Hello, and welcome to the Lindsay Corporation Fiscal Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] As a reminder, this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO of Lindsay Corporation. Please go ahead.

Thank you, and good morning, everyone. Welcome to our fiscal 2024 third quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. Our fiscal third quarter was highlighted by steady execution, which resulted in strong operational performance, despite market headwinds that impacted topline revenue. We announced a key project win in irrigation and continue to be pleased with the growth of our Road Zipper sales and lease business in infrastructure. I'm proud of our teams and their execution. Turning to our key end markets. In North America irrigation, market conditions continue to weigh on farmer sentiment, resulting in overall demand softness. High precipitation levels and wet field conditions across the mid-west contributed to lower year-over-year sales of irrigation equipment and replacement parts in that region while we experienced volume growth in the west and northeast regions. We did see higher-than-expected storm damage activity that hit the Midwest in late April and early May. However, delays in insurance approvals and wet field conditions shifted most of that demand into our fiscal fourth quarter. In international irrigation, we've continued to see a decline in Brazil due to suppressed commodity prices and limited access to capital, ultimately tempering overall demand in the short term. Tragic flooding in the south has also hindered order activity in that region. We did see strong customer turn-out and quotation activity at recent farm shows and expect to see this year's crop plant in early July, that will set funding levels and finance rates for this coming season. Brazil and other key South American agriculture markets remain dramatically underpenetrated from mechanized irrigation and the value created by irrigated agriculture will support long-term growth in this region. We are pleased to host a delegation of farmers and government officials from Mato Grosso state in the quarter.…

Thank you, Randy, and good morning, everyone. Consolidated revenues for the third quarter of fiscal 2024 were $139.2 million, a decrease of 15% compared to $164.6 million in the prior year third quarter. An increase in infrastructure segment revenues was more than offset by lower irrigation segment revenues. Net earnings for the quarter were $20.4 million or $1.85 per diluted share compared to net earnings of $16.9 million or $1.53 per diluted share in the prior year. The impact of lower revenues and lower operating income was favorably offset by an increase in interest income and favorable foreign currency translation results compared to the prior year, along with the recognition of an income tax credit in Brazil of $4.8 million in the current year. Turning to our segment results. Irrigation segment revenues for the quarter were $114.8 million, a decrease of 19% compared to $142.6 million in the prior year. North America irrigation revenues of $68.2 million decreased 9% compared to $75 million in the prior year. The decrease resulted from a combination of lower unit sales volume of irrigation equipment, lower sales of replacement parts, and a slightly lower average selling price compared to the prior year. In international irrigation markets, revenues of $46.6 million decreased 31% compared to revenues of $67.5 million in the prior year. The decrease resulted primarily from lower revenues in Brazil and other Latin American markets, while demand in other international markets remained stable overall compared to the prior year. In Brazil, order activity remains constrained due to the impact of lower commodity -- due to the impact lower commodity prices have on grower profitability and available liquidity, which is reducing growers' ability to invest in irrigation equipment in the near term. Irrigation segment operating income for the quarter was $19.5 million, a decrease…

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Ryan Connors with Northcoast Research. Please go ahead.

Good morning.

Good morning, Ryan.

Hi, Ryan.

I wanted to start off with discussing the top line a little bit in irrigation. And is there any breakdown you can give us on both North America and international with regard to volume versus pricing? Was all that decline really on the volume side or are there some dynamics to be aware of there on the pricing side as well?

Yeah, Ryan. Starting with North America irrigation, the 9% year-over-year decline, I would say, probably 7% to 8% of that is a combination of pivot volume and parts volume and the rest of it would be price and mix. I'd say that the average selling price is driven somewhat too by the mix of these machines and we did have smaller machines. So, I would say price wasn't a big impact in domestic irrigation during the quarter. When you look at the international side, 31% down year-over-year. Brazil is going -- it was probably down just slightly more than that year-over-year. And I would say most of that is volume. But we are seeing more aggressive pricing in Brazil, just -- especially on a -- on larger project opportunities there. But most of that decline is volume.

Okay. And then when you say aggressive pricing, is that more discounts being offered, that they're sort of short term in nature or there's actual like list price changes?

Yeah. No list price changes, I would say it's just -- when you're quoting, let's say, a six or seven-system project, we have seen aggressive pricing in those situations. And so in that case we will respond, obviously, but I wouldn't say it's widespread but it -- when you look at our total irrigation business, I'd say Brazil is where we're seeing the most aggressive pricing.

Understood. One more for me on operational improvements in Lindsay. What is the return on those investments? In other words, what do we expect from a margin benefit standpoint in terms of both the timing and do we need the volume recovery to unlock that, or should we see some margin benefit from those investments regardless of where volumes trend in the next 18 months?

Yeah. I would say in the next 12 months to 18 months is probably more pressure on margins than actual improvement. Just as we deal with the -- some of the inefficiencies of working through the capital investments there, I would say, in the mid-term, more of a stable margin situation, because we've got -- we'll have the additional depreciation that will offset some of the productivity improvements. But for us, I think that the biggest thing is the ability to react to market changes both up and down without really having to flex the labor like we have in the past and incur the additional headcount and overtime and things like that. So it just provides less reliance on the labor through the additional automation and things like that.

