Lindsay Corporation

to the Lindsay Corporation Fiscal Fourth 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 your question, 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.

Thank you and good morning, everyone. Welcome to our fourth quarter and full year 2024 earnings call. With me today is Brian Ketchum, our Chief Financial Officer. We are pleased with our fourth quarter and full year performance as our teams executed extremely well during the fiscal year. This allowed us to deliver profitable operating performance amidst challenging market fundamentals, particularly in our irrigation business. In North American irrigation, we were pleased to see volume up slightly in the quarter versus last year, driven by carryover storm damage that shipped early in the quarter. In international irrigation, market softness in Brazil due to lower grower profitability and poor customer sentiment continues to persist. This headwind has been partially offset by the large project in the MENA region that started shipping in the fourth quarter. Turning to our irrigation market outlook. While net farm income projections in North America have improved slightly versus earlier forecasts, much of that good news impacted the livestock sector, and we still see major headwinds for the cropping segment more closely associated with our irrigation solutions. And recent customer sentiment surveys indicate some of the lowest ratings ever recorded. While we have tougher year-over-year comparisons in the first half of the year, we would expect to see a slightly down market overall, Unless there's a significant improvement in net farm income in 2025, these projections won't be visible until we get into the next growing season. We are seeing some storm damage replacement demand in the southeast connected to the tragic hurricane activity, but it's too early to quantify that volume, and most growers have a window between now and next spring to make those decisions. We are working closely with our dealers to ensure that we support recovery in the regions. We expect temper demand to continue in Brazil and Latin America until farm profitability and credit availability improve. Historic droughts in parts of the country may support stronger grain prices, but it's also delayed soybean planting, which could carry forward to delays in the safrinha or second crop corn planting. We will continue shipping the large MENA project through fiscal year 2025. The project funnel remains active, and we continue to advance other projects forward that support food security and other developing international irrigation markets, We look forward to sharing more on these projects in the future. Moving to infrastructure. In June, we installed our first TOWXR Express Repair Cushion in Nevada. This new innovative crash cushion is differentiated by its ability to provide robust protection, yet can be installed and repaired when impacted in under 30 minutes. We've seen a positive response in the market and have received state approvals in some of our key markets as we await Federal Highway Administration approval. We do anticipate an increase in U.S. infrastructure spending in fiscal 2025 and continue to see positive near-term market opportunities driven by the increased federal funding provided by the Infrastructure Investments and Jobs Act. We maintain the expectation that demand for our road-zippered lease and project sales will grow in turn, positively impacting revenues and margins. We continue to actively manage projects in our sales funnel and have line of sight to additional projects moving through the funnel in fiscal 2025. In the area of technology and innovation, we are extremely encouraged to see continued growth in both the field net and field-wise irrigation management platforms in addition to realizing the first commercial sale of our Impact Alert product in the infrastructure segment. We now have more than 140,000 connected devices and we achieved a 28% growth rate in annual recurring revenue from device subscriptions in fiscal 2024. Growth in this recurring revenue stream is supportive of our overall margin profile and we expect to drive continued momentum in this area while supporting investments that allow us to differentiate and extend our leadership position in technology. Moving to our operational footprints, we've continued to progress on the $50 million investment at our Lindsay, Nebraska facility, which will allow us to better manage our variable costs as the cycle fluctuates. These long-term investments will support the business as the cycle returns to growth, providing for increased responsiveness to demand fluctuations, improved efficiencies, and margin stability. Now I'll turn the call over to Brian to discuss our financial results. Brian. Thank you, Randy. And good morning, everyone.

