Hello and welcome to the Lindsay Corporation Fiscal First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. I would now like to hand the call to Randy Wood, President and CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to our fiscal 2024 first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'd like to start by once again recognizing our dealers, partners, and employees around the world for their contributions. Their focus on our customers and execution of our business strategies continues to generate positive results for our shareholders while supporting our purpose of conserving natural resources, expanding the world's potential, and improving quality of life. I continue to be very appreciative of the job they're doing. Our fiscal first quarter was highlighted by growth in our North American irrigation markets and improved operating income and margin capture in the infrastructure segment, driven primarily by growth in Road Zipper System leasing. In North America, demand for irrigation equipment improved over the prior year's first quarter as commodity prices and US net farm income have continued to support stable demand in our North American end markets. We experienced increased order activity as grower profitability became more transparent following harvest season. This was expected and is consistent with the wait-and-see approach we discussed coming out of last year's spring selling season. Moving to international irrigation, our key end markets remain healthy, although revenues for the quarter were lower in South America, particularly Brazil. Despite being down year-over-year, our results remain quite solid, particularly when compared to the record-setting international revenues captured last year. Specific to Brazil, the FINAME financing program offered by BNDES was modified this year to distribute funding in quarterly increments. Ultimately, this caused some short-term disruption to our order confirmations in the period and while this impacted our quarterly results, we do not believe this will have a significant impact on our full year results in the region. Moving to infrastructure, while we're still very much in the early stages of deployment, we are beginning to see the positive impact of IIJA-driven US infrastructure spending. We continue to see solid growth in Road Zipper System leasing and sales of our road safety products in the quarter, which largely offset the softer Road Zipper System sales and project activity in the period. As a reminder, last year's fiscal first quarter carried the tail end of revenues from the large project in Massachusetts. Road Zipper lease revenue continues to represent a greater proportion of our consolidated infrastructure segment revenues. This sales mix remains accretive to Lindsay's overall margin profile. We also continue to actively manage projects through our Road Zipper sales project funnel. However, timing and project implementation remain challenging to forecast. In the area of technology and innovation, I'd like to highlight a few key items this quarter. The integration of the FieldWise acquisition is going very well and we're pleased that we've continued to add dealers to our distribution channel. This is a key element of our technology growth strategy and it expands our access to the installed base of competitive brands. We're also pleased to record our first commercial sale of our new RoadConnect platform in the quarter. This roadside asset monitoring technology has been well received by the market, and we expect to see growth in both device and subscription revenue going forward. I'd now like to turn the call over to Brian to discuss our first quarter financial results.

