Good day, ladies and gentlemen, and welcome to The Toro Company's Third Quarter Earnings Conference Call. My name is Towanda, and I will be your coordinator for today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. You may begin.

Thank you, and good morning, everyone. Our earnings release was issued this morning and a copy can be found in the Investor Information section of our corporate website, thetorocompany.com. We have also posted a third quarter earnings presentation to supplement our earnings release. On our call today are Rick Olson, Chairman and Chief Executive Officer; Angie Drake, Vice President and Chief Financial Officer; and Jeremy Steffan, Director of Investor Relations. During this call, we will make forward-looking statements regarding our plans and projections for the future. Forward-looking statements are based upon our historical performance and current expectations and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements. Additional information regarding these factors can be found in today's earnings release and in our investor presentations as well as in our SEC reports. During today's call, we will also refer to non-GAAP financial measures, which we believe are important in evaluating the company's performance. For more details on these measures, the most comparable GAAP measures and a reconciliation of the two, please refer to this morning's earnings release and our investor presentation. With that, I will now turn the call over to Rick.

Thanks, Julie, and good morning, everyone. Our team executed with discipline and agility in the third quarter as we continue to position the company for a strong future by advancing our key strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. Our team delivered top and bottom line growth in a very dynamic environment, which included continued strength in our businesses with elevated order backlog, along with an uptick in caution across homeowner-facing businesses. We drove sales growth by capitalizing on an ever-expanding portfolio of innovative products that solve our customers' most pressing needs, coupled with our best-in-class distribution networks. We also drove improved profitability as we achieved productivity and net price benefits while continuing to align production to demand trends. For the third quarter, we delivered a nearly 7% increase in net sales to $1.16 billion. Our Residential segment grew 53%, driven by increased shipments to our mass channel as expected, following aggressive destocking by that channel last year, coupled with the strategic addition of Lowe's this year. The residential segment continued to benefit from the strength of The Toro brand, successful new product introductions, and better weather conditions compared to last year. Within our Professional segment, we delivered net sales growth in our underground construction and golf and grounds businesses where strong demand is keeping order backlog at high levels. We successfully drove increased output within our existing manufacturing footprint to address this sustained demand and best serve our customers. In doing so, we continue to improve backlog but still expect elevated levels for these businesses heading into next fiscal year, given the influx of new orders. This strength was offset by lower shipments of snow and ice management products and contractor-grade zero-turn mowers. This was expected given elevated field inventories in our dealer channel industry-wide. As summer progressed, we saw macro factors drive more caution from homeowners and dealers than originally anticipated. These factors included general consumer uncertainty, high interest rates, and the current geopolitical environment. This uptick in caution resulted in trade down activity and purchase deferrals, which led to lower-than-expected shipments of residential and professional segment line pure products during July. Even so, we continue to execute on our objective of normalizing dealer field levels for these products and once again made significant progress in both the professional and residential segments. We are now about 80% of the way back to normal for dealer field inventory levels for these products. Moving to the bottom line, we delivered adjusted diluted earnings per share of $1.18, an increase of 24% over last year's $0.95. This increase reflects our progress in driving productivity and manufacturing efficiencies, along with positive net price and prudent management of SG&A. Importantly, our free cash flow improved substantially compared to last year, a reflection of our disciplined execution and focus on working capital. Based on our visibility for the remainder of the year and considering the expected continuation of increased caution in our homeowner-facing markets, we are revising our full year fiscal '24 guidance. Angie will walk through those details shortly. Throughout the quarter, we advanced our enterprise strategic priorities to drive shareholder value for the long term. I'd like to comment specifically on our key priority of driving productivity and operational excellence. As our team did an outstanding job in delivering productivity gains this quarter. We remain on track to deliver at least $100 million of annualized run rate savings by fiscal 2027 from our multiyear productivity initiative named AMP for amplifying maximum productivity. As we've discussed, we intend to prudently reinvest up to 50% of the savings to further accelerate innovation and long-term growth. As a part of our AMP initiative, we recently held a wide-scale supplier summit with more than 100 key suppliers represented. We shared our vision for the future with transformational productivity being an enabler of further innovation, investments, and growth. Based on the feedback we've received, suppliers left the summit engaged and excited to partner with us on our product development and productivity objectives. We also made targeted portfolio adjustments this quarter with AMP to further position the company for profitable growth. These include the sale of our Australia-based pulp products residential garden watering and irrigation business and the rebranding of our Intimidator and eNVy products. This rebranding allows us to leverage marketing investments and capitalize on the strength of the Spartan brand name. We are already realizing benefits from AMP, and we expect these benefits to accelerate over the next two years. Importantly, everything we are doing with AMP helps us fuel our existing strategic priorities of accelerating profitable growth, driving productivity and operational excellence, and empowering our people. With that, I'll turn the call over to Angie to discuss our financial results and guidance before I return to provide commentary on the outlook for our businesses.

