Greetings and welcome to the Valmont Industries, Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host Renee Campbell, Vice President, Investor Relations and Corporate Communications. Ms. Campbell, you may begin.

Thank you and good morning. Welcome to Valmont Industries third quarter 2021 earnings call. With me on today's call are Steve Kaniewski, President and Chief Executive Officer; Avner Applbaum, Executive Vice President and Chief Financial Officer; and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our third quarter results and comment on our strategy and long-term business outlook. Avner will review our financial performance and provide an outlook for the balance of 2021 with closing remarks from Steve. This will be followed by Q&A. A live webcast of the presentation will accompany today's discussion and is available for download from the webcast or on the Investors page at valmont.com. A replay of today's call will be available for the next seven days. Please also note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and is outlined on slide two of the presentation. It will also be read in full at the end of today’s call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Thank you, Renee. Good morning, everyone, and thank you for joining us. Today, I would like to begin by sharing some opening comments and then provide a brief overview of the quarter. Before I do that, I want to take a moment to recognize the contributions of Walter Scott Jr. He served on our board for more than 40 years and passed away late last month. While he was an incredible individual, his wisdom and leadership were critical to Valmont's success over the years. His loss was felt deeply by those who knew him and the entire Omaha community. Walter's counsel, kindness and mentorship will truly be missed by all of us at Valmont. Moving on to the business. Our strong performance this quarter once again demonstrated the solid demand across our businesses and the consistent execution of our growth strategy, even amid a challenging global environment. Like most others, we have faced the impacts of broad-based inflation, the COVID-19 Delta variant and labor and supply chain disruptions. Government-mandated lockdowns in Australia and workforce quarantines in North America, including Mexico and the Southeast United States, impacted certain utility and Coatings facilities. Supply chain disruptions affected the timing of some shipments in our irrigation and solar business. Despite this, we've delivered a strong quarter of growth and profitability. Our commercial and operations teams are managing exceptionally well. Through these unique dynamics, the focus has been perseverance, while continuing to prioritize employee safety and serve our customers. I'm extremely proud of our team's execution throughout this year. Now, let me move to a brief overview of our third quarter summarized on slide four of the presentation. Record third quarter sales of $868.8 million increased more than 18% compared to last year. Sales growth was realized in all segments, led by higher pricing and strong broad-based market demand with particularly substantial sales growth in irrigation. Moving to the segments and starting with Utility. Sales of $276.5 million were slightly lower compared to last year; significantly higher pricing and higher volumes were mostly offset by renewable energy projects that did not repeat or that were pushed into future quarters due to customer supply chain disruptions. Many utilities have been increasing their planned investments in transmission and distribution projects, even exceeding recent years of higher capital spending. Further proposed capacity additions in the renewable energy sector are favorable demand drivers across our utility business. We see strong demand continuing as both utilities and developers have been increasing their forecasts of additional projects over the next several years to comply with mandates to increase renewable energy generation. Moving to Engineered Support Structures. Sales of $281.1 million increased 10% year-over-year, led by favorable pricing in all markets, and sales growth of more than 25% in wireless communication products and components. Pricing improvements across all product lines continued this quarter, and international markets are benefiting from higher stimulus and infrastructure investments, especially in Australia. 5G buildouts and significant investments by the major carriers are driving demand in our wireless communications business, providing a good line of sight into 2022. Turning to Coatings. Sales of $96.7 million grew 10% year-over-year, driven by higher pricing, improved general end market demand and sales from our new Greenfield facility in Pittsburgh. Moving to Irrigation, global sales of $240.3 million, or more than 72% year-over-year, with sales growth in all regions and higher sales of technology solutions. In North America, sales grew nearly 55%. Strong market fundamentals and improved net farm income projections continue to positively impact farmer sentiment, generating very strong order flow. International sales doubled year-over-year, led by solid demand in the Middle East and Africa, including the ongoing deliveries of the Egypt project, and another record quarter of sales in Brazil. Last quarter, we highlighted our acquisition of Prospera Technologies. Integration is going well and we are making substantial progress building on our new strategy to grow recurring revenue services. We are on track to meet the financial targets that we shared last quarter, and look forward to sharing progress towards these goals in the future. In irrigation, we have a unique market advantage due to our global footprint and highly differentiated AI solutions, both critical components of our growth strategy. Over the past year, we have been increasing opportunities for local manufacturing in the markets we serve, especially in light of the challenging supply chain environment, labor availability, and higher freight costs. For example, we recently localized some of our electronics assembly and our device assembly, and are increasing the total capacity in our Brazil factory by 50%, positioning us for long-term international market growth while we continue enhancing service to our dealers and customers. We are also very pleased that our irrigation backlog at the end of the third quarter was $388 million, up 26% year-over-year. Turning to Slide 5. As we've said before, ESG is embedded into the core of our company's purpose. There are many ways our products and services conserve resources and improve life. One recent example of this is using solar solutions to transform the Sudan desert into a prosperous and sustainable region for agricultural production. Sudan is the third largest country on the African continent. Agriculture is quickly becoming its primary economic driver, accounting for 40% of the nation's GDP and employing close to 80% of the local workforce. But poor conditions and a lack of direct access to electricity in the region are hindering its expansion. To help overcome these challenges, our Valmont Solar team recently installed a PV plant to bring power to center pivots. Sunlight is captured and transformed immediately into electricity, eliminating the need for a battery or secondary energy source. We're proud to have initiated this project powering pivots by solar energy, providing 100% independence from the grid. Our innovative solutions are leading the way for precision agriculture in Sudan, opening doors to other solutions that will enhance productivity, empower local communities to solve water security issues, and help build a more sustainable world. With that, I will now turn the call over to Avner for our third quarter financial review and 2021 outlook.

