Lindsay Corporation

Good day and welcome to the Lindsay Corporation's fiscal third quarter 2025 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 fiscal 2025 third quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. I'm extremely proud of our team and their execution, delivering our third consecutive quarter of year-over-year growth in both revenue and operating income. Our employees are diligently focused on supporting our customers and each other. These results reflect the strength of our global business and our team's commitment to execution excellence. Our irrigation business delivered year-over-year revenue growth, led by strength in our international markets including Latin America and the Mideast and North Africa region, while the domestic irrigation volume was comparable to the prior year. We continue to deliver our large project in the Middle East and are pleased to announce we have secured a new project in the Territory valued at over $20 million. This project will begin shipping in our fiscal fourth quarter and will continue into our first quarter of fiscal year 2026. Turning to our infrastructure segment. Our team delivered another solid quarter, primarily driven by road safety products as we enter the road construction season here in North America. Our focus remains on growing both our road safety products and road zipper system businesses, particularly leasing, as this supports a more stable revenue profile for the segment and our overall results. Shifting gears to market outlook. In North American irrigation, we're now in the primary growing season, where weather conditions influence crop yields, prices, and net farm income for the year. These factors play a large role in determining future demand for irrigation equipment. While the USDA is projecting an increase in net farm income for this year, most of that growth is related to direct government payments for disaster relief and commodity price support. Crop revenue is projected to decline, And at this point of the storm season, we have seen softer demand relative to the prior year. This tempers demand expectations for North American irrigation heading into our fourth quarter. In our international irrigation markets, particularly Brazil, we're encouraged by continued signs of improving market conditions. I traveled across Mato Grosso and Goiás states earlier this month and can confirm that customers in this region are ready to expand irrigated acres as the availability of affordable credit expands and the country's energy infrastructure grows. The federal government raised the benchmark interest rate by 25 basis points earlier this month, and it now sits at 15%, which is the highest rate since July of 2006. We do expect next year's crop plan to be released in July, and the market outlook will be impacted by the rate and amount of funds made available through the program. We continue to see a strong project funnel in the Mideast and North Africa, and as I mentioned earlier, we did secure another project in this region and expect to see continued growth as countries across the territory prioritize food security and water resource conservation. In infrastructure, we continue to see opportunities develop across road zipper system sales, leasing, and road safety products. Infrastructure funding in the U.S. remains steady, and while project timing can shift quarter to quarter, our funnel of project opportunities remains robust. While additional project sales are on the horizon, the timing of these more complex sales remains uncertain. Our global operations and supply chain team continue to navigate an evolving tariff environment while leveraging our global footprint to mitigate the impact on our business. Actions including supplier collaboration, strategic inventory placement, resourcing and pricing have allowed us to manage through this period well. In the area of technology, Our collaboration with Pestle Instruments continues to create customer value. By combining FieldNet Advisor with Pestle's infield environmental centers, we're providing more precise and real-time agronomic insights that allow for more accurate irrigation scheduling decisions. This integrated approach has driven notable growth in cross-selling opportunities. The partnership is deepening our expertise in agronomic decision support, strengthening our data-driven product suite, and advancing our position as a leader in precision irrigation. I'd like to now turn the call over to Brian to discuss our third quarter financial results. Brian.

