Good morning. My name is Vaishnavi and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation first quarter fiscal year 2022 earnings conference call. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note, this event is being recorded. During this call, management may make forward-looking statements that are subject to risks and uncertainties which reflect management's current beliefs, estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by, followed by or including the words expectation, outlook, could, may, should, or similar expressions. For these statements we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. And I would now like to turn the conference call over to Mr. Randy Wood, President and Chief Executive Officer. Please go ahead.

Thank you and good morning everyone. Welcome to our first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I would like to start by once again thanking our employees around the world for their continued resiliency and focus during the global pandemic. Our manufacturing teams continue to operate safely and efficiently around the world while our non-manufacturing resources continue to maintain productivity and efficiency by working from home or the office. We greatly appreciate all you are doing to support our dealers, distributors, and customers around the world. Turning to the current operating environment, material cost increases and supply chain constraints continued to impact our business, and we expect that to persist through the spring and summer seasons for our irrigation and infrastructure products. Our teams continue to work diligently to offset these risks while minimizing customer impact. We have been able to leverage our sourcing talent and global footprint to take advantage of the strong market demand, and we continue to pass-through cost increases and see a rational pricing environment in the market. In the area of innovation, we continue to enhance both the FieldNET and RoadConnect platforms. We see growth in adoption of these technologies that reduce labor and improved efficiency for our customers. We are also pleased to announce that Mike Stern, former Head of The Climate Corporation and Digital Farming for Bayer has joined our team as an Innovation Advisor, reporting directly to me. Mike is a pioneer and trusted expert in the ag-tech space and his guidance will prove invaluable as we continue to expand our product offering and leverage partnerships to deliver value for our customers. And Mike’s personal views on sustainability and environmentally sound management practices align well with our mission and progress. We are also very pleased…

Thank you Randy and good morning everyone. Total revenues for the first quarter of fiscal 2022 increased 53% to $166.2 million compared to $108.5 million in the prior year quarter. Net earnings for the quarter were $7.9 million or $0.72 per diluted share compared to net earnings of $7.1 million or $0.65 per diluted share in the prior year quarter. Net earnings for the quarter were reduced by an after-tax LIFO impact of approximately $4.5 million or $0.41 per diluted share while net earnings in the prior year quarter included an income tax benefit of $1.7 million or $0.16 per diluted share related to the release of a valuation allowance in a foreign jurisdiction. Irrigation segment revenues for the first quarter increased 67% to $145.9 million compared to $87.4 million in the prior year quarter. North America irrigation revenues of $79 million increased 50% compared to the prior year quarter. The increase in North America irrigation revenues resulted from a combination of higher irrigation equipment unit sales volume and higher average selling prices. In the international irrigation markets, revenues of $66.9 million increased 94% compared to the prior year quarter. The increase in international irrigation revenues resulted primarily from higher unit sales volume along with higher selling prices and a favorable foreign currency translation impact of $1.1 million. The largest sales volume increases were in the Brazil, Middle East, and Europe markets. Total irrigation segment operating income for the first quarter was $17.2 million, an increase of 62% compared to the prior year quarter and operating margin was 11.8% of sales compared to 12.2% of sales in the prior year. The impact of higher irrigation system unit volume was partially offset by the impact of higher cost of raw materials and other inputs. While we have been successful in passing…

[Operator Instructions]. The first question comes from Nathan Jones with Stifel. Please go ahead.

Good morning, everyone.

Morning Nate.

Morning Nate.

Maybe if you could just start on some of the supply chain issues to beat the dead horse for another quarter. You guys are saying the backlog in the irrigation increased. You are at a seasonally slow period. Can you talk about how supply chain is at the moment, whether it's getting worse, whether it's getting better, and how confident you are on your ability to ramp up with volume as we go into the seasonally strongest spring selling season?

I will cover that one, Nathan. And in supply chain issues, obviously you see these across industries right now, and we are no different than anyone else. It's a daily task of our sourcing organization to identify where shortages might exist and then fight to find supply to keep our factories running, and we have really benefited, in our opinion, from our global footprint, and we have the ability to move supply around as the market dictates. And a good example is a market like Australia and New Zealand that would generally get most of their supplies here from the U.S. We have been able to divert that supply to factories in Turkey and South Africa to open up some additional capacity here. So, the supply chain constraints, we do see those persisting through spring and summer into next year, but our teams are working daily to make sure they don't disrupt our ability to meet demand, and we are in a good position based again on our global footprint to meet the demand that we see for this coming season, and then we’ll have the ability to adapt on the upside or the downside.

So you don’t see supply chain as limiting your ability to ramp up with the seasonality and revenue?