Thank you, Randy, and good morning, everyone. Consolidated revenues for the first quarter of fiscal 2024 were $161.4 million, a decrease of 8% compared to $176.2 million in the first quarter last year. Net earnings for the quarter were $15 million or $1.36 per diluted share compared to net earnings of $18.2 million or $1.65 per diluted share in the first quarter last year. Turning to our segment results. Irrigation segment revenues for the quarter were $140.2 million, a decrease of 8% compared to $152.1 million in the first quarter last year. North America irrigation revenues increased 7% to $89.4 million compared to $83.9 million in the first quarter last year. The increase in North America irrigation revenues resulted primarily from higher unit sales volume that was partially offset by the impact of a less favorable mix of shorter machines compared to the prior year first quarter. Average selling prices remained stable and were comparable with the first quarter last year. In international irrigation markets, revenues of $50.8 million decreased 25% compared to record revenues of $68.1 million in the first quarter last year. The decrease resulted primarily from lower sales in Brazil and Argentina compared to record sales in those markets in the first quarter last year. Changes in the timing of funding under the financing program in Brazil that Randy mentioned and the government transition in Argentina following the recent presidential election both contributed to lower sales in the quarter. Total irrigation segment operating income for the quarter was $25.3 million, a decrease of 12% compared to the first quarter last year. And operating margin was 18.1% of sales compared to 18.8% of sales in the first quarter last year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the resulting impact of the deleverage of fixed operating expenses. Gross margin remained consistent with the first quarter last year. Infrastructure segment revenues for the quarter were $21.2 million, a decrease of 12% compared to $24.1 million in the first quarter last year. The decrease resulted from lower Road Zipper System sales with the prior year's first quarter, including $8 million of project sales that did not repeat. The impact of lower Road Zipper sales was largely offset by growth in Road Zipper lease revenue and higher sales of road safety products compared to the first quarter last year. Infrastructure segment operating income for the quarter was $3.6 million, an increase of 7% compared to $3.4 million in the first quarter last year. And Infrastructure operating margin for the quarter was 17.1% of sales compared to 14% of sales in the first quarter last year. The increase in operating income and margin resulted primarily from a more favorable margin mix of revenue with higher lease revenue compared to the first quarter last year. Turning to the balance sheet and liquidity. Our total available liquidity at the end of the first quarter was $225.7 million, which includes $175.7 million in cash, cash equivalents, and marketable securities and $50 million available under our revolving credit facility. Our strong balance sheet and our ample access to liquid capital resources will continue to serve as a strategic advantage for Lindsay as we continue to execute our capital allocation strategy to create enhanced and sustained value for our shareholders. That concludes my remarks. And at this time, I'd like to turn the call over to the operator to take your questions.

Thank you. We will now begin the question-and-answer session. Today's first question comes from Brian Drab with William Blair. Please go ahead.

Hey, good morning. This is Tyler Hutin on for Brian Drab. Thank you for taking my questions.

Good morning.

Good morning, Tyler.

Yeah, I just want to start, I appreciate the color on the South America irrigation situation. Has there been any other impact on international irrigation shipments due to geopolitical tensions or other factors?

If we look at a year-over-year basis, Tyler, I wouldn't say there's anything that's moved the needle significantly one way or the other. If we focus on the quarter, the big shift was really in South America for the reasons that we've cited.

Got it. And then on the previous call, you mentioned that some irrigation projects could be dilutive and infrastructure projects could be accretive. Can you just give some details on how those scenarios typically could play out in the future?

Yeah, I mean, I think on the infrastructure side, I'll start there. The Road Zipper project side, which we haven't had any significant projects since we had the first quarter last year. But those are typically going to be higher-margin kinds of projects. And I would say what we've commented on before there is post-pandemic, once we've been able to reengage with some of the municipalities, government entities that are in charge of these projects. It's taken some time to get reengaged with them. And I'd say our commercial team over the last few quarters has made some really good progress, and we've got line of sight to moving some of these projects forward. On the international irrigation side, again, line of sight to a lot of projects. It's been an active market, a lot of quoting activity. The challenge there is part of it is access to capital, access to US dollars in some of the markets, but we still remain confident that we'll see project activity coming out of both irrigation and infrastructure.

Yeah, thank you for the color on that. And just a final question. Just when it comes to data analytics in the field, I saw some articles about farmers maybe having too much data or information overload. Just how do you and the dealers approach farmers like that and convince some that these solutions are optimal for their operations? And that's all I have today. Thank you.

Sure. And I'll take that one, Tyler. I would agree that there's a lot of data available to our customers and being able to convert that data into insights that they can use to manage their operation is really important. And we really focus on our core, and our core is irrigation and water management. So our tools are very deliberate, very focused, and purpose-built to help them manage water and energy to deliver water in the most efficient means possible. So we're not going outside of our core to try and bring more to our customers. We're really focusing on that irrigation and water management core. And the feedback we're getting from customers is that's exactly what they need. When we look at the retention of our digital tools, north of 97%, the customers say once they start with our platform, they couldn't farm, they couldn't irrigate without it. So I think the direction that our teams are heading is the right direction, and I think that's confirmed with customer feedback and growth we continue to see in those technology platforms.