Thank you, Randy, and good morning, everyone. Consolidated revenues for the third quarter of fiscal 2025 increased 22% to $169.5 million. compared to $139.2 million in the prior year. Revenues grew in both the irrigation and infrastructure segments compared to the prior year. Net earnings for the quarter were $19.5 million or $1.78 per diluted share compared to net earnings of $20.4 million or $1.85 per diluted share in the prior year. This year-over-year decrease in net earnings resulted primarily from the recognition of a one-time income tax credit in the prior year of $4.8 million, or 44 cents per diluted share. Excluding the impact of the tax credit on prior year results, current year earnings per share represents an increase of 26% over the prior year. Turning to our segment results, irrigation segment revenues for the quarter increased 25% to $143.7 million compared to $114.8 million in the prior year. North America irrigation revenues of $69.1 million increased 1% compared to $68.2 million in the prior year. Unit sales volume of irrigation equipment was comparable to the prior year, while average selling prices were up slightly. This increase was partially offset by the mixed impact of slightly shorter machines on average compared to the prior year. Increased demand for irrigation equipment in specialty crop markets in the Pacific Northwest offset softer demand in corn and soybean markets and a lower level of storm damage replacement activity compared to the prior year. In international irrigation markets, revenues increased 60% to $74.7 million compared to $46.6 million in the prior year. The majority of the increase resulted from revenues related to our large project in the MENA region, along with higher sales volumes in Brazil and other parts of South America. These increases were partially offset by unfavorable effects of foreign currency translation of approximately $2.5 million compared to the prior year. Irrigation segment operating income for the quarter of $27.2 million increased 39% compared to the prior year, and operating margin was 18.9% of sales compared to 17% of sales in the prior year. Operating income increased due to higher revenues and favorable leverage of fixed operating expenses, while being partially offset by a higher amount of international project revenues which resulted in some dilution to operating margin compared to the prior year. Infrastructure segment revenues for the quarter of $25.7 million increased 6% compared to $24.4 million in the prior year. The increase resulted primarily from higher sales of road safety products, while road zipper project sales and lease revenues in total were comparable to the prior year. Infrastructure segment operating income for the quarter was $5.4 million compared to $6.3 million in the prior year. And infrastructure operating margin for the quarter was 21.1% of sales compared to 25.8% of sales in the prior year. Lower operating income and operating margin resulted primarily from a less favorable margin mix within road zipper system revenues compared to the prior year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the third quarter was $261 million, which includes $211 million in cash, cash equivalents, and marketable securities, and $50 million available under our revolving credit facility. The strength of our balance sheet and ample access to liquid capital resources continue to serve as a strategic asset for Lindsay as we execute our capital allocation strategy to create enhanced and sustained value for our shareholders. This concludes my remarks and at this time I'll turn the call over to the operator to take your questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are 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 two. At this time, we'll pause momentarily to assemble our roster. And your first question comes from Kristen Owen with Oppenheimer. Please go ahead.

Good morning. This is Mason Manwar on for Kristen. We wanted to ask about your international business. Over the short term, can you help us understand what, if any, impact the recent flare-up in the Middle East could have on your large project activity? And then on the longer term, I'm wondering if you can help us understand What are you thinking about the long-term growth opportunity in Brazil? We're hearing a lot of optimism around the rebound sentiment in the region, but also a rigid expansion from a competitive standpoint.

Yeah, good morning, Mason. This is Randy. I'll go ahead and take that one. And I guess I'll start by stating, obviously, like everyone else, we're hoping for a peaceful resolution on the conflicts. in the Middle East and transitioning to the impact on large project activity. We don't see a lot of direct impact in the short term, and certainly the long-term fundamental drivers that are related to food security remain intact, so we don't expect at this point any significant disruption in our ability to deliver existing projects or continue working the funnel to exit new projects in the region. And relative to Brazil, you broke up a little bit there in the middle, but I'll cover what I think I heard. The long-term growth opportunity in Brazil, from our perspective, is significant, and we've made that comment before. We still have that view. I was fortunate to travel in the region earlier this month, and it really does confirm what we hear, what we read, what we see from our dealers and our sales teams in the region. And right now, we would put Brazil kind of mid-single digits in terms of irrigation adoption. So, we're not only projecting growth on new ground coming into production, but certainly improving the yield and productivity of ground that's already under production. And we've often said, you know, as credit conditions become more attractive, we'll certainly see continued investment in growth. We're hearing a lot of territory now where, you know, energy has to catch up so that they've got the ability to power pumps and pivots in the region. But if we had to rank, you know, where we see the strong, sustainable, consistent growth opportunities in the world, Brazil is certainly going to be near the top of that list.

Thank you for that. A quick follow-up. One of the things we're watching across both ag and infrastructure markets is the extension of the Trump tax credits and, in particular, the reinstatement of bonus depreciation. Can you provide your thoughts on how it might impact your demand outlook in both irrigation and road zipper business?

