Lindsay - Q3 2024

Executive Summary

• Q3 FY2024 revenue fell 15% to $139.2M, but diluted EPS rose 21% YoY to $1.85, aided by a $4.8M Brazil income tax credit; operating margin was 14.3% versus 16.4% last year. Infrastructure strength (revenue +11% to $24.4M; operating margin 25.8%) helped offset irrigation softness.
• Backlog surged to $246.9M (from $94.5M YoY), driven by a >$100M multi‑year MENA irrigation project; revenue recognition begins in Q4 FY2024 and extends through Q1 FY2026, providing multi‑quarter visibility.
• North America irrigation demand was tempered by wet Midwest conditions and insurance delays that pushed storm‑related replacement demand into Q4; Brazil remained constrained by lower commodity prices and tight credit.
• Capital deployment: $17.9M of share repurchases completed in Q3 and quarterly dividend raised to $0.36 (+3%) post‑quarter, signaling confidence and balanced capital allocation.
• Wall Street consensus estimates via S&P Global were unavailable at time of analysis; beat/miss vs estimates cannot be assessed.

What Went Well and What Went Wrong

What Went Well

• Infrastructure momentum and margin mix: Road Zipper project sales and lease revenue increased, lifting segment operating margin to 25.8% (vs 16.2% YoY). “The growth and margin expansion we achieved in our infrastructure business for the quarter helped to offset some of the softness in the irrigation business.” — Randy Wood, CEO.
• Strategic win: Secured Lindsay’s largest irrigation project (> $100M) in MENA using Zimmatic and FieldNET, expanding backlog and multi‑quarter revenue visibility.
• Balance sheet strength and capital returns: Liquidity of ~$202.7M at Q3 with $152.7M in cash/securities and $50M revolver; $17.9M buyback completed and dividend increased to $0.36 per share.

What Went Wrong

• Irrigation volume decline: North America irrigation revenue fell 9% (to $68.2M) driven by lower equipment and parts volumes; international irrigation fell 31% (to $46.6M), primarily Brazil and Latin America.
• Deleverage hit margins and operating income: Consolidated operating income dropped 26% YoY to $19.9M; irrigation operating margin fell to 17.0% (from 21.6%) on lower revenues and fixed cost deleverage.
• Near‑term Brazil demand headwinds: Lower commodity prices and constrained credit reduced grower investment capacity; aggressive pricing appears in large Brazilian projects, pressuring international margins.

Transcript

Operator (participant)

Hello, and welcome to the Lindsay Corporation Fiscal Q3 2024 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. As a reminder, this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO of Lindsay Corporation. Please go ahead.

Randy Wood (President and CEO)

Thank you, and good morning, everyone. Welcome to our Fiscal 2024 Q3 Earnings Call. With me today is Brian Ketcham, our Chief Financial Officer. Our fiscal Q3 was highlighted by steady execution, which resulted in strong operational performance despite market headwinds that impacted top-line revenue. We announced a key project win in irrigation and continue to be pleased with the growth of our Road Zipper sales and lease business in infrastructure. I'm proud of our teams and their execution. Turning to our key end markets, in North America, irrigation market conditions continued to weigh on farmer sentiment, resulting in overall demand softness. High precipitation levels and wet field conditions across the Midwest contributed to lower year-over-year sales of irrigation equipment and replacement parts in that region, while we experienced volume growth in the West and Northeast regions.

We did see higher-than-expected storm damage activity that hit the Midwest in late April and early May. However, delays in insurance approvals and wet field conditions shifted most of that demand into our fiscal fourth quarter. In international irrigation, we've continued to see a decline in Brazil due to suppressed commodity prices and limited access to capital, ultimately tempering overall demand in the short term. Tragic flooding in the South has also hindered order activity in that region. We did see strong customer turnout and quotation activity at recent farm shows and expect to see this year's crop plan in early July. That will set funding levels and finance rates for this coming season. Brazil and other key South American agricultural markets remain dramatically underpenetrated for mechanized irrigation, and the value created by irrigated agriculture will support long-term growth in this region.