Got it. Okay. Thanks for your time.

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

Good morning, Randy and Brian.

Good morning.

So if we sort of look ahead into 2025, 2025 with this big international order, we might see international revenue, irrigation revenues, in excess of domestic or North American revenues -- irrigation revenues, how might that impact the margins of the -- the operating margins for the irrigation segment? And in addition to that, how might that influence the tax rate as we look forward?

Yeah, Jon. This is Brian. As we've said in the past, a large project like the one we announced is generally going to be dilutive to margins just because of the competitive nature of that. I'd say setting that aside, the domestic and international operating margins have gotten a lot closer. So the international growth shouldn't have a dilutive effect. But the project business would have some.

Okay. What about on the tax rate front with more international revenues?

Yeah. Tax is a bit of a mixed bag. This project business coming out of our facility in Turkey, which is in a tax-free zone. So that definitely benefits the tax rate. Anything that we have, growth in Brazil or other markets going to be at a higher tax rate than what we have in the U.S.

Okay. And Brian, what was the nature of the income tax credit? What was that from? What was behind that?

Yeah. Not going to get into specifics, just because of the complexity of the taxation.

Sure, please.

But, it was -- I would say, it was a retroactive benefit as a result of a deduction that had. There were some uncertainties regarding it in the past that were resolved during the quarter.

Okay.

So it's really not anything that's going to be carried forward as more of a one-time issue during the quarter.

Okay. One last question. Randy, you talked a little bit about farmer sentiment in Brazil. Obviously, there are some difficulties this year with lower prices and flooding and so on. And you're seeing -- I guess there's some farm shows at this point now in Brazil. And do you think, do you think their sentiment -- the sentiment for capital equipment purchases might improve in over the -- in the near term, or is the sentiment just sort of depressed for a while?

Yeah, Jon. I think there's a lot of growers there really waiting to see what this year's crop plan looks like, and we do expect to see that in early July. I was optimistic based on some of the discussion and quotation activity that we saw at the shows. But a lot of those customers, they're going to be on the sidelines until they know what the government program looks like. And if it operates as it has in previous years, there's going to be a big rush of applications, that got to work themselves through the system. It's also a market. If we look at our fourth quarter last year, they set record revenue in the fourth quarter of last year. I think it's going to be tough to match that or exceed that based on what we've seen kind of moving into the quarter, but I think we're seeing stability. I'm not sure that I see significant further decline in farmer sentiment. They're kind of bouncing along at the rate that we've maybe seen for the last quarters. But right now it's really about what does that crop plan look like for this year, how much funding in total is going to be allocated, what's the finance rate, what's the gap between the SELIC rate there, public market rate and the program rate. So we've got customers that we know are interested in investing in irrigation. We've got specific quotations and customers' pieces of land that we're working on. And I think it's a matter of how quickly that program money is available, how quickly it's consumed. But we'll know more as we kind of end our fiscal year here.

Randy, you think the Brazilian funding program will be announced in June this year? I think it was last June last year, wasn't it?

We'd expect it in -- hopefully in the first half of July.

Okay. All right. Thank you.

You bet, Jon.

The next question is from Nathan Jones with Stifel. Please go ahead.

Good morning. This is Adam Farley on for Nathan.

Good morning, Adam.

On infrastructure -- hey good morning. On infrastructure, could you provide an update on the Road Zipper System project sales pipeline? It seems like that's trending up over time. Do you expect any additional Road Zipper System project sales to convert in the near term?

Yeah, Adam. This is Brian. As we talked before, we do have better line of sight into some of those projects, and it's more active, I would say. And we see projects -- I would say, we see projects exiting the funnel over the next three or four quarters.

Okay. And then, in the broader funding for road projects entering the summer months, are you seeing an uptick in funding for roads? Are you seeing any IIJA funding starting to flow?

Yeah, we are. I think we kind of mentioned that in our opening comments. It took some time and talking to others in the same space involved in roadway construction, it has taken some time, but we are seeing it now. A significant portion of that, unfortunately, is getting eaten up by inflation. We're hearing that from some of the customers. But from our perspective, even the lease growth that we're seeing in Road Zipper, that -- that's a good early indication that roadwork is happening. Usually the road safety assets kind of come behind that as the project finishes up. So we're pleased that the money is making it to market. It's maybe not as impactful as we would have hoped due to inflation, but it does give us some stability and predictability in that infrastructure revenue stream.

Okay. Thank you for taking my questions.

Thanks, Adam.

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

Hi. Good morning. This is Blake on for Brian.

Hey, Blake.

I just wanted to ask, you mentioned the storm activity in the -- in North America that had pushed demand into your next fiscal quarter. Can you just remind us, how storm activity typically impacts your business from quarter-to-quarter and base -- like, from a topline perspective?

