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spk00: Hello and welcome to the Lindsay Corporation Fiscal First Quarter 2024 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. I would now like to hand the call to Randy Wood, President and CEO. Please go ahead.
spk02: Thank you and good morning, everyone. Welcome to our fiscal 2024 First Corner earnings call. With me today is Brian Ketchum, our Chief Financial Officer. I'd like to start by once again recognizing our dealers, partners, and employees around the world for their contributions. Their focus on our customers and execution of our business strategies continues to generate positive results for our shareholders while supporting our purpose of conserving natural resources, expanding the world's potential, and improving quality of life. I continue to be very appreciative of the job they're doing. Our fiscal first quarter was highlighted by growth in our North American irrigation markets and improved operating income and margin capture infrastructure segment, driven primarily by growth in road zipper system leasing. In North America, demand for irrigation equipment was improved over the prior year first quarter as commodity prices and U.S. net farm income have continued to support stable demand in our North American end markets. We experienced increased order activity as grower profitability became more transparent following harvest season. This was expected and is consistent with the wait-and-see approach we discussed coming out of last year's spring selling season. Moving to international irrigation. Our key end markets remain healthy, although revenues for the quarter were lower in South America, particularly Brazil. Despite being down year over year, our results remain quite solid, particularly when compared to the record-standing international revenues captured last year. Specific to Brazil, the FENOMI financing program offered by BNDES was modified this year to distribute funding in quarterly increments. Ultimately, this caused some short-term disruption to our order confirmations in the period, And while this impacted our quarterly results, we do not believe this will have significant impact to our full-year results in the region. Moving to infrastructure. While we are still very much in the early stages of deployment, we are beginning to see the positive impact of IIJA-driven U.S. infrastructure spending. We continue to see solid growth in road zipper system leasing and sales of our road safety products in the quarter, which largely offset the softer road zipper system sales and project activity in the period. As a reminder, last year's fiscal first quarter carried the tail end of revenues from the large project in Massachusetts. RoadZipper lease revenue continues to represent a greater proportion of our consolidated infrastructure segment revenues. This sales mix remains accretive to Lindsay's overall margin profile. We also continue to actively manage projects through our RoadZipper sales project funnel. However, timing and project implementation remains challenging to forecast. In the area of technology and innovation, I'd like to highlight a few key items this quarter. The integration of the FieldWise acquisition is going very well, and we're pleased that we've continued to add dealers to our distribution channel. This is a key element of our technology growth strategy, and it expands our access to the installed base of competitive brands. We're also pleased to record our first commercial sale of our new RoadConnect platform in the quarter. This roadside asset monitoring technology has been well received by the market, and we expect to see growth in both device and subscription revenue going forward. I'd now like to turn the call over to Brian to discuss our first quarter financial results. Brian.
spk05: Thank you, Randy, and good morning, everyone. Consolidated revenues for the first quarter of fiscal 2024 were $161.4 million, a decrease of 8% compared to $176.2 million in the first quarter last year. Net earnings for the quarter were $15 million or $1.36 per diluted share compared to net earnings of $18.2 million or $1.65 per diluted share in the first quarter last year. Turning to our segment results, irrigation segment revenues for the quarter were $140.2 million, a decrease of 8% compared to $152.1 million in the first quarter last year. North America irrigation revenues increased 7% to $89.4 million compared to $83.9 million in the first quarter last year. The increase in North America irrigation revenues resulted primarily from higher unit sales volume that was partially offset by the impact of a less favorable mix of shorter machines compared to the prior year first quarter. Average selling prices remained stable and were comparable with the first quarter last year. In international irrigation markets, revenues of $50.8 million decreased 25% compared to record revenues of $68.1 million in the first quarter last year. The decrease resulted primarily from lower sales in Brazil and Argentina compared to record sales in those markets in the first quarter last year. Changes in the timing of funding under the financing program in Brazil that Randy mentioned and the government transition in Argentina following the recent presidential election both contributed to lower sales in the quarter. Total irrigation segment operating income for the quarter was $25.3 million, a decrease of 12% compared to the first quarter last year. And operating margin was 18.1% of sales compared to 18.8% of sales in the first quarter last year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the resulting impact from deleverage of fixed operating expenses. Gross margin remained consistent with the first quarter last year. Infrastructure segment revenues for the quarter were $21.2 million, a decrease of 12% compared to $24.1 million in the first quarter last year. The decrease resulted from lower road zipper system sales with the prior year first quarter including $8 million of project sales that did not repeat. The impact of Lower road zipper sales was largely offset by growth in road zipper lease revenue and higher sales of road safety products compared to the first quarter last year. Infrastructure segment operating income for the quarter was $3.6 million, an increase of 7% compared to $3.4 million in the first quarter last year. And infrastructure operating margin for the quarter was 17.1% of sales compared to 14% of sales in the first quarter last year. The increase in operating income and margin resulted primarily from a more favorable margin mix of revenue with higher lease revenue compared to the first quarter last year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the first quarter was $225.7 million, which includes $175.7 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Our strong balance sheet and our ample access to liquid capital resources will continue to serve as a strategic advantage for Lindsay as we continue to execute our capital allocation strategy to create enhanced and sustained value for our shareholders. 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. 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 Brian Drab with William Blair. Please go ahead.