We are pleased to host a delegation of farmers and government officials from Mato Grosso State in the quarter. They're one of several regions in the country that continue to investigate ways to improve production and efficiency with center-pivot irrigation and irrigation technologies like FieldNET. In the Mideast and North Africa region, we were pleased to announce we've been awarded a contract value that's over $100 million, the largest in our company's history. This will provide efficient water management and technology solutions that maximize production, conserve valuable and scarce resources, and expand the region's potential. This project, executed with a repeat customer, builds upon our track record in the region and serves as a great example of Lindsay's ability to execute large-scale and complex projects that address the critical needs of our customers.

While timing's difficult to predict, we're still managing an active funnel of opportunities and expect these types of projects will be an important part of our growth strategy moving forward. Moving to infrastructure, as I mentioned in my opening remarks, we are encouraged by the growing strength and momentum in this business. Our overall profitability continues to benefit from the strong growth of our Road Zipper System sales and leasing revenues, a positive outcome resulting from our shift-left strategy. As discussed previously, we anticipate our infrastructure business will benefit over time as U.S. infrastructure spending increases under the Infrastructure Investment and Jobs Act. We've only recently seen this funding flow to the market and believe we're in the early stages of a multi-year growth trajectory for domestic infrastructure spending, with additional promising opportunities globally. Turning to innovation and technology, in May, we released significant enhancements to our industry-leading FieldNet.

Our global voice of the customer process was used to collect feedback on features in the customer experience. This resulted in an upgraded platform that provides growers with additional insights to optimize their planning and conserve energy and water resources while maximizing yield. We were also pleased to be part of a generative AI pilot developed by Bayer. This will allow growers to seamlessly integrate their data from FieldNET with the Bayer platform. The pilot also accelerates the development of digital tools that conserve water resources and highlights the importance of including water management in these AI-driven agronomic tools. I'm very proud of our team's efforts to support more sustainable farming practices by enhancing our capabilities and expanding our partnerships to maximize the value of our mechanized irrigation solutions.

Shifting to our operational footprint, earlier this year, we announced our intentions to invest over $50 million to modernize our facility in Lindsay, Nebraska, as part of our operational excellence strategy. That work has started, and we look forward to updating you on our continued progress. I'd now like to turn the call over to Brian to discuss our Q3 financial results. Brian.

Brian Ketcham (CFO)

Thank you, Randy, and good morning, everyone. Consolidated revenues for the Q3 of fiscal 2024 were $139.2 million, a decrease of 15% compared to $164.6 million in the prior year Q3. An increase in infrastructure segment revenues was more than offset by lower irrigation segment revenues. Net earnings for the quarter were $20.4 million, or 1.85 per diluted share, compared to net earnings of $16.9 million, or 1.53 per diluted share in the prior year. The impact of lower revenues and lower operating income was favorably offset by an increase in interest income and favorable foreign currency translation results compared to the prior year, along with the recognition of an income tax credit in Brazil of $4.8 million in the current year. Turning to our segment results, irrigation segment revenues for the quarter were $114.8 million, a decrease of 19% compared to $142.6 million in the prior year.

North America irrigation revenues of $68.2 decreased 9% compared to 75 million in the prior year. The decrease resulted from a combination of lower unit sales volume of irrigation equipment, lower sales of replacement parts, and a slightly lower average selling price compared to the prior year. In international irrigation markets, revenues of $46.6 million decreased 31% compared to revenues of $67.5 million in the prior year. The decrease resulted primarily from lower revenues in Brazil and other Latin American markets, while demand in other international markets remained stable overall compared to the prior year. In Brazil, order activity remains constrained due to the impact of lower commodity prices have on grower profitability and available liquidity, which is reducing growers' ability to invest in irrigation equipment in the near term. Irrigation segment operating income for the quarter was $19.5 million, a decrease of 36% compared to the prior year.

