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spk00: Hello and welcome to the Lindsay Corporation fourth quarter 2023 earnings conference call. All participants will be in listen-only mode. 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. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO. Please go ahead.
spk01: Thank you and good morning, everyone. Welcome to our fourth quarter and full year earnings call. With me today is Brian Ketchum, our Chief Financial Officer. Fiscal 2023 marked a year of significant achievements for Lindsay. Our teams executed extremely well across both of our business segments, which helped deliver record full year net earnings and earnings per share results. Fourth quarter performance was highlighted by strong irrigation results, specifically in Brazil, which recorded record levels of revenue and operating income. Our commercial efforts, including price management, coupled with efficiency initiatives and organic growth in our international regions, helped drive record operating income and operating margins within our irrigation business. These strong income results were achieved despite difficult year-over-year comps and a lower top line when compared to 2022. Turning to market outlook. Similar to the comments I made last quarter, our market outlook for Lindsay's business segments and key end markets remains positive in the near term. As it relates to our North American irrigation end markets, current commodity prices and U.S. net farm income projections should continue to support healthy demand as we begin our fiscal 2024. While income for growers dipped slightly when compared to the record levels we saw a year ago, growers will be profitable this year. While customers did take a wait and see approach this spring, we're seeing evidence of a strong fall selling season based on year over year order trends. Within our international irrigation markets, we experienced strong growth during the fourth quarter, particularly across Brazil and South America. We expect international sales volume levels to remain robust in fiscal 2024, supported by strong fundamentals in the mature markets and the continued expansion and project potential in the emerging and developing markets where irrigation presents significant opportunities for yield enhancement to address food security and weather uncertainty. Turning to infrastructure, we continue to see positive near-term and long-term market opportunities driven by federal funding provided by the Infrastructure Investments and Jobs Act in the United States. This funding, as it continues to be distributed, will support necessary investments in roadway infrastructure, and we believe this will ultimately broaden our infrastructure sales and leasing pipeline. While comparisons were difficult relative to the prior year where we benefited from a number of non-repetitive road zipper project wins, our focus on funnel management did generate leasing growth in 2023. Going forward, we see secular demand strength to both sales and leasing for road zipper and expect solid earning support from our line of road safety products. Moving to innovation and technology. Our team continues their deliberate focus of delivering customer first innovation. which will continue to strengthen our growth profile and projections. We were pleased to complete our acquisition of FieldWise during the fourth quarter of this year. FieldWise is a market leader in agricultural technology products with a focus on subscription-based precision irrigation solutions. This allows Lindsay to reach an expanded set of irrigation technology customers while accessing previously untapped growth markets and sales channels. Opportunities like FieldWise strengthen Lindsay's irrigation market position but also advance our integrated technology capabilities and overall ability to reach a broader set of customers and service providers globally. In the area of sustainability, we were pleased to release the fifth edition of our annual ESG report in our fourth quarter. This highlights our continued progress on our environmental, social, and governance goals, contributing to our mission of conserving natural resources, expanding our world's potential, and enhancing quality of life. I'd like to thank our employees and team members for their ongoing hard work and dedication in advancing our vision to become the innovation and market leader in our core irrigation and infrastructure segments. I'd also like to thank our loyal customers and dedicated dealers around the world. Without their trust and confidence, we would not be able to achieve the record results we've delivered. I'd like to now turn the call over to Brian to discuss our fourth quarter and full year financial results. Brian.