Thank you, Rick, and good morning, everyone. We were pleased to drive productivity and price benefits in the quarter and made progress in addressing both order backlog and field inventories. While shipments of lawn care products were impacted by homeowner and dealer caution, we are confident in the strength of our market share and are well positioned for the future. Consolidated net sales for the quarter were $1.16 billion, up 6.9% from Q3 last year. Reported EPS was $1.14 per diluted share compared to a loss of $0.14 in the third quarter of last year. Adjusted EPS was $1.18 per diluted share, up 24% from $0.95. Now to the segment results. Professional segment net sales for the third quarter were $880.9 million, down 1.7% year-over-year. This decrease was primarily driven by lower shipments of snow and ice management products and lawn care equipment as we work to reduce field inventories and lower shipments of compact utility loaders with the replenishment of field levels as a result of improved output in recent quarters. This was partially offset by higher shipments of golf and grounds products and underground construction equipment as we continue to address the robust demand and significant open orders for these businesses. We also saw net price realization in the quarter. Professional segment earnings for the third quarter were $165.7 million compared to $13 million last year. When expressed as a percentage of net sales, earnings for this segment were 18.8% compared to 1.5%. The positive change in profitability was primarily due to last year's noncash impairment charges of $151.3 million as well as productivity improvements, favorable product mix with the appreciable growth in golf and ground shipments and net price realization. This was partially offset by higher material and manufacturing costs and lower net sales volume. Residential segment net sales for the third quarter were $267.5 million, up 52.6% compared to last year. The strong growth was primarily driven by higher shipments of products to our mass channel. Residential segment earnings for the quarter were $32.6 million, a substantial increase from $3.8 million last year. When expressed as a percentage of net sales, earnings for this segment were 12.2%, up significantly from 2.2%. The year-over-year increase was largely due to net sales leverage, productivity improvements, and net price realization, primarily driven by lower floor plant costs. This was partially offset by product mix and higher material and manufacturing costs. Turning to our operating results for the total company. Our reported and adjusted gross margin were 34.8% and 35.4%, respectively, for the quarter. This compares to 34.4% for both in the same period last year. The increase was primarily due to productivity improvements and net price realization. This was partially offset by higher material and manufacturing costs and segment mix with growth weighted to residential. SG&A expense as a percentage of net sales for the quarter improved slightly to 22%, a 20 basis point improvement over the same period last year. The improvement was primarily driven by net sales leverage and lower marketing costs, partially offset by higher incentive expenses. Operating earnings as a percentage of net sales for the quarter were 12.8% and compared to a negative 1.8% in the same period last year. On an adjusted basis, operating earnings as a percentage of net sales were 13.7% and a 150 basis point increase over 12.2%. Interest expense for the quarter was $14.5 million, down from $15 million last year. The decrease was primarily due to lower average outstanding borrowings, enabled by our significant improvement in free cash flow. The reported effective tax rate for the third quarter was 17.3% compared with 47.6% a year ago. The decrease was primarily due to the tax impact related to noncash impairment charges last year, combined with a more favorable geographic mix of earnings this year. The adjusted effective tax rate for the third quarter was 18% compared with 19% last year. This also reflects a more favorable geographic mix of earnings. Turning to our balance sheet. Accounts receivable were $523.3 million, up 36.2% from a year ago, primarily driven by increased shipments to our mass channel as well as payment terms to that channel. This increase was as expected given our strategic partnership with Lowe's, which continues to provide positive momentum within the residential segment. While not a part of our accounts receivable balance, we once again saw significant improvement in Red Iron DSOs, a decrease of about 30 days. This is a reflection of our progress in rebalancing dealer field levels of lawn care products as sell-through continues to exceed sell-in. Inventory at the end of Q3 was $1.08 billion, down 3% compared to last year and slightly lower sequentially from last quarter. The year-over-year decrease was driven by a reduction in both lawn care equipment, finished goods balances and work in process. These reductions were partially offset by higher levels of compact utility loaders as those inventories normalize and higher levels of snow and ice management products as expected, given last winter's lack of snowfall. Accounts payable were $437.8 million, up 7% from last year, primarily driven by the timing of material purchases. Year-to-date