Thank you, Steve and good morning, everyone. Turning to Slide 7, in third quarter results my comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix. Operating income of $80.4 million, or 9.3% of sales, grew 20% year-over-year driven by higher volumes in irrigation and favorable pricing, notably in Engineered Support Structures. Diluted earnings per share of $2.57 grew 30% compared to last year, primarily driven by higher operating income and a more favorable tax rate of 23.5%, which was realized through the execution of certain tax planning strategies. Turning to the segments. On Slide 8, in Utility Support Structures operating income of $24.6 million, or 8.9% of sales, decreased 170 basis points compared to last year. Raw material costs continued to increase during the quarter, impacting our ability to fully recover costs through our pricing mechanism, leading to lower-than-expected margin. Also, the impact of workforce quarantines in a few North American facilities led to operational inefficiencies, which we do not expect to repeat. Moving to Slide 9, in Engineered Support Structures operating income increased to $34.4 million, or 12.2% of sales, a third quarter record. The benefits of proactive pricing actions have more than offset the impact of continued rapid cost inflation. Better fixed cost leverage, including SG&A, also contributed to positive results. Turning to Slide 10, in the Coatings segment operating income of $12.5 million, or 12.9% of sales, decreased 270 basis points year-over-year. Profitability was impacted by a lag in pricing to recover higher inflation costs, including raw material and labor, and startup costs at the Pittsburgh facility. Moving to Slide 11, in the Irrigation segment, operating income of $32 million more than doubled compared to last year, and operating margin of 13.3% of sales improved 270 basis points year-over-year. Significantly higher volumes and favorable pricing were partially offset by higher SG&A expenses from the recent Prospera acquisition. We're also extremely pleased with the profitability of our industrial tubing business and international margin improvement led by consistent and proactive pricing actions taken by our global team. Turning to cash flow in Slide 12. Year-to-date, we have delivered operating cash flows of $62 million with the use of cash this quarter of $8.4 million that reflects higher working capital levels to support strong sales growth. As we said in prior quarters, rapid raw material inflation creates a short-term impact on cash flow. For the balance of the year, we expect inventory levels to remain elevated to help mitigate supply chain disruption and strategically secure raw material availability to support strong sales growth. Accounts receivable will also increase in line with sales growth. As our historical results have shown, we will see improvements in working capital as inflation subsides. Turning to Slide 13 for a summary of capital deployment. Year-to-date capital spending of $81 million includes $33 million for strategic growth investments, and $55 million of capital was returned to shareholders through dividends and share repurchases, ending the quarter with approximately $170 million of cash. Moving now to Slide 14, our balance sheet remains strong. Based on our recently amended revolving credit facility, our net debt to adjusted EBITDA of 1.85 times remains within our desired range of 1.5 to 2.5 times. Let me now turn to Slide 15 for an update to our 2021 outlook, including a few key metrics and assumptions. We're increasing our earnings expectations for fiscal 2021 by narrowing the EPS guidance range to $10.60 to $11.10. This reflects strong market demand and our solid execution this year, and we are confident in our ability to continue this performance. Other metrics and assumptions, including tax rate and currency impacts, are summarized on this slide and in the press release. Turning to our segment outlook on Slide 16, in Utility Support Structures, we expect operating margins to improve sequentially as pricing becomes more aligned with steel cost inflation. Moving to Engineered Support Structures, we expect continued stable market conditions in the North American transportation market and order rates are beginning to improve. Demand for wireless communication products and components remains very strong and we’re on track to grow sales 15% to 20% in line with expected market growth. Moving to Coatings, we remain focused on pricing actions and providing value to our customers. Moving to Irrigation, we now expect sales to grow 50% to 53% this year, based on strength in global underlying agricultural fundamentals and a strong global backlog. Looking ahead to 2022, strong market demand across our businesses, the strength and flexibility of our global team and our continued pricing strategies give us confidence in achieving sales growth of 7% to 12% and earnings per share growth of 13% to 15%, in line with the three- to five-year growth targets that we have communicated at our Investor Day in May. With that, I will now turn the call back over to Steve.

Thank you, Avner. Turning to Slide 17. The long-term drivers of our businesses remain solid, as evidenced by our record global backlog of more than $1.5 billion, up 35% year-over-year compared to year-end 2020. These demand drivers are in place to sustain this momentum into 2022 and our business portfolio is well positioned for growth. We also continue to take pricing actions across our businesses where needed. Like others, we’re closely monitoring inflation, supply chain disruptions, and COVID. We’re ready to take additional appropriate actions to address these issues across all our businesses as needed. Meanwhile, our focus on following state and local regulations to keep our employees and customers safe is not waived. Turning to Slide 18. In summary, I'm very pleased with our strong third quarter results and our team's ability to navigate some challenging market dynamics. We've demonstrated our ability to grow sales through innovation and execution, while being flexible and responding quickly to meet customer needs. We've improved operating margins by executing on our pricing strategies and advancing operational excellence across our footprint, and we have invested in our employees and technology to drive new products and services and build upon the strength of our operations. Throughout 2021, we have been disciplined in allocating capital to high-growth strategic investments, while also returning capital to shareholders through dividends and share repurchases. Looking ahead to 2022, we’re confident in our plan to deliver the outlook that we have communicated and remain focused on execution and our ESG principles to build upon our success, while creating additional stakeholder value and improving our return on invested capital. I will now turn the call back over to Renee.

Thank you, Steve. At this time, the operator will open up the call for questions.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from the line of Brian Drab with William Blair. Please proceed with your question.

Hi, good morning. Thanks for taking my question. Could you just begin by quickly repeating that 2022 guide? I'm not sure I got all of it.

Yes, Brian, this is Steve. The 2022 guidance was that we reaffirmed our sales growth of 7% to 12% and the EPS growth of 13% to 15%. So that was what we communicated at our Investor Day. And we now feel pretty confident about how we look in 2022.

Got it. Okay. Yes, that's what I had written down and implying some operating margin expansion in 2022. Obviously there given the EPS growth is greater is that right?

That's correct.

And, Steve, can you talk about what the assumption for fuel prices is going forward? And do you have enough lower price steel in stock such that this last leg up in steel prices won't weigh in margins materially?

If you look at the utility business, I think we've accounted for even the current inflation fairly well. There is still some inflation that we will see in the fourth quarter. In utility, we will continue to see some inflation in the fourth quarter, albeit we will see margin improvement of about 150 basis points on a sequential basis. But it would take us right now, with utility averages, until about the second quarter to really be through with it if steel just kind of stays where it is. In the third quarter, we still saw about 23% overall steel inflation which was actually consistent with the first and second quarters. So now that it is plateauing again, all things being equal, as you look out, if it doesn't continue, we'll have a little bit more drag in the fourth quarter, a little bit less in the first quarter, and then by the second quarter, we should be past it.

Right, okay. And then just maybe one more given we're talking a little bit about 2022, in the utility outlook like what are some of the indicators that you're seeing from customers and other market reports that gives you confidence in growth in utility in 2022 and what kind of growth are you expecting in that segment if I can ask, I know you're not maybe guiding for the segments but thanks.

Just overall, the market continues to remain robust. The renewable energy mandates and generation from renewables is a positive driver in the marketplace, and grid hardening has continued to be a positive momentum for us there. Some of the issues that you see in the solar generation area, particularly module availability, which kind of delayed some of the projects in 2021, will get better in 2022, albeit maybe not to where everybody wants it to be, but definitely better. We actually have strong backlog in both the generation side and our traditional transmission and distribution side as we look into 2022. So everything we're hearing both from customers and from the order flow coming in suggests that the market will remain robust; there's not been any kind of issues where customers are cancelling orders because of the inflation. Again, I'll just bring it back up: we're such a small part of an overall project cost, 10% to maybe 15%, that even if our product inflates, there are other factors that really make or break whether a project moves forward.

Right. Okay. Thanks for the details. Appreciate it.

Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Hi, good morning, everyone.

Good morning, Nathan.

Wanted to start off, obviously, a lot of growth here. There's a lot of inflation. So a fair amount of that growth is coming from price. I think you've communicated pretty well that there's a lot of growth coming from volume here as well. Is there any color you can give us on price versus volume into growth? Love it by segment if you could do that. And are there any places where you're starting to see capacity constraints within your own manufacturing footprint where we might need to make some investments here going forward?

So if we look at pricing versus volume, if I start off with utility as an example, we're definitely seeing a lot coming through pricing. We have pricing mechanisms in utility that have helped with the steel inflation. On the volume side, we mentioned that on the global generation work we did have some project timing issues, so it had some reduction there offset by increased volume in other parts of the utility business. If you look at Engineered Support Structures, with our pricing actions and strategies around there, we're seeing significant benefit coming through pricing. You're also seeing a lot of volume coming through the telecom business on the order side, a magnitude of around 25% or so, which offsets some of the declines that we had earlier in mining and traffic. Moving to Coatings, we're seeing improvement there: a lot of pricing coming through and some volume from our new facility. Finally in Irrigation, our growth is a pretty good mix of both volume and pricing. We've been planning throughout the year, we've taken a lot of pricing actions across the businesses, and overall we've seen that the order flow has been very good across all the businesses evidenced by our strong backlog and the strong sales we had in the quarter.

And from the capacity side, Nathan, I think we're in good shape in irrigation. If you recall going back to the last big peak in 2013, we were producing a lot more just in the U.S. facilities, and we've increased a lot of the international facilities to be much more self-sufficient. So it’s not coming out of here solely. North American order volume flow is still stronger back then than it is now. So we have to watch on people in the supply chain, but from a brick-and-mortar perspective, we're in good shape. Coatings obviously in good shape. Engineered Support Structures, we're in good shape to meet the growth. In utility, we're really pushing operational excellence and automation with some of the AI welding that we're doing. We will always look at our footprint and what we have to do from a timing perspective to add capacity; we want to be very cognizant of capacity versus pricing in the market. If we need to do something from a brick-and-mortar perspective, we obviously have the ability to do so. Nothing imminent at this point.

Okay. Question on irrigation. Channel checks are indicating very strong demand and extended lead times domestically; do you feel like this could drive an early start to the selling season this year for customers to try and order ahead of these longer lead times, maybe better than typical seasonality as we get into Q4 and Q1 next year?

It has, Nathan. We saw order flow even over the past month is very robust, even though there is harvest in the fields. Between supply chain constraints that they're hearing about in the news and farm journals predicting long lead times, I think people are trying to get ahead of that and anticipated price increases. People really are trying to make sure that they are in good position for plant use next year. As I mentioned, we have seen good order flow straight through into the October time frame, which we typically wouldn't see until more late November. I think that assumption is correct.

So it sounds like the old days price increases are not having a negative impact on demand in the irrigation market yet either?

So far we have not seen a degradation. Particularly for our product, you typically get a three-year payback in a regular market; in a high commodity price environment, those economics improve and the payback can be shorter. The price increases we're pushing through are not causing any kind of market degradation so far. We recently announced another price increase and that is moving through as well. These price increases are necessary to ensure we can address labor and supply chain issues. So it's going well.

Great. Thanks for taking my question.

Thank you. Our next question comes from the line of Jon Braatz with Kansas City Capital. Please proceed with your question.

Good morning, Steve and Avner.

Good morning.

Returning to the international or irrigation piece of the business. On the international side, outside of Brazil, is the market as robust and as strong as it has been; have you seen any change in demand in those markets outside of Brazil?

Every market right now is experiencing growth, and in particular I would say Eastern Europe, Central Asia, even the Australian market has rebounded quite nicely. Africa, as we've called out frequently, continues to see more and more growth. So really if you look around, Brazil happens to be exceptional with the growth that we've seen there, but the other markets are performing very well.

Okay. And then secondly, on the Sudan project, the solar project, did you do the entire EPC piece of the project or did you just provide the solar trackers? What was the extent of your work on that project?

We worked with the local customer who had some engineering and design capabilities. We did a good portion of the work as well. So I would say it was a combined EPC-type project because it was the first of its kind in that region. We did more than we would traditionally do, but not as much as a full turnkey EPC.

Is that something where those capabilities can be applied elsewhere, and will we see more of that in the future?

Absolutely. It's something that we showcased at Husker Harvest Days here in Nebraska last month. That's something we'll be expanding outside of that footprint. Right now, what it really is allowing us to do is to create new TAM in places that did not have grid power. That proof of concept — can we deploy this where there is no grid power and no gensets and make a sustainable farm that operates on its own — we have done it. We're doing similar projects in Brazil as well. Particularly as hydro power becomes more constrained, we think this will be a significant market advantage for us as we move forward.

One last question here domestically. Solar tracker projects on utility-size projects, have you been awarded any contracts?

Yes, we have some utility-scale awards. They may not all be 100- or 200-megawatt projects, but they are sizable projects and we are continuing to work with developers in the distributed generation market quite well. Our backlog over the quarter did increase nicely compared to the second quarter.

Okay. Thank you, Steve.

Thank you. Our next question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Hey, good morning. Maybe just ask the price-volume question a little bit differently. So guidance is 17% to 18% sales growth in fiscal '21. Kind of what's the rough breakdown between pricing and volume there?

Chris, just to clarify, you mean for the whole year how much of that growth is price versus volume?

Yes, right. I'm just trying to get a picture for the year in terms of what's driving it. I assume most of it is on the pricing side. Just trying to get a sense of volume-driven areas — irrigation is the big driver there — but overall trying to understand better.

This is Tim Francis. I'd tell you through the first three quarters of the year, excluding currency, the split is probably more 60% volume versus 40% price. And I'd tell you that's probably going to be closer to 50:50 for Q4. So that will average you back down to about 55:45 for the full year.

55% volume, correct.

Okay. Got you. And other than irrigation, is there any one segment that's really driving the volume growth?

On a year-over-year basis Coatings is seeing improvement because they had COVID issues in the first half of last year. Engineered Support Structures had some weakness earlier in the year due to COVID restrictions, but telecom growth is a major contributor to volume. In utility there is some volume but mostly price. So telecom and irrigation are the main volume drivers heading into the back half.

Got it. Very helpful. And just on the solar market, you mentioned the catch-up; it sounds like there were supply chain issues. Are you seeing any improvement in pricing that you were hoping for? Is it reasonable to expect that market will be a bit more rational?

Yes, we are seeing better pricing. I think the market as a whole has had to digest that the field has changed. The paradigm of cost declines every year has been disrupted. We think that paradigm has largely broken at this point. Our backlog now reflects the pricing that we wanted, and where pricing was not advantageous, we were willing to forgo those orders. So our growth is coming at margins that we believe are appropriate for where the business stands today.

Got it. I appreciate it. I'll leave it there.

Thanks, Chris.

Thank you. Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Thank you. Good morning.

Good morning, Brent.

I guess first question on the utility business: looking into the future for margins or potential for margins, when you look at the mix and backlog in that segment today, is there anything advantageous to that beyond the pricing and cost discussion? I'm thinking more about factory efficiencies you can gain on larger orders, things like that, that can represent a real tailwind for margins next year for that segment?

Brent, I think it's basically a traditional mix of what we've seen over the last few years. We still have the large orders in the Southeast, which are advantageous and extend into part of 2023 at this point. That plays nicely for us. The mix of large poles and larger orders versus many smaller orders is about where we see it. We have been pushing pricing not just for pure inflation recovery, but also because of market robustness. As contracts come up, we're looking to move price, change terms and conditions, and do things that are more advantageous. On the factory efficiency side, we probably have more to gain, because we've had fits and starts of COVID and quarantines, and labor availability issues have played a role. That's something we're working on very hard. So I would say those operational improvements would be incremental to the inflation recovery, which will be significant. We see that in the backlog and the average selling prices moving up. There are no fundamental issues in utilities at this point.

And Steve, can you talk about the inroads you're making within T&D — the distribution side within that segment?

Yes, I think it's early in terms of the new products we're bringing to market. We have some things that we'll be introducing over the next year. Another thing that will play into improved margin and growth performance is our services. We're doing more inspection services and drone services; we highlighted some of that at Investor Day and we're seeing some nice orders coming into the backlog. Those service businesses typically have attractive margins compared to the historical products business. The fiberglass market has continued to expand, which matches up with crossarms, fiberglass poles and lightweight concrete solutions that make us more competitive against wood. So more to come on that.

Very good. One more on Engineered Support Structures: this seems to be the first quarter with an improved outlook for transportation-related volume. What do you see now and what does that mean to the overall segment given that's been working against you?

We had anticipated the first two quarters having lower volume and that played out. Then we saw much better order flow and inquiries. That's not just in the U.S., it's in international markets as well. That is why we think we'll see continued volume expansion in Engineered Support Structures particularly into 2022. Federal government funding is part of the story but remember about 75% of highway spend is by states. States are in generally good fiscal shape coming out of COVID and, with stimulus money and improved tax receipts, they want to spend on infrastructure to create jobs and show progress. So there is a bit of a catch-up effect plus improved financials; that gives us confidence going forward.

Very good, thank you.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now turn the call over to Renee Campbell for closing remarks.

Thank you for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter.

Included in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control, and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statement included in this discussion is made as of the date of this discussion, and the company does not undertake to update any forward-looking statements. This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.