Greetings. Welcome to Valmont Industries Third Quarter 2023 Earnings Conference Call. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Investor Relations and Treasurer. Ms. Campbell, you may begin.

Thank you, and good morning. Welcome to Valmont Industries Third Quarter 2023 Earnings Call. With me today are Avner Applbaum, President and Chief Executive Officer; Tim Francis, Interim Chief Financial Officer; and Eugene Padgett, Senior Vice President and Chief Accounting Officer. This morning, Avner will provide a brief summary of our third quarter results commenting on our markets and long-term business strategy. Following that, Tim will review our financial performance and provide our current outlook and indications for 2023 with closing remarks from Avner. This will be followed by Q&A. A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investors site at valmont.com. A replay will be available on our website later this morning. Please note that this call is subject to our disclosure on forward-looking statements, which applies to today's discussion is outlined on Slide 2 of the presentation, and will be read in full at the end of today's call. Finally, if you would like to be notified when Valmont publishes news releases and other information, please sign up for e-mail alerts through our investor site. We also encourage investors and others interested in our company to follow Valmont and our brands on the social media channels listed on our website. With that, I would now like to turn the call over to our President and Chief Executive Officer, Avner Applbaum.

Thank you, Renee. Good morning, everyone, and thank you for joining us. I want to first say how proud I am of our global Valmont team as they navigate a dynamic demand environment and demonstrate their unwavering support to our mission and core values. It is the team's customer-centric culture, driving innovation and delivering results that ultimately gives me confidence in our success now and into the future. During my first quarter as CEO, I made it a priority to hear directly from our employees, customers, dealers, and shareholders. These conversations were valuable and insightful, and I am appreciative of all the people I have had the opportunity to meet. Before moving forward with our quarterly review, I would like to briefly comment on the recent tragic events in Israel. The safety and well-being of our Valmont colleagues in Israel is our primary concern. I'm thankful to report that all of our employees and their families, including my own, as both my wife and I have family in our home country, are safe. The loss of innocent lives during this escalating violence has been staggering, and our hearts go out to all those affected by this senseless tragedy. Now let me return to our third quarter results and key messages shown on Slide 4. Our Valmont team continues to perform extremely well across both segments, delivering solid third quarter results. Adjusted operating margins and adjusted diluted earnings per share improved significantly year-over-year while navigating a dynamic market demand environment that is pressuring top-line growth. We also generated strong operating cash flow as we manage working capital, allowing us to support our balanced capital deployment strategy and return cash to shareholders. Infrastructure demand remains robust globally, as nearly all of our end markets are experiencing multiyear secular growth drivers, and global agriculture market fundamentals remain relatively strong. I will say more about our end markets in a few moments. The strong performance of our global operations team and pricing strategies in both segments have ensured we are driving margin expansion amid lower sales and ongoing inflation while capturing the value we add to our customers. And finally, we have announced necessary actions to position Valmont for long-term success, including an organizational realignment program and executive leadership changes. These actions improve our ability to support our business, streamline decision-making, and improve efficiency. Turning to Slide 5 for an update on our markets. Within infrastructure, utility demand remains robust as utilities continue to increase CapEx spending to support a safe, secure, and reliable grid system. North America's Power Grid is benefiting from several demand drivers, including the need to increase grid resiliency and reliability, support power load growth, and capitalize on government policies designed to accelerate the energy transition. The IRA is expected to provide tailwinds to our solar business as the industry obtained clarity on manufacturing tax credit details. Meanwhile, global solar demand remained strong due to the extension of the 10-year investment tax credit in the U.S. and favorable international renewable energy policy. Road construction investment continues to support transportation demand globally. The release of IIJA funding has been slower than anticipated, as inflation, higher interest rates, and labor constraints are delaying some projects. Although we are not yet seeing orders from this program, our transportation products are typically purchased 9 to 12 months following funding appropriations. Commercial lighting markets are experiencing some near-term softness from the impacts of higher interest rates, inflation, and declining single-family housing starts. Telecom remains muted as carriers reduce CapEx spending following record levels of investment. While some of our markets are faced with near-term macroeconomic challenges, broad-based infrastructure demand remains strong with several long-term drivers. Our flexible manufacturing footprint and strong commercial partnerships uniquely position us to deliver value to our customers and drive profitable growth well into the future. Turning to agriculture. In North American markets, the latest USDA projections reaffirmed that 2023 net farm income levels are expected to be at historically high