An operating margin was 17% of sales compared to 21.6% of sales in the prior year. Lower operating income and operating margin resulted mainly from lower revenues and the resulting impact from the leverage of fixed operating expenses. Infrastructure segment revenues for the quarter were $24.4 million, an increase of 11% compared to $22 million in the prior year. The increase resulted from higher Road Zipper System sales and higher lease revenues compared to the prior year. The impact of higher sales of road safety products in the U.S. was offset by lower sales in international markets compared to the prior year. Infrastructure segment operating income for the quarter was $6.3 million, an increase of 76% compared to $3.6 million in the prior year. Infrastructure operating margin for the quarter was 25.8% of sales compared to 16.2% of sales in the prior year.

The increase in operating income and operating margin resulted from higher revenues and a more favorable margin mix of revenues, with higher Road Zipper System sales and lease revenues compared to the prior year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the Q3 was $202.7 million, which includes $152.7 million in cash, cash equivalents, and marketable securities, and $50 million available under our revolving credit facility. Our strong balance sheet and our ample access to liquid capital resources continue to serve as a strategic asset for Lindsay as we execute our capital allocation strategy to create enhanced and sustained value for our shareholders. During the quarter, we completed share repurchases of $17.9 million. Going forward, we will continue to be opportunistic in regard to capital deployment, balancing organic and inorganic investments, along with returning capital to our shareholders.

This concludes my remarks, and at this time, I'll turn the call over to the operator to take your questions.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question is from Ryan Connors with Northcoast Research. Please go ahead.

Ryan Connors (Managing Director and Research Analyst)

Good morning.

Brian Ketcham (CFO)

Morning, Ryan.

Ryan Connors (Managing Director and Research Analyst)

I wanted to start off with discussing the top line a little bit in irrigation. Is there any breakdown you can give us on both North America and international with regard to volume versus pricing? Was all that decline really on the volume side, or are there some dynamics to be aware of there on the pricing side as well?

Brian Ketcham (CFO)

Yeah, Ryan. Starting with North America irrigation, the 9% year-over-year decline, I would say probably 7%-8% of that is a combination of pivot volume and parts volume. And the rest of it would be price and mix. I'd say that average selling price is driven somewhat too by the mix of these machines, and we did have smaller machines. So I would say price wasn't a big impact in domestic irrigation during the quarter. When you look at the international side, 31% down year-over-year. Brazil was probably down just slightly more than that year-over-year. And I would say most of that is volume, but we are seeing more aggressive pricing in Brazil, especially on larger project opportunities there. But most of that decline is volume.

Ryan Connors (Managing Director and Research Analyst)

Okay. And then when you say aggressive pricing, is that more discounts being offered that are sort of short-term in nature, or are those actual list price changes?

Brian Ketcham (CFO)

Yeah. No list price changes. I would say it's just when you're quoting, let's say, a six or seven system project, we have seen aggressive pricing in those situations. And so in that case, we will respond, obviously. But I wouldn't say it's widespread. But when you look at our total irrigation business, I'd say Brazil is where we're seeing the most aggressive pricing.

Ryan Connors (Managing Director and Research Analyst)

Understood. One more from me on operational improvements in Lindsay. What is the return on those investments? In other words, what do we expect from a margin benefit standpoint in terms of both the timing? Do we need the volume recovery to unlock that, or should we see some margin benefit from those investments regardless of where volumes trend in the next 18 months?

Brian Ketcham (CFO)

Yeah. I would say in the next 12-18 months is probably more pressure on margins than actual improvement, just as we deal with some of the inefficiencies of working through the capital investments there. I would say in the midterm, more of a stable margin situation because we'll have the additional depreciation that will offset some of the productivity improvements. But for us, I think that the biggest thing is the ability to react to market changes both up and down without really having to flex the labor like we have in the past and incur the additional headcount and overtime and things like that. So it just provides less reliance on the labor through the additional automation and things like that.