free cash flow was $270.5 million, an improvement of over $200 million compared to last year. As a reminder, the majority of our operating cash flow is typically generated in the second half of our fiscal year based on seasonal flow. We expect that same cadence this year. For the full year, we are confident we will deliver a free cash flow conversion rate of at least 100% based on reported net income. This is significantly higher than the past two years and back in alignment with our 10-year historical average. Importantly, our balance sheet remains strong. Our leverage ratio is within our stated target of 1x to 2x on a gross basis, and we continue to have investment-grade credit ratings. This provides financial flexibility to fund investments that drive attractive returns. Our disciplined approach to capital allocation remains unchanged with our first priority to make strategic investments in our business to drive long-term profitable growth, both organically and through acquisitions. We are acting on this priority with our plan to fund $115 million in capital expenditures during fiscal 2024. This will support new product investments, advanced manufacturing technologies, and capacity for growth within our existing footprint. Our next priority is to return capital to shareholders, both through our regular dividend and share repurchases. We've increased our dividend 6% this year and have consistently grown our dividend payout over time. This demonstrates the conviction we have in our strong and sustainable future cash flows. With respect to share repurchases, we continue to fund repurchases with excess free cash flow while maintaining our leverage goals. We've invested almost $110 million through Q3 to repurchase nearly 1.2 million shares while also paying off our outstanding revolver borrowings, and we plan to continue repurchasing shares in the fourth quarter. This is a reflection of our substantial improvement in cash flow this year, along with our strong conviction and future growth opportunities. As we close out the fiscal year, we continue to expect benefits from the sustained strength in demand and significant order backlogs for underground construction products and golf and grounds equipment. For these businesses, field inventory levels remain lower than ideal and backlog remains elevated, although we continue to make good progress. On a total company basis, order backlog has improved from the $1.97 billion balance at fiscal 2023 year-end. It is lower both on a year-over-year basis and sequentially from last quarter but still much higher than what we would consider normal. We will provide an updated year-end figure in our annual 10-K filing in December. For both segments, we expect to continue making progress in normalizing field inventories of lawn care and snow products, although levels remain elevated both for us and industry-wide. We've factored this dynamic into our estimates. We've also factored in expectations for a continuation of the increased macro caution we started seeing in July for our homeowner-facing businesses. With this backdrop and based on our current visibility, we are making some adjustments to our guidance. For the full year, we now expect total company net sales growth of about 1%. For the Professional segment, we now expect full-year net sales to be down low single-digits, which implies mid-teens growth for the fourth quarter. For the residential segment, we continue to expect net sales to grow at a rate significantly higher than the total company average for the full year. We expect fourth-quarter residential net sales to be down low single-digits on a year-over-year basis. Looking at profitability, we now expect adjusted gross margins and adjusted operating earnings as a percentage of net sales to be slightly lower than last year, a reflection of product mix. Turning to segment profitability, we continue to expect both the professional and residential segment earnings margins to be higher than last year on a full-year basis. For the Professional segment, we now expect a similar earnings margin to last year when you exclude last year's impairment charges. For the residential segment, we expect a high single-digit margin for the full year. For the other activities category, we continue to expect higher expenses compared to fiscal 2023. This reflects a return to more normal incentive compensation. For the fourth quarter, we expect an expense similar to Q1. With that, we now expect full-year adjusted diluted EPS in the range of $4.15 to $4.20. Additionally, for the full year, we continue to expect depreciation and amortization of about $120 million to $130 million and interest expense of about $60 million. We now expect an adjusted effective tax rate of about 19.5%, driven by a more favorable geographic mix of earnings. We continue to build our business for long-term profitable growth. This includes prioritizing innovation investments that we believe will deliver outstanding returns and driving sustainable margin expansion with disciplined execution, including our AMP initiative and leveraging the talents of our team and the power of our best-in-class distribution networks. We are confident in our ability to drive significant benefits and opportunities for all of our stakeholders. With that, I'll turn the call back to Rick.