spk01: Hey, good morning. This is Tyler Hooten on for Brian Job. Thank you for taking my questions. Yeah, I just want to start. I appreciate the color on the South America irrigation situation. Has there been any other impact on international irrigation shipments due to geopolitical tensions or other factors?
spk02: If we look at a year-over-year basis, Tyler, I wouldn't say there's anything that's moved the needle significantly. one way or the other. If we focus on the corridor, the big shift was really in South America for the reasons that we've cited.
spk01: Got it. And then on the previous call, you mentioned that, you know, some irrigation projects could be dilutive and infrastructure projects could be accretive. Can you just give some details on how those scenarios typically could play out in the future?
spk05: Yeah, I mean, I think... On the infrastructure side, I'll start there. You know, the road zipper project side, which we've, you know, we haven't had any significant projects since we had the first quarter last year. But those are typically, you know, going to be higher margin kinds of projects. And I would say, you know, what we've commented on before there is, you know, post-pandemic, once we've been able to reengage with some of the municipalities, government entities that are in charge of these projects. It's taken some time to get reengaged with them, and I'd say our commercial team over the last few quarters has made some really good progress, and we've got line of sight to moving some of these projects forward. On the international irrigation side, again, line of sight to a lot of projects. It's been an active market lot of quoting activity. The challenge there is part of it is access to capital, access to U.S. dollars in some of the markets, but we still remain confident that we'll see project activity coming out of both irrigation and infrastructure.
spk01: Yeah, thank you for the color on that. And just Final question, just when it comes to data analytics in the field, I saw some articles about farmers maybe having like too much data or information overload. Just how do you and the dealers approach farmers like that and convince them that these solutions are optimal for their operations? And that's all I have today. Thank you.
spk02: Sure, and I'll take that one, Tyler. I would agree that there's a lot of data available to our customers and being able to convert that data into insights. that they can use to manage their operation is really important. And we really focus on our core, and our core is irrigation and water management. So our tools are very deliberate, very focused, and purpose-built to help them manage water and energy to deliver water in the most efficient means possible. So we're not going outside of our core to try and bring more to our customers. we're really focusing on that irrigation and water management core. And the feedback we're getting from customers is that's exactly what they need. When we look at the retention of our digital tools north of 97%, I've had customers say once they start with our platform, they couldn't farm, they couldn't irrigate without it. So I think the direction that our teams are heading are the right direction, and I think that's confirmed with customer feedback and growth we continue to see in those technology platforms.
spk01: Sounds good. Thank you, and I'll pass it along.
spk00: Thank you. The next question is from Nathan Jones with Stifel. Please go ahead.
spk03: Good morning, everyone. Good morning, Nathan. And happy new year. I want to go to Brazil, Argentina. You've had some challenges in, I mean, particularly Brazil. government changeover, there was tsunami financing that wasn't available for a while, now they're shifting around the way that's happened. It seems like Brazil's been down pretty significantly at least three of the last four quarters, so you should have some pretty easy cops coming up. Does that lead to the expectation that we should see pretty significant year-over-year growth for the next few quarters, out of Brazil especially? Or is there enough uncertainty in the way the Finami financing is going to come out for you to not be confident enough to say that?