levels. While farmer economics remain healthy, sentiment remains muted coming off the substantial profit margins that were recognized in 2021 and 2022. We are seeing signs of positive trends this quarter as order levels for irrigation systems are tracking ahead of last year. International agriculture fundamentals remain robust. Brazil has been strong this year, and we achieved another record quarter of sales as the market continues to experience increasing levels of production and expansion of irrigated acres. Brazil is expected to be the fastest-growing Ag market in the world, and it remains a key part of our long-term growth strategy. In other regions, our leadership position and project pipeline support ongoing demand, and shipments of the large Egypt project are expected to continue through 2024. In summary, global agriculture markets are still in a position of relative strength. Our value proposition and the long-term demand trends set us up for continued profitable growth. Turning to Slide 6. Today, we are announcing specific actions to better align our organization to our strategy and improve our cost structure. After evaluating the administrative support within each business segment and corporate, we have taken actions to create synergies and optimize our structure. We are simplifying reporting lines, improving our visibility across the organization, and driving accountability to achieve results. These are net positives that help us scale the organization to efficiently focus on our priorities and drive strategy to improve profitability. We don't take these actions lightly, but they are necessary to set us up for long-term success. Next, while Tim will provide more details later in the call, I'd like to briefly address the impairment charges to goodwill and intangible assets in the agriculture technology reporting unit. These charges reflect a much lower adoption rate of Prospera's agronomy technology solutions compared to original assumptions. Going forward, our go-to-market approach is to ensure innovation is introduced with the purpose of meeting the immediate needs of our irrigation customers. As the market leader in advanced irrigation technology solutions, we're excited about the growth and partnership opportunities our investment creates for us to deliver additional crop and water management solutions to our growers. We're committed to harnessing the power of evolving AI and machine learning technologies, and we'll continue investing in R&D. Moving to Slide 7, I now would like to share an update on our executive leadership team, our strategic priorities, and forward expectations. Aaron Shafer has been named Group President of Agriculture and our Chief Strategy Officer, which is a new role for the organization. Aaron previously had numerous leadership roles within our irrigation business and most recently served as Group President Infrastructure. As Chief Strategy Officer, Aaron will develop opportunities to leverage commercial and technology strategies and create a strategic roadmap for growth across the company. Tim Donahue has backfilled Aaron's role as Group President, Infrastructure. In this role, he will lead commercial growth strategies and foster collaboration across all infrastructure product lines to deliver value-add solutions to our customers that drive profitability and ROIC improvements. Tim was most recently EVP Corporate Business Development and previously was the President of the former ESS segment. Diane Larkin remains our EVP of Global Operations, leading strategy to support capacity growth, including meaningful productivity enhancement across our businesses through operational excellence. Our entire executive team will lead their respective areas with a sharp focus on data-backed decision-making and tight processes around investment decisions. I am confident this is the right team to help us achieve our strategic objectives. A few weeks ago, the leadership team and I met to discuss our strategy in light of my transition into the CEO role. The most important outcome from those meetings that I wanted us to achieve was to affirm that our core strategic priorities remain intact. At the same time, as is common when there are changes in leadership, as CEO, I've started prioritizing certain aspects of our strategy differently than my predecessor. At our Investor Day, we highlighted initiatives that delivered profitable growth based on leveraging our competitive advantages. The last few years, we experienced tremendous growth, which drove the ability to explore several investment opportunities. While we continue prioritizing growth initiatives, looking ahead, we will invest with discipline and proactively make decisions in conjunction with market cycles. We remain focused on new products and solutions that solve our customers' most pressing challenges while specifically strengthening our core businesses and prioritizing high-value revenue. Through this lens, the pace of some of our initiatives may change. For example, the bottom line impact from our agriculture growth initiatives will be more measured than our previous commentary may have indicated, and we will be more realistic about anticipated rates of change to our business. We still hold an unshakable belief that we can and should bring advanced solutions to our customers. Our innovation funnel includes a mix of projects with longer payback horizons and others with more immediate impacts such as a robust solar business and our newly launched eco-friendly concrete utility poles. In summary, our management team and organization are united around our strategic priorities with a focus on initiatives that deliver compelling value propositions to our customers. I'm excited about Valmont's journey as a company that maximizes financial performance through the cycles, made possible by an unwavering discipline on capital allocation and ROIC. Now I'll turn it over to Tim for our third quarter financial review and updated outlook.

Thank you, Avner, and good morning, everyone. Turning to Slide 9 and 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. Third quarter net sales of $1.1 billion decreased 4.3% as infrastructure sales were comparable to last year, offset by lower agriculture sales. Accounting for the 2022 divestiture of the Offshore Wind business reported in the Other segment, sales decreased 2.3% year-over-year. Despite lower sales, operating income increased 5.9% to $120.8 million and operating margins increased to 11.5%, reflecting higher pricing that was not linked to steel commodity costs, and delivered actions to improve overall cost of goods sold. Diluted earnings per share grew 18.1% to $4.12, a third quarter record. A favorable tax rate driven by recent legislation regarding usage of foreign tax credits generated in Brazil and benefits from R&D expenses, along with ongoing actions to improve profitability, drove the EPS improvement. As Avner mentioned earlier, we initiated an organizational realignment program to drive cost optimization, simplify our operating structure and strengthen our shared service model. We estimate 2023 cash expense in the range of $33 million to $36 million. Approximately $16 million will be recognized within the Infrastructure segment, with the remainder split evenly between the Agriculture segment and corporate. These cash charges are expected to be recovered through lower operating costs within 12 months. Turning to the segments on Slide 10. Infrastructure sales of $755.1 million were comparable to last year, driven by higher volumes, notably in the solar, L&T, and TD&S product lines. Lower telecommunication volumes and lower pricing associated with the reduced cost of steel in the TDS product line more than offset the higher pricing across the rest of the portfolio. Operating income increased to $108 million or 14.3% of net sales. Delivered actions to improve cost of goods sold drove the margin improvement. Moving to Slide 11. Agriculture sales of $298.5 million decreased 8.8% year-over-year. Higher international volumes were more than offset by lower North America volumes and a slightly less favorable product mix. In North America, sales were lower as farmer sentiment remained somewhat muted and the third quarter of 2022 benefited from the ongoing delivery of elevated backlog. International sales were higher due to higher project sales in the EMEA region and growth in Brazil. Additionally, sales of agriculture technology products and services were similar to last year. Operating income decreased to $38.5 million or 13% of net sales. Improvement in gross profit margins, partially attributed to deflation in the cost of steel, was more than offset by higher SG&A. As Avner mentioned earlier, during the third quarter, we performed our annual impairment testing of goodwill and other intangible assets and concluded that the carrying value of the agriculture technology reporting unit exceeded its market value, leading to an impairment of approximately $137 million. The impairment test considers several factors, the most important of which are projected operational cash flows and the after-tax discount rate. Significantly slower growth and grower adoption rates in Prospera's agronomy technology solutions resulted in much lower financial projections than originally modeled. Other contributing factors to the impairment charge were the recent decline in the North American agriculture market and a higher discount rate attributed to higher interest rates. Turning to cash flows on Slide 12. Third quarter operating cash flows of $81 million were driven by diligent working capital management, primarily reductions in inventory. Turning to Slide 13 for a summary of year-to-date capital deployment. In the third quarter, capital expenditures were $26 million as we continue to invest in strategic capacity expansions. Through our balanced capital allocation framework, we are focused on enhancing shareholder value. In the third quarter, we returned approximately $44 million to shareholders through dividends and share repurchases, ending the quarter with approximately $173 million in cash. Moving to Slide 14. Total debt to adjusted EBITDA of 1.5x was within our desired range of 1.5 to 2.5x. Our cash balances, available credit, and flexible balance sheet provide us with ample liquidity to execute our capital allocation strategy. I would now like to review our updated 2023 outlook, as shown on Slide 15. Given the timing of international agriculture project shipments and continued near-term softness in telecommunications markets, we now expect full year sales to decrease between 3% to 4% compared to last year. Despite lower volumes, we expect operating margin improvement year-over-year, and our strong third quarter results will carry forward into our full year EPS growth expectations. I'd also like to note that the previous adjusted EPS outlook has been updated to remove adjustments associated with the Prospera technology intangible asset amortization and stock-based compensation totaling approximately $0.65 per share. We believe these revisions provide better transparency to investors going forward, and they became less meaningful to separately disclose as operating income has grown. Turning to the segments. Continued strength across infrastructure markets supports our expectations for higher sales this year. In agriculture, we expect fourth quarter international sales to be higher compared to the prior year. This will be more than offset by lower North America sales as 2022 benefited from the shipment of elevated backlog; a higher sales mix of international projects will slightly reduce agriculture segment profitability in the fourth quarter as compared to last year. As a reminder, the timing of international project shipments can be hard to predict from quarter-to-quarter. We assume a full-year adjusted effective tax rate of 26% to 26.5% when considering the favorable tax legislation in the third quarter that I previously mentioned. To summarize, we are leveraging our global scale to improve margins, drive strong cash generation, and generate sustainable shareholder value. With that, I will now turn the call back over to Avner.

Thank you, Tim. Continuing my comments on Slide 16. I am proud of our team's ability to execute our strategy, driving solid results while navigating current market dynamics. We remain focused on controlling the things we can control to hit our financial targets and improve our quality of earnings. We're taking actions to enable a more efficient and effective organizational structure to fully realize the benefits of ongoing strategic initiatives with a continued focus on delivering high-value solutions through investments and innovation. We are confident our diversified portfolio with compelling long-term drivers and our focused strategy positions Valmont for success now and into the future. I will now turn the call back over to Renee.

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

Our first question is from Nathan Jones with Stifel.

I guess I'll start off, Avner, you made some comments about some at least minor changes, if not major changes in the strategy here going forward. So I guess the question first is, can you expand on those kinds of things? What are some more details on what the changes to the strategy are? And then the financial targets that Valmont laid out in May, do those still hold? I mean, it sounds like maybe a bit more measured pace on investments. So maybe the growth numbers are towards the lower end, but the realignment adds to margins and maybe the margin at the higher end? Just any more color you can give us on kind of what's changing strategically within the business.

Thank you, Nathan, for your question. Let me begin with our strategy. We have thoroughly assessed it and determined that we possess a strong and focused strategy centered on our core strengths. We foresee robust markets ahead in both infrastructure and agriculture, and we'll prioritize addressing our customers' most urgent needs in these areas, aiming to grow both segments. For instance, we recently issued a press release about our drone services, particularly in telecom where there is a shortage of climbers for tower maintenance. Our drone services can enhance safety and resolve this issue. We're also exploring innovative technologies for the utility sector, such as pole cleaning, but these are not immediate priorities for our customers and are often deprioritized in their operating expenses. Our emphasis will remain on solving their critical requirements in both the utility and telecom spaces. Overall, our strategy is solid, and we are confident in our capacity for significant growth in both segments. Regarding our five-year targets discussed during our Investor Day, your observations are accurate. In evaluating any long-term strategy and financial forecasts, one must consider the market and initiatives. Today, as we embark on the first year of our five-year plan, our starting position is not as strong as we had hoped, and while we anticipate a cycle of growth, the timing may vary, impacting our long-term projections. Specifically, concerning some initiatives like Prospera, our growth forecasts may not reach earlier expectations. We strive to balance optimism with realism in our strategic plan; some initiatives are more optimistic, so we'll adopt a cautious approach to ensure we concentrate on our core mission of supporting customers and delivering value to both them and our shareholders. On the sales side, I am confident in our financial targets; we are making progress in improving our operating margins and overall quality. We continue to achieve advancements quarter on quarter, including in Q3. We are focused on capital efficiency and enhancing profitability. At a high level, I am very enthusiastic about our outlook for the next five years. The market conditions are favorable, and we have strong secular drivers in place, and we intend to follow through on our plan to enhance shareholder value.

I have a follow-up question regarding pricing. It seems that you're experiencing some challenges with pricing in the utility business, where you are required to pass steel pricing back through. We noticed a delay when prices were increasing, so we can expect similar behavior as they decrease. Could you discuss the overall pricing impact we might see in the fourth quarter? As we look ahead to next year, there appear to be challenges in the utility sector. Do you still anticipate pricing opportunities in other areas of the business? Additionally, are you experiencing any pricing pressure in the agriculture sector, given the softer demand in the U.S. and the decline in steel prices?

Nathan, it's Tim. I'll take that one. Let me start off by saying we're very pleased across the infrastructure business in terms of what we've been able to do with pricing in businesses that don't have that contractual mechanism tied to steel cost indices. As you alluded to, there's been tremendous volatility in the cost of steel. It's been as low as $670 and all the way up to $1,200, kind of in the middle of the second quarter. That dynamic is probably going to continue, right? We could expect to see that continued volatility in the cost of steel, but we expect to be able to maintain good margins in those contracts where we have that mechanism tied to the steel indices. But then there's the other part, of course, of our utility business, which is the bid market, and there, I'd also like to comment that we continue to see strong pricing as we try to get more orders there. Turning to agriculture, we see no change in our philosophy of being a leader on price.

And let me add to that, Nathan. Just several weeks ago, I went out to our dealer conference in Idaho and spent time with some of our dealers out there. There was no discussion around pricing. They're very happy with the value they get from our pivots. They were very happy with our value proposition and our technology offering, and we continue to maintain that strong partnership with our dealers and help drive value to our growers. So we keep on maintaining our leadership position in that market and evaluate the situation as we move forward.

Our next question is from Chris Moore with CJS Securities.

Yes, maybe we could start with Prospera. So obviously, Investor Day was discussed in very positive terms. Already seen some signs of softness in North America Ag. Just trying to understand kind of what has changed between now and then, and perhaps as part of that question is the time frame on the Prospera analysis. Was it more heavily weighted when you're doing the calculations to figure out the goodwill impairment?

Yes. Let me start off with just some background and overview on Prospera. Tim can then address kind of the timing of the impairment. But I'd like to go back just several years, when we actually started a partnership with Prospera in 2019. The vision was to transform the center pivot from an irrigation machine to an autonomous crop management tool, which could really enhance crop precision, save growers time, reduce costs, optimize land usage, and, of course, increase yields. Fast forward to 2021; there was a decision to expand the strategy. They were venturing beyond traditional pivot acres and really pursuing recurring revenue from subscription-based agronomy tech solutions. As we mentioned, that strategy really didn't pan out as planned. We're going back to the original view of how we can provide autonomous crop management. We want to use all the technology suite that we offer to our growers, anywhere from remote monitor control, irrigation optimization, and, of course, agronomic insight. Now we're very pleased with the technology around agronomy, AI, and machine learning. As I mentioned, I was just meeting with some dealers and partners, and they are extremely excited about this technology to help solve some of their biggest problems. Our dealers are excited; our growers are excited. We're going to focus on the core. The core of our business is how do we help solve the growers' most immediate needs and do more with less. We continue to manage our entire tech suite, and we are leaders in that space, with overall revenue exceeding $100 million, and we will continue to build on that and expand while we keep focusing on the growers and solving their solutions.

And I'll jump in and answer your question, which I think was specific on the timing. So I draw your attention back. If you go back and look at corn futures in the United States in mid-May, they were still strong compared to the pricing that you can see today of $4 or $4.90. At the time of Investor Day, there really wasn't this indication yet of a more downward trend in the North America Ag market, and we've seen this happen today. As you look at goodwill and certain intangible assets, you're required to test them annually. Our annual testing date is the end of August, so qualitatively, we really didn't have a reason to do a test between our two annual impairment tests. We had to do a test in the third quarter of this year, but there was nothing qualitatively that told us we needed to do a test in that interim period.

Got it. And maybe just one follow-up for me. It sounds like from what Avner said, the recurring strategy had not been working as well as you had hoped. Is the decision here a part of the new strategy, or is this a management decision to reduce the focus on the Prospera side?

Absolutely not. We're very much focused. We do believe it has a value proposition. I'll just point out that, like every other company, we like recurring revenue, because it's recurring income with strong margins, and we'll keep on benefiting from that. We're not necessarily going to go after recurring revenue unless we're solving a problem for our customer, and if the outcome is that we can provide recurring revenue, that is a great outcome. But we're not going to go, as I said, specifically outside our core to try and drive recurring revenue.

Our next question is from Brent Thielman with D.A. Davidson.

Avner, the realignment and sort of new initiatives that you're putting in place. Do you expect these to be largely complete before year-end such that the business and the cost structure are positioned how you want it to be as we go into 2024? Or is this going to be an effort that builds well into next year?

Yes. Thanks for the question. Overall, this realignment was a decision we never take lightly when this involves employees, but it's really what we need to do for this organization in order to drive us forward. It really helps us as we continue to drive our strategy and be more focused, streamlining processes and making stronger, quicker decisions by reducing some of the management layers. This gives us better visibility into the business. I believe these actions will drive significant value going forward. Yes, we should be pretty much done with the alignment by the end of the year. A lot of the actions have already taken place, we have put the management team in place and we're ready to move forward with this realigned organization.

Okay. Appreciate that. Can you just remind us of the project-based business visibility that you have to execute, I guess, in the fourth quarter and maybe into '24? I'm specifically speaking about Egypt. Any help in terms of what the contribution could be over the next several quarters? And has the conversion of that pipeline of business changed at all in terms of converting opportunities out there to actual orders? Or are there still some good prospects to add to that backlog in the near term?

Yes. Okay. Overall, this large Egypt project that we won, which really provides Egypt with a lot of their food security, which is referred to as their national security today, is part of our approach to that region. We could really help these countries drive food security. Specifically, this project is expected to continue into 2024, and while projects always move, our anticipation is that it will go on through the rest of 2024. We are watching the conflict in the Middle East and evaluating if that has any impact on us going forward, but we continue to be excited about the region. We believe we have a very strong value proposition there, with our strong presence in that area in Dubai. We have good relationships with the customers in these countries, and we continue to manage our pipeline being very disciplined about the projects we pursue and looking forward to driving strong sales in that region.

Our next question is from Brian Drab with William Blair.

Just wonder if you could make any comment as you look into next year around what you expect for sales volume in the various businesses from utility, the highway poles to international and domestic irrigation, just even a rough range, where do you think these businesses are going to be in terms of sales volume next year?