Total revenues for the fourth quarter of fiscal 2024 were $155 million, a decrease of 7% compared to the fourth quarter last year. Net earnings for the quarter were $12.7 million, or $1.17 per diluted share. compared to net earnings of $19.2 million or $1.74 per diluted share in the fourth quarter last year. Total revenues for the full year of $607.1 million decreased 10% compared to the prior fiscal year. And net earnings for fiscal 2024 were $66.3 million or $6.01 per diluted share, a decrease of 8% compared to record net earnings of $72.4 million and $6.54 per diluted share in the prior year. Turning to our segment results, irrigation segment revenues for the fourth quarter were $125.9 million, a decrease of 12% compared to the prior year. North America irrigation revenues of $61.7 million increased 2% compared to the prior year. The increase in revenues resulted primarily from higher unit sales volumes while average selling prices were comparable with the prior year. Increased irrigation equipment sales were driven by a higher level of storm damage replacement demand compared to the prior year. The impact of higher equipment sales was partially offset by lower sales of replacement parts due to wet field conditions in certain parts of the country that limited equipment run times. In international irrigation markets, revenues of $64.2 million decreased 23% compared to last year. The decrease resulted primarily from lower revenues in Brazil compared to record revenues in the prior year fourth quarter. Revenues were also lower in other parts of Latin America, while demand in other developed markets remained relatively stable. These decreases were partially offset by higher project sales in developing markets. As Randy mentioned in his remarks, we began delivery on the previously announced project in the MENA region during the quarter. Revenues in the current year quarter were also impacted by the unfavorable effects of foreign currency translation of approximately $3.1 million compared to the prior year quarter. Total irrigation segment operating income for the fourth quarter was $17.1 million, a decrease of 43% compared to last year. And operating margin was 13.6% of sales compared to 20.7% of sales last year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the impact from the deleveraging of fixed operating expenses compared to the prior year. For the full fiscal year, total irrigation segment revenues of $513.9 million decreased 12% compared to the prior year. North America irrigation revenues of $302.1 million decreased 2% as higher unit sales volumes were more than offset by lower sales of replacement parts and slightly lower average selling prices compared to the prior year. International irrigation revenues of $211.7 million decreased 23% compared to prior year, primarily the result of lower revenues in Brazil and other Latin America markets. This decrease was partially offset by higher revenues from project sales in developing markets compared to the prior year. Operating income in the irrigation segment for the full fiscal year of $87.6 million was a decrease of 28% compared to the prior year. And operating margin was 17% of sales compared to 20.8% of sales in the prior year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and from the impact of deleveraging of fixed operating expenses. Infrastructure segment revenues for the fourth quarter of $29.1 million increased 24% compared to the prior year. The increase in revenues resulted from higher road zipper system sales and lease revenues compared to the prior year fourth quarter, while the impact of higher sales of road safety products in the U.S. was offset by lower sales in international markets compared to the prior year. Infrastructure segment operating income for the fourth quarter of $5.6 million increased 79% compared to the prior year. And infrastructure operating margin for the quarter was 19.2% of sales compared to 13.3% of sales in the fourth quarter last year. Increased operating income and operating margin resulted from higher revenues and from a more favorable margin mix of revenues. with higher road zipper system sales and lease revenues compared to the prior year. For the full fiscal year, infrastructure segment revenues of $93.2 million increased 6% compared to the prior year. The increase was primarily attributable to higher road zipper system lease revenues, which were partially offset by lower road zipper sales and lower sales of road safety products compared to the prior year. Infrastructure operating income for the full fiscal year was $19 million and increased 57% compared to the prior year. Operating margin for the year was 20.4% of sales compared to 13.7% of sales in the prior year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the fourth quarter was $240.9 million. which includes $190.9 million in cash and cash equivalents and $50 million available under our revolving credit facility. Our operating performance for the year, along with diligent working capital management, resulted in free cash flow of $66.8 million, or 101% of net earnings. Our demonstrated cash flow generation further strengthens our balance sheet and positions us well to continue executing on our capital allocation priorities, balancing organic and inorganic investments, along with returning capital to our shareholders. During the quarter, we completed additional share repurchases of $4.6 million, bringing the total share repurchases to $22.5 million for the year. This concludes my remarks, and at this time, I'll turn the call over to the operator to take your questions.

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're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Nathan Jones with Stiefel. Please go ahead.

Good morning, everyone. Morning, Vincent. I want to start off with a question about the decremental margins both in the quarter and the year. For the year, it was almost 50%. For the quarter, it was above 70%. So just some commentary on what led to that, I guess, over-deleveraging that you've seen in the quarter and the year. I think maybe it has something to do with Brazil being more profitable than I thought it was potentially. But just any color you can provide us around the mixed impacts that are contributing to that deleveraging.

