Lindsay Company (LNN) Q2 2024 Earnings Name Transcript

Lindsay Company (NYSE:LNN) Q2 2024 Earnings Convention Name April 4, 2024 11:00 AM ET

Firm Individuals

Randy Wooden – President and Chief Govt Officer
Brian Ketcham – Chief Monetary Officer

Convention Name Individuals

Ryan Connors – Northcoast Analysis
Tyler Hutin – William Blair
Jon Braatz – Kansas Metropolis Capital
Brett Kearney – American Rebirth Alternative Companions
Adam Farley – Stifel Nicolaus

Operator

Good day, and welcome to the Lindsay Company Fiscal Second Quarter 2024 Earnings Convention Name. All members will likely be in listen-only mode. [Operator Instructions] After as we speak’s presentation, there will likely be a possibility to ask questions. [Operator Instructions] As a reminder, this convention is being recorded.

I’d now like handy the decision to Randy Wooden, President and CEO. Please go forward.

Randy Wooden

Thanks, and good morning, everybody. Welcome to our fiscal 2024 second quarter earnings name. With me as we speak is Brian Ketcham, our Chief Monetary Officer. I’m happy with the consolidated efficiency and resilience of our enterprise by the first-half of this fiscal yr. Whereas market situations in South America have briefly impacted exercise throughout the agriculture trade, the efficiency of our North American irrigation enterprise continues to be supported by regular demand amid tempered grower sentiment. Moreover, in our Infrastructure enterprise, the continued combine shift in direction of leasing for our main Street Zipper System is delivering significant margin enlargement.

Total, I’m inspired by our capability to execute operationally and strategically as a way to drive profitability throughout the group, in addition to the actions we have taken to navigate suboptimal market situations in some areas. In North America, our Irrigation enterprise noticed comparable complete items demand versus the second quarter of final yr, which was largely in keeping with expectations, and supported by the carryover influence of bought farm earnings from final yr. Whereas steady demand in North American finish markets has supported our year-to-date income outcomes, we’re approaching the back-half of the yr with tempered expectations.

The USDA not too long ago launched its preliminary 2024 web farm earnings projections, which had been considerably beneath preliminary market forecasts and expectations. Whereas this has the potential to negatively influence farmer sentiment and the deployment of funding {dollars} for brand new tools within the near-term, it is nonetheless very early within the season. Transferring to worldwide irrigation, the place we proceed to see a softening of demand. Specifically, the Brazilian market has skilled diminished grower profitability, restricted entry to financing, and constrained funding capability. Whereas we’re dealing with a difficult exterior working atmosphere in Brazil within the near-term, we’re nonetheless very assured within the mid to long-term alternatives on this market.

Ongoing droughts in São Paulo, Mato Grosso do Sul, and Paraná have elevated state-level help for irrigation. And with low penetration ranges and the flexibility to help as much as three crops per yr, these markets will proceed to develop.

Transferring to Infrastructure, as I discussed in my opening remarks, our general profitability continues to learn from the robust progress of our Street Zipper System leasing enterprise, an encouraging indicator as we transfer ahead. Regardless of income that was corresponding to the prior-year interval, we captured significant margin enchancment that Brian will contact on later. We anticipate continued progress in our Street Zipper lease income within the back-half of this yr as we transfer into the center of the highway building season, coupled with the robust backlog in gross sales pipeline for the general infrastructure enterprise.

Moreover, as we have talked about in prior calls, we anticipate our infrastructure enterprise to learn over time as U.S. infrastructure spending ramps up as a part of the Infrastructure Investments and Jobs Act. We have solely not too long ago begun to see that dynamic play out, and we imagine that we’re within the early innings of a multiyear progress trajectory for infrastructure spending domestically.

Turning to innovation and expertise, as we introduced yesterday, we have agreed to amass a 49.9% curiosity in Pessl Devices, with an possibility to amass the rest of the corporate sooner or later. Pessl is a number one developer and distributor of in-field monitoring options for agricultural markets. The corporate deploys software program and IoT {hardware}, together with climate stations and environmental sensors, supporting agricultural decision-making together with pest and illness management, crop administration, and irrigation administration. We imagine this relationship additional highlights our dedication to offering world-class water administration options to growers across the globe.