Sounds good. Thank you and I'll pass it along.

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

Good morning, everyone.

Good morning, Nathan.

Good morning, Nathan.

And Happy New Year. I want to go to Brazil, Argentina. You've had some challenges in particularly in Brazil. Government changeover, there was FINAME financing that wasn't available for a while. Now they're shifting around the way that's happened. It seems like Brazil has been down pretty significantly, at least three of the last four quarters. So you should have some pretty easy comps coming up. Does that lead to the expectation that we should see pretty significant year-over-year growth for the next few quarters out of Brazil especially? Or is there enough uncertainty in the way that FINAME financing is going to come out for you to not be confident enough to say that?

Yes. We had a strong fourth quarter in Brazil once the FINAME financing became available at the start of the year. However, financing still puts some constraints on demand there. The government program is crucial due to the rate differences compared to commercial rates. In the last four to five months, central bank rates in Brazil have decreased by about 200 basis points, and another drop of 50 basis points is expected in January. This is leading to greater availability of commercial financing through banks outside of FINAME, which is a positive development. Despite this, the demand environment in Brazil remains strong, though the financing situation affects the timing, and we're observing this in the first quarter of this year.

Obviously, some issues in Argentina. What's the relative size for you guys between Brazil and Argentina? Is Brazil significantly bigger?

We haven't broken that out specifically, Nathan, but your instinct is correct. Brazil would be significantly more impactful to us than Argentina in terms of market size.

Got it. And then I just wanted to go back to the domestic business. I thought that growth year-over-year in the first quarter was pretty encouraging. Crop prices have been on the decline through 2023, which all else equal, would suggest that farm income will be lower in '24 than it was in '23. There's obviously the most tested with that with crop inputs and financing costs and all those kinds of things. Is it reasonable to think that you know farm income is down in '24 and that should probably lead to domestic irrigation down in 2024? Or is that no way you're thinking about it at this point?

I believe that at a macro level, your reasoning makes sense based on historical trends. However, looking ahead to 2024, if we reflect on Q2 and Q3 of last year, we discussed how customers were adopting a wait-and-see attitude, anticipating lower interest rates, inflation stabilization, and reduced prices. Currently, we observe greater stability, which suggests that we likely will not see those postponed purchase decisions. A more typical seasonal order pattern next year should help counterbalance some of the market weakness, and we might experience a more natural distribution of machine sales in the second and third quarters next year, rather than at the end of this year or in the first quarter. Nonetheless, predicting substantial upside in the market remains challenging due to fundamental factors like farm income and crop prices affecting customer sentiment. It’s difficult to envision significant growth, but considering our year-over-year comparisons for Q2 and Q3, we also do not anticipate a market collapse. Farmers are currently profitable and willing to invest.

Yeah, thanks. I'll pass it on.

Thank you. The next question comes from Brian Wright with ROTH MKM. Please go ahead.

Thanks. Good morning and thanks for the question. Just wanted one more on the Brazil situation. Given the dryness in Mato Grosso and hearing that it could be a game time decision come February and March for the Safrinha season as far as Plan A sectors. Is that like should we be thinking about that as a positive backdrop as far as potential and why your commentary on the strong kind of quoting levels that you're seeing?

I believe that the weather will clearly be the most significant factor for the Safrinha second season crop. If there are risks associated with germinating or maturing the crop, effective irrigation can help mitigate some of those risks. Therefore, we see this as a potential advantage for market opportunities in Brazil. However, as Brian pointed out earlier, the key issue will be access to capital. Have they sold the first crop, providing the cash flow needed for the second and possibly third crops in various regions? There are definitely favorable macro conditions, but they still need to secure funding. Additionally, the FINAME program is expected to provide support. We are observing a decline in the central bank rate, which will aid financing. Thus, we consider this to be a potential opportunity for growth.