Yeah, Nathan, this is Brian. Yeah, when you look at the year-over-year decremental margins, it's entirely related to the international irrigation business when you look at North America, and we don't break this out, but I would say North America margins have maintained and even slightly improved this year. And when you look at last year, especially in the fourth quarter, it was a record fourth quarter for Brazil. And the amount of leverage we got on that additional volume and price obviously was very strong last year. So You know, very strong year last year in Brazil, this year off quite a bit. So, you know, that deleverage there is pretty significant. And then a little bit of the mix, you know, in the shift of less Brazil volume this year, we got the additional volume from the project business, which is, you know, slightly dilutive to overall margins as well. But the biggest single impact was the year-over-year Brazil changes.

Makes sense. Can you talk about the Middle East project that started shipping in the fourth quarter, like how much revenue shipped in the fourth quarter, how much ships in 2025? And I guess given that you're going to have growth in these international projects next year, and it's probably fairly likely that Brazil is going to be one of the weaker markets for you again in 2025, should we think that there's some mixed headwinds and additional day leveraging that we get in Brazil that create headwinds for margins in 2025?

Yeah. First of all, in the fourth quarter, we shipped roughly 14 million of the project. And next year, we anticipate roughly 80 million, which would be spread throughout each of the four quarters. So, You know, there is a dilutive effect because the margins on the, you know, the large projects like that are generally, you know, going to be below our normal margins. But if you look at it in context of the entire segment, you know, for the full year, clearly, you know, more to leverage on the gross margin line, but you get leverage on SG&A. So when you get down to operating margin, you know, for the full year, it's probably in the neighborhood of about 100 basis points of dilution.

And we should expect some additional headwinds from Brazil probably being one of the worst markets in 2025, or is that not your expectation that it will be one of the worst markets?

No, we expect, especially in the first two quarters of the year, to still see, you know, year over year, another leg down in Brazil. But as we look at the The full year, I think, you know, in third and fourth quarters, we would expect to get at least, you know, more flattish compared to this year. You know, so overall, yeah, we would expect Brazil to be down, you know, probably in that double-digit, you know, low double-digit area for the full year next year.

Great. I'll pause it and get back into Q. Thanks.

Our next question comes from Ryan Connors with North Coast Research Partners. Please go ahead.

Good morning. Good morning, Ryan. I wanted to actually push on the margins a little bit because you cite the negative volume leverage, but if I look at the gross margin, actually, we held up pretty well, close to 30%, but SG&A actually ramped pretty significantly year over year, 20% up in selling, about 10% up in G&A, so it seems like there's certainly some upward creep in cost in addition to the negative leverage. So just want to try to reconcile that and if you can provide any color around the SG&A drivers as well.

Yeah, this is Brian. I would say on the SG&A side, one of the components is, you know, on these project businesses, you know, both in infrastructure and in irrigation, there's going to be sales commissions that are going to accompany those. So some of that increase is just related to sales commissions. You know, we also continue to invest in some of our, you know, R&D and technology development. And, you know, when you look at the project activity that we're seeing in the MENA region, you know, there's some additional resources that we've deployed to address that. But to offset that, we have taken action to reduce costs in some other areas where we can, but – you know, we'll probably see more of an impact in 2025. I would say just, you know, the other thing on the gross margin side that we talked about, not just the deleveraging of fixed costs, but we have spoken before about Brazil and how pricing has been under pressure in Brazil. And so that's also contributing to a bit of the margin compression.

discussed too much there. You're working on new business. But are we talking anything of order of magnitude as large as the current big MENA project or as a bunch of smaller ones? Just any color on kind of what that pipeline looks like, anything that's quite that large?

Yeah, good morning, Ryan. This is Randy, and I'll take that one. And I'd say there's a mix of projects. And being able to identify and pull another $100 million-plus through in fiscal year 2025, Not highly probable, but do we have a handful of smaller projects that add up to that sum? That's more than likely, but there is a strong mix here, several small ones, a couple of big ones. We like the funnel we see, and these aren't highly speculative. These are specific customers, specific pieces of ground. As we've said before, and you hear from others in the industry, these are incredibly complex, time-consuming, both on the deal itself, and sometimes we'll have a deal signed, and it could take several weeks, several months to work through credit approvals, terms and conditions. So we'll generally talk about the funnel being robust, and it remains that way, but we won't talk about specific projects until we know we've got terms and conditions agreed, credit secured, and we're ready to start building and shipping those units. But we do see an opportunity to cover a lot of that volume in the coming years.

