Lindsay Corporation

Good morning. My name is Joe, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Lindsay Corporation third quarter fiscal year 2022 earnings call. All participants will be in a listen-only mode. Should you need any 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. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star and then 2. Do please note that this 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. 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. Our third quarter results reflect the ongoing commitment of our employees around the world to support our customers and dealers in a very dynamic environment. Our entire organization continues to effectively manage through supply chain challenges, logistics constraints, and inflationary pressures, while our commercial teams have effectively managed pricing to preserve business quality. This teamwork, focus, and one-Lindsay approach is evident in our results. Our third quarter revenue and operating income was the second highest in our company history, rivaling the highest quarter ever during the peak of the ag cycle in 2013. We thank our teams around the world for all they're doing to contribute to the success of our customers and our company. In the area of innovation, our SmartPivot program continues to progress forward, and we're getting great customer reviews from our new FieldNet user experience that will be released later this fall. We're also seeing strong market acceptance for our new RoadConnect telemetry platform in the infrastructure business, And our relationship with Blink-See continues to showcase the power of innovation that's possible with strong industry partnerships. To date, we have devices deployed in 27 states across the U.S. with several international sites ready to deploy before the end of the fiscal year. Turning to irrigation market conditions. The market continues to see a combination of factors impacting customer sentiment and business growth. Global commodity prices remain high, which is positive. However, this is somewhat tempered by increased input costs, which will keep U.S. net farm income relatively flat on a year-over-year basis. This year's crop will be one of the most expensive our customers have ever planted, so the positive yield and revenue benefit attained with irrigation through a center pivot should support market stability. Order demand in the quarter was consistent with prior year. We did see an increase in orders beginning in mid-May due to large storms in the Midwest. Some of this demand did ship in the quarter, and some carried over into the fourth quarter. In international irrigation, we see continued strength across most regions. In the mature markets, this is supported by high commodity prices, and in the project-oriented or developing markets, this is supported by more secular drivers. Brazil continues to be a bright spot, where a combination of volume and price realization more than doubled the business versus the prior year. The 2022-2023 crop plan was also released this week. Government financing incentives for irrigation investments was set at 1.95 billion reais, a 44% increase over the prior plan. This was the largest increase in resources amongst all investment programs, highlighting the focus on expanding efficient irrigation in the region. We also see continued inquiries for project business across the Europe, Africa, Middle East, as concerns over food security and global grain supplies have been heightened by the ongoing conflict between Russia and Ukraine. We were pleased to attend the inauguration of the Future of Egypt project site with President Al-Sisi in May. This farm includes the 1,200 somatic pivots that shipped earlier this fiscal year. There was also news this week that Egypt will receive $500 million from the World Bank to boost food security. and a portion of this funding will go towards wheat storage, which will support more localized grain production and a strong irrigation market. Moving to infrastructure. Our commercial teams have been able to return to near pre-pandemic travel schedules, and this has helped to stimulate movement in our road zipper sales funnel. Their diligence and perseverance has paid off, and the two projects we have been anticipating in the second half of the year are now moving forward. Brian will provide additional details regarding each project in his financial update. In the road safety business, we're also seeing signs of a restart and normalized design and procurement processes at the state DOT level. The funding support provided by the infrastructure bill has been positive, but we do see some headwinds in this segment caused by inflation and labor availability. A number of project bids submitted months ago are being impacted by cost increases that have resulted in project delays or scope reduction. Overall, we remain optimistic regarding growth opportunities for this business based on the quality of our sales funnel and increasing commercial activity. I'll now turn the call over to Brian to review our third quarter financial results. Brian.

Thank you, Randy, and good morning, everyone. Total revenues for the third quarter of fiscal 2022 increased 32% to $214.3 million, compared to $161.9 million in the prior year quarter. Net earnings for the quarter increased 41%, to $25.1 million, or $2.28 per diluted share, compared to net earnings of $17.8 million, or $1.61 per diluted share in the prior year quarter. Irrigation segment revenues for the third quarter increased 35% to $188.7 million, compared to $140.2 million in the prior year quarter. North America irrigation revenues of $96.2 million increased 10% compared to the prior year quarter. The increase in North America irrigation revenues resulted from higher average selling prices, while unit sales volume was lower year over year. As Randy indicated, order rates during the third quarter were similar to last year. However, we entered last year's third quarter with a larger backlog of orders as frequent and significant price increases at the time pulled orders forward. While an increase in storm damage replacement orders beginning late in the quarter provided some additional volume for this year's third quarter, most of this increased volume from storm damage replacement will be realized in our fourth quarter. In the international irrigation markets, revenues of $92.5 million increased 75% compared to the prior year quarter. This increase resulted from a combination of higher average selling prices and higher unit sales volumes in most international markets, with the most significant increase in Brazil. Also contributing to the revenue increase was the favorable effect of a net foreign currency translation gain of approximately $2.5 million compared to the prior year quarter. Total irrigation segment operating income for the third quarter was $39.6 million, an increase of 65% compared to the prior year quarter. And operating margin was 21% of sales compared to 17.1% of sales in the prior year. Improved operating margin resulted from improved price realization and additional volume leverage, which more than offset the impact of inflationary cost increases. Infrastructure segment revenues for the third quarter were $25.6 million, an increase of 17% compared to the prior year quarter. The increase resulted from higher sales of road safety products and road zipper system project sales, which were partially offset by lower road zipper system lease revenue. Lower lease revenue resulted from the completion of certain lease projects, along with delays in the startup of new lease projects. During the quarter, we began delivery of a road zipper project in Australia. The total value of this project is approximately $9 million, with about half of the value representing the sale of barriers and the other half representing the lease of two machines over a 30-month period. We delivered about half of the barrier in the third quarter and expect to deliver the remainder of the barrier in our fourth quarter. This is our first lease project in Australia, and we are optimistic about the future project potential in this market. Infrastructure segment operating income for the third quarter was $3.8 million, which was comparable to the prior year quarter. Current year results reflect a less favorable margin mix of revenues compared to the prior year, as well as certain underabsorbed fixed overhead costs. Another one of the projects that we have been expecting in the second half of our year is a barrier replacement project in Massachusetts. This project has now been approved and is expected to be awarded in our fourth quarter. The value of our portion of this project is approximately $24 million, and we anticipate being able to deliver about two-thirds of this project in the fourth quarter and the remainder delivering in the first quarter of fiscal 2023. Turning to the balance sheet and liquidity, our total available liquidity at the end of the third quarter was $145.7 million, with $95.7 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. And at the end of the third quarter, we were well within the financial covenants of our borrowing facilities. including a gross funded debt to EBITDA leverage ratio of 1.2 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.