Ryan Connors (Managing Director and Research Analyst)

Got it. Okay. Thanks for your time.

Operator (participant)

The next question is from John Braatz with Kansas City Capital. Please go ahead.

Jonathan Braatz (Analyst)

Good morning, Randy or Brian.

Brian Ketcham (CFO)

Morning.

Jonathan Braatz (Analyst)

So if we sort of look ahead into 2025 with this big international order, we might see international irrigation revenues in excess of domestic or North American irrigation revenues. How might that impact the margins of the operating margins for the irrigation segment? In addition to that, how might that influence the tax rate as we look forward?

Brian Ketcham (CFO)

Yeah, Jon, this is Brian. As we've said in the past, a large project like the one we announced is generally going to be dilutive to margins just because of the competitive nature of that. I'd say setting that aside, the domestic and international operating margins have gotten a lot closer. So the international growth shouldn't have a dilutive effect, but the project business would have some.

Jonathan Braatz (Analyst)

Okay. What about on the tax rate front with more international revenues?

Brian Ketcham (CFO)

Yeah. Tax is a bit of a mixed bag. This project business coming out of our facility in Turkey, which is in a tax-free zone, so that definitely benefits the tax rate. Anything that we have growth in Brazil or other markets is going to be at a higher tax rate than what we have in the U.S.

Jonathan Braatz (Analyst)

Okay. Okay. Okay. And Brian, what was the nature of the income tax credit? What was that from? What was behind that?

Brian Ketcham (CFO)

Yeah. Not going to get into specifics just because of the complexity of the taxation.

Jonathan Braatz (Analyst)

Sure, please.

Brian Ketcham (CFO)

But I would say it was a retroactive benefit as a result of a deduction that there were some uncertainties regarding it in the past that were resolved during the quarter. So it's really not anything that's going to be carried forward. It's more of a one-time issue during the quarter.

Jonathan Braatz (Analyst)

Okay. One last question. Randy, you talked a little bit about farmer sentiment in Brazil. Obviously, there's some difficulties this year with lower prices and flooding and so on. I guess there's some farm shows at this point now in Brazil. Do you think the sentiment for capital equipment purchases might improve in the near term, or is the sentiment just sort of depressed for a while?

Brian Ketcham (CFO)

Yeah, John, I think there's a lot of growers there really waiting to see what this year's crop plan looks like. We do expect to see that in early July. I was optimistic based on some of the discussion and quotation activity that we saw at the shows, but a lot of those customers, they're going to be on the sidelines until they know what the government program looks like. If it operates as it has in previous years, there's going to be a big rush of applications that got to work themselves through the system. It's also a market. If we look at our fourth quarter last year, they set record revenue in the fourth quarter of last year. I think it's going to be tough to match that or exceed that based on what we've seen kind of moving into the quarter.

But I think we're seeing stability. I'm not sure that I see significant further decline in farmer sentiment. They're kind of bouncing along at the rate that we've maybe seen for the last quarters. But right now, it's really about what does that crop plan look like for this year, how much funding in total is going to be allocated, what's the finance rate, what's the gap between the sell-out rate there, public market rate, and the program rate. So we've got customers that we know are interested in investing in irrigation. We've got specific quotations and customers, pieces of land that we're working on. And I think it's a matter of how quickly that program money is available, how quickly it's consumed. But we'll know more as we kind of end our fiscal year here.

Jonathan Braatz (Analyst)

Randy, you think the Brazilian funding program will be announced in June this year? I think it was last June last year, wasn't it?

Brian Ketcham (CFO)

We'd expect it, and hopefully in the first half of July.

Jonathan Braatz (Analyst)

Okay. All right. All right. Thank you.