Got it. Okay. And then just one last one for me. A bit of a housekeeping. Brian, you know, the tax rate's been sort of jumping around all over the place. I assume that has to do with the volatility and the different tax jurisdictions and the earnings contribution. But any help you can give us on kind of where we think about that coming in for fiscal 25? Yeah.

I think in the most recent quarter, just the shift in in income from Brazil being down. And then, you know, the project business, which we ship out of our Turkey facilities, which is in a tax-free zone. So that had an impact. But as we look in early in the year, we had the tax credits that also had a pretty significant impact. As we look forward to next year, given the anticipated blend in our earnings, I would say we're probably in that 25% range. you know, absent any, you know, other one-time kind of things. But I would say 25 would be where we expect to be next year.

Got it. Very helpful. Thanks for your time.

Our next question comes from Ryan Dratt with William Blair. Please go ahead.

Hey, good morning. Tyler here, filling in for Brian. Thanks for taking my questions. Starting off, could you elaborate on the progress of the road zipper funnel? Is this a tailwind from the IJA funds flowing through, or is this other federal funds? And how is the pipeline looking quarter over quarter? Then I'll have a follow-up.

Sure. You bet, Tyler. Yeah, the road zipper funnel, from our perspective, continues to build. And this is really a couple of things, momentum coming out of COVID when we really had to shut down some of those face-to-face meetings and And this really is a person-to-person sales process. So I think time now is on our side. We do see when the infrastructure investment and jobs act money goes to the market, we can see some increases in road zipper business as they start to deploy the projects, as they use the road zipper to manage through the construction period. So I think there are a couple of different factors providing some tailwind for us there. We continue to see new projects and new interests enter the funnel, and it's really a global funnel at this point as well. We've had a lot of success. In Japan, we've had a lot of success. In Italy that we've talked about. And this business is getting some of that momentum, which we'd love to see.

Great. That was helpful. And then I understand that large projects are dilutive, but can you kind of unpack how that all works? Is there anything new to the dynamic since the last time you had some strong project orders? And how do you expect that mix to look going forward between project sales and lease revenue? Thank you.

Yeah, if you're talking about the infrastructure side, Tyler, the project sales there are going to be accretive to margins versus international irrigation projects. So as we see projects moving through the sales funnel and expect to see some growth in 2025, we would expect that to be accretive to overall margins.

Okay, guys, thanks, Brian. That's all I have. I'll pass it on.

Next question comes from Brett Carney with American Reapers Opportunity. Please go ahead.

Hi, guys. Good morning. Thanks for taking my question.

Good morning, Brett.

Kind of addressed part of it already in the previous question, but was curious with the momentum in the infrastructure side of the business, is the outsized opportunity you see really, I guess, stateside? Or I know there have been some similar kind of physical infrastructure opportunities support packages passed and some of your other international markets, I guess both for road safety products as well as road zipper opportunities. How are you thinking about the opportunity set in fiscal 25 and beyond international versus domestic?

Yeah, Brett, this is Brian. I think as we look at 2025, you know, the growth that we're expecting next year is going to be primarily U.S., and again, a lot of that supported by just the additional funding that's in the sector. But as Randy mentioned, the funnel includes global opportunities as well. But just the near-term growth that we expect would be primarily in the U.S. And on the Road Zipper project sales side, there's potential outside the U.S. as well. But the near line of sight that we have is primarily U.S.-based.

Excellent. Thanks, Brian. If I can ask one more. Terrific to see the adoption on some of your new products, both the TAO XR as well as your connected offerings across both segments. I guess as you think about how your markets are evolving, anything you can share in terms of product innovation, both internal at Lindsay as well as potential external solutions That would make sense bringing into the Lindsay portfolio based on how you see the markets developing from there.