It's really variable depending on the severity of the storm season. And I would say in North America it was -- I hate to describe it this way, it was a slow start to the storm season, so we didn't see anything significant worthy of mention. We did have those storms that kind of went right around Omaha and through eastern Nebraska and Kansas, other parts of the Midwest. So it was a little higher during that window than what we've seen in previous years. And it's really, once the storm goes through, the dealers are out working aggressively with the customers, the insurance companies and adjusters are out, so there is some time and delay. But we did like our dealers' ability to get out there and get on a lot of those really early and get our customers up and working. So I think we'll have more clarity when we get through the fourth quarter. We can talk more specifically about what we saw in terms of trends up or down in storm activity.

Got it. Understood. And then just lastly for us, I wanted to ask about the pivots in the international projects and your attachment rate for field for FieldNET. And just trying to understand with these big projects, do they usually attach FieldNET or are they just going for the mechanized irrigation? Just how that works and then maybe how it compares to domestic FieldNET attachment rates.

Yeah. So in -- I'll start with domestic. Right now, every new pivot we ship is FieldNET-ready. So every new machine goes with FieldNET with the first season complementary use and retention rate on that platform, it's north of 97% and the customers we lose are really customers that stopped farming or had rented fields that are no longer in the rotation. So the attach rate is 100% when it leaves the factory and we're keeping more than 97% of those customers on the platform. Internationally, we have seen, I would say, a shift in recent years, and if you go back five years or 10 years, a lot of those projects didn't include the technology. But I think they're really seeing now with the scope and scale and size of these projects. It's really tough to manage hundreds or thousands of pivots without some form of automation. Being motivated by energy and water conservation has really changed the game in a lot of those projects. So right now we do see tools like FieldNET, FieldNETAdvisor, being applied in those projects. And again, once you start farming, growing, operating with that type of a tool, it's nearly impossible to give it back. So I think it's a key differentiator for us in our ability to help our customers manage these large projects and we'd expect to see continued growth there.

Got it. I will pass it along. Thank you.

Thank you.

[Operator Instructions] The next question is from Brett Kearney with American Rebirth Opportunity Partners. Please go ahead.

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

Hi, Brett.

Hi, Brett.

Great to see the pickup IIJA funds starting to make their way through the system. Randy, I think you mentioned potential opportunities in some of the international infrastructure markets you participate in. Any comments you could provide, Road Zipper project, funnel opportunities internationally as well as on the leasing side as well?

Sure. And I think there's a couple of specific markets and I'd maybe say, traffic congestion is traffic congestion. It doesn't matter where you are in the world. If you want to keep your workers safe in a construction zone, it doesn't matter where you are in the world. So I think that the value that we've seen from our long-standing penetration here in North America, that same value, those same benefits, I think, extend into the international markets. And now that we've placed key strategic resources in different parts of the world where we're able to be more visible, spend more time with our customers, and really talk about and demonstrate the value of what Road Zipper can do. We talked about the big project in the U.K. that got us a lot of visibility. We've talked in different times, big installation in Japan with a lot of their road and bridge management projects. So we're heavily penetrated there. We've got a lot of work going on now in Italy. And in a lot of these markets, we start with a small pilot proof of concept, and again, it's kind of like FieldNET. Once the customers understand what the Road Zipper does, the safety improvements they can make, the ability to manage traffic flow, it just grows from there. So we are pleased, again, the resources we put internationally, the success we've demonstrated internationally, that's going to be a big contributor to growth going forward.

Excellent. And then if I can sneak one last one in. Great to see the opportunistic share repurchase in the -- share repurchases in the quarter. If you think about the robust kind of multi-year opportunity in front of both your businesses, can you help me understand the hurdles that any potential M&A would have to clear relative to the value inherent in purchasing your own shares?

Yeah. I'll just start, first of all, with the share repurchase that we did make during the quarter, and we looked at where our share price had been trading and we look at our cash position and we look at other opportunities to deploy cash, we felt like it was really good buying opportunity for us. So -- and we've got the -- obviously, the balance sheet to be able to do -- execute all of our various capital allocation priorities. So, as we go forward, I mean, share repurchases is something that, again, as the opportunity presents itself, we would continue to do that. But we also have an eye on what the organic growth opportunities present, that Lindsay investment is one, and we've talked about investments in Brazil and Turkey in the past. But M&A is definitely an area that -- as part of our growth strategy, we don't anticipate backing off from that at all.

Great. Thanks very much, Brian.

Thank you.

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 on today's call. We're pleased with our team's progress year to date and look forward to strong execution for the remainder of the year. In irrigation, our project sales strategy is working and we're winning and delivering complex international projects. Being a global company is a strength and this revenue is helping to offset softness in the North American and Latin American markets. In infrastructure, we're actively managing our funnel of opportunities and see continued growth in our leasing business contributing to margin performance. In technology, our strong balance sheet allows us to continue investing and growing as evidenced by our recent acquisition of FieldWise and strategic investment in Pessl Instruments. Our ability to enhance shareholder returns has also been exemplified this quarter by our recent share buybacks. This concludes our third quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2024 fourth quarter. Thanks for joining us.

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