Thank you, Angie. Our business fundamentals remain strong, and we continue to execute with discipline. For our businesses with sustained strength in demand and elevated backlog, we are successfully driving increased output within our manufacturing footprint. For our businesses that are experiencing a near-term increase in caution driven by macro factors, we expect to be very well positioned as those markets recover. We continue to benefit from our strong leadership position in attractive end markets, our ever-expanding suite of innovative solutions that perform necessary work with regular replacement cycles, and our deep customer and channel relationships. And importantly, our team is executing well driving productivity and operational efficiency through our AMP initiatives and flexing production to align with market conditions and better serve our customers. Looking ahead, we are keeping a close eye on macro factors as well as demand dynamics in our specific end markets. For the underground construction market, we expect demand to remain robust and order backlog to remain elevated heading into fiscal 2025. There is a very positive runway for projects to address global infrastructure needs, including communications, utilities, and data centers. These projects are supported by both public and private multiyear spending. Infrastructure spending remains a positive outlier in the broader construction industry with strong growth forecasted for the foreseeable future. For specialty construction markets, which include our Toro Dingo and Ditch Witch SK lines of compact utility loaders, we are seeing a return to more typical patterns as supply and demand have come into balance with improved lead times. For rental markets, which are meaningful to our specialty construction business, expectations are for a return to mid-single-digit growth next year following three years of double-digit growth. As we discussed last quarter, our order backlog for compact utility loaders has normalized as expected. For golf and grounds, we expect to continue to see the prioritization of equipment and irrigation purchases supported by healthy budgets and new course development. Worldwide, there are more than 500 significant new and renovation golf projects in the pipeline across 88 countries, and rounds played data continues to reinforce that the golf industry has had a positive reset. For the first six months of 2024, U.S. rounds played were 2% ahead of last year's pace, which is notable given 2023 was the highest year of U.S. rounds played in history. Our worldwide market leadership position and new product pipeline to address the golf and grounds market is also as strong as ever. This includes our new Groundsmaster e3200 fully electric upfront rotary mower. This machine leverages our proprietary hyper cell battery system to enable increased productivity with significantly quieter operation, zero exhaust emissions, and no compromise on cut quality. With the sustained strength in orders we continue to see in our golf and grounds equipment, we expect order backlog to remain higher than normal for this business into fiscal 2025. For landscape contractors, we continue to expect stable retail demand driven by regular replacement activity with some pockets of price sensitivity given the interest rate environment and high field levels across the industry. For homeowners, we expect macro uncertainty will continue to drive caution, including trade down activity, given higher interest rates. We expect demand to be driven by regular replacement needs and certainly favorable turf growing conditions would be beneficial. For snow and ice management, preseason sell-in demand has been reduced as expected, following a second straight season of below-average snowfall. However, contractor budgets are in good shape following a better turf growing season, and if more normal snowfall patterns return in fiscal 2025, we would expect in-season orders to pick up as well. The overall consensus is climate patterns are positioned to shift from El Niño to La Niña this year. If that happens, it could be more favorable for snow prospects. We continue to strengthen our position in this market with innovative solutions that help contractors achieve great results while reducing labor requirements. This includes our new entry-level scout snow reader, the latest addition in our powerful and versatile sidewalk warrior lineup. This new model has garnered much enthusiasm, and initial production is already sold out. Before we take questions, I'd like to reiterate why we are so excited about the future and what we see as the greatest growth opportunities as we fulfill our corporate purpose of helping customers enrich the beauty, productivity, and sustainability of the land. The opportunities before us are the results not only of our work in fiscal 2024 but the many years of diligence in developing our diversified and complementary portfolio of businesses, our leading market positions, and our deep customer and channel relationships. First, we are excited about our underground construction business, where we are extremely well positioned as a worldwide market leader with the most comprehensive equipment and brand lineup in the industry. In addition, together with our best-in-class channel, we have very deep relationships with our customers. These relationships, coupled with the sophisticated technology required, are difficult to duplicate. What makes these competitive differentiators even more compelling are the near and long-term positive market demand dynamics. As a leader in this space, we are capitalizing on the rapidly growing demand for data communications infrastructure and energy grid modernization as well as the global focus on replacing aging infrastructure. Second, much like our underground construction business, our golf business is exciting due to the winning combination of our strong market leadership and long-term market fundamentals. Here, we also have deep relationships with our customers and channel partners and a lineup of industry-leading products and solutions, including our full suite of reduced and zero exhaust emission offerings. Importantly, we have a distinct competitive advantage as the only company to offer both equipment and irrigation solutions for this market and as the worldwide market leader in both. Fueling our growth in golf is the sustained global momentum. We are prepared to capitalize on this opportunity with continued innovation and our best-in-class service and support network. Third, we continue to strengthen our multi-brand leadership in the important zero-turn mower space. This represents the largest single lawn care category for both our professional and residential segments. We've enhanced our market leadership position through investments in our innovative product lineup and the strategic development of our independent dealer networks and mass partnerships. Our momentum in this space positions us extremely well for further growth, especially as these markets return to normal strength. Fourth, we have a proven ability to leverage our technology and innovation investments across our broad portfolio. This enables the accelerated development of new products that help our customers drive productivity and superior results while enhancing The Toro Company's competitive advantage and ensuring market leadership into the future. We will continue to drive a return on innovation with prioritized investments in the key technology areas of alternative power, smart connected, and autonomous solutions. And finally, we have a talented team that is determined to capitalize on all of our opportunities with discipline and build on our long history of delivering consistently strong financial performance. We have the best network of strategically aligned channel partners focused on going above and beyond to serve our customers every day. We have built a strong and agile organization that has been resilient through many macro cycles. We are ready to seize the opportunities that lie ahead to drive value for our customers, our channel partners, and our shareholders in both the near and long term. With that, we will open up the call for questions.