Of course, Brad, this is an area and key area of differentiation for us. Our investments in technology, those are the ones that we want to protect, you know, in the down cycle and certainly want to enhance when we can in the up cycle. We've made strategic investments in companies like FieldWise that are now integrated in the business and producing some outstanding results in the partnership and innovation that we see. We've announced minority investments for working through Pestle Instruments that brings weather and environmental monitoring into the mix. And when we talk to customers, this is an area that I think they really are counting on us to differentiate, to drive innovation, to improve their ability to conserve resources, to conserve energy. and really turn this technology into a profit maker for them. So when we see the types of growth that we see there, even in a down market, it really validates the strategy, and it's an area that we'll continue to invest in and hopefully continue to differentiate Lindsay in.

Great. Thanks so much, Randy.

Thanks, Brett.

Again, if you have a question, please press star and then 1. Our next question comes from John Brotz with Kansas City Capital. Please go ahead.

Morning, Randy, Brian. Hi, John. Randy or Ryan, can you talk a little bit about the level of maybe storm revenues that you saw this year and then maybe the impact the hurricanes might have over the next couple of months? Are you going to see some storm-related revenue from the hurricanes?

Yeah, John, I'll take the first part of that. This is Brian, and then Randy can speak about the second part of your question. But I would characterize this year, our fourth quarter, you know, storm damage activity being slightly above average. If you recall last year, we were below average in storm damage replacement following, you know, 2022, which was probably an all-time, you know, record for storm damage replacement. So relatively speaking, over a longer period, this was I would say above average. You know, we look at our unit volumes for the quarter, you know, being up. Without the storm damage, you know, we would have probably been down, you know, low single digits. So it did have an impact on the quarter. But, you know, when you put it in perspective of what it, you know, has been in other years, it's, I would say, again, slightly above average.

And I'll cover kind of the most recent activity in the southeast and talking with our dealers, with our field representatives, some of the insurance companies. You know, we estimate there's several hundred machines down across all brands in that part of the world. And a lot of those customers, as we mentioned in our opening remarks, there's not a rush to get a machine put back in there. We're at the end of the season. We're getting through harvest. So that volume is really going to start now and run right through spring planting. So we don't expect a huge spike in one month. It's not like a summer storm in the Midwest where they want to get those machines back on quickly. They're going to be replaced on a much longer timeline. We're also hearing from a lot of customers, mainly due to insurance, that there might be more repairs than replacement this time around. There's a big gap between kind of the insured price and the cost of the new machine. So this might be a replacement cycle where we see maybe more pipeline replacement structural parts purchases as opposed to completely new machines. But as I mentioned again in the comments, we're working very closely with our regional teams, our dealers, and helping those customers as best we can as quickly as we can.

Okay. Randy, secondly, you seem to be very positive on the EMEA region in terms of activity. And I sense maybe it's picked up a little bit maybe from last year or whatever, but But is there something maybe changing in the EMEA region that's supporting the additional activity, irrigation activity?

I would say that the interest in investing in irrigation connected to population growth, connected to food security, The motivation this year is consistent with last year and even the year before. Maybe some shifts in credit availability, access to capital. There's been some funding into that region that has now maybe given them more ability to invest and purchase than they've had historically. But I think those long-term secular drivers and motivators, they're as strong and as positive as they've ever been, just maybe more ability now to execute those because the funds are available to them. But that is going to continue to be, as we've said, as others have said, a pretty significant growth opportunity for the industry. And we like the way that we're positioned. We like our competitiveness, our ability to identify, compete, and win, and then execute those projects very well. Okay. Thank you, Randy. Bye, John.

Thank you all for joining us on today's call.

I'm proud of our performance in the quarter and full fiscal year and pleased with the continued operational execution demonstrated by our teams around the world. Our focus on price and cost management have supported our underlying results in a cyclically challenging market. While we're managing costs, we continue to invest in innovation to grow our installed base and annual recurring revenue in both the irrigation and infrastructure segments. We'll continue to leverage our strong balance sheet to invest capital in our facilities around the world to improve safety, productivity, and efficiency. We look forward to updating you on our progress at the end of our fiscal 2025 first quarter. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.