior year. and operating margin improved to 28.9% compared to 16% in the prior year. Operating income and margin improvement resulted primarily from increased sales in higher margin product lines and from improved cost and pricing performance. 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 third quarter was $171.5 million, with $121.5 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Our total debt was $116.4 million at the end of the third 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 1.8 compared to a covenant limit of 3.5. At this time, I'd like to turn the call over to the operator to take your questions.