Our first question comes from the line of Tim Wojs with Baird.

I would like to start with a question about the backlog. Could you provide some context about where the backlog stood at the end of the quarter? While I understand you may not share a specific number, any information on orders, such as whether the book-to-bill ratio is over one in areas like golf and underground, would be helpful.

Yes, sure. I'll take that, Tim. So on the backlog, if you look at by several comparisons, if you look relative to the end of last year, we've made improvements in the backlog and reduced it. If you look at year-over-year, the backlog is down. And if you look sequentially, the backlog is down. It's really concentrated in the two areas that we've talked about: the golf and grounds and the underground areas. And the reason we have not cleared the backlog is that the intake of orders for those businesses continues to be extremely strong. From a factory output standpoint, we've made tremendous progress this year. We are certainly at pre-pandemic levels of production; that's not record production in those plants right now. So the momentum in both of those businesses is tremendous at this point, and that's really the reason for the continued larger backlog position. We do expect for both of those general businesses for the backlog to be more normalized by the end of '25. But at this point, we still believe the backlog will extend into '25 just for those two businesses, where there continues to be extraordinary demand at this point.

Could you explain the relationship between the increased macro caution in the Lawn & Garden or landscape business and the management of channel inventory? Are you expecting to maintain a similar inventory level as the season ends, or might there be a slightly higher inventory that will still be manageable for next year? I'm trying to understand how these factors connect.

I think the number that Angie quoted was 80% of the way at this point, managing that field inventory down. The caution that we saw was from homeowners, especially on larger ticket items, a little bit of trade down. So we saw continued strength on residential mass; it was tremendous in the quarter. But on the higher ticket items that tend to go through our dealer network, some of which were the inventory that we're managing down. Just a little bit of caution coming in, especially in July in the very latter part of our quarter, caused that slowdown. And it's really a combination of the end customers themselves, plus just the dealer restocking at that point of the year, given the macro environment.

Okay. And I guess within Pro in the quarter, was the shortfall kind of relative to your guidance, specifically the landscape business? And was it really kind of tied to the weaker July shipments?