spk05: Yeah, I think obviously the last, you said three out of four quarters, we did have a strong fourth quarter in Brazil once that Finami financing became available for the first quarter. But, you know, financing continues to kind of keep a lid on the demand there in some respects. There's a lot of dependence on that government program because of the difference in the rates compared to the commercial rates. But having said that, what we've seen the last four or five months is the central bank rates in Brazil have come down about 200 basis points. They're expected to come down another 50 basis points in January. So we're seeing more availability of commercial financing through commercial banks outside of the family, which I think is another positive. But the demand environment in Brazil is still strong. I would say it's just the financing plays a key in some of the timing, and we're seeing that in the first quarter this year.
spk03: Obviously, some issues in Argentina. What's the relative size for you guys between Brazil and Argentina? Is Brazil significantly bigger?
spk02: We haven't broken that out specifically, Nathan, but your instinct is correct. Brazil would be significantly more impactful to us than Argentina in terms of market size. Got it.
spk03: And then I just wanted to go back to the domestic business. I thought that growth year over year in the first quarter was pretty encouraging. Crop prices have been on the decline through 2023, which, you know, all else equal would suggest that farm income will be lower in 24 than it was in 23. There's obviously the MOSFETs with that, with crop inputs and financing costs and all those kinds of things. Is it reasonable to think that, you know, farming comes down in 24 and that should probably lead to domestic irrigation down in 2024? Or is that not the way you're thinking about it at this point?
spk02: I think at a macro level, obviously, I think your logic walks based on history, Nathan. I think the anomaly this coming year in 2024, if you think back to where we were, Q2, Q3 of last year, we talked a lot about customers taking that wait and see approach, that they were waiting for interest rates to come down, waiting for inflation to stabilize, waiting for paper prices to come down. Right now, we see a lot more stability. So Just the fact that we think we won't see those delayed purchase decisions, just a more normalized seasonal order pattern next year will offset some of that market softness and maybe some of those end-of-year machines and first quarter machines that we saw this year, we're going to see that more naturally in the second and third quarter next year. But I think it would be difficult to predict some significant upside in the market just because those fundamentals related to farm income and crop prices and their impact on customer sentiment It would be tough to see line of sight to significant growth, but I think, again, with the comps that we have, particularly year over year for Q2 and Q3, we don't see the market falling apart either. And farmers are profitable. They're profitable to invest. Yeah, thanks. I'll pass it on.
spk00: Thank you. The next question comes from Brian Wright with Roth MKM. Please go ahead.
spk04: Thanks. Good morning, and thanks for the question. Just one more on the Brazil situation. You know, given the dryness in Mata Grasso and hearing that it could be still a game-time decision, you know, come February and March for the safarina season as far as planning vectors, is that a, like, should we be thinking about that as a positive backdrop as far as potential and why your commentary on the strong kind of quoting, you know, quoting levels that you're seeing?
spk02: I think the weather there, and that's going to be obviously the biggest market for that safrina second season crop. And if there is some risk to germinating a crop, maturing a crop, Irrigation, obviously, is going to offset some of that risk. So we would view that as a potential tailwind to the continued market opportunity in Brazil. But as Brian mentioned earlier, it's going to be about access to capital. And have they sold the first crop and then the cash flow they need to go into the second and potentially the third crops in some parts of the country? So there's certainly some good macro tailwind there, but they still have to get access to funding. And again, the FUNAMI program is going to be supportive. We're seeing the central bank rate continue to drop, and that's going to be supportive of financing. So we do see that as some potential upside.
spk04: Okay, thank you. And then I guess, you know, a follow-up. There has been talk in Brazil about putting together an incentive program for the conversion of pasture land to cropland. Just is there kind of any, you know, headwind or headway that's been made on a regulatory or legislative front on that, you know, in the past?
spk02: In our view, not a lot that would be actionable in the near term.
spk04: Okay. Okay. Great. And just a real quick, you know, balance sheet question. Marketable securities were up pretty nicely sequentially, you know, up to over – 10 million in the quarter, just, you know, what kind of securities are you buying there?