Our mixed platforms and built-in applied sciences will permit customers to observe and regulate irrigation operations primarily based on key atmospheric situations, whereas additionally enhancing general predictive analytics capabilities. This additional strengthens our digital water administration portfolio, permitting us to succeed in a broader set of consumers and repair suppliers globally.

Lastly, I would like to deal with our current announcement to increase and modernize our manufacturing amenities. In January, we introduced our dedication to speculate greater than $50 million over the subsequent two years to implement state-of-the-art expertise that can drastically profit our world operations. Our strategic plans for the modernization of our amenities embody the implementation of Trade 4.0 Applied sciences, knowledge connectivity, analytics, synthetic intelligence, and the addition of automation and robotics.

Our renovated facility may also home new tools and the newest developments in galvanizing a core course of for manufacturing mechanized irrigation techniques and highway security merchandise. Moreover, we’ll be increasing our Lindsay, Nebraska facility by 40,000 sq. toes to permit for elevated manufacturing capability and capabilities and steel forming. This funding is the most important in our firm’s historical past and we stay up for updating you as we make investments additional into operational excellence and innovation.

I would like to show the decision over to Brian to debate our second quarter monetary outcomes. Brian?

Brian Ketcham

Thanks, Randy, and good morning everybody. Consolidated revenues for the second quarter of fiscal 2024 had been $151.5 million, a lower of 9% in comparison with $166.2 million within the prior yr. The lower resulted from decrease irrigation phase revenues, as infrastructure revenues had been corresponding to the prior yr second quarter.

Internet earnings for the quarter had been $18.1 million or $1.64 per diluted share, in comparison with web earnings of $18.1 million or $1.63 per diluted share within the prior yr. The influence of decrease revenues and decrease working earnings was favorably offset by a rise in different earnings and a decrease efficient tax price in comparison with the prior yr’s second quarter.

Different earnings benefited from elevated curiosity earnings and favorable overseas foreign money translation outcomes in comparison with the prior yr’s second quarter. And earnings tax expense for the quarter was diminished by the conclusion of a one-time tax good thing about $1.1 million in Brazil.

Turning to our phase outcomes, Irrigation phase revenues for the quarter had been $133 million, a lower of 10% in comparison with $147.8 million within the prior yr. North America Irrigation revenues of $82.8 million decreased 8% in comparison with $90.4 million within the prior yr’s second quarter.

A lot of the lower resulted from decrease gross sales of alternative components, together with barely decrease common promoting costs and the influence of a much less favorable mixture of shorter machines in comparison with the prior yr second quarter. Gross sales of alternative components within the prior yr included a considerable variety of MODEM and RTU upgrades linked to the sunsetting of 3G protection that didn’t repeat this yr.

Whereas general promoting costs in North America remained comparatively steady through the quarter, we did see selective aggressive discounting in some areas that we responded to. The influence of those income decreases was partially offset by reasonably greater unit gross sales quantity in comparison with the prior yr’s second quarter.

In Worldwide Irrigation markets, revenues of $50.2 million decreased 13%, in comparison with revenues of $57.4 million within the prior yr’s second quarter. The lower resulted primarily from decrease revenues in Brazil and different Latin American markets in comparison with the prior yr, whereas the influence of will increase and reduces in different markets primarily offset each other.

In Brazil, a 20% drop in money soybean costs from December to February coupled with lowered yield expectations is negatively impacting the outlook for grower profitability and obtainable liquidity as growers are indicating an unwillingness to promote their crops at present value ranges. This example can also be leading to a extra constrained credit score atmosphere, which can also be limiting funding in irrigation tools within the near-term.

Irrigation phase working earnings for the quarter was $25.6 million, a lower of twenty-two% in comparison with the prior yr. And working margin was 19.3% of gross sales in comparison with 22.2% of gross sales within the prior yr. Decrease working earnings and working margin resulted primarily from decrease revenues and the ensuing influence from deleverage of fastened working bills.

Infrastructure revenues for the quarter had been $18.5 million and had been comparable general to the prior yr. A rise in Street Zipper System lease revenues was offset by decrease Street Zipper System undertaking gross sales, and decrease gross sales of highway security merchandise in comparison with the prior-year second quarter. Infrastructure phase working earnings for the quarter was $3.5 million, a rise of 74%, in comparison with $2 million within the prior yr. Infrastructure working margin for the quarter was 19% of gross sales, in comparison with 10.9% of gross sales within the prior yr. The rise in working earnings and working margin resulted from a extra favorable margin mixture of revenues, with greater Street Zipper System lease revenues in comparison with the prior-year second quarter.