Exactly, yes.

Our next question comes from the line of Samuel Darkatsh with Raymond James.

Just a follow-on question to what Tim asked. I don't know if it was directly answered, but I think you all were looking to have normalized field inventories and ostensibly Red Iron DSOs by the end of the fiscal year. Are you still on track to do that specifically?

We're on track, and we're at 80%. We still have some of the year left to go. We may just be slightly not back to zero, but absolutely nothing like where we started this year. Relative to where we started this year, we're by far closer to normal. Yes. We've made tremendous progress, and it's really a combination of strong retail in those businesses, drawing down our inventory. There's relatively higher general inventory from competitors, etc., that are a factor, but we've done what we expected to do. We'll be close to getting exactly where we expect to be.

Got you. And then last quarter, Rick, you indicated at least an early expectation for kind of mid-single-digit organic sales growth for next year. I know you're not going to be formally giving guidance for next year for a bit. But if you could update us at least on what your thinking is for next year's sales growth and how to unpack that, maybe give a more specific framework as to what gives you confidence in your projections as it stands?

It's somewhat similar to what I mentioned earlier. I'm cautiously optimistic about the upcoming year. We have strong confidence in our strategies for growth next year, though we remain cautious due to macroeconomic factors. In July, discussions focused on interest rates and economic uncertainty, including concerns about a potential recession and the political landscape. Some challenges will soon be behind us. Nevertheless, we anticipate that our golf and grounds sectors will remain robust, showing significant momentum. Our underground business also has ample room for growth, and we are aligning our supply to meet the rising demand. Our partnership with Lowe's is set to enhance our overall strategy, as this year marks record levels in our mass market relationships. Regarding snow, this year serves as a recovery period due to the previous two seasons being underwhelming. A return to normal snowfall would benefit us, especially since our inventory was ready for the season. The third quarter results reflected a lack of snow-related shipments, but we have successfully reduced inventory in lawn care categories sold through dealers. While contractor customers have remained strong, there is some caution among homeowners. With Lowe's, we will benefit from a full year of collaboration instead of ten months, entering the snow season together, which is favorable for us alongside all our mass market partners.

My final question real quick. Again, related to your original expectations for the quarter, maybe this is too fine a point, but the change in tax rate from 21 to 19.5. I guess that implies that the international business was considerably less robust than you thought. Was that the primary driver of the negative variance, Rick?

I'll take that one, if it's okay, Rick. Really, that was driven by a favorable geographic mix of earnings. So both foreign and some state tax mix, Sam. And then we also did a transfer pricing study that helped us a little bit there. If we think about lowering that for the year, but next year, we also expect a lower, more like 21%, probably lower than 21%, somewhere 20% to 20.5%, but we'll provide a little more color on that in December.

So international business was not materially different than your plan?

It was not. It has some of the same impacts that we saw that Rick talked about on the residential and obviously, the snow side of the business and the lawn care, but yes, mostly due to transfer pricing.

Our next question comes from the line of Michael Shlisky with D.A. Davidson & Company.

I believe you mentioned that 500 courses in 88 countries are working on projects to enhance their golf facilities. Could you clarify if that includes a significant amount of irrigation, or are these projects a combination of both irrigation and equipment? Please provide insight into the opportunities Toro might have compared to last year regarding the mix of irrigation and equipment projects.

Any time there is a renovation of the golf course, such as reshaping or improving greens, or expanding or reconfiguring, it inherently includes irrigation projects because the existing setup is disrupted. The figure of 500 courses does not even cover just the irrigation upgrades. These projects are either significant renovations, expansions, or entirely new golf courses that require moving earth. In every case of the 500 courses, you cannot work on a golf course without addressing the irrigation issues. Therefore, it involves both aspects.

Fantastic. And then just on capital allocation, it wasn't really mentioned much in your prepared comments because you update us on how the M&A market is looking these days other assets for sale? Maybe just kind of just what you're looking at size was industry-wide, that would be helpful.

