Hello, and welcome to the Lindsay Corporation Fiscal Third 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. 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 Midwest 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 turnout and quotation activity at recent farm shows and expect to see this year's crop planting in early July, which 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. They're one of several regions in the country that continue to investigate ways to improve production and efficiency with center pivot irrigation and irrigation technologies like FieldNET. In the Mideast and North Africa region, we were pleased to announce we've been awarded a contract valued at over $100 million, the largest in our company's history. This will provide efficient water management and technology solutions that maximize production, conserve valuable and scarce resources, and expand the region's potential. This project executed with a repeat customer builds upon our track record in the region and serves as a great example of Lindsay's ability to execute large scale and complex projects that address the critical needs of our customers. While timing is difficult to predict, we're still managing an active funnel of opportunities and expect these types of projects will be an important part of our growth strategy moving forward. Moving to infrastructure. As I mentioned in my opening remarks, we are encouraged by the growing strength and momentum in this business. Our overall profitability continues to benefit from the strong growth of our Road Zipper System sales and leasing revenues, a positive outcome resulting from our left shift strategy. As discussed previously, we anticipate our infrastructure business will benefit over time as U.S. infrastructure spending increases under the Infrastructure Investments and Jobs Act. We've only recently seen this funding flow to the market and believe we're in the early stages of a multi-year growth trajectory for domestic infrastructure spending, with additional promising opportunities globally. Turning to innovation and technology. In May, we released significant enhancements to our industry-leading FieldNET. Our global voice of the customer process was used to collect feedback on features and the customer experience. This resulted in an upgraded platform that provides growers with additional insights to optimize their planning and conserve energy and water resources while maximizing yield. We were also pleased to be part of a generative AI pilot developed by Bayer. This will allow growers to seamlessly integrate their data from FieldNET with the Bayer platform. The pilot also accelerates the development of digital tools that can serve water resources and highlights the importance of including water management in these AI-driven agronomic tools. I'm very proud of our team's efforts to support more sustainable farming practices by enhancing our capabilities and expanding our partnerships to maximize the value of our mechanized irrigation solutions. Shifting to our operational footprint. Earlier this year, we announced our intentions to invest over $50 million to modernize our facility in Lindsay, Nebraska, as part of our operational excellence strategy. That work has started and we look forward to updating you on our continued progress. I'd now like to turn the call over to Brian to discuss our third quarter financial results.

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 prices 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 of 36% compared to the prior year, and operating margin was 17% of sales compared to 21.6% of sales in the prior year. Lower operating income and operating margin resulted mainly from lower revenues and the resulting impact of deleveraging fixed operating expenses. Infrastructure segment revenues for the quarter were $24.4 million, an increase of 11% compared to $22 million in the prior year. The increase resulted from higher Road Zipper System sales and higher lease revenues compared to the prior year. The impact of higher sales of road safety products in the U.S. was offset by lower sales in international markets compared to the prior year. Infrastructure segment operating income for the quarter was $6.3 million, an increase of 76% compared to $3.6 million in the prior year. Infrastructure operating margin for the quarter was 25.8% of sales compared to 16.2% of sales in the prior year. The increase in operating income and operating margin resulted from higher revenues and a more favorable margin mix of revenues with higher Road Zipper System sales and lease revenues compared to the prior year. Turning to the balance sheet and liquidity. Our total available liquidity at the end of the third quarter was $202.7 million, which includes $152.7 million in cash, cash equivalents, and marketable securities and $50 million available under our revolving credit facility. Our strong balance sheet and ample access to liquid capital resources continue to serve as a strategic asset for Lindsay as we execute our capital allocation strategy to create enhanced and sustained value for our shareholders. During the quarter, we completed share repurchases of $17.9 million. Going forward, we will continue to be opportunistic in regard to capital deployment, balancing organic and inorganic investments along with returning capital to our shareholders. This concludes my remarks. And at this time, I'll turn the call over to the operator to take your questions.

We will now begin the question-and-answer session. 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. 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?

Starting with North America irrigation, there was a 9% year-over-year decline. I would estimate that around 7% to 8% of that is due to a combination of pivot volume and parts volume, while the remainder relates to price and mix. The average selling price is somewhat influenced by the mixture of machines, and we did have more smaller machines in the mix. Therefore, price wasn't a significant factor in domestic irrigation during the quarter. On the international front, we saw a 31% decline year-over-year, with Brazil experiencing a decrease slightly beyond that. Most of the decline in Brazil is attributed to volume, though we are seeing more competitive pricing, particularly on larger project opportunities. However, the primary cause for the decline remains volume.