spk02: Thank you, Randy. And good morning, everyone. Total revenues for the fourth quarter of fiscal 2023 decreased 12% to $167.1 million compared to $190.2 million in the same quarter last year. Net earnings for the quarter were $19.2 million or $1.74 per diluted share, each growing more than 7% respectively compared to net earnings of $17.9 million or $1.62 per diluted share in the prior year. Total revenues for the full year decreased 13% to $674.1 million compared to record revenues in the prior fiscal year of $770.7 million. Net earnings for fiscal 2023 were $72.4 million or $6.54 per diluted share compared to net earnings of $65.5 million or $5.94 per diluted share in the prior fiscal year. performance that marked year-over-year growth of 11% and 10% respectively. As Randy mentioned, this level of earnings is a record for the company, which is significant as efforts we've made to enhance our profitability have taken hold, irrespective of lower year-over-year top-line performance. Turning to our segment results, irrigation segment revenues for the fourth quarter decreased 5%, to $143.6 million compared to $150.5 million in the same quarter last year. North America irrigation revenues of $60.2 million decreased 25% compared to last year's fourth quarter. The decrease in North America is primarily attributable to lower unit sales volumes while average selling prices were comparable with the prior year fourth quarter. Unit sales volumes in the prior year fourth quarter reflected an exceptional level of storm damage replacement demand, while unit sales volumes in the current year reflected a more normal seasonal demand profile. As previously noted, the incremental revenue impact from last year's storm damage replacement demand was estimated at approximately $20 million. In international irrigation markets, revenues of $83.4 million increased 18% compared to last year's fourth quarter. The increase was primarily from higher sales volumes in Brazil, Argentina, and the Middle East compared to the prior year fourth quarter. As we indicated on our third quarter call, we anticipated sales volumes in Brazil to increase in the fourth quarter, supported by the new government financing plan that was announced in June. Total irrigation segment operating income for the fourth quarter was $29.8 million, an increase of 23% compared to the prior year fourth quarter, and operating margin was 20.7% of sales compared to 16.1% of sales in the prior year. The increase in operating income and operating margin resulted from gross margin expansion driven by improved price realization, reduced inflationary impact on input cost, and improved operating performance in our factories compared to the prior year fourth quarter. This record level of profitability in the fourth quarter also was bolstered by record performance in Brazil. For the full fiscal year, total irrigation segment revenues decreased 12% to $586 million compared to $665.8 million in the prior year North American irrigation revenues of $309.5 million decreased 13% compared to the prior year, and international irrigation revenues of $276.5 million decreased 11% compared to the prior year. Operating income in the irrigation segment for the full fiscal year was $122 million, an increase of 15% compared to the prior year. and operating margin was 20.8% of sales compared to 15.9% of sales in the prior fiscal year. The increase in operating margin resulted from gross margin expansion driven by the factors noted previously, as well as from a more favorable mix of international revenues compared to the prior year. Infrastructure segment revenues for the fourth quarter decreased 41% to $23.5 million compared to $39.7 million in the same quarter last year. The decrease resulted from lower road zipper system sales with the prior year fourth quarter including a number of project sales that did not repeat in the current year fourth quarter. One project in particular that was delivered in last year's fourth quarter amounted to approximately $16 million. The impact of lower project sales was partially offset by growth in road zipper lease revenue and higher sales of road safety products compared to the prior year fourth quarter. Infrastructure segment operating income for the fourth quarter decreased 73% to $3.1 million compared to $11.5 million in the same quarter last year. Infrastructure operating margin for the quarter was 13.3% of sales compared to 28.8% of sales in the prior year. The decrease in operating income and margin resulted from lower revenues compared to the prior year and the resulting loss in fixed cost leverage. For the full fiscal year, infrastructure segment revenues decreased 16% to $88.1 million compared to $104.9 million in the prior year. Infrastructure operating income for the full fiscal year was $12.1 million compared to $18.3 million in the prior year. And operating margin for the year was 13.7% of sales compared to 17.5% 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 $216 million, which includes $166 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Our strong operating performance for the year, along with effective working capital management, resulted in free cash flow of $100.9 million or 139% of net earnings. This improved cash flow further strengthens our balance sheet and positions us well to continue executing our capital allocation strategy. In closing, I'd like to provide investors with an updated view of the company's longer-term financial goals and targets. Over the past three years, Lindsay has delivered marked growth and solid financial results across a variable macroeconomic backdrop, and we have updated our five-year financial goals as highlighted on page 15 of the earnings presentation. Over this period, our goal for organic revenue growth is to average greater than 7% annually Additionally, our goals are to deliver annual operating margins greater than 14%, return on invested capital greater than 12%, and earnings per share growth greater than 10%. These five-year goals are supported by the performance momentum we've been able to deliver and our alignment to positive secular growth trends across both our irrigation and infrastructure businesses. That concludes my remarks, and at this time I'd like to turn the call over to the operator to take your questions.