Regarding mergers and acquisitions, the process is ongoing as we are consistently building relationships. Our capital allocations remain unchanged, as shown in our investor presentation, but we are always on the lookout for opportunities that could enhance our current customer focus areas or introduce new possibilities. Typically, these involve adjacent markets and product lines, but we are open to anything that fits within our scope. We emphasize the importance of maintaining the discipline in our selection process to ensure that these opportunities enhance shareholder value, which is our primary focus. This is why we take a careful and selective approach.

Just to follow up there, Rick, are there any of the deals looking at in the tech space like a left-hand again or other similar companies, or are they all equipment iron?

As a general category, technology is definitely one that we're always interested in. They tend to be smaller acquisitions that might be more entrepreneurial, but that is on our list primarily because of the way that we can leverage our technology across different areas. So that makes them attractive, but they tend to be small but can have a huge impact just like what can Robotics did for us.

Our next question comes from the line of David MacGregor with Longbow Research.

Rick, you mentioned the slowdown in July multiple times. I'm curious about how this relates to August. Could you provide insight into what we're seeing in August and how the weakness in July might affect us moving forward?

Yes. In August, there's still a bit of caution, but it seems to be more normalized. We have included our expectations based on our guidance for the rest of the year. We knew that snow wouldn't be a factor for the fourth quarter and have already accounted for the trends we observed in our guidance for that time. However, there is still some caution among homeowners, which is reflected in our current information.

Yes, I'd say we still expect to see that strong demand from underground and golf and grounds as well as we look forward. And it really positions us well for '25 we think, where we're at today.

Right. Right. I guess I wanted to ask you about productivity because that's starting to come up in discussion more frequently, and we guess at this stage of the game, we're far enough along the AMP program that maybe the benefits are exceeding the upfront sort of investment costs. But if you look at the professional segment, adjusting for the year-ago noncash impairment charge, of course, your margins were actually up 50 basis points, it's probably a pretty weak top line performance. So I guess just given the magnitude of the volume decrementals and the higher raw material costs and productivity improvements, most have been pretty substantial. Can you just talk about where you are on AMP and where you are in productivity and how we should be modeling that going forward as a good guide?

Sure. Yes. Let me first start with just kind of the progress we made on AMP in Q3. We made some great progress. We continue to identify opportunities for synergies and work alongside that team. But the three notable highlights that we had in the quarter were the supplier summit that Rick mentioned in the prepared remarks, we had about 100 key suppliers in. And they left here very excited about their opportunity to partner with us on our growth aspirations. We also have some portfolio actions in the quarter. You saw the divestiture; that is included in the residential segment. You see that in other income in the residential segment. And then we have some actions that we took to drive future synergies with our Spartan brand, and you'll see that in the professional segment. Overall, the rest of the expenses with our transformational office and some of the personnel associated with that and consulting expenses are sitting in other activities, David. But overall, productivity continues to be a great project for us. We continue to focus on that, and we're confident in delivering that at least $100 million by F '27.

David, I would just add that in relation to our professional business in the underground golf and grounds areas, as those plants operate at a higher level, it really creates the opportunity to enhance productivity. The absorption of the plant improves, and manufacturing variances have left some initiatives that contribute to productivity, along with the specific initiatives we have through AMP.

And we would just add that we're also leveraging our SG&A costs. So we've worked hard to control what we can.

Sure. I can follow up with you on that later. But just one more question if I may. You mentioned that material costs were higher in the quarter for both segments. Clearly, you're still dealing with elevated contracted steel prices impacting both the balance sheet and the profit and loss statement. Could you clarify the timing for when we might see the benefits from lower steel costs reflected in the profit and loss statement? Will we start to see that after a contract reset at the start of the year, followed by a 90-day delay for it to be reflected in the balance sheet, or how should we approach the timing on that?

Yes. With regard to commodity costs in general, I think that the biggest focus for us is actually an offshoot of our AMP initiative to work with our suppliers and partners to drive down our costs, both through just competitive pricing, but also through partnering with our suppliers to do better on cost. From a steel standpoint, I mean overall market, we did see an adjustment probably about 1.5 years ago or so, and we're in a little bit more of a plateau from a market standpoint. We still have major steel contract negotiations coming up. So that's still TBD, but we'll obviously be looking to drive as much improvement as possible on those costs.

Yes. And anything that we've seen there, we've included that in our guidance to the best of our ability.

