Lindsay Corporation

Good morning. My name is Betsy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation third 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 2. 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.

Thank you and good morning everyone. Welcome to our third quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. I'll share some opening comments on our key initiatives and market outlook before turning it over to Brian to review our third quarter results. I'd like to acknowledge and thank our employees and channel partners around the world for their continued support of our customers and end users through the global pandemic, particularly those on our manufacturing teams that are keeping our factories running every day. We have maintained our work from home option for roles that can be performed remotely. We continue to be pleased with the productivity of our employees under extraordinary circumstances. We have created an employee-led return to work committee to help define our work structure going forward. Future plans will ensure the safety of our employees while recognizing the importance of culture, in-person collaboration, productivity, and the potential for a more flexible office environment. Moving to manufacturing. We continue to make strategic investments in our global operations function to improve safety, productivity, and capacity. Material increases and supply chain constraints continue to impact the business. We have been able to leverage our sourcing talent and global footprint to maintain production and take advantage of the strong market demand. Labor availability in the USA and historically low unemployment rates in Nebraska in particular have driven some wage inflation and increased competition for labor. We continue to pass through cost increases and see a rational pricing environment in the market. In the area of innovation, we're seeing positive customer feedback from the pilot launch of our Road Connect platform in the infrastructure segment. This leverages hardware and software from our industry-leading FieldNet platform to create a monitoring network for roadway assets that improve safety and serviceability. We're currently deployed or have commitments from more than 50% of the Department of Transformation districts across the US. In the environmental, social, and governance, or ESG space, we continue to make good progress on many of our initiatives. Our diversity, equity, and inclusion strategies focused on training and organization development, recruiting and talent management, community involvement, and expanding our global reach has created significant energy and purpose inside the organization. This summer, we welcomed the largest and most diverse group of individuals into our internship program. Over 40% of our 2021 class are female and more than 40% are ethnically diverse. This is a great proof point in our effort to increase representation of all genders and underrepresented groups across our businesses. We're very optimistic about the future of our company and our industries with the quality of talent we've been able to attract. Turning to the market environment. North American irrigation remained strong through the key spring selling season. Commodity prices and net farm income projections remained high, and the market remains very active. Storm activity has been light this year, and although drought conditions across portions of the country have created some supply uncertainty, recent rains across the Midwest and Western Coral Belt have provided some temporary relief. Our thoughts are with the growers in the West and Northern Plains who are dealing with extreme and very difficult drought conditions right now. In the international irrigation markets, we continue to see sustained strength in both the mature and developing markets. And as mentioned earlier, we're making strategic investments in our global footprint to increase capacity that supports current and projected market demand. Additional investments in Brazil, Turkey, and China specifically will support opportunities for growth. Brazil continues to be a very active market where shipments more than doubled in the quarter versus prior year with a strong backlog going into Q4. This has been a very competitive market, and we see some of the same rapid cost escalation here that we've seen in the US. We continue to manage capacity and pricing actions to support business quality. Transitioning to the Europe, Middle East, Africa region. We have been awarded a $36 million project in Egypt that began shipping in June, with deliveries expected to conclude in the second quarter of fiscal 2022. We are leveraging our global footprint to meet the timing and volume expectations of our customer, We see strong long-term growth potential in this market and are positioned well geographically and strategically in the region to compete for and win this competitive project business. Moving to infrastructure. Following a record year last year, the infrastructure business has experienced a temporary slowdown in project activity as government entities shift priorities to coronavirus response efforts. As previously communicated, we've had approximately 11 million in anticipated road zipper projects move out of fiscal year 2021 due to COVID-related delays. These projects are still very active and we expect to see those projects close in fiscal 2022. We see continued strengthening in the U.S. road safety business as we enter the construction season and more regions are returning to pre-COVID demand levels. Although slower vaccination progress in the international market continues to limit growth potential in many parts of the world. There have been several developments in infrastructure policy and federal investment plans. Last week, it was announced that a bipartisan agreement had been reached on an infrastructure framework valued at over $1.2 trillion. The potential package includes more than $120 billion above baseline funding for roads, bridges, major projects, and roadway safety. The bipartisan framework will focus on climate change mitigation, resilience, equity, and safety for all users, including cyclists and pedestrians, and it represents the single largest dedicated bridge investment since the construction of the interstate highway system. While there's still work to do, we expect this package will create a positive tailwind for the infrastructure business, including road zipper, road safety, and our new technology products. I'll now turn the call over to Brian to review our third quarter financial results.

Thank you, Randy, and good morning, everyone. Total revenues for the third quarter of fiscal 2021 of $161.9 million increased $38.8 million, or 32%, compared to $123.1 million in the same quarter last year. Net earnings for the quarter were $17.8 million, or $1.61 per diluted share compared to net earnings of $10.1 million or 93 cents per diluted share in the prior year. Irrigation segment revenues for the third quarter of $140.2 million increased $44.7 million or 47% compared to the same quarter last year. North America irrigation revenues of $87.4 million increased $24.5 million or 39% compared to the same quarter last year. The increase resulted from a combination of higher irrigation equipment sales volume and higher average selling prices. This increase was partially offset by lower engineering services revenue of approximately $4.5 million related to a project in the prior year that did not repeat. In the international irrigation markets, Revenues of $52.8 million increased $20.2 million or 62% compared to the same quarter last year. The increase resulted primarily from higher irrigation equipment sales volumes in most international markets. There was also a favorable foreign currency translation impact of $2.3 million compared to the prior year. Total irrigation segment operating income for the third quarter was $23.9 million, an increase of $8.5 million or 55% compared to the same quarter last year. And operating margin improved to 17.1% of sales compared to 16.1% of sales in the prior year. Improved margins were supported by higher irrigation equipment sales volume and was partially offset by the continuing impact of higher raw material and other costs. In North America, margin headwinds are diminishing as multiple price increases implemented over the past several months are being realized. However, as Randy mentioned, we have also experienced significant cost increases in Brazil that have compressed margins and will continue to do so as we work through a large backlog of orders. We expect this margin pressure to continue through the first quarter of fiscal 2022 until price increases are fully realized. Infrastructure segment revenues for the third quarter of $21.8 million decreased $5.8 million, or 21%, compared to the same quarter last year. The decrease resulted from lower road zipper system sales which were partially offset by higher road zipper lease revenue and increased sales of road safety products. The current quarter did not have any significant road zipper sales, while the prior year included over $9 million in revenue related to the highways England project and Japan order. Infrastructure segment operating income for the third quarter was $3.8 million compared to $8.2 million in the same quarter last year. and operating margin for the quarter was 17.3% of sales compared to 29.5% of sales in the prior year. Current year results reflect lower revenues coupled with a less favorable margin mix compared to the prior year. At this time, I'd like to turn the call over to the operator to take your questions.