We do not right now.

Great. And then maybe one for Brian on the LIFO charge. We have seen steel prices start to come down pretty significantly, particularly in the U.S. over the last few months. Do you have an expectation for what the LIFO charge might be in the second quarter, and when we should start seeing these LIFO charges disappear?

Yes. Well, let me first start with just explaining a little bit about the LIFO impact because I am not sure that it's well understood by everyone. Yes, we are under LIFO, the LIFO method of accounting for inventory, which very few companies are anymore. But under LIFO in an inflationary environment like we have had, the most recent purchases and higher priced purchases flow through cost of goods sold right away whereas if you are under FIFO, those higher costs would be included in your ending inventory valuation. So, what we saw in our fourth quarter is, we had called that about, well, it's the same number of $6 million total LIFO impact where ending inventories, had we been under FIFO would have been $6 million higher. Going into the first quarter, what we saw was at the end of our first quarter that difference between FIFO and LIFO was actually $12 million. So, we did have the $6 million for the first quarter that that rolled through as a benefit in the first quarter, but it was offset by an additional $12 million of inflation. So, the full impact of inflation, we really started to see the increase of it in our fourth quarter. It's continued on into the first quarter. To your point about steel, it's really been the hot rolled coil that we started to see that moderate and reduce really toward the end of our first quarter into our second quarter, but at the same time we have seen continued cost increases in structural steel and other components. So, we are still in an inflationary environment. As we look forward, you know to our second quarter, to your question on that anticipated LIFO impact there, we may see the hot rolled coil continue to soften, but other items continued to increase. So, I would expect to have a similar LIFO impact in our second quarter because I don't expect our inventory values to decline between now and the end of February where we could start to see more of the benefit would be in our third and fourth quarters.

That's very helpful. Thanks. I will pass it on.

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

Hi. Good morning. I thought maybe I could start by just asking about the international irrigation segment and what you are seeing, first of all with the Egypt project? How that's progressing? It looks like since you announced that project, you have had a step function increase in international irrigation revenue. So, I assume that’s going well, but an update would be great and what are you seeing in the other markets and just any trends there?

Sure, you bet, Brian. This is Randy. I will take that one. Egypt project is going very well. Deliveries moving through the system. Erections, installations, operations going very well locally. It's become obviously a very important market in the international scope of our business, and we do see continued opportunities there and executing well on our current project. We feel it certainly puts us in a good position to compete and win for future projects, as we stated. And the rest of the international markets, you really see two trends that we have talked a lot about here. One is those more mature-ish markets like Brazil, Australia, and New Zealand. We see a lot of the same strong market fundamentals connected to our net farm income connected to strong commodity prices globally. So, we see sustained growth there. In the project-oriented or developing markets, we go back to those macro trends on food security, diversification of GDP, and still continued ongoing private investment in those markets. So, we are in an environment now where we see good strength, good opportunities in both those developed and developing markets, Brian.

Great. Thanks. And now on irrigation, you are coming up on the tough comps. And I am wondering with corn prices still being near $6, as you just mentioned there's a positive sentiment largely driven by the higher commodity prices. Do you expect the irrigation segment to continue even with these tough comparisons that you are coming up on, like the 30% next quarter and then 50% and 60%? Can you grow on top of those comps?

Yes. Brian. I will take that. I think we see the continued demand. Obviously, last year very strong demand and I think some of that demand got pulled forward a little bit with the rapidly increasing steel costs and other costs, but we still feel that that year-over-year unit volume growth won't be as strong in our second and third quarters, but we still have the benefit of the higher pricing. We don't anticipate prices to drop just given the continued inflationary environment we have. So, we would see domestic market growing driven primarily by price, but still having some unit volume growth. And as Randy mentioned, in the international markets we continue to expect strong growth there.

Okay. And then just continuing along that line of thinking on pricing. What did price? Can you tell us, at least roughly, what price contributed to revenue growth in each of the segments in the first quarter?

Yes. Starting with the domestic irrigation business and just related to the pivot, revenue price was in the mid 40% range. We had a volume increase in the mid teens. yes some of our other service part subscription revenue did not grow as much. They were up but that's what drove that the domestic revenue increase. On the international side, by and large it's a volume increase. We have had similar inflation in Brazil that we have seen in the U. S. But unit volumes in Brazil were roughly double what they were last year. And pricing probably in that 50% range. So it's a pretty significant price increases in Brazil. But by and large, volume is what's driving the international revenue.

Okay. And on the infrastructure side, you also mentioned in your prepared remarks price increases. Can you add some granularity to that comment?