Right. But I guess what I'm trying to really understand is just the timing. And so let's stand back from whether it's up or down and just whatever it is, the timing. Do we see that kind of a contract reset at calendar first of the year and then it's 90 days to come off the balance sheet? Or can you just help us with the timing?

That's roughly correct, although there are some continuous processes on negotiations. So it's not everything happens right on a fiscal year basis. There are negotiations throughout the year.

Our next question comes from the line of Eric Bosshard with Cleveland Research Company.

Just a bit of clarity on the change in the revenue guide. As I listen, you walked through all this, and there's a lot of strength in backlog and the turf growing season. There's a whole number of things going well. It seems like narrowly this is dealer sell-through and dealer orders that are homeowner-driven. Is that the right way to narrow it? Or would you narrow it differently than that?

That's the right way to narrow it. That is the biggest factor through the rest of this year.

Okay. The homeowner segment of the business has been performing differently and worse than anticipated over the past 15 months. Is it currently worse? Was there a belief that it was stabilizing or improving? I'm trying to understand what has changed in this segment compared to previous trends or expectations and the reasons behind it.

Yes. I would say that it's in line with what we expected a year ago when we noted a significant market slowdown at that time. Dealers were coming off three years without products and had accumulated inventory that we needed to work through. That's what we've been focused on over the past year, and we've made substantial progress. We are nearing our inventory reduction targets, which we estimate are about 80% complete, with a few months left in the year. This situation is reflected in our revenue, and it was clear that our customers were cautious in July, which we discussed with our dealers regarding inventory levels at this time of year. The trajectory shifted a bit toward the end of the year, but given that it's the end of the summer season in much of our selling area, it's not unusual for both customers and dealers to make decisions based on that context. This explains the recent changes. We have been following through on our plans to reduce inventory as we mentioned a year ago, and we've been actively working on that. Intentionally, our strong retail shipments have been much lower to align field inventory appropriately.

Our next question comes from the line of Ted Jackson with Northland Capital Markets.

I want to discuss inventory on the balance sheet. You have been doing well in managing it. Looking ahead to the next 12 to 18 months, I expect it to trend down to a more normal level. First, when you evaluate your inventory in terms of turns or days, how do you define what normal is? Additionally, am I correct to assume that reducing the inventory level on your balance sheet is linked to addressing the backlog you have with underground construction and golf? It seems that the strength in orders has resulted in a higher amount of inventory because of the various businesses you need to manage. At what point do you think you will reach that normalized level based on terms or days?

We are continuing to adjust our inventory and have maintained a strong focus on this throughout the year. We made significant progress in the last quarter, reducing our inventory by approximately $25 million sequentially, partly due to work in progress. In terms of increasing output, some of this inventory is in work in progress, which we can use to address our customers' backlog. We have made great strides and have about $75 million left to go. Last quarter, we discussed our direction and our goals for inventory levels, and I would say we still have about $75 million remaining to reach our ideal levels.

And then if I could ask one more question, and it's more not even a question, it's just more of a kind of some commentary. This morning, Callaway and Topgolf announced there's kind of a separation. And the rationale behind it is that Topgolf has had some performance issues as we move past COVID-19. And I know that the golf business for you is exceptionally strong, and you continue to comment yourself that rounds played or up and everything. But in the past, it's also been commented that what one of the underlying drivers that is the bringing in of new golfers through something like Topgolf. Is there anything to read with regards to what's going on, on that side of the business with regards to Topgolf in terms of kind of a longer-term, just figure that ask. That's it for me.

The adjacency is a bit different from our golf course business. One factor is that there are currently more players in that area due to the popularity of golf. I haven't had a chance to review the information you mentioned. However, it reflects the overall interest in golf and the ongoing growth across all formats, both on-course and off-course. Increasing evidence suggests that playing off-course, even in non-traditional venues, enhances interest in playing on traditional grass courses, which is beneficial for us.

Congratulations on the cash flow generation for the quarter. It was impressive.

Thank you, Towanda, and thank you, everyone, for your questions and interest in The Toro Company. We look forward to talking with you again in December to discuss our fiscal 2024 fourth quarter and full year results.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Everyone, have a good day.