Hello, and welcome to the Lindsay Corporation Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] 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 earnings call. With me today is Brian Ketcham, our Chief Financial Officer. Fiscal 2023 marked a year of significant achievements for Lindsay. Our teams executed extremely well across both of our business segments, which helped deliver record full year net earnings and earnings per share results. Fourth quarter performance was highlighted by strong irrigation results, specifically in Brazil, which recorded record levels of revenue and operating income. Our commercial efforts, including price management, coupled with the efficiency initiatives and organic growth in our international regions helped drive record operating income and operating margins within our irrigation business. These strong income results were achieved despite difficult year-over-year comps and a lower top line when compared to 2022. Turning to market outlook. Similar to the comments I made last quarter, our market outlook for Lindsay's business segments and key end markets remains positive in the near term. As it relates to our North American irrigation end markets, current commodity prices and U.S. net farm income projections should continue to support healthy demand as we begin our fiscal 2024. While income for growers dipped slightly when compared to the record levels we saw, growers will be profitable this year. While customers did take a wait-and-see approach this spring, we're seeing evidence of a strong fall selling season based on year-over-year order trends. Within our international irrigation markets, we experienced strong growth during the fourth quarter, particularly across Brazil and South America. We expect international sales volume levels to remain robust in fiscal 2024 and supported by strong fundamentals in the mature markets and the continued expansion and project potential in the emerging and developing markets where irrigation presents significant opportunities for yield enhancement to address food security and weather…

Thank you, Randy, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2023 decreased 12% to $167.1 million compared to $190.2 million in the same quarter last year. Net earnings for the quarter were $19.2 million or $1.74 per diluted share, each growing more than 7%, respectively, compared to net earnings of $17.9 million or $1.62 per diluted share in the prior year. Total revenues for the full year decreased 13% to $674.1 million compared to record revenues in the prior fiscal year of $770.7 million. Net earnings for fiscal 2023 were $72.4 million or $6.54 per diluted share compared to net earnings of $65.5 million or $5.94 per diluted share in the prior fiscal year. Performance that marked year-over-year growth of 11% and 10%, respectively. As Randy mentioned, this level of earnings is a record for the company, which is significant as efforts we've made to enhance our profitability have taken hold, irrespective of lower year-over-year top line performance. Turning to our segment results. Irrigation segment revenues for the fourth quarter decreased 5% to $143.6 million compared to $150.5 million in the same quarter last year. North America irrigation revenues of $60.2 million decreased 25% compared to last year's fourth quarter. The decrease in North America is primarily attributable to lower unit sales volumes, while average selling prices were comparable with the prior year fourth quarter. Unit sales volumes in the prior year fourth quarter reflected an exceptional level of storm damage replacement demand, while unit sales volumes in the current year reflected a more normal seasonal demand profile. As previously noted, the incremental revenue impact from last year's storm damage replacement demand was estimated at approximately $20 million. In international irrigation markets, revenues of $83.4 million increased 18% compared to last year's fourth quarter. The…

[Operator Instructions] Today's first question comes from Nathan Jones with Stifel.

I guess I have to start with a question on these 5-year financial goals. And I guess, specifically, I have to start with operating margin greater than 14%. I think you did -- you just did operating margin greater than 14% for 2023. It looks like it's at 15%. Can you just talk about the expectations from there? I mean -- and just how you come up with greater than 14% 5-year target when you are already at 15%?

Yes. I think when you look at kind of, again, where we're at today. I think this year, we did benefit from some of the raw material softening, but we also had some LIFO benefit this year that I wouldn't plan on going forward. But I guess our feeling is operating on a regular basis above 14% and then reinvesting into our business with the technology and new product development, that's kind of what our thoughts are behind the greater than 14%.

Okay. And then I guess I'll go to domestic irrigation. I mean some of your commentary was pretty bullish despite the fact that we've seen a few quarters in a row here of of negative growth, fairly negative growth in domestic irrigation business. I mean you talked about strong near-term demand. You talked about positive order rates year-over-year so far this quarter. I understand there was a negative impact from storm revenue year-over-year in the fourth quarter '23. It would seem that it's likely that you're still going to have some negative comps there in the short term in domestic irrigation. But Randy, your commentary sounded maybe a bit more bullish than that. So maybe if you can just give us some more color on the near-term expectations around the domestic side of the irrigation business.