Turning to the steadiness sheet and liquidity, our complete obtainable liquidity on the finish of the second quarter was $200.6 million, which incorporates $150.6 million in money, money equivalents, and marketable securities, and $50 million obtainable beneath our revolving credit score facility. 12 months-to-date money generated from working actions has elevated in comparison with the prior yr. Nonetheless, our free money circulate is being impacted by the rise in capital spending referring to the investments being made in our Lindsay Nebraska operation. Our steadiness sheet stays robust, and with ample entry to liquid capital sources, we proceed to be well-positioned to execute our capital allocation technique to create enhanced and sustained worth for our shareholders.

This concludes my remarks. And at the moment, I will flip the decision over to the operator to take your questions.

Query-and-Reply Session

Operator

Thanks very a lot. We are going to now start the question-and-answer session. [Operator Instructions] As we speak’s first query comes from Ryan Connors with Northcoast Analysis. Please go forward.

Ryan Connors

Hey, good morning. Thanks for taking my questions; bought just a few. The primary is, you made some feedback concerning pricing and softness there, and might you elaborate on that in any respect, Randy, when it comes to both quantification or any extra colour you may give us on the place that’s, and magnitude of that, and the way you anticipate — how that is trended as we transfer into the third quarter right here?

Brian Ketcham

Sure, Ryan, that is Brian Ketcham, I will take that one. As I discussed in my remarks, I believe what we have seen through the quarter is, I would say it is extra regional, some selective discounting that we have seen. And when it impacts defending our market share, we have stated earlier than that we’ll shield our market share, and match that on an as-need foundation. However I’d say, general, we have not diminished our general costs. Our common costs stay regular. I’d say wanting outdoors the U.S., and in Brazil, with the softness that we have seen in that market, I’d say that aggressive pricing pressures there have most likely been — effectively, they’ve been extra important than what we have seen within the U.S. However I’d say, within the U.S. once you have a look at simply the North America margins, I’d say a minimal influence general on the income.

Ryan Connors

Acquired it. Okay, I respect that, Brian. After which, one other one on the P&L there, the gross margin actually held up fairly right here I believe, regardless of we’re stacking two years of double-digit unfavorable income declines now. It looks as if the gross margins have held up fairly effectively. What is the view there? Are we kind of in a brand new regular? I do know you’ve got finished some issues on the manufacturing facet, efficiencies, and so forth. Is that this a brand new degree that we’ll be at irregardless of what occurs within the prime line income state of affairs, going ahead?

Brian Ketcham

Sure, I’d say once you have a look at general, clearly there’s some profit that we bought from on the Infrastructure facet. North America Irrigation gross margins, I’d say, had been at and even barely above final yr within the second quarter. I believe the place we’re seeing a few of the gross margin pressures in worldwide, with the decline that we have seen in quantity, notably in Brazil, that is having a deleverage influence there. However I believe a few of the issues that we have finished over the past couple of years with from a value administration standpoint, in addition to simply operational efficiencies that we have gained each within the U.S. and internationally, I believe to your level, I believe we do really feel like we have a extra steady gross margin atmosphere going ahead that it is sustainable. Clearly, you are going to have the influence of the amount leverage and deleverage. And this present day, I believe pricing is holding up. Uncooked materials prices, if something, have stabilized. Final couple of months, metal has softened only a bit, however we view uncooked supplies to be steady going ahead. So, I believe that helps the place we’re at from a margin degree.

Ryan Connors

Acquired it. After which, one final one, if I may, a smaller merchandise on the P&L, however I used to be just a little shocked to see R&D declined year-over-year by nearly 15% and dipped beneath 4 million for the primary time shortly, as a result of I do know that is an space that you’ve got been targeted on, on a precision expertise facet. And what are we to learn into that? Is that just a few efficiencies, like, some synergies from field-wise, or why would we be seeing a decline there?

Randy Wooden

Sure. Good morning, Ryan. That is Randy. I will take that one. And there is no substantial shifts. I believe, clearly, we’re being cautious with spending, however within the areas of expertise and innovation specifically, we proceed to speculate. So, what you see there’s actually simply timing and never a strategic shift or drop in huge image spending. We have now quite a lot of testing bills within the infrastructure enterprise that hit once we conduct these assessