Lindsay Corporation

Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation second quarter fiscal 2022 earnings call. 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. 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. Please note this event is being recorded. I would now like to turn the conference over to Mr. Randy Wood, President and Chief Executive Officer.

Thank you and good morning, everyone. Welcome to our second quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. I'd like to open today's call by addressing the conflict and humanitarian crisis in Ukraine. We're deeply saddened by the unprovoked invasion of Ukraine and recognize the profound impact these events are having on many around the world. This crisis highlights the conflict between the role we play in feeding a growing world while also making decisions that align with our purpose and business results. On March 14th, we announced that we've suspended business activity in Russia and Belarus and will not accept new machine orders for delivery to these markets. We also expect significant disruptions will persist in the Ukrainian market as we are not currently able to supply goods to this region. The combined revenue for both Russia and Ukraine has historically represented less than 5% of our total revenue. Our thoughts are with those impacted by this crisis, and we hope peace comes to the region soon. The global pandemic continued to impact our business and create challenges in the quarter. All our facilities remained operational. However, we did see a significant disruption in labor availability in Nebraska in the December-January timeframe as the Omicron variant surged. At times, upwards of 15% of our workforce was absent due to a positive test or mandatory quarantine periods. This impacted our ability to produce and ship in the quarter, but we are pleased to report that the spike has subsided and we were back to normal staffing levels by quarter end. Based on the revised CDC guidelines, we have now lifted restrictions at all facilities in the United States, and we officially returned to our offices under a hybrid work model on March 7th. We again thank our employees and dealers around the world for their ongoing resilience and focus over the past two years. Turning to the current operating environment. Supply chain and logistics constraints have continued to impact the business. We've seen outside costs for freight, expediting fees, and establishing an expanded supply base create additional headwinds that have been partially offset by increased pricing. We also had a non-recurring maintenance expense and consulting fees tied to the accelerated implementation of our lean manufacturing strategy at the Lindsay, Nebraska factory of approximately $1.8 million in the quarter. We continue to accelerate our lean journey and have begun implementation of several tools and processes that improve our ability to manage the manufacturing footprint and position us more effectively to respond to the seasonal and cyclical nature of our business. This includes a new enterprise resource planning system supported by artificial intelligence tools that provide better planning and forecasting capabilities, allowing us to meet customer expectations while maximizing inventory and labor efficiency. Our ongoing lean strategy implementation and new digital tools will continue to expand our global capacity, allowing us to capitalize on growth opportunities around the world while reducing cost and increasing manufacturing safety and efficiency. In the area of innovation, We were pleased to announce our strategic partnership and minority investment in Blink-See, an emerging leader in the utilization of artificial intelligence and machine learning for connected roadways. This strategic partnership will create a crash notification system that allows users to combine an alert received from Lindsay's RoadConnect platform with a crowdsourced near real-time image received from the Blink-See paper platform. In our market testing, this has already saved customers time and reduced their cost by allowing them to remotely view roadside assets and gain visual confirmation of an impact before they respond with their maintenance crews. Our investment will support the creation of exclusive features that continue to differentiate RoadConnect in this emerging market. Turning to irrigation market conditions. Supply projections are currently impacted by dry weather in South and North America, where the U.S. drought monitor indicates over 50% of the country is currently experiencing moderate to exceptional drought, and the ongoing conflict in Ukraine and Russia, key suppliers to the global wheat and corn markets. The USDA released their 2022 net income projections in February. Net cash income is projected to increase by 1.4% to $136 billion. However, In inflation-adjusted dollars, 2022 net farm income is forecast to decrease by $9.7 billion, or 7.9%. Increases in commodity prices are projected to be partially offset by significant increases in operating costs, including fuel and fertilizer. This could cap market optimism as customers who haven't locked in their inputs weigh their investment decisions going into the spring season. In international irrigation, we see the same positive market drivers created by strong commodity prices supporting growth in the developed regions, including Australia, New Zealand, Western Europe, and Brazil, where we once again have set shipping records in the quarter. The developing project-oriented markets of Central and Eastern Europe, Middle East, and Africa are also showing signs of continuous strength linked to food security and economic diversification. This includes Egypt, where we've concluded shipment of our $36 million project. We continue to be well positioned to compete for and win additional project business in this region. President Sisi announced in late February that his government plans to expand local wheat production by 1.75 million acres over the next two years in response to the food security risk caused by the conflict in Russia and Ukraine, two important markets for Egyptian wheat imports. Moving to infrastructure. On March 10th, the first allocations of the Infrastructure Investment and Jobs Act funds were approved with the signing of the 2022 Omnibus Appropriations Bill. We expect to see the rate of projects increase at the state level as we approach the summer construction season. We are continuing to monitor the impact of inflation as well as supply and labor constraints in the roadway construction sector. Customers have commented that projects could be scaled back or rebid due to cost increases observed between bidding and funding. Overall, we see a positive tailwind, but the upside could be constrained by inflation and labor availability. Consistent with our discussions last quarter, we did not see any significant road zipper projects exit the sales funnel in the second quarter. However, we do expect to see projects close and deliver in the second half of the year. The project funnel remains robust, and projects that had slowed are now gaining speed as we get back to traveling and being present with the customers in the markets we serve. I'll now turn the call over to Brian to review our second quarter financial results. Brian.

Thank you, Randy, and good morning, everyone. Total revenues for the second quarter of fiscal 2022 increased 39% to $200.1 million compared to $143.6 million in the prior year quarter. Net earnings for the quarter increased 23% to $14.6 million or $1.32 per diluted share, compared to net earnings of $11.9 million, or $1.08 per diluted share in the prior year quarter. Irrigation segment revenues for the second quarter increased 52% to $180.8 million, compared to $118.6 million in the prior year quarter. North America irrigation revenues of $100.7 million increased 26% compared to the prior year quarter. The increase in North America irrigation revenues resulted primarily from higher average selling prices, while unit sales volume was lower year over year due to the impact of the Omicron-related employee absences on production and shipping capabilities in our Nebraska facilities. Without the disruption caused by increased employee absences, unit sales volume in the quarter would have been similar to the prior year. In the international irrigation markets, revenues of $80 million increased 108% compared to the prior year quarter. The increase in international irrigation revenues resulted primarily from higher unit sales volumes along with higher selling prices. Revenues in Brazil more than tripled compared to the prior year second quarter, and we also completed final deliveries of a large project in Egypt. Total irrigation segment operating income for the second quarter was $24.7 million, an increase of 37% compared to the prior year quarter. And operating margin was 13.7% of sales compared to 15.2% of sales in the prior year. The impact of higher irrigation sales volume was partially offset by the impact of higher input costs that were not fully recovered by higher pricing. Second quarter operating results were also reduced by approximately $2.8 million, resulting from the impact of the LIFO method of accounting for inventory, under which more recent and more expensive raw material costs are recognized in cost of goods sold rather than in ending inventory values. Also impacting the quarter was approximately $1.8 million of non-recurring expenses related to factory maintenance and outside consulting services that Randy referred to earlier. Infrastructure segment revenues for the second quarter were $19.4 million, a decrease of 23% compared to $25 million in the prior year quarter. The decrease resulted from lower road zipper system sales and lease revenue due to delayed projects. This decrease was partially offset by higher sales of road safety products compared to the prior year quarter. Infrastructure segment operating income for the second quarter was $300,000 compared to $6.3 million in the prior year quarter. Current year results reflect lower revenues from higher margin road zipper projects, and underabsorbed overhead costs. Turning to the balance sheet and liquidity, our total available liquidity at the end of the second quarter was $143.9 million, with $93.9 million in cash, cash equivalents, and marketable securities, and $50 million available under our revolving credit facility. Our total debt was $116 million, almost all of which matures in 2030. At the end of the second quarter, we were well within the financial covenants of our borrowing facilities, including a gross funded debt to EBITDA leverage ratio of 1.37 compared to a covenant limit of 3.0. At this time, I'd like to turn the call over to the operator to take your questions.