Sure. You bet, Nathan. And I think what we've talked about today is consistent with what we talked about earlier in the year, and we talked about this wait-and-see approach where we know customers are going to be profitable this year. And they've demonstrated when they make money, they invest money, and we know that we can battle for and win that capital when they make investments to improve their operations, to enhance yields, improve yield consistency, we know we can get those dollars. So I think this spring, we saw kind of a truncated season. And we were a little disappointed with some of the results. but we did see strong quotation demand. We just didn't see customers taking those quotations all the way to orders. So some of this was expected based on feedback from customers in our channel. And again, when they're profitable, they're going to make these investments. So we feel good about what we see in order demand right now. This is customers selling or buying based on crop they're selling this year and profits generated this year. As we move forward into next season, I think every year starts new. So does -- do we carry a lot of optimism into next spring? I still think the yield enhancement benefits are going to be a tailwind for us. I still think customers are going to be profitable, maybe not record profit levels that we saw last year. But again, customers make money, they invest money, I think that's really given us confidence in this market, Nathan.

I know you guys don't give guidance, but do you -- I'll ask the question, would you expect to be able to generate organic revenue growth in the domestic business in fiscal '24?

Yes, Nathan, this is Brian. I think that is our expectation. I think as Randy talked about, we saw some of this demand being deferred. And so far into the fall, it's kind of playing out that way. So -- and then we get into our second and third quarters, and we do have easier comps. So I think it's realistic to expect year-over-year unit volume growth in North America.

The next question comes from Brian Wright with ROTH Capital Partners.

I just wanted to follow up on the comment in the press release about the Brazilian financing switching to quarterly allocation. And just -- how to think about that having any impact on seasonality in the international sales in '24?

Yes. Brian, this is Randy. I'll take that one. And this was a fundamental change and how the program is administered in Brazil. And at the macro level, we did see aggressive finance rates 10.5%. We did see an increase -- a published increase and the amount of money that will go into the program. But historically, there was 1 tranche. It was announced in the June, July time frame. All the applications were entered, all the money was allocated. So we saw a lot of that order backlog early. And then we generally burned it down through the remainder of the year. This year, it's being administered very differently, and the government is now managing 4 tranches, quarterly tranches throughout the year. So there'll be an application process, but then that money will get metered out for different times across the year. So it does change the order pattern. And in our view, it is going to change backlog in Brazil. It's going to be more staged and spread out over the year. And we'll have to wait and see how that really corresponds into projects being shipped and revenue being recognized. Overall, it's still very good news for the market. The government continues to invest and support in agriculture, but the timing is going to look different this year and not having any historical reference point on how these quarterly tranches are going to work, it's tough to predict. But the strong market fundamentals there in our view, still will generate growth in the region.

Over time after we get through this first year transition, do you think that, that will, over the long term, actually improve your visibility on that part of the business potentially?

It could and it couldn't. And I think I can't or maybe won't is when the program is administered once a year, you've kind of got immediate demand visibility of market demand. Now as these programs are administered quarterly, we're just going to see that demand for different times throughout the year as opposed to a single time in the year. So I think it's good for material planning, efficiency through the factory, I'd rather have flat volume flow month-over-month, quarter-over-quarter, we can run more efficiently that way. But it's also nice to see the backlog and know what you've got in front of you. But I think our ability to support customers, run an efficient safe factory, I think that's going to be certainly a lot easier with the way the program is administered this year. And -- but there's no guarantee that this is how the government will continue to operate it. If they like what they see, I expect they would and could. If they see other administrative issues with managing this way, I wouldn't be surprised if they went back to the older way as well.

Okay. That's really helpful for that color. Is there any way like can you help us with inventory, we've seen a nice reduction in inventory. Is that normalization pretty much complete? Or could that also be a benefit to cash flow in '24?

Yes, Brian. Yes, we had a very dedicated focus on inventory this year. And I would say it was really across the board. I mean, a lot of it came out of our U.S. plant, but we also had reduced inventories in Brazil and Turkey. And it was really reflective of during the pandemic and afterwards with supply chain issues and things we all carried like a lot of other companies carried more inventory than we normally would. So this is primarily reflective of just getting the inventories down to a more manageable level. And so yes, I think -- we think there's still opportunity there, but not to the level that we saw in 2023.

Great. Great. And one last one, if I could sneak it in. Can you just help us out with the tax rate in the quarter and then how to think about tax rate for '24?

Yes. Good question. In the quarter, we had -- there was a change in U.S. tax regulations that took place during the quarter that now allows foreign tax credit for earnings in Brazil. Prior to that because Brazil wasn't compliant with the global -- or the worldwide transfer pricing rules, the U.S. was going to disallow the foreign tax credit. That got changed in the fourth quarter. So what happens then is it's a cumulative adjustment for the year, taking into account that we can take that tax credit now. So it 22 -- a little over 22% for the quarter. Going forward though, as we talked about before with the shift in the growth being stronger outside the U.S. than inside the U.S., it does drive a higher effective tax rate. And you saw that probably on a year-over-year basis in '22 versus '23. But I would say for '24, our expectation is it's probably going to be around 29% for the year.