Yeah, Mason, this is Brian. You know, I think the – the tax credits and the accelerated depreciation, bonus depreciation. It's going to be more impactful for the irrigation business, probably not as much on the road zipper side of the business. And really, it's all about, you know, farmer income and the ability to shelter that from taxes. And I think from our standpoint, you know, maybe not a an overall increase in demand. But I think the timing of that demand, you know, so you could, if the bill gets passed, you know, this year, you could see some demand later in the calendar year this year that might have, you know, been projected to be in the spring of next year. So I think it can shift the timing around. But overall, it's still definitely supportive of investment in our equipment.

Thank you for taking my question.

And your next question comes from Ryan Connors with North Coast Research. Please go ahead.

Good morning. Thanks for taking my questions.

Good morning, Ryan.

So I wanted to stick on the ag business for a few. And first off, just on the pricing front, you talked about price being a slight tailwind. That seems like a bit more constructive than we've had the last few quarters. So any color there? Was that regional in nature? You mentioned that Northwest was strong. Just any additional color on the pricing would be helpful.

Yeah, Ryan. I would say, you know, we've stated before, you know, when the tariff information, you know, came out and then, you know, we saw some of the steel market in the U.S. go up. You know, we've been proactive at addressing price and taking pricing actions. So, I think at this point, you know, I would say it's a slight impact on, you know, revenues. But I think, you know, we're kind of getting ahead a little bit of the cost impact there. So, you know, certainly some support on the margin side there. But that's been really in the U.S. is where we've seen the pricing actions.

Understood. Okay, and then, you know, you mentioned in the press release, and you mentioned it as well, Brian, this notion of shorter machines as, I guess, a tailwind to – or excuse me, a headwind, rather. So anything that's driving that, anything to note in the mix that's structural, that's changing there, or is that just sort of happenstance at the moment and that's the way it's going? Or is there anything we read into that? Because I noticed you mentioned it a couple times.

Yeah, and it's really a regional – thing primarily and mentioned pretty strong demand in the Pacific Northwest in our third quarter. And that's where we're seeing some of the shorter machines, which influences the overall average. And there you've got large farms that have had pivots in and as they add land and maybe they cover the corners with shorter machines, that's kind of what's really driving it. You don't see that as much across the broad Corn Belt, but in the Pacific Northwest region and some in the southeast as well. You've got some shorter machines.

Got it. Okay. And then kind of a bigger picture question, you know, Randy, you alluded to the fact that, you know, net farm income is going to be up this year, but a lot of that is government supports and that, you know, the adage is that growers aren't going to spend that money the same as they will spend crop receipts. But in a drought scenario like we have going on in parts of the Midwest, especially a pivot-heavy area, region like Nebraska, could we actually end up seeing a lot of that money flow into irrigation? I mean, if the money is coming in from the government and you sort of need – and it's certainly a priority at the moment, I would think, for some of these growers to make sure they can get a crop up.

Yeah, Ryan, I wouldn't say in our view that the drought is going to drive a lot of new machine purposes. We're a pretty mature market here. in the Midwest. So I know we had some machines start up maybe a little earlier to germinate a crop when we didn't have those early spring rains. So we might see more hours this year. That could lead to more, you know, parts business, certainly some service business for our dealers. But I wouldn't correlate that to, you know, a significant or noticeable increase in machine demand. And I can say in, you know, the eastern part of the state at least, we've had a significant amount of rain here over the last seven to ten days. So I think that the longer-term threat of drought could be abating slightly as well.

Sure. And then just one last one, if I could sneak it in. On the new $20 million MENA project, should we assume the margins on that are roughly equivalent to the margins on the other big MENA project you've been shipping?

Yeah, I think that's a fair assumption. I mean, it's a smaller project, but I would say – Given the fact that we're going to start delivering that at the same time we still have the larger project, I think we'll see comparable margins.

Yep. Okay. Great. Thanks for your time.

Thank you.

And your next question comes from Brian Drab with William Blair. Please go ahead.