spk05: These would be high-grade commercial paper and other things where, and generally it's going to be, you know, it'll be beyond 90 days, but, you know, six-month maturities or so, but an opportunity to get some additional rate, you know, interest income. So it's just a little bit of an allocation of cash from, you know, compared to where we were at the end of the calendar year.
spk04: Okay, great. And then I guess one last one, if I could. Inventory picked up a bit sequentially in the quarter. Just thoughts on that.
spk05: I would say it's mostly going to be a seasonal kind of a thing as we get into the main selling season in North America. That's probably the biggest driver of the increase. And if you go back to 2023, over the course of the year, we reduced overall inventories about $40 million. So A slight uptick in the first quarter is really more of the seasonal nature of the business.
spk04: Okay, great. That bodes well for North America in the next quarter, so that's great. That's all I've got. Thank you so much for the questions.
spk06: Thanks, Brian.
spk00: Thank you. As a reminder, to ask a question, you may press star, then 1. The next question comes from John Brotz with Kansas City Capital. Please go ahead.
spk06: Morning, Randy, Brian.
spk00: Morning, John. Morning, John.
spk06: On the domestic irrigation front, how does the demand profile vary per region, Midwest versus maybe Southeast, Northwest? Are you seeing any significant difference in sort of the demand picture by geography?
spk05: Yeah, John, this is Brian. What we saw in our first quarter was really demand increase in almost all of our regions. You know, we're seeing in the southeast and mid kind of that Great Lakes region, which, you know, Great Lakes region typically has been more of a supplemental irrigation market, but we've seen nice growth there. We've seen it in the Corn Belt, you know, in the Midwest. So I'd say first quarter, you know, it's really been pretty broad across all the regions.
spk06: Is there something specific – in the Great Lakes area that may be driving a different profile there from the past?
spk02: There's probably a couple things, John. It's a pretty big seed corn area, and we see seed corn acres growing there, and it's mandatory to irrigate that crop, and really just shifting climate patterns. And we've talked a lot here about what customers have to invest in a crop to put it in the ground. That's really sunk cost if they don't get water. So I think just the risk management and the yield enhancement benefit of irrigation that's driving a lot of investment in that part of the world.
spk06: Okay, thanks. Brian, it looks like maybe your selling prices are sort of flat-ish year over year, and I suspect it might continue to be that way. But we're all seeing higher costs, maybe not as significant as we've seen in the past couple of years. But when you look at the cost pressures on your business, how is that? Do you think you'll be able to offset those cost pressures with productivity, or is there going to be a little bit of impact on your margins because of some rising costs?
spk05: Yeah, I think, you know, we have seen steel from November to December. The CRU for hot-rolled coil has gone up 25%. I mean, it had softened a fair amount, you know, going back into 2023. So, you know, structural steel continues to maintain at a higher level. But, you know, I'd say where we're positioned now, I mean, I think steel's kind of the biggest variable. A lot of the other inflation is kind of abated a bit. But we expect, you know, I think if you go back to probably last quarter, I mean, maybe the view was, you know, we would have to, give price back if raw materials softened. But, you know, we're not seeing that situation today. I think where raw materials appear to be headed is, you know, would be supportive of maintaining price.
spk06: Male Speaker 1 Okay. All right. Thank you very much.
spk00: Female Speaker 2 Thank you. This concludes our question and answer session. I would now like to turn the call back to Randy Wood for closing remarks.
spk02: Randy Wood Thank you all for joining us on today's call. While current commodity prices and U.S. net farm income are down from recent highs, growers remain profitable. And while they're investing cautiously, we feel this will continue to support stable demand for irrigation equipment in North America. The international project pipeline for irrigation investments remains robust and supportive to our long-term growth trajectory. These projects are driven by food security and stabilizing global grain supplies, and we're uniquely positioned to identify and win these project opportunities as we execute our strategy. We expect to continue the strong momentum we've seen from road zipper leasing, as well as solid growth from our road safety products, the combination of which will continue to drive a revenue mix which is supportive to our consolidated margin capture in the segment and our consolidated returns. This concludes our first quarter earnings call. We appreciate your interest in Lindsay and look forward to updating you on our continued progress following the close of our fiscal 2024 second quarter. Thanks for joining us.
spk00: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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