Yes. I think on the infrastructure side, price is going to be less impactful as the driver in revenue in that case, I mean talking about the lease revenue on Road Zipper and some of the project-type business which we really didn't have any in the quarter. It was the road safety products and I would say road safety products price increase year-over-year is probably in the 20% range.

Okay. Thanks very much. I will I will pass it on.

The next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, Randy Brian.

Hi Jon

There are some economic angst in Turkey and I know you have a facility there. The Turkish pier is down significantly. Is that impacting your business at all in Turkey and your ability to meet orders and produce?

Yes. Jon, this is Brian. Yes, despite the valuation in the Turkish Lira, it's really, I would say, had minimal impact on our business. Our functional currency in Turkey is the U. S. dollar. It's really a business that's set up to be an export business for us. So all of our sales are based in U. S. dollars and most of our significant input costs are also in U.S. dollars. The exception to that would be labor costs and it's really the devaluation has been more impactful for our employees and inflation and some of their daily needs and purchases. So we have had wage inflation or we expect to have further wage inflation in Turkey. But that is again offset, when you translate that back into U. S. dollars. So again, minimal impact on our business at this point.

Okay. Thanks. And then Brian, when you look at the third quarter results, again cost are a little bit above your price increases. On net, how much costs were unrecovered in the quarter? Can you give us an idea?

I would say, John, in both the domestic market and our Brazil market which we have called out before is having a little bit of a lag until we get the full price realization. So I would say, by the end of our quarter or even during our quarter, we were where we needed to be from a price standpoint, given the information that we had expected. So if there's further inflation like we are seeing, we will have further price increases. But I don't think it was outside of the LIFO which we obviously have had a little bit more of a timing difference. But I would say that the pricing headwinds have subsided at this point. Again, further inflation will require further price increases.

Okay. Thank you Brian.

The next question comes from [indiscernible] with [indiscernible]. Please go ahead.

Hi. Good morning. Thanks for taking my question.

Good morning Brad.

I was curious what the opportunity set looks like for you all on the M&A landscape? And I know there is highway products business that transacted recently. Curious, if that's the type of asset you all evaluate? Or what is the kind of like a best fit that you guys are looking at on that front?

Yes. Brad, this is Brian. I would say, where our main focus is from an M&A standpoint would be more aligned with our irrigation business and more specifically anything you know related to technology and building out our capabilities on the irrigation technology side. Broadening that a bit, we are a technology and water where there's a connection there, not necessarily looking to add to our road safety products portfolio. I think on the infrastructure side, as we stated before, anything that would help us with Road Zipper growth because that's where the portion of the infrastructure that we are really focused on growing to high value, high margin product where we see a lot of growth opportunities there. So hopefully that helps.

Yes. it's very helpful. Thank you very much.

The next question is from Ryan Connors with Boenning & Scattergood. Please go ahead.

Great. Thank you. I want to sort of explore the supply chain dynamics on a couple different angles. The first is, have you had any kind of sort of component switching where you have had to switch out to different suppliers and different types of chips and things like that, especially in the FieldNET side? And were any other significant sort of alterations to the component base for the supply chain that they could potentially at some point in the future manifest itself in terms of product quality issue or warranty issue or anything like that? I mean, is there anything that's been switched on the fly that gives you any concern on that side?

Yes. I will take that, Ryan. And I don't know but I would describe it as a significant swap out. But like many companies we have really been leveraging engineering talent, sourcing and supply chain talent to allow us to respond quickly to any shortages that we see in front of us or shortages that we might see even months in advance. So I think we have got the systems and demand tracking solutions in place to really understand and be as proactive as we can to get in front of these, Ryan. And then I would say with confidence, nothing gets released without full validation. So while we are making some substitutions to allow us to meet the needs of our customers, I don't see that creating any risk at all for our future product quality.

Got it. Okay. Thanks for assuring. And then the other thing, one of the unique things about Lindsay is that even for the farm industry sector, your flagship facility in your name sake town of Lindsay, Nebraska, it's a very rural facility. That's why the prior management had moved the HQ to Omaha because it was a little old too off the beaten path. Curious, so how that impacts? How that facility has been impacted more or less by all these supply chain issues, given how far flung it is? And then also in terms of a labor front, is there sufficient labor force there? Or you have had issues staffing there? Just curious how that rural facility has held up in this environment.