spk00: Thank you very much. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Today's first question comes from Nathan Jones with Stifel. Please go ahead.
spk05: Good morning, everyone. Hi, Nathan. Hi, Nathan. I guess I have to start with a question on these five-year financial goals, and I guess specifically I have to start with operating margin greater than 14%. I think you just did operating margin greater than 14% for 2023. you know, it looks like it's over 15%. Can you just talk about the expectations from there? I mean, just how you come up with, you know, greater than 14% five-year target when you're already at 15%.
spk02: Yeah, I think, you know, when you look at kind of, again, where we're at today, I think this year we did benefit, you know, from some of the raw material, softening, but we also had some LIFO benefit this year that, you know, I wouldn't plan on going forward. But, you know, I guess our feeling is operating on a regular basis above 14% and then reinvesting into our business, you know, with the technology and new product development. That's kind of what our thoughts are behind the greater than 14%.
spk05: Okay, and then I guess I'll go to domestic irrigation. I mean, some of your commentary was pretty bullish there, Randy, despite the fact that we've seen, you know, a few quarters in a row here of negative growth, fairly negative growth in domestic irrigation business. I mean, you talked about strong near-term demand. You talked about positive order rates year over year so far this quarter. I understand there was a negative impact from storm revenue year over year in the fourth quarter, 23. It would seem that it's likely that you are still going to have some negative comps here in the short term in domestic irrigation. But, Randy, your commentary sounded maybe a bit more bullish than that. So maybe if you could just give us some more color on the near-term expectations around the domestic side of the irrigation business.
spk01: Sure, you bet, Nathan. And I think what we've talked about today is consistent with what we talked about earlier in the year. And we talked about this wait and see approach where we know customers are going to be profitable this year. And they've demonstrated when they make money, they invest money. And we know that we can battle for and win that capital when they make investments to improve their operations, to enhance yields, improve yield consistency. We know we can get those dollars. So I think this spring we saw kind of a truncated season and we were a little disappointed with some of the results, but we did see strong quotation demand. We just didn't see customers taking those quotations all the way to order. So some of this was expected based on feedback from customers in our channel. And again, when they're profitable, they're going to make these investments. So we feel good about what we see in order demand right now. This is customers selling or buying based on crop they're selling this year. and profits generated this year. As we move forward into next season, I think every year starts new. So do we carry a lot of optimism into next spring? I still think the yield enhancement benefits are going to be a tailwind for us. I still think customers are going to be profitable, maybe not record profit levels that we saw last year. But again, customers make money, they invest money. I think that's really given us confidence in this market, Nathan.
spk05: I know you guys don't give guidance, but do you – I'll ask the question. Would you expect to be able to generate organic revenue growth in the domestic business in fiscal 24?
spk02: Yeah, Nathan, this is Brian. I think that is our expectation. I think, as Randy talked about, you know, we saw some of this demand being deferred, you know, and so far, you know, into the fall, it's kind of playing out that way. So – And then we get into our second and third quarters, and we do have easier comps. So I think it's realistic to expect year-over-year unit volume growth in North America. Okay, thanks. I'll pass it on.
spk00: Thank you. The next question comes from Brian Wright with Roth Capital Partners. Please go ahead.
spk06: Thanks, and good morning. I just wanted to follow up on the comment in the press release about the Brazilian financing switching to quarterly allocation and just how to think about that having any impact on seasonality in the international sales in 24. Yeah, good morning, Brian.
spk01: This is Randy. I'll take that one. And this was a fundamental change. and how the program is administered in Brazil. And at the macro level, we did see aggressive finance rates, 10.5%. We did see an increase, a published increase, in the amount of money that will go into the program. But historically, there was one trudge. It was announced in the June-July timeframe. All the applications were entered. All the money was allocated. So we saw a lot of that order backlog early. And then we generally burned it down through the remainder of the year. This year it's being administered very differently, and the government is now managing four tranches, quarterly tranches, throughout the year. So there will be an application process, but then that money will get metered out four different times across the year. So it does change the order patterns. And in our view, it is going to change backlog in Brazil. It's going to be more staged and spread out over the year. And we'll have to wait and see how that really corresponds into projects being shipped and revenue being recognized. Overall, it's still very good news for the market. The government continues to invest in support in agriculture. But the timing is going to look different this year and not having any historical reference point on how these corollary tranches are going to work. it's tough to predict. But the strong market fundamentals there, in our view, still will generate growth in the region.