The next question comes from Brian Drab with William Blair.

I just wanted to start first with look at fiscal 2024 and the operating margin is being asked previously on the call, but some discussion around the long-term goal of 14% plus. what do you expect in the near term? I know you said you had the LIFO benefit that was pretty material recently. I mean could 2024 margin -- operating margin, I guess, be down then?

No, we wouldn't expect that to be the case, Brian. And let me just also state in 2023, there really wasn't any significant project volume either in irrigation or in infrastructure. And so that operating margin where we're at today is independent of large projects. And we've said on the irrigation side, some of those projects can be dilutive on the infrastructure side, some of those -- the projects are generally going to be accretive. So it can vary depending on what kind of project business that we have. But no, we are comfortable with being able to operate at this kind of level. And obviously, having the opportunity to reinvest money in R&D and new product development and those kinds of things.

Okay. Yes. I guess I'm just thinking about the long-term guidance, I just find -- the main question I'm walking away with is, if you are capable of that organic revenue growth of around 7 and operating margin is maybe flat to -- I mean, I guess some people might model it trending towards slightly above 14% since that's the guidance. Where does that confidence in greater than -- how does that end up in a model that has greater than 10% EPS growth?

Well, I think combining the revenue growth, the incremental margin that comes from that, I think -- and then the other aspect of that could potentially be share repurchase, if again, following our capital allocation policy, if that comes into play, that's another thing that would influence the EPS.

Yes, sure. Okay. And I guess, maybe just one more for now. You talked about Brazil in terms of strong international regions. Where else some relative strength internationally in the irrigation business?

I'll take that one, Brian. The -- I think in the notes we talked about the Middle East as another region where we're seeing growth and some of that business is the large military type contracts, but some of that is also a smaller project business. Some of that is business in the private markets as well. We continue to see smaller projects coming to conclusion in Sub-Saharan Africa. So we are seeing some pretty broad widespread opportunities. And again, it goes back to food security, yield enhancements, unpredictable weather, all those factors, in our view, really support strong tailwinds in all those project-oriented markets. They're just not going to come 1 a quarter. They're going to be a little lumpy. They're a little longer-term tail in terms of closing the project, ensuring financing is in place, getting the right credit risk in place. But we do see, again, a strong funnel of those opportunities. And it's across a number of geographies, which gives us some optimism.

Great. And then just quickly on FieldWise, I'm looking at my notes, I can't remember, did that deal close? And can you give us any sense for what revenue that brings so we can model inorganic and organic revenue?

Yes, this is Brian. We haven't disclosed the revenue. It's small, but it's been growing rapidly. And I guess the other thing I would say is it's accretive to margins, fairly significantly. It's more the traditional SaaS-type margins, but it's a smaller business, and we haven't disclosed what the revenue is for some of it for competitive reasons.

[Operator Instructions] The next question comes from Brett Kearney with Gabelli Funds.

With this supportive outlook over the next 5 years, I guess, how do you guys think about the cash that the business will generate. Brian, I know you mentioned opportunities continue to invest in new product development and technology. Just anything you can elaborate on that front, I guess, organically and inorganically.

Yes. Yes. So it starts with supporting our organic growth opportunities. And we've talked about capital being part of that potentially capacity expansion in places like Brazil and Turkey. I think we're also looking at really globally modernizing investments in modernization, Industry 4.0, productivity improvements in our factories. So we are anticipating in 2024 that we're going to increase our capital expenditures. Right now, we're estimating between $30 million and $35 million for CapEx. And then longer term, there's -- as things settle down in Ukraine, Russia, as an example, there's opportunities for expand other geographical expansion. But then from there, M&A is clearly a priority and FieldWise is a small example of that. But we're actively looking at opportunities where we can leverage our capabilities and increase shareholder value through M&A, increasing our annual dividend and then share repurchase is kind of the order that we go through when we look at the capital allocation.

This concludes our question-and-answer session. I would now like to hand the call back to Mr. Randy Wood for closing remarks.

Thank you all for joining today's conference call. I'm proud of our performance for the quarter and full fiscal year, particularly our demonstrated ability to execute both operationally and commercially to deliver improved returns and strong profitability despite softer top line revenues. However, I'm more excited about the opportunities that lie ahead for Lindsay. Our leadership in irrigation technology, including our established and growing installed base and the expanding infrastructure opportunity, both domestically and globally, provide us with a unique competitive advantage as we look to capitalize on multiple sustainable growth opportunities. We look forward to updating you on our progress at the end of our fiscal '24 first quarter. Thank you.

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