Sure. You bet, Ryan. This is a facility. Obviously, it's the flagship facility for us around the world, our largest most vertically integrated facility. And I think when you look at the workforce quality in a rural work environment, we have got people that work in that facility that understand the importance of the products they are making to the customers that they will serve. So I think we like the work ethic of a good Midwest workhorse. We like the work ethic of a rural based workforce because again they understand how this equipment has to be used, how it has reduced more food for growing populations. So that's the mindset that we like. In terms of labor attraction, there is adequate workforce in the area and our human resources team has worked very aggressively to pull people in as we as them. We are implementing a number of lean initiatives to be more efficient and require less labor to produce the goods that will allow us to meet demand. We have the ability to work overtime. So we are in a good position, we feel, with the quality of the workforce and our ability to attract workers. With the supply chain specifically, it's really a similar answer. We are in front of the things that we think we need to be in front of. Our strategic sourcing group working aggressively, both short and long term, to be as proactive as they can and we don't see this creating any significant risk or being a detriment to the business overall.

Okie, doke. Thanks so much for your time.

[Operator Instructions]. Our next question comes from Chris Shaw with Monness Crespi. Please go ahead.

Hi. Good morning everyone. How is everyone doing?

Very good, Chris.

Just on backlog, you reported up quite significantly year-over-year and attributed it all to the irrigation business. But given sort of your comments or the numbers you gave our price volume for the quarter, just trying to gauge like how much of that increased backlog is pricing approximately? It would seem like it would be a lot of that, given what you said the pricing was for the quarter. But is that accurate?

Yes. Chris, this is Brian. Yes, first of all, I would just say on that increase in backlog, the domestic backlog is probably at a similar level to last year. And as recall last year, end of the first quarter, we had a significant increase in backlog. So I would say similar in the domestic market. So all of that increase or most of the increase, I should say, is coming from the international markets and again most of that would be volume related. Again at the end of November, there's always the timing on the domestic side. But there's clearly some price baked into there on the domestic side. But it's still roughly the same level as last year.

That's interesting. But there would be that much on the international high flying there. There wouldn't be that much of the Egypt project left in there,, right. I mean that's mostly been recorded?

Yes. There's I think we have roughly $10 million left to ship in the second quarter on that.

Now, there's a lot of new international products coming in there. That's great.

I would characterize that international backlog is really being up in all markets. again, the primary, the largest increase year-over-year is going to be in Brazil.

Yes. And if I could just ask, lot it is probably Mike stern back from Monstanto and Climate. Just you have talked a little bit about it as well. But if you could be looking at like M&A for tech stuff, could you, I know you just referenced that that's kind of an area where you are looking for M&A? Or if you kind of more supply channel, integrate your platforms maybe with other things out there like climate or whoever has stuff out there because I know he's very familiar with all the competing products out there in the ag-digital world. So I am just curious. Did you have any more detail there?

Yes. Mike's going to play a critical role in technology strategy or innovation strategy. It will include industry partnerships or it would include potential assessment integration of M&A. it will include voice of the customer work to make sure we are in front of market needs. So somebody with the experience and skills that Mike has, we are going to leverage human on a number of different and unique ways. But he is a big asset to the company and we can't wait to get started with him.

That's great. All right. Thanks for the help.

Up next is a. Follow up from Brian Drab with William Blair again. Please go ahead.

Hi. Just two quick follow-up questions. Randy, you mentioned Road Zipper project activity picking up in the second half of fiscal 2022. Is that quoting activity? Do expect revenue from some major projects in the second half?

Yes. A lot of these, Brian, are projects that they have been kind of delayed and deferred and pushed through COVID era. So these are ones that have been moving their way through the funnel, ones where we have got line of sight on funding. So we are moving to sales funnel exits in the second half of the year and just start to see some revenue recognition on those projects.

Okay. And I guess just the last one. Brian, eventually you are going to put this in the slide, if I think if I ask for another 10 years. But the question around the breakdown of irrigation geisha equipment sales, dry land replacement, et cetera, do you have that?

Yes. You are right. It would make it easier if I just put it in the slot. So yes, dry land in the first quarter was 25%, conversion 38% and replacement 37%.

Got it. Thank you very much.

At this time, there appear to be no more questions. Mr. Wood, I will turn the call back to you for closing remarks.

Thank you all for your interest and participation today. Megatrends, fueled by global food security, sustainable agricultural practices, infrastructure capacity and roadway safety, all create positive tailwinds and we remain optimistic about the growth potential for both the infrastructure and irrigation business segments. We continue to develop technology and innovation that makes our customers more efficient and productive, creating ongoing opportunities for recurring revenue and differentiation of supports customer attraction and retention. Our global footprint and ability to leverage capacity also put us in an advantageous position allowing Lindsay to capitalize on growth opportunities around the world. This concludes our first quarter earnings call. We look forward to updating you on r our continued progress following the close of our fiscal 2022 second quarter. Thank you for joining us.

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