Brian Ketcham (CFO)

You bet, John.

Operator (participant)

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

Adam Farley (Equity Research Analyst)

Good morning. This is Adam Farley on for Nathan.

Brian Ketcham (CFO)

Good morning.

Adam Farley (Equity Research Analyst)

Hey, good morning. On infrastructure, could you provide an update on the Road Zipper System project sales pipeline? It seems like that's trending up over time. Do you expect any additional Road Zipper System project sales to convert in the near term?

Brian Ketcham (CFO)

Yeah, Adam, this is Brian. As we've talked before, we do have better line of sight into some of those projects, and it's more active, I would say. And we see projects, I would say we see projects exiting the funnel over the next three or four quarters.

Adam Farley (Equity Research Analyst)

Okay. And then in the broader funding for road projects entering the summer months, are you seeing an uptick in funding for roads? Are you seeing any IIJA funding starting to flow?

Brian Ketcham (CFO)

Yeah, we are. I think we kind of mentioned that in our opening comments. It took some time. And talking to others in the same space involved in roadway construction, it has taken some time, but we are seeing it now. A significant portion of that, unfortunately, is getting eaten up by inflation. We're hearing that from some of the customers. But from our perspective, even the lease growth that we're seeing in Road Zipper, that's a good early indication that roadwork is happening. Usually, the road safety assets kind of come behind that as the project finishes up. So we're pleased that the money is making it to market. It's maybe not as impactful as we would have hoped due to inflation, but it does give us some stability and predictability in that infrastructure revenue stream.

Adam Farley (Equity Research Analyst)

Okay. Thank you for taking my questions.

Brian Ketcham (CFO)

Thanks, Adam.

Operator (participant)

The next question is from Brian Drab with William Blair. Please go ahead.

Blake Jones (Managing Director)

Hi, good morning. This is Blake on for Brian. I just wanted to ask, you mentioned the storm activity in North America that had pushed demand into your next fiscal quarter. Can you just remind us how storm activity typically impacts your business from quarter to quarter from a top-line perspective?

Brian Ketcham (CFO)

It's really variable depending on the severity of the storm season. I would say in North America, I hate to describe it this way, it was a slow start to the storm season, so we didn't see anything significant worthy of mention. We did have those storms that kind of went right around Omaha and through Eastern Nebraska and Kansas, other parts of the Midwest. It was a little higher during that window than what we've seen in previous years. It's really once the storm goes through, the dealers are out working aggressively with the customers. The insurance companies and adjusters are out. There is some time and delay. We did like our dealer's ability to get out there and get on a lot of those really early and get our customers up and working.

I think we'll have more clarity when we get through the fourth quarter. We can talk more specifically about what we saw in terms of trends up or down in storm activity.

Blake Jones (Managing Director)

Got it. Understood. And then just lastly for us, I wanted to ask about the pivots in the international projects and your attachment rate for FieldNET. And just trying to understand with these big projects, do they usually attach FieldNET, or are they just going for the mechanized irrigation? Just how that works. And then maybe how it compares to domestic FieldNET attachment rates.

Brian Ketcham (CFO)

Yeah. So I'll start with domestic. Right now, every new pivot we ship is FieldNET ready. So every new machine goes with FieldNET with the first season complementary use and retention rate on that platform is north of 97%. And the customers we lose are really customers that stopped farming or had rented fields that are no longer in the rotation. So the attach rate is 100% when it leaves the factory, and we're keeping more than 97% of those customers on the platform. Internationally, we have seen, I would say, a shift in recent years. And if you go back five or 10 years, a lot of those projects didn't include the technology. But I think they're really seeing now with the scope and scale and size of these projects, it's really tough to manage hundreds or thousands of pivots without some form of automation.