spk06: Over time, after we get through this first year transition, do you think that that will, over the long term, actually improve your visibility on that part of the business, potentially?
spk01: It could and it couldn't. And I think where it can't or maybe won't is When the program's administered once a year, you've kind of got immediate visibility of market demand. Now, as these programs are administered quarterly, we're just going to see that demand four different times throughout the year as opposed to a single time in the year. So I think it's good for material planning, efficiency through the factory. I'd rather have flat volume flow month over month, quarter over quarter. We can run more efficiently that way. But it's also nice to see the backlog and know what you've got in front of you. But I think our ability to support customers, run an efficient, safe factory, I think that's going to be certainly a lot easier with the way the program is administered this year. But there's no guarantee that this is how the government will continue to operate it. If they like what they see, I expect they would and could. If they see other administrative issues with managing this way, I wouldn't be surprised if they went back to the older way as well.
spk06: Okay, thanks. That's really helpful for that, Keller. Is there any way, like, can you help us with inventory? We've seen a nice reduction in inventory. Is that normalization pretty much complete, or could that also be a benefit to cash flow in 24?
spk02: Yeah, Brian. Yeah, we had a very dedicated focus on inventory this year, and I would say it was really a across the board i mean a lot of it came out of our u.s plant but we also had reduced inventories in brazil and turkey and it was really reflective of you know during the the pandemic and afterwards with supply chain issues and things we all carried like a lot of other companies carried more inventory than we normally would so this is primarily reflective of you know just getting the inventories down to a more manageable level and so yeah i think we think there's still opportunity there, but not to the level that we saw in 2023.
spk06: Great, great. And one last one, if I could sneak it in. Can you just help us out with the tax rate in the quarter and then how to think about tax rate for 24?
spk02: Yeah, good question. In the quarter, you know, we had, there was a change in U.S. tax regulations that took place during the quarter that now allows foreign tax credit for earnings in Brazil. Prior to that, because Brazil wasn't compliant with the global or the worldwide transfer pricing rules, the U.S. was going to disallow the foreign tax credit. That got changed in the fourth quarter. So what happens then is it's a cumulative adjustment for the year, taking into account that we can take that tax credit now. So it's 22, a little over 22% for the quarter. Going forward, though, as we talked about before with the shift in the growth being stronger outside the US than inside the US, it does drive a higher effective tax rate. And you saw that probably on a year-over-year basis in 22 versus 23. But I would say for 24, our expectation is it's probably going to be around 29% for the year.
spk06: Great. Great. Thanks so much. Congrats on the quarter and thanks.
spk01: Thank you. Thank you.
spk00: Thank you. The next question comes from Brian Drab with William Blair. Please go ahead.
spk04: Good morning. Thanks for taking my questions. I just wanted to start first with a look at fiscal 2024 and the operating margin is being asked previously on the call. know some discussion around you know the long-term goal of 14 plus you know what what do you expect in the near term i know you said you had the lifo benefit um that was pretty material recently i mean could 2024 margin operating margin i guess be down then no we wouldn't expect that to be the case brian and let me just also state you know in 2023
spk02: there really wasn't any significant project volume, either in irrigation or in infrastructure. And so, you know, that operating margin where we're at today is independent of large projects. And we've said, you know, on the irrigation side, some of those projects can be dilutive. On the infrastructure side, some of those projects are generally going to be accretive. So it can vary depending on, you know, what kind of project business that we have. But, no, we are comfortable with being able to operate, you know, at this kind of level and, you know, and obviously having the opportunity to reinvest money in, you know, in R&D and new product development and those kinds of things.
