Valmont Industries, Inc.

Hello, and welcome to the Valmont Industries second quarter 2020 earnings call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Renee Campbell, Vice President, Investor Relations and Corporate Communications. Ms. Campbell, please go ahead.

Thank you, Kevin. Good morning, and welcome to Valmont Industries' second quarter 2020 earnings call. With me on today's call are Steve Konieski, President and Chief Executive Officer, Avner Applbaum, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our second quarter results, a COVID-19 business update, and commentary on our strategy and long-term business outlook. Avner will review our second quarter financial performance and provide an update on our third quarter outlook with closing remarks from Steve. This will be followed by Q&A. A live webcast of the slide presentation will accompany today's discussion and is available for download from the webcast or on the investors page at valmont.com. A replay of today's call will be available for the next seven days. Please note that this conference call is subject to our disclosure on forward-looking statements Thank you, Renee. Good morning, everyone, and thank you for joining us. Before reviewing our strong second quarter results, I'd like to start with a couple of comments. Since the beginning of the COVID-19 pandemic, we have worked very hard to keep our employees safe

and have leaned on our core values and resiliency as a company to guide us. I want to start by thanking our 10,000 employees globally for their extraordinary efforts this quarter. They have worked tirelessly during this pandemic to deliver solid operational and financial results. They've demonstrated agility by quickly adapting to new ways of working and communicating, endured disruptions to their normal routines, and remained flexible despite closures of some of our international facilities. I'm extremely proud of how our teams have been managing through this crisis while taking care of our customers, themselves, and their families. I'm also grateful to our global customers, suppliers, and stakeholders for their ongoing flexibility and understanding during these unprecedented times. When we held our last earnings call three months ago, the challenges of the pandemic were just beginning to emerge and we were aware of only a few positive cases in our workforce. Since then, there have been additional cases, although the current infection rate of our employees remains less than a half a percent of our total workforce. I'm happy to report that all those who have tested positive are either recovering or have fully recovered. Importantly, to date, we've had no significant disruption to our operations directly attributed to the virus. With that, let me turn to a recap of our second quarter, summarized on slide four of the presentations. Net sales of $688.8 million declined $12 million, or 1.7% compared to last year. Excluding $13.7 million of unfavorable currency impacts, sales were flat. Strong growth in the utility support structure segment was more than offset by expected lower sales in the coding segment due to COVID-19 impacts and weaker industrial demand. Overall, both revenue and profitability were better than expected across all segments, as we successfully managed pricing and operational performance. Turning to the segments and starting with engineered support structures, sales of $253.4 million declined 2.1% compared to last year, and flat year over year when excluding unfavorable currency impacts. We delivered a solid quarter of sales growth of lighting and traffic products in North America, benefiting from ongoing investments by state and local governments that strengthen demand in transportation markets. Globally, wireless communication sales grew more than 7% compared to last year. Carrier spending continued to drive demand in North American markets, and our small cell products are beginning to gain traction as 5G build-outs are starting to ramp. Project sales in Europe, mostly driven by a large 5G project in the U.K., also contributed to revenue growth. Sales of Access Systems products were lower compared to last year, primarily driven by our strategic decision to exit certain product lines, as well as impacts from pandemic-led factory shutdowns. Turning to utility support structures, sales of $231.3 million grew 10.2% compared to last year. Sales of global transmission products increased significantly across all structure types amid ongoing investments to strengthen the grid. Volume growth was also driven by strategic capacity additions in North American operations that we announced last year. Sales in international markets, including solar trackers and offshore wind structures, were flat with last year. I'm pleased to highlight that the global backlog of nearly $650 million remains strong at the end of the quarter and includes a large lattice structures order of approximately $17 million for the North American market, a result of our partnership with Lockweld, a Canadian market leader for steel lattice transmission towers. Our lattice manufacturing facility in India is an exclusive subcontractor for Lockweld, and customers will benefit from both companies' combined expertise to provide quality structures, greater supply flexibility, and enhanced service levels. Production for this order will commence in the fourth quarter of 2020 with most of the revenue recognized throughout 2021. Moving to coatings, sales of $80 million decreased 18.7% compared to last year as expected. External volumes were lower due to COVID-19 impacts to end customers and temporary facility closures. Moving to irrigation, segment sales of $150.6 million declined 3% compared to last year. Excluding unfavorable currency impacts, sales were flat. In North America, sales were down 3.7%. Higher sales of irrigation products and pricing were more than offset by lower industrial tubing sales driven by lower steel costs. International sales grew organically across all regions. Thank you. Thank you. As many of you know, this show has historically generated a significant number