Hey, good morning. Thanks for taking my questions. And I just wanted to Start with, you know, following up to that last question. The $20 million project is a little bit smaller than, as you pointed out, than some of the other ones that you've been doing in that region. Is that the beginning of a trend, possibly? Why is it coming in maybe smaller pieces in this case? And do you, you know, in winning that project, were there discussions of other pieces to maybe a larger project, and do you have visibility to, you know, the next phases?

Yeah, good morning, Brian. This is Randy. Thanks for the question. I'd probably answer the question this way, and we talk a lot about the funnel, and I think others that are active in the region have as well. And when you look at kind of the Pareto on everything that's in there, there's going to be more of these $20, $30, $40 million projects than there are the $100, $150-plus million projects. Those megaprojects are going to be certainly a smaller number. So if you look at a trend, I wouldn't say it's a trend where the megaprojects are getting broken down into smaller projects. These are different customers, different parts of the region with maybe different projects you know, availability of land mass to them. So not a trend where we'd say everything's going to shift to these small ones. We still see some of those mega projects working their way through the funnel. From a quantity perspective, I think we are going to see more of these smaller projects over time. But it's not big customers getting small. It's different customers, different parts of the region.

Okay. Thanks very much. And then on Brazil, your comments today, you know, and what we're seeing in Brazil kind of has, me feeling slightly more cautious about the near-term outlook in Brazil. I'm wondering if that's what your sense is as well. I mean, you talked about the rate being the highest it's been since 2006, 15%. You know, I guess the question is just are you incrementally more cautious on Brazil here for, you know, for the second half of calendar 25?

I think as we see in a lot of markets, there's a combination of tailwinds and headwinds that are kind of battling it out, and I think in Brazil, we still see the fundamental market there when you can grow three crops when you irrigate and two when you don't. Soy prices remain strong and that access to affordable capital, that's the one thing right now that's maybe keeping a lid on that market. So in the near term, near term being today, maybe slightly more cautious, but we also commented that next year's crop plan should be released in the first part of July, that's going to be a major source of affordable funding for our customers. So depending on where that rate is and the amount of total funding that's available, I think that that short-term cautious optimism could transition quite quickly. And we know that that market, from a long-term perspective, is going to continue to see growth and ongoing investment. So I don't think it's tempered demand to the point that we're even remotely concerned, Brian. But until we see what next year's crop plan looks like, I think it's – For the most part, a lot of customers are kind of in a wait-and-see approach now, but that wait-and-see is, you know, 10 to 14 days.

Okay, thanks. Appreciate it very much.

You bet. And your next question comes from John Bratz with Kansas City Capital. Please go ahead.

Morning, Randy, Brian. Morning, John. Brian, can you tell us a little bit about – I mean, tell us – how much was delivered on the large project this quarter and what remains? And then from a bigger picture standpoint, is there enough opportunities out there for you to offset sort of the completion of the large project as we look into next year?

Sure. Yeah, first of all, we were able to deliver a little bit ahead of schedule in the third quarter, so I think we've been talking about $20 million a quarter. we did about 24 million in the third quarter. So that potentially, you know, pulls forward what we were expecting to do in the fourth quarter. So maybe there's 16 in the fourth quarter and then the remainder, you know, which could be another 15, 16 million that rolls into the first quarter of next year. So that's been really delivering as expected. Like I said, we were able to get a little bit more of that out in the third quarter. But the second part of your question, I mean, I think as Randy talked about, you know, the project pipeline and, you know, both the combination of large and small. I mean, small – I kind of have to laugh when we talk about a $20 million project being small. I mean, in the past, a $20 million project would be a pretty good-sized project. But – But there's enough projects in the funnel to, you know, fill the gap from the large project that we have this year. I think the big question, as we always talk about, is the timing and the unpredictability there. And a lot of factors go into when, you know, a project can get started, whether it's infrastructure or whether it's getting the, you know, the funding in place and things like that. But we – You know, there's ample opportunity there to certainly fill that gap and continue to have a, you know, project business in that part of the world.

