Lindsay Corporation

Good morning. My name is Tom, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Second Quarter Fiscal Year 2021 Earnings Call. 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 for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Please note, this event is being recorded. I would now like to turn the call over to Mr. Randy Wood, President and Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone. Welcome to our second quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. And before Brian gets into the details of our second quarter results, I'd like to share some opening comments. In the area of innovation, we continue executing key elements of our SmartPivot platform with our strategic partners, Microsoft and Taranis. We're leveraging new technologies, including edge computing, to improve the speed and accuracy of image recognition used for agronomic analysis and machine health diagnostics. This will give customers the peace of mind and security they need and continue the move towards autonomous management of both the crop and the machine in the field. We've also announced the release of our new Road Connect platform in the infrastructure segment. This allows us to leverage many of the same hardware elements from our field net and remote monitoring product lines to improve speed to market and reliability. This platform will provide states, municipalities, and other stakeholders with the ability to remotely monitor a broad range of assets on our roads and roadways to improve safety and service. In the environmental, social, and governance, or ESG, space, We continue to make great progress on many of our initiatives. Back in March 2018, we hosted our Water Matters event where we set a goal of helping our customers around the world save over 700 billion gallons of water and conserve over 1.2 billion kilowatt hours of energy through efficient irrigation tools like FieldNet Advisor. We're pleased to confirm that we're on track to meet our water savings goal and will exceed our energy savings goal by over 80% allowing us to remove more than 3.5 billion pounds or 1.6 million metric tons of carbon from the atmosphere. That's equivalent to the annual emissions from over 330,000 passenger vehicles. We've also launched our internal ESG council focused on addressing both the sustainability of our internal operations and the operations of our customers engaged in transportation safety, traffic management, and agricultural production. We'll release our next sustainability report later this spring, and we'll have more to share on our strategy and specific goals as they're finalized. We continue to follow safety protocols at all of our facilities as part of our pandemic response plan. Currently, all nine factories are operational and running, and we are maintaining our work from home option for roles that can be performed remotely. As we've stated in the past, safety is a non-negotiable for us, so we'll continue to make decisions that keep our employees safe. I would like to take a moment and acknowledge and recognize our team for their continued focus and execution through the global pandemic. The business essential nature of our work in transportation safety and sustainable agriculture production means our customers are counting on us to deliver and our teams have continued to do that well. We appreciate your dedication and support of each other and our business. Turning to the market environment. Conditions in North American irrigation remain strong in the corridor. Commodity prices were high and net farm income reached near record levels as growers benefited from strong supply and demand fundamentals, including growth and export to China and government support tied to the COVID relief programs. This drove positive customer sentiment and a willingness to increase capital expenditures. These positive market drivers drove strong order flow in North America, leading to higher equipment sales and a large order backlog that will carry into our third quarter. The recently released planting intentions report for the 2021 growing season indicate we could see a continuation of supply constraints that will support strong commodity prices and net farm income. Increased income from crop receipts is projected to be partially offset by a reduction in government subsidies that would lead to slightly lower net farm income for this marketing year when compared to 2020. We continue to see rapid escalation of input costs, primarily steel, during the quarter. Transportation and other import costs also increased due to the nationwide trucking shortage and high component demand across the industry. We've seen expedite fees and delivery delays on some inbound components in the quarter. These are actively managed daily to minimize disruptions to our dealers and customers, but we do expect tight material supplies will continue into the third quarter. Multiple price increases have been implemented this fiscal year. We continue to trail costs slightly due to the volume of incoming orders and the pace of cost increases. This will continue to put short-term margin pressure into Q3. International irrigation again had a strong quarter in both the mature and developing market segments. We are seeing signs of strong market recovery across the Asia-Pacific region with growth in both the domestic China and Australian New Zealand markets. Brazil continues to be a very competitive market, but a bright spot in terms of both volume and revenue growth due to strong farm income, favorable currency for exports, and record soybean yield. The second corn crop, or safrina planting, was delayed this year due to the late soybean harvest. This could have some impact on the market, but we still see continued strength into their fall and winter seasons. Moving to infrastructure, where we