Brian, it's Tim. I'll take that question. At a high level, it could be a very dynamic market environment as we have seen this year. On the infrastructure side, we expect to see strength in the utility product lines, like we've seen this year. But we do see continued muted demand in the telecommunications market and then the commercial piece of L&T. In agriculture, we expect to end this year with a more historically normal backlog, so lower than the global backlog we saw in 2022, although our recent order rates in North America have improved year-over-year. We will provide a comprehensive outlook in February on 2024 when we release our fourth quarter earnings. Another key aspect I would say is that the USDA will release our net farm income projections in December. That will be a key component of that outlook that we do provide in February. As Avner just mentioned, we do see a solid pipeline of international projects.

Okay. On the infrastructure side, I mean, in the utility poles business next year, my understanding is that lead times are still very high in that business. There's basically more demand than supply. Are you doing some things to free up some capacity? Shouldn't that be a growth business in terms of volume in 2024?

Sure. Let me add a little more color on that. Absolutely. That is a very strong growth business for us, not only for the next year but for the next decade. We've taken specific steps to actually improve our lead times and we were able to get them below 30 weeks during this quarter, which is a really great spot for us. Of course, we have different product lines, and within that business, some lead times are longer than others, but in our main steel area, we've managed to drop lead times below 30 weeks, which keeps us supporting our customers and being competitive in that area. We continue to find opportunities to capitalize on this very strong market. We're seeing tremendous growth in the transmission area to the distribution, the substations, where we're really excelling to support a lot of the energy transition. So overall, we're very excited about the utility space with our flexible footprint, innovative products, and strong capabilities, which enable us to help these utilities as they look forward to harden the grid and address load growth and electrification.

Okay. I guess I'm just trying to get a sense for what you have in mind right now about next year in terms of volume growth for the business because I get that telecom will be muted next year, commercial stuff. These aren't huge parts of the business. I mean highway infrastructure, utility, international Ag; I think those are up. Domestic Ag is more of a question mark. I mean overall for the business, I mean, nominal sales growth could be volatile due to steel prices to some extent. But is this a portfolio that you think going into next year grows in terms of volume or not?

Yes, this is Tim. I would say for the infrastructure side, there will be growth in TD&S and the transportation piece of L&T. Based on what I know today, I would expect to see low single-digit volume growth in 2024 in the Infrastructure segment.

And maybe I'll just broaden a little bit the conversation around agriculture. We will provide a lot more information during our next earnings call as we provide the outlook for the year. But we're really now looking at the trends in agriculture. If we take a step back, we had record years for the farmers. Net farm income was at record levels going into 2021 and 2022. Farmers made a lot of money; commodities were elevated. Corn was around 7%, and soy was 17% or 18%. They had tremendous years. Now as we move into this year and into next year, overall, globally, I'd say that farmers are getting a little squeezed because of higher interest rates and inflation. Commodities are a bit lower, so they're squeezed. But overall, they made really good profits, very strong balance sheets. The question is whether they are going to continue investing now for the future or be a bit more muted. We've seen increased order rates in Q4, but we're going to wait a few more months to see how they end up for the year. With the new USDA report coming out in December, we'll be interested in how that impacts Brazil. There are a lot of moving pieces, and in the next few months, we'll have more visibility and be able to provide analysts with a good feel for how 2024 is shaping out.

Our next question is from Ryan Connors with Northcoast Research.

I'm glad to know that your employees and family are safe. I'd like to revisit the topic of Prospera but from a different perspective regarding the process. What did you learn throughout this process? What aspects didn't go as planned? Since you mentioned this was a partnership, I assume it was a negotiated agreement rather than an auction. Can you explain the price discovery process that resulted in the $300 million valuation? Please share details about the process, due diligence, and valuation, as well as the lessons learned, changes needed, and areas for improvement in capital deployment moving forward.