Okay. Second question is, you know, in the past, we're speaking of North America, North American pivot sales seem to have been somewhat correlated with what we're seeing in terms of sales. volumes at John Deere and the big equipment manufacturers. And this year, there certainly hasn't been a disconnect. Your volumes have been flattish and their volumes have been off considerably. You know, what might be driving that? And I know you talked a little bit about the Pacific Northwest. Is it sort of more irrigation, more pivot sales in regional markets and outside of the big row crops?

Yeah, I'll take that one, John. I think there's a couple things. The mix that you're talking about regionally, I think certainly plays into it. One of the other factors is that just fundamentally, we've got different go-to-market models. And when you talk about, you know, John Deere, and they'll talk about destocking the channel. So their revenue is recognized when it ships to a dealer. The dealer is going to hold inventory and sell that at retail. And for us, we basically ship from the factory to the field. So we don't have that destocking mechanism yet. through our channel, but I think a lot of those equipment OEMs have to deal with when we start to see the market downturn.

Okay. Okay. All right. That's it. Thank you very much.

Thank you, John.

Thanks, John.

Again, if you have a question, please press star, then 1. And your next question comes from Nathan Jones with Stiefel. Please go ahead.

Good morning. This is Adam Farley on for Nathan.

Hey, Adam.

Adam. I wanted to follow up on. Hey, good morning, guys. I wanted to follow up on the price-cost discussion. Are you seeing any impact from the increase in the steel and aluminum tariffs? And then, do you have any expectation for near-term steel costs?

Yeah, Adam. This is Brian. I would say at this point, we've had, you know, little to no impact from the steel. I mean, we had seen initially when the tariffs were announced, you know, the domestic steel suppliers increasing price. Some of that was some artificial demand created with companies stocking up on inventory and things like that. But this most recent announcement of the 50% tariffs, you know, we just haven't seen any price increases sticking at this point in time. I don't think that demand is there to support, you know, the domestic steel increases. I would say from a cost standpoint, as it relates to steel at this point, limited impact. And, you know, as it relates to the other tariffs, I think it's still in that, you know, what we talked about before in that mid-single-digit kind of impact. And as we mentioned earlier, we have taken some pricing actions in anticipation of that cost impact.

Thanks, Brian. That's helpful. And then I wanted to follow up on the progress around the modernization of your Lindsay Nebraska manufacturing facility. I'm asking the question because margins have been pretty robust this year, and I'm wondering if you're seeing realized savings from that modernization.

Yeah, I'll maybe start, Adam, and kind of give you an update on the progress, and Brian can maybe go a little deeper on some of the numbers and We had the opportunity to take our board there earlier this week and kind of do a tour on the investment progress, and things are going extremely well. We've been blessed with good weather. We've been blessed with a great team, supplier support working on execution, and I can say that Everything is on track on the timelines that we expected, and I think the quality of the equipment, of the facilities, the worker environment, the improvements in safety, the improvements of efficiency, everything looks like it's going to deliver quite well versus our expectations. And maybe turn it over to Brian to be a little more specific.

Yeah, Adam, in terms of the margin improvement that we're seeing, and specifically to the third quarter here, If I were to characterize it in order of magnitude, I would say, you know, first of all, the volume leverage that we have in the international business and the leverage, you know, in our Turkey facilities, probably the largest single driver. But operational efficiencies, I would say, would be the next contributor to the margin expansion. And you're seeing that, you know, in our main factories in Brazil, Turkey, and in the U.S., we're seeing some operational efficiencies. And then a third thing that's contributing to margin expansion that we've talked about at some point, you know, is being supportive. I think our growth in subscriptions and the recurring revenue there, we are seeing, you know, that start to impact and help from a margin standpoint.

Okay. Thank you for taking my questions.

Thank you.

Seeing no additional questions, this concludes our question and answer session. I would like to turn the conference back over to Randy Wood for any closing remarks.

Thank you all for joining us today. We are very pleased with our year-to-date results and our third quarter performance. Our teams continue to execute well, and we are positioned to manage through the market headwinds in our domestic U.S. irrigation market while leveraging opportunities in the expanding international irrigation regions. Our road zipper funnel will continue to drive long-term growth and our global footprint and supply chain will allow us to effectively manage through tariff uncertainty. This concludes our third quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2025 year. Thanks for joining us.

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