saw another strong quarter. In road safety, we are seeing some improvement in the volume of project tenders, but we remain below pre-pandemic levels. Construction awards are down throughout the country, primarily due to states focusing resources on their pandemic response. We're also seeing delays in road zipper project confirmations as states defer projects while managing their COVID response plans. We don't view these as lost sales, but it does lengthen the revenue recognition cycle. and we've had anticipated projects valued at close to $11 million now move out of fiscal year 2021. We're actively managing the sales funnel to close this gap. We did see an increase in lease revenue in the quarter, and our municipal sales funnel continues to improve on a year-over-year basis. However, the timing of project shipments remains challenging to predict in this environment. On March 31st, President Biden revealed the American Jobs Plan, valued at an estimated $2 trillion, This is an eight-year stimulus package containing $115 billion to modernize roads and bridges, $25 billion for large, complex infrastructure projects of regional significance, and $20 billion to improve road safety. This includes a Safe Streets for All program to fund state and local improvements that reduce crashes and fatalities, especially for cyclists and pedestrians. We believe the increased emphasis from the Biden administration on reducing carbon emissions, addressing traffic congestion and gridlock, and upgrading our aging road networks will provide some longer-term funding stability that could have a positive impact on our infrastructure segment. Of course, there's a long road ahead in terms of approvals and funding, so the timing of that benefit is uncertain. There's also potential that in some situations, pending legislation could temporarily freeze the market while local governments wait to see the magnitude and timing of program funding. Now I'll turn the call over to Brian to review our second quarter financial results.

Thank you, Randy, and good morning, everyone. Total revenues for the second quarter of fiscal 2021 of $143.6 million increased $29.8 million, or 26%, compared to $113.8 million in the same quarter last year. Net earnings for the quarter were $11.9 million, or $1.08 per diluted share compared to net earnings of $5.5 million or $0.51 per diluted share in the prior year. Irrigation segment revenues for the second quarter of $118.6 million increased $25.1 million or 27% compared to the same quarter last year. North America irrigation revenues of $80.2 million increased $13.1 million or 19% compared to last year. The increase resulted primarily from higher irrigation equipment sales volume and higher average selling prices. This increase was partially offset by lower engineering services revenue of approximately $10.5 million related to a project in the prior year that did not repeat. In the international irrigation markets, Revenues of $38.4 million increased $12 million, or 45%, compared to the same quarter last year. The increase resulted from higher irrigation equipment sales volumes in several international markets. The overall impact of foreign currency translation differences was insignificant for the quarter. Total irrigation segment operating income for the second quarter was $18 million, an increase of $7.9 million or 79% compared to the same quarter last year. And operating margin improved to 15.2% of sales compared to 10.8% 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 and freight costs. As Randy mentioned in his comments, we have implemented multiple price increases to pass along the escalating costs. However, we have experienced margin compression as we work through the backlog of orders received prior to the effective dates of our pricing actions. We expect this margin pressure to continue into the third quarter until increased cost pass-throughs are fully realized. Feedback received from our dealers indicates that Lindsay has consistently led the industry in proactively implementing price increases, and other than timing differences, the pricing environment has remained rational. Infrastructure segment revenues for the second quarter of $25 million increased $4.7 million, or 23%, compared to the same quarter last year. The increase resulted primarily from higher road zipper system sales and lease revenue, while global sales of road safety products were relatively flat compared to the prior year. Infrastructure segment operating income for the second quarter was $6.3 million, an increase of $400,000 or 8% compared to the same quarter last year. Infrastructure operating margin for the quarter was 25.4% of sales, compared to 29% of sales in the prior year. Positive margin mix from higher road zipper sales and lease revenue was partially offset by the negative impact of higher raw material and other costs. In addition, the prior year included a gain of $1.2 million on the sale of a building that had been held for sale. Turning to the balance sheet performance and liquidity. During the quarter, We had capital expenditures of $11 million, which included $8.5 million to exercise a purchase option for the land and buildings related to our manufacturing operation in Turkey. This facility is well positioned strategically and geographically, and the purchase provides us greater flexibility to take advantage of future growth opportunities in the EMEA region. Our total available liquidity at the end of the second quarter was $180.3 million, with $130.3 million in cash and marketable securities, and $50 million available under our revolving credit facility. Our total debt was $116.3 million at the end of the second 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 gross debt to EBITDA leverage ratio of 1.4 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.