Thank you. I have a follow-up question regarding discussions in Brazil about creating an incentive program for converting pastureland to cropland. Has there been any progress or challenges on the regulatory or legislative aspects of this in the past quarter or two?

In our view, not a lot that would be actionable in the near term.

Okay. Great. And then just a real quick balance sheet question. Marketable securities were up pretty nicely sequentially you know up to over $10 million in the quarter. Just what kind of securities are you buying there?

These would be high-grade commercial paper and other things where, and generally, it's going to be beyond 90 days, but six month maturities or so. But an opportunity to get some additional rates of interest income. So it's just a little bit of an allocation of cash from compared to where we were at the end of the calendar year.

Okay. Great. And then I guess one last one, if I could. Inventory picked up a bit sequentially in the quarter. Just thoughts on that?

I would say it's mostly going to be of a seasonal kind of a thing as we get into the main selling season in North America. That's probably the biggest driver of the increase. And if you go back to 2023, over the course of the year, we reduced overall inventories by about $40 million. So a slight uptick in the first quarter is really just more of the seasonal nature of the business.

Okay. Great. That bodes well for North America in the next quarter. So that's great. That's all I've got. Thank you so much for the questions.

Thanks, Brian.

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

Good morning, Randy and Brian.

Good morning, Jon.

Good morning, Jon.

On the domestic international front, domestic irrigation front, how does the demand profile vary per region, Midwest versus maybe Southeast, Northwest. Are you seeing any significant difference in sort of the demand picture by geography?

Yes, Jon, this is Brian. In our first quarter, we observed a significant increase in demand across nearly all of our regions. This includes the Southeast and the Great Lakes region, which has traditionally been more focused on supplemental irrigation but is now experiencing notable growth. We are also seeing this trend in the corn belt of the Midwest. Overall, the demand increase has been fairly widespread across all regions in the first quarter.

Is there something specific in the Great Lakes area that may be driving a different profile there from the past?

There's probably a couple of things, Jon. It's a pretty big seed corn area. And we see seed corn acres growing there, and it's mandatory to irrigate that crop. And really just shifting climate patterns, and we've talked a lot here about what customers have to invest in a crop to put it in the ground. That's really some cost if they don't get water. So I think just the risk management and the yield enhancement benefit of irrigation is driving a lot of investment in that part of the world.

It seems like your selling prices are somewhat stable compared to last year, and I believe this trend may continue. We're all experiencing increased costs, although perhaps not as drastically as we have over the past couple of years. Considering the cost pressures your business is facing, do you think you will be able to counter these pressures with improved productivity, or will rising costs slightly affect your margins?

Yes. I think we have seen steel from November to December, the CRU for hot-rolled coil has gone up 25%. I mean, it had softened a fair amount going back into 2023. So structural steel continues to maintain at a higher level. But I'd say where we're positioned now, I mean, I think steel is kind of the biggest variable. A lot of the other inflation has kind of abated a bit. But we expect I think if you go back to probably last quarter, I mean, maybe the view was we would have to give price back if raw materials softened, but we're not seeing that situation today. I think where raw materials appear to be headed is supportive of maintaining price.

Okay. All right. Thank you very much.

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

Well, thank you all for joining us on today's call. While current commodity prices and US net farm income are down from recent highs, growers remain profitable. And while they're investing cautiously, we feel this will continue to support stable demand for irrigation equipment in North America. The international project pipeline for irrigation investments remains robust and supportive of our long-term growth trajectory. These projects are driven by food security and stabilizing global grain supplies, and we're uniquely positioned to identify and win these project opportunities as we execute our strategy. We expect to continue the strong momentum we've seen from Road Zipper leasing as well as solid growth from our road safety products, the combination of which will continue to drive a revenue mix that is supportive of our consolidated margin capture in the segment and our consolidated returns. This concludes our first quarter earnings call. We appreciate your interest in Lindsay and look forward to updating you on our continued progress following the close of our fiscal 2024 second quarter. Thanks for joining us.

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