Okay. And then when you say aggressive pricing, is that more discounts being offered that are sort of short term in nature or are there actual 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. In that case, we will respond, obviously, but I wouldn't say it's widespread. But 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 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'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. 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.

If we look ahead to 2025, with this significant international order, we may see international irrigation revenues surpassing those from domestic or North American sources. How could that affect the margins of the irrigation segment? Additionally, how might that impact the tax rate moving 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, definitely benefits the tax rate. Anything that we have, growth in Brazil or other markets is 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. I would say it was a retroactive benefit as a result of a deduction that had some uncertainties regarding it in the past that were resolved during the quarter.

Sure, please.

I would say it was a retroactive benefit due to a deduction that had some uncertainties in the past, which 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 mentioned farmer sentiment in Brazil. Clearly, there are challenges this year with lower prices and flooding. There are some farm shows happening in Brazil now. Do you think their sentiment towards capital equipment purchases might improve soon, or is it likely to remain low 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 discussions and quotation activity that we saw at the shows. But a lot of those customers are going to be on the sidelines until they know what the government program looks like. 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. 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. 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 expect it to happen 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, 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. 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's a good early indication that roadwork is happening. Usually, the road safety assets 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 wanted to ask about the storm activity in North America that has shifted demand into your next fiscal quarter. Can you remind us how storm activity usually affects your business from quarter to quarter, particularly in terms of topline revenue?

The impact of storm activity varies based on the intensity of the storm season. In North America, the storm season started slowly, and we did not experience any significant events worth mentioning. There were some storms that passed around Omaha and through eastern Nebraska and Kansas, which resulted in slightly higher activity during that period compared to previous years. After a storm, our dealers actively engage with customers, and insurance companies and adjusters also get involved, which can cause some delays. However, we were pleased with how quickly our dealers were able to respond to customers. We expect to have a clearer picture by the end of the fourth quarter and can provide specific insights into trends regarding storm activity then.

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 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.

I'll start with the domestic market. Currently, every new pivot we ship is ready for FieldNET, meaning that every new machine comes with FieldNET and offers a complimentary first season of use. The retention rate for this platform exceeds 97%. The customers we lose tend to be those who have stopped farming or are no longer using rented fields. Our attachment rate is at 100% when the machines leave the factory, and we are retaining over 97% of those customers on the platform. Internationally, we have observed a shift in recent years. Looking back five to ten years, many projects did not incorporate this technology. However, there is a growing recognition of the necessity for some form of automation to manage large numbers of pivots effectively. The motivation for energy and water conservation has significantly impacted many of these projects. As a result, we are seeing tools like FieldNET and FieldNETAdvisor being utilized in these initiatives. Once customers start operating with these tools, it becomes nearly impossible for them to revert back to their previous methods. This capability is a key differentiator for us, enhancing our ability to assist customers in managing large projects, and we anticipate continued growth in this area.

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

Thank you.

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?

Sure. And I think there's a couple of specific markets. 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. The value that we've seen from our long-standing penetration here in North America, those same benefits extend into the international markets. Now that we've placed key strategic resources in different parts of the world, we are 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 about big installation in Japan with a lot of their road and bridge management projects. So we're heavily penetrated there. We have a lot of work going on now in Italy. In many of these markets, we start with a small pilot proof of concept, and again, it's similar to 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. We are pleased, again, with the resources we've put in internationally and the success we've demonstrated; that's going to be a big contributor to growth going forward.

Great to see the opportunistic share repurchase in the quarter. Considering the strong multi-year opportunity ahead for both your businesses, can you explain the challenges that any potential mergers and acquisitions would need to overcome compared to the value of buying back your own shares?

I'll start by mentioning the share repurchase we executed during the quarter. We evaluated our share price performance, assessed our cash position, and considered other investment opportunities, concluding it was a favorable buying opportunity for us. We have the balance sheet flexibility to support all our capital allocation priorities. Moving forward, we plan to continue share repurchases as opportunities arise, while also focusing on organic growth possibilities. Our investment in Lindsay is one example, and we have previously discussed investments in Brazil and Turkey. M&A remains a key component of our growth strategy, and we don't expect to reduce our efforts in that area.

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.