of orders. Upon learning of the cancellation, our local irrigation team creatively organized their own exclusive virtual show spanning nearly two weeks, including webinars and virtual roundtables. This was a first in the industry, leading to millions of reais in orders received. We believe this affirms our position as the market leader Demonstrating our commitment to serve customers and grow market share. Turning to slide five. As we have communicated over the past several years, acquisitions have been a strategic focus of ours. I would like to take a few minutes to highlight two recent small but strategic acquisitions that advance our strategies of adjacent market growth and technology leadership. First, we purchased a majority stake in Solbras. A unique provider of solar energy solutions for the Brazilian agricultural market. Our strategy to expand their services globally through the strength of our Valley Dealer Network will provide us a first to market solar power offering for growers. Going to market as Valmont Solar Solutions, we can now offer a distributed generation solution for powering pivots and other farm equipment to optimize the efficiency of growers' operations and provide data monitoring solutions that are unmatched in the industry. Expanding this product into Africa, the Middle East and other developing markets over time allows us to offer innovative options where the electrical grid is lacking and or generation sources are not viable. These solutions also play an important role in reducing environmental impacts and supporting communities. Furthering our commitment to sustainability and ESG principles. We also acquired the assets of Precision King, a subscription-based ag tech company that provides remote sensing and monitoring solutions for the U.S. market. With this acquisition, our number of global connected devices is now approximately 102,000, and year-to-date technology sales grew to more than $32 million. We remain focused on acquisitions and investments that provide value to our customers through technology and data solutions, with an emphasis on bolt-ons that add to the larger ag tech ecosystem we're in the process of building. I would like to welcome both of these teams to Valmont. In prior quarters, I've spoken with you about Valley Insights, our artificial intelligence-based crop monitoring and detection service. Using imagery to detect crop health issues, this advanced service alerts the grower to problem areas for remediation. Together with our partner, Prospero Technologies, we recently expanded it to commercial growers in four states, and I'm excited to share that we have already reached our goal to monitor 5 million acres, six months ahead of schedule. More than 300 growers on 4,800 fields are now benefiting from the service, and feedback has been extremely positive. Recently, we began conducting field tests using sensors mounted on valley irrigation machines. Located just a few meters from the plant, these sensors collect high resolution images day and night, capturing significantly greater details than drone, aerial or satellite imagery can provide at a much lower cost profile. Examples are shown on slides 27 through 29 in the appendix of this presentation. These sensors are a key milestone in our strategic roadmap to transform the center pivot to an autonomous crop management machine, and we look forward to updating you more in future quarters. Importantly, and as we've said before, we attribute our success here to a very strong collaboration with our world-class dealer network, which is critical to grower education and market adoption of these technology products. I will now turn to slide six for an update on the specific actions we've taken to help mitigate the business impacts of COVID-19. First and foremost, the safety of our employees continues to be our number one priority. We remain vigilant in adhering to safe distancing procedures and processes in all of our facilities and work areas. We have continued our remote work policy across our administration teams where possible to limit the number of individuals at our manufacturing facilities. We believe these measured steps have prevented our factories from becoming a vector point for infections and are grateful for the health and well-being of our employees who are the backbone of our company, servicing our customers and keeping our factories operational. Turning to slide seven. A reminder that our products and solutions are considered essential as they support critical infrastructure sectors and food security as defined by many global government agencies. Most of our manufacturing facilities have continued regular operations since the pandemic began, and we are pleased to report that all facilities that were temporarily closed have resumed operations to pre-pandemic levels. From a macro standpoint, We continue to expect stable input costs, improved labor availability, and lower employee turnover. We recognize that there are potential longer-term economic headwinds in the markets we serve that could impact our businesses in the future. And we continue to work with our global teams to closely monitor market conditions and customer patterns. Turning to slide eight, as we outlined last quarter, the COVID impacts to our business vary across the portfolio. and are the basis for which we continue to assess the balance of the year. The risk profiles of the segments have not changed since last quarter, and Avner will speak to our third quarter indications and assumptions later in the call. Across our footprint, we continue to closely manage discretionary spending and capital expenses until the impact from the pandemic is more clear. As our business portfolio is diversified with different business cycles, Our experienced teams can withstand market challenges. We carefully plan for different scenarios and are confident in the actions and adjustments that need to be made and will execute accordingly as conditions dictate. With that, I will now turn the call over to Avner for a second quarter financial review and update to our third quarter outlook.