Being motivated by energy and water conservation has really changed the game in a lot of those projects. So right now, we do see tools like FieldNET and FieldNET Advisor being applied in those projects. And again, once you start farming, growing, operating with that type of a tool, it's nearly impossible to give it back. So I think it's a key differentiator for us and our ability to help our customers manage these large projects. And we'd expect to see continued growth there.

Blake Jones (Managing Director)

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

Brian Ketcham (CFO)

Thank you.

Operator (participant)

Again, if you have a question, please press star, then one. The next question is from Brett Kearney with Gabelli Funds. Please go ahead.

Brett Kearney (Analyst)

Hi guys. Good morning. Thanks for taking my question.

Brian Ketcham (CFO)

Hi, Brad.

Brett Kearney (Analyst)

Great to see the pickup. IIJA funds starting to make their way through the system. Randy, I think you mentioned potential opportunities in some of the international infrastructure markets you participate in. Any comments you could provide? Road Zipper project funnel opportunities internationally as well as on the leasing side as well?

Brian Ketcham (CFO)

Sure. And I think there's a couple of specific markets. And I'd maybe say traffic congestion is traffic congestion. It doesn't matter where you are in the world. If you want to keep your workers safe in a construction zone, it doesn't matter where you are in the world. So I think the value that we've seen from our long-standing penetration here in North America, that same value, those same benefits, I think extend into the international markets. And now that we've placed key strategic resources in different parts of the world, we're able to be more visible, spend more time with our customers, and really talk about and demonstrate the value of what Road Zipper can do. We talked about the big project in the U.K. That got us a lot of visibility.

We've talked in different times, big installation in Japan with a lot of their road and bridge management projects. So we're heavily penetrated there. We've got a lot of work going on now in Italy. And in a lot of these markets, we start with a small pilot proof of concept. And again, it's kind of like FieldNET. Once the customers understand what the Road Zipper does, the safety improvements they can make, the ability to manage traffic flow, it just grows from there. So we are pleased. Again, the resources we put internationally, the success we've demonstrated internationally, that's going to be a big contributor to growth going forward.

Brett Kearney (Analyst)

Excellent. And then if I can sneak one last one in, great to see the opportunistic share repurchases in the quarter. If you think about the robust kind of multi-year opportunity in front of both your businesses, can you help me understand the hurdles that any potential M&A would have to clear relative to the value inherent in purchasing your own shares?

Brian Ketcham (CFO)

Yeah. I'll just start first of all with the share repurchase that we did make during the quarter. We looked at where our share price had been trading, and we look at our cash position, and we look at other opportunities to deploy cash. We felt like it was a really good buying opportunity for us. We've got obviously the balance sheet to be able to execute all of our various capital allocation priorities. So as we go forward, I mean, share repurchase is something that, again, as the opportunity presents itself, we would continue to do that. But we also have an eye on what the organic growth opportunities present. Lindsay investment is one. We've talked about investments in Brazil and Turkey in the past.

M&A is definitely an area that, as part of our growth strategy, we don't anticipate backing off from that at all.

Brett Kearney (Analyst)

Great. Thanks very much, Brian.

Brian Ketcham (CFO)

Thank you.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Randy Wood for any closing remarks.

Randy Wood (President and CEO)

Thank you all for joining us on today's call. We're pleased with our team's progress year to date and look forward to strong execution for the remainder of the year. In irrigation, our project sales strategy is working, and we're winning and delivering complex international projects. Being a global company is a strength, and this revenue is helping to offset softness in the North American and Latin American markets. In infrastructure, we're actively managing our funnel of opportunities and see continued growth in our leasing business contributing to margin performance. In technology, our strong balance sheet allows us to continue investing and growing, as evidenced by our recent acquisition of FieldWise and strategic investment in Pessl Instruments. Our ability to enhance shareholder returns has also been exemplified this quarter by our recent share buybacks. This concludes our Q3 earnings call.

We look forward to updating you on our continued progress following the close of our fiscal 2024 fourth quarter. Thanks for joining us.

Operator (participant)

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