Lindsay Corporation

Good morning. My name is Matt, and I will be your conference operator today. At this time, I would like to welcome everyone to the Linty Corporation first quarter fiscal year 2021 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. During this call, management may make forward-looking statements that are subject to the 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 protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would like now to turn the call over to Mr. Randy Wood, President and Chief Executive Officer.

Thank you, and good morning, everyone. Appreciate you joining us. With me on today's call is Brian Ketchum, our Chief Financial Officer. Before Brian gets into the details of our first quarter results, I do want to share some opening comments. We announced our CEO transition plan in November, and I'm pleased to confirm that Tim Hasinger and I have now fully completed the transition, and it's my pleasure to join you this morning as President and CEO of Lindsay Corporation. I want to acknowledge and thank Tim for his full support, not only during the transition, but the key role he played in the transformation of our company. It truly is a pleasure and an honor to lead this great organization and continue our path forward. We continue to follow CDC safety protocols at all of our facilities as part of our pandemic response plan. Our businesses are classified as business essential, and all nine plants are operational and running. We're also maintaining our work-from-home option for roles that can be performed remotely. Safety is a non-negotiable expectation for us, so we'll continue to make decisions that keep our employees safe. Turning to the business environment, conditions in North American irrigation market improved rapidly during the quarter. Commodity prices strengthened significantly due to an improvement both in supply and demand fundamentals, including an increase in exports linked to the Phase 1 China trade deal. Record government support to help offset the ongoing impact of the coronavirus and trade disputes early in the year further supported positive customer sentiment and improvements in grower profitability. USDA projections now show a 43% increase in 2020 net farm income on a year-over-year basis. In late December, the President signed the Coronavirus Direct Aid Package that allocated an additional $13 billion to the ag sector, and we expect that aid to provide supplemental support for the corn, soybean, livestock, and dairy sectors. These positive market drivers drove stronger than expected order flow in the second half of the quarter in North America, leading to higher equipment sales and a large order backlog at the end of the quarter. We also saw a rapid escalation of input costs, primarily steel during the quarter and some transportation disruptions that resulted in higher expediting fees. Large influx of orders coupled with increased costs have put short-term pressure on margins. Price increases have been passed through to the market and we expect to see margin pressure subside as the year progresses. International irrigation showed solid results on a year-over-year basis with unit volume growth across most regions. Brazil continues to perform well due to strong farm income, favorable currency for exports, and a record soybean yield. Government-subsidized financing continues to support market growth, and we're seeing expansion in private banking options as well. In technology and innovation, we were pleased to announce our partnership with Taranis, the market leader in high-resolution economic imagery, and Microsoft, which will allow us to deploy machine learning and artificial intelligence to create the smart pivot. The combination of advanced agronomics and machine health monitoring within the integrated field map platform will be an industry first and further strengthens our position as the innovation leader in mechanized irrigation. Moving to infrastructure. We continue to focus on growing the road zipper business by executing our shift left strategy, increasing our goal penetration, and growing the lease business. We did see an increase in road zipper lease revenue in the quarter, and our road zipper sales funnel continues to improve on a year-over-year basis. The timing of projects exiting the funnel remains challenging to predict, particularly in this current pandemic environment. Both road safety and road zipper projects face short-term headwinds as governments have delayed road construction projects while managing their pandemic response. The recent COVID relief package did provide additional funding to the states, which we expect will be beneficial for spring projects. President-elect Biden has also expressed the desire to support an infrastructure bill shortly after assuming office, so we do see the potential for supportive news later in the year. The Road Zipper project with Highways England is now fully deployed and operating well, and we expect this should become a great case study that supports further penetration of Road Zipper in similar applications. Now I'll turn the call over to Brian to review our first quarter financial results.

Thank you, Randy, and good morning, everyone. Total revenues for the first quarter of fiscal 2021 were $108.5 million compared to $109.4 million in the same quarter last year. Net earnings for the quarter were $7.1 million or $0.65 per diluted share compared to net earnings of $8.3 million or $0.77 per diluted share in the prior year. Net earnings for the quarter included an income tax benefit of approximately $1.7 million, or 16 cents per diluted share, related to the release of a valuation allowance in a foreign tax jurisdiction. Irrigation segment revenues of $87.4 million for the first quarter increased $4.1 million, or 5%, compared to $83.3 million in the same quarter last year. North American irrigation revenues were $52.8 million compared to $53.6 million in the same quarter last year. The decrease resulted primarily from lower engineering services revenue related to a project in the prior year that did not repeat, and this was partially offset by higher irrigation equipment unit volume. In the international irrigation markets, revenues of $34.6 million increased $4.8 million, or 16%, compared to $29.7 million in the same quarter last year. Increase resulted from higher unit sales volumes in several regions, which were partially offset by the unfavorable effects of differences in foreign currency translation rates compared to the prior year that totaled approximately $2.4 million. Total irrigation segment operating income for the first quarter was $10.6 million, an increase of 9% compared to $9.8 million in the same quarter last year. And operating margin improved to 12.2% of sales compared to 11.7% of sales in the prior year. Improved margins were supported by higher irrigation equipment sales volume. However, this improvement was tempered somewhat by the impact of higher raw material costs and also from higher freight costs that resulted from reduced availability of commercial trucking resources. Market prices for all types of steel products began to rise rapidly during the quarter, with steel coil prices increasing over 70% from September to the end of December. While we have implemented pricing actions to pass through these cost increases, a large number of irrigation equipment orders were received prior to these actions taking effect. We expect to see some margin headwinds in our second quarter as the backlog of orders received prior to the price increases are shipped. Infrastructure segment revenues for the first quarter were $21.1 million compared to $26.1 million in the same quarter last year. The decrease resulted primarily from a large road zipper system order delivered in the prior year that did not repeat. and from lower road construction activity in the current year. Infrastructure segment operating income for the first quarter was $4.3 million compared to $8.7 million in the same quarter last year. Infrastructure operating margin for the quarter was 20.1% of sales compared to 33.5% of sales in the prior year. This decrease is primarily due to lower revenue and higher margin product lines and was also impacted by an increase in raw material and other costs compared to the prior year. Turning to balance sheet performance and liquidity, during the quarter, we generated free cash flow of almost $10 million, representing 138% of net earnings. Our total available liquidity at the end of the first quarter was $196.4 million, with $146.4 million in cash and marketable securities and $50 million available under our revolving credit facility. Our total debt was $115.9 million at the end of the first quarter, almost all of which matures in 2030. Additionally, 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 1.5 compared to a covenant limit of 3.0. At this time, I would like to turn the call over to the operator to take your questions.