Thank you, Ryan, for your question, and thanks for your comments. Overall, when we went and acquired Prospera, like you mentioned, we had a partnership that went back to 2019. It was a transformative acquisition. It was a company with minimal revenue but a very exciting technology and value proposition with tremendous potential. We still believe there is tremendous potential, although some of the assumptions regarding growth in the adoption rate of growers in general didn't pan out. It's a new space for us. There is tremendous due diligence that goes into every company we buy, including projections and purchase pricing. What is more important is looking forward. We're really going to focus on companies that have full alignment with our strategic plans that tie to our core businesses. We're going to expand the offerings to our customers but are really tied to our core competencies. I have already started to go through our funnel of companies and looking at the ones that are not core to us; those we just are not going to pursue. So that's on the strategic side. On the financial filter side, we have specific criteria that applies to our overall criteria for beating cost of capital over three years. We will stick to those financial criteria to make sure that every acquisition fits the strategy and financial filters to drive value for our shareholders and customers while we acquire companies. You will not see transformative companies at this magnitude going forward; they're going to be a lot more close and tied to the core.

Got it. Okay. Fair enough. And then my second one, I wanted to go back to the electric transmission discussion there a minute ago. Obviously, these are very long lead time projects, sometimes years or even a decade or more in planning. A spike in interest rates is not going to impact your near-term project funnel or 2024. Some renewable generation utilities have gotten absolutely demolished since this interest rate spike took place, and the concern is a slowdown in rate base growth as those renewable projects don't happen. What are your thoughts on that? What kind of timeline does that lag effect have on the transmission business?

It's actually an interesting question and dynamic. What we are seeing is that the higher interest rates, higher inflation, and higher costs are impacting the EPCs and the players in this space. Their source of income is getting impacted by two things. One, we actually had a mild summer, so their income was lower, and some of the rates are fixed over the next several years. This is squeezing their top line. We are seeing project movements where they are applying their discretion and deciding which project to work on now versus delay into the future. Thankfully, the demand is strong. Our dynamic and flexible footprint allows us to pull and push projects out and support our customers as they go through their planning. We are seeing a lot of movements; it may seem seamless, but there's a lot of work behind the scenes, and we're able to continue driving growth. The demand will outpace the supply, and we will continue driving growth.

Our final question is from Brian Wright with ROTH MKM.

I would like to delve a bit deeper into Agriculture. When you mention the improved order rates in North America compared to last year, are you suggesting that North American revenues in the fourth quarter will stabilize year-over-year or possibly increase slightly based on your current observations? If we could start with that, I have a few more follow-up questions.

This is Tim. I'll take that question. So North America, frankly, globally for agriculture, it's a little bit more dynamic than that. The backlog, we had such a record backlog the past few years, and we've been meaningfully reducing that backlog down to what has been more like historical norms through 2023. Although we are excited to see the order rates improving, we have to think about it from the backlog perspective.

And Brian, I just want to add one more point. Throughout this last 12 months, we have seen that a month is not a trend. We’re really being very measured. We're excited to see the order rate increase year-over-year; that is a very good sign. But let's wait a few more months to see how that all pans out as we continue looking forward. We're excited; it’s always good to see the order rate going up. But again, it’s been very dynamic. We will be cautious about how we look at that business in the short term.

Okay. And then my follow-up is the indication on the profit level being lower year-over-year. And that's just a function that typically there's more of an international mix in the third quarter than there is in the fourth quarter. So the operating profit will be down third quarter to fourth quarter. Was that meant to be a sequential comment or a year-over-year comment as far as the operating profit? I just want to make sure I got that right.

I believe it was more of a year-over-year comment. Going back to the past few years, but yes, it will be down. Let me be more definitive. It will be down year-over-year, and it’s due to the higher mix of international project sales this year versus last year.

Okay. And then one last one, if I could. Just on the international for the fourth quarter in the orders, I know the rainfall has been pretty sparse for September and October. So just kind of any kind of order level commentary that we're seeing early fourth quarter in international?

Yes. So again, we're monitoring our order intake, with a different dynamic comparison year-over-year because of how revenues played out last year versus the full year. We're looking at it right now, and we will be able to provide a lot more color as we go into the next several months.

This will conclude 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 7 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.