spk04: Okay. Yeah, I guess I'm just, in thinking about the long-term guidance, I just find the main question I'm walking away with is, you know, if you are capable of that organic revenue growth of around 7%, and operating margin is, you know, maybe flat to, I mean, I guess some people might model it trending towards slightly above 14, since that's the guidance. You know, where does that confidence in greater than, you know, how does that end up in a model that has greater than 10% EPS growth?
spk02: Well, I think combining the revenue growth you know, the incremental margin that comes from that, I think, you know, and then the other aspect of that, you know, could potentially be share repurchase if, you know, again, following our capital allocation policy, if that, you know, comes into play, that's another thing that would influence the EPS.
spk04: Yeah, sure. Okay, thanks. And I guess maybe just one more for now. You know, you talked about Brazil in terms of strong international regions. Where else Are you seeing some relative strength internationally in the irrigation business?
spk01: I'll take that one, Brian. I think in the notes we talked about the Middle East as another region where we're seeing growth and some of that business is the large, you know, military type contracts, but some of that is also smaller project business. Some of that is business in the private markets as well where we continue to see, you know, smaller projects coming to a conclusion in Sub-Saharan Africa. So we are seeing some pretty broad, widespread opportunities. And again, it goes back to food security, yield enhancement, unpredictable weather. All those factors, in our view, really support strong tailwinds in all those project-oriented markets. They're just not going to come one a quarter. They're going to be a little lumpy. They're a little longer-term tail in terms of closing the project, ensuring financing is in place, getting the right credit risk. in place, but we do see, again, a strong funnel of those opportunities, and it's across a number of geographies, which gives us some optimism.
spk04: Great. Thanks. And then just quickly on field-wise, I'm looking at my notes. I can't remember. Did that deal close, and can you give us any sense for what revenue that brings so we can model inorganic and organic revenue?
spk02: Yeah, this is Brian. You know, we haven't disclosed the revenue. It's small, you know, but it's been growing rapidly. And I guess the other thing I would say is it's accretive to margins fairly significantly. It's more, you know, the traditional SaaS-type margins. But, you know, it's a smaller business, and, you know, we haven't disclosed what the revenue is for competitive reasons.
spk04: Yeah, okay. Thank you very much.
spk00: Thank you. As a reminder, if you have a question, you may press star then 1. The next question comes from Brett Kearney with Gabelli Funds. Please go ahead.
spk03: Hi, guys. Good morning. Thanks for taking my question. Hi, Brett. with this supportive outlook over the next five years I guess how do you guys think about some of the cash that the business will generate Brian I know you mentioned opportunities continue invest in new product development and technology just anything you can elaborate on that front I guess organically and inorganically yeah yeah so it starts with supporting our organic growth opportunities and and you know we've talked about capital and
spk02: being part of that, you know, potentially capacity expansion, places like Brazil and Turkey. I think we're also looking at really globally modernizing, investments in modernization, industry 4.0, productivity improvements in our factories. So we are anticipating in 2024 that we're going to increase our capital expenditures. Right now we're estimating between 30 and 35 million for CapEx. And then, you know, longer term, there's, you know, as things settle down in, you know, Ukraine, Russia as an example, there's opportunities for, you know, other geographical expansion. But then from there, M&A, you know, is clearly a priority. And, you know, field-wise is a small example of that, but we're actively looking at opportunities where we can leverage our capabilities and increase shareholder value through M&A, increasing our annual dividend, and then share repurchase is kind of the order that we go through when we look at capital allocation.
spk03: Excellent. Very helpful. Thanks so much, Brian.
spk00: Thank you. This concludes our question and answer session. I would now like to hand the call back to Mr. Randy Wood for closing remarks.
spk01: Thank you all for joining today's conference call. I'm proud of our performance for the quarter and full fiscal year, particularly our demonstrated ability to execute both operationally and commercially to deliver improved returns and strong profitability despite softer top line revenues. However, I'm more excited about the opportunities that lie ahead for Lindsay. Our leadership in irrigation technology, including our established and growing install base and the expanding infrastructure opportunity, both domestically and globally, provide us with a unique competitive advantage as we look to capitalize on multiple sustainable growth opportunities. We look forward to updating you on our progress at the end of our fiscal 24 first quarter. Thank you.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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