Lindsay Corporation

Good morning, everyone. My name is Jamie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Fourth Quarter Fiscal Year 2021 Earnings Conference Call. During today's call, if you should need operator assistance, please press star and then zero. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. 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 today's event is being recorded and I'd like to turn the conference call over to Mr. Randy Wood, President and Chief Executive Officer.

Sir, please go ahead. Thank you and good morning, everyone. Welcome to our fourth quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. Fiscal 2021 was an extraordinary year. We prioritized the health and safety of our employees while maintaining business continuity. Through transformational actions taken over the past several years, we were well positioned to capitalize on market tailwinds and irrigation while navigating persistent headwinds presented by the COVID-19 pandemic. We operated from a position of strength and set shipment records in several businesses due to the commitment and resiliency of our people. We have great teams around the world that continue to execute well, meeting commitments to our customers and driving growth in our business. I thank them for all they're doing to make Lindsay successful. That's particularly true on the factory floor, where we continue to operate our global footprint safely and efficiently. Material cost increases, labor shortages, supply chain disruption and logistics availability continue to impact the business, and we continue to make decisions and prioritize investments that mitigate this impact on our company and our customers. Capacity and efficiency investments in Brazil, China, Turkey, and the U.S. have allowed us to satisfy demand and leverage our global footprint. Our innovation pipeline continues to advance with the development of the SmartPivot platform and irrigation and the RoadConnect platform and infrastructure. Both products share a common architecture and are moving through our voice of the customer, new product development process, and initial field trials. Feedback from users and our strategic partners is helping us further refine the tools, and we're very pleased with the feedback we're receiving. We're also pleased to congratulate our technology product manager, Reese Andrews, who was recently recognized by the Irrigation Association as the recipient of the 2021 Innovator Award for his significant and tangible contributions to the industry. Rhys has played an important role in our field net and innovation work since the inception of the platform, and we're very proud to see this recognition for his work. In the environmental, social, and governance, or ESG space, we continue to move our strategies forward, In July, we published the third edition of our sustainability report where we outlined our five-point focus on investing in sustainable technologies, improving our operational footprints, empowering our people, engaging our local communities, and operating with integrity. Turning to market conditions. The domestic irrigation market entered the seasonally low fourth quarter with strong commodity and farm income projections. Although commodities have receded slightly, they're still well above historical norms observed through the ag down cycle. Net farm income is projected to increase another 19.5% in 2021 after growing by approximately 19.6% in 2020. Year-over-year price increases have been unprecedented in North America. We've made progress on price realization but still see some latency due to the significant backlog as customers pull forward purchases to get ahead of projected price increases. Recent external market surveys indicate farmer sentiment may be waning due to inflationary cost pressures they're experiencing in all of their business. We continue to see strength across most mature and developing markets in the international irrigation business. Shipment records have been set in both Turkey and Brazil, where activity has more than doubled in each business on a year-over-year basis. We've also seen shipment records from our facility in France and increased exports from our facility in South Africa in order to meet global demand. In Brazil, we're benefiting from strong market fundamentals and investments in the dealer channel that have allowed us to grow our presence in mature and emerging regions within the country. This continues to be a very competitive market, and we see some of the same cost escalation that we've seen in the U.S. That's added pressure to margins. We continue to manage production and pricing actions to maintain business quality. In the Europe, Africa, and Middle East region, we continue to shift the large project into Egypt without disruption by leveraging our global footprint. We expect those shipments will continue early into the second quarter of our 2022 fiscal year. We see additional opportunities in this market and are well positioned strategically to compete for this project business. Moving to infrastructure. The road zipper business continues to experience headwinds caused by the global pandemic. While our strong project sales funnel remains at pre-COVID levels, our team has noted that prioritization of COVID response plans and travel restrictions limiting face-to-face meetings have impacted the pace of movement through the funnel. These headwinds are beginning to subside as business and travel activity return to normal levels. However, we do not see project exits from the sales funnel until the second half of the fiscal year. The Fixing America's Surface Transportation or FAST Act expired temporarily on September 30th. The Senate has approved a short-term extension which provides funding for an additional 30 This creates a window for the infrastructure bill to pass. If an agreement cannot be reached, we do expect another extension could be negotiated. The pending infrastructure bill continues to make its way through the approval process in Washington, D.C. The President has been working to pass both the $1.2 trillion bipartisan Infrastructure Investment and Jobs Act and the $3.5 trillion Build Back Better Act. We're optimistic that some form of infrastructure bill will ultimately pass due to the bipartisan support it has received However, the timing and size remain uncertain. This may keep some projects in a holding pattern while states wait for certainty on the incremental funding availability. When passed, we expect this legislation will provide a positive tailwind for the infrastructure business, including road zipper, road safety, and our technology products. I'll now turn the call over to Brian to review our fourth quarter and four-year financial results. Brian.

Thank you, Randy, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2021 increased 20 percent to $153.6 million, compared to $128.4 million in the same quarter last year. Net earnings for the quarter were $5.8 million, or 53 cents per diluted share, compared to net earnings of $14.7 million, or $1.35 per diluted share in the prior year. Net earnings for the quarter were reduced by an after-tax LIFO impact of approximately $4.5 million or 41 cents per diluted share. Total revenues for the full fiscal year 2021 increased 20% to $567.6 million compared to $474.7 million in the prior year. Net earnings for fiscal 2021 were $42.6 million, or $3.88 per share, compared to net earnings of $38.6 million, or $3.56 per diluted share in the prior year. Irrigation segment revenues for the fourth quarter increased 63% to $125.3 million, compared to $77 million in the same quarter last year. North America irrigation revenues of $53.5 million increased 30% compared to last year's fourth quarter. The increase in North America irrigation revenues resulted from a combination of higher irrigation equipment unit sales volume and higher average selling prices. In the international irrigation markets, revenues of $71.7 million increased 100% compared to last year's fourth quarter. The increase in international irrigation revenues resulted primarily from higher unit sales volumes, along with higher selling prices and a favorable foreign currency translation impact of $2.8 million. The largest sales volume increases were in the Brazil and Middle East markets. Total irrigation segment operating income for the fourth quarter was $10.6 million an increase of 78% compared to the prior year fourth quarter. And operating margin was 8.4% of sales compared to 7.8% of sales in the prior year fourth quarter. The impact of higher irrigation system unit volume was partially offset by the impact of higher raw material and other costs. We continue to face some margin headwind as the realization of pricing actions lags the impact of cost increases. Fourth quarter operating results were also reduced by approximately $5 million, resulting from the impact of the LIFO method of accounting for inventory, under which higher raw material costs are recognized in cost of goods sold rather than in ending inventory values. During the quarter, we added additional inventory as a buffer against supply chain uncertainty, expected cost increases, and as part of a build ahead plan in connection with the temporary shutdown at the Lindsay, Nebraska facility to install productivity upgrades. We expect to realize some benefit of this fourth quarter LIFO impact in future periods as inventory quantities decline. For the full fiscal year, total irrigation segment revenues increased 35% to $471.4 million. compared to $349.3 million in the prior year. North America irrigation revenues of $273.9 million increased 22% compared to the prior year, and international irrigation revenues of $197.5 million increased 59% compared to the prior year. Irrigation segment operating income for the full fiscal year was $63.2 million an increase of 53% compared to the prior year. And operating margin was 13.4% of sales compared to 11.8% of sales in the prior fiscal year. Infrastructure segment revenues for the fourth quarter decreased 45% to $28.4 million compared to $51.4 million in the same quarter last year. The decrease resulted primarily from lower road zipper system sales compared to the prior year. Revenues in the prior year included a large project in the United Kingdom that did not repeat in the current year. And in the current year, we've continued to see the timing of certain projects impacted by coronavirus-related delays. Infrastructure segment operating income for the fourth quarter was $5.8 million. compared to $19.9 million in the same quarter last year. And infrastructure operating margin for the quarter was 20.5% of sales compared to 38.8% of sales in the prior year. Current year results reflect lower revenues and a less favorable margin mix of revenues compared to the prior year fourth quarter, and were also reduced by approximately $1 million resulting from the impact of LIFO. For the full fiscal year, infrastructure segment revenues decreased 23% to $96.3 million, compared to $125.3 million in the prior year. Infrastructure operating income for the full fiscal year was $20.2 million, compared to $42.7 million in the prior year. And operating margin for the year was 21.0% of sales, compared to 34.1% of sales in the prior year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the fiscal year was $196.7 million, with $146.7 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Our total debt was $115.7 million, almost all of which matures in 2030. At the end of the fiscal year, we were well within our financial covenants of our borrowing facilities, including a gross funded debt to EBITDA leverage ratio of 1.4 compared to a covenant limit of 3.0. We are well positioned going forward to invest in growth opportunities that create value for our shareholders. At this time, I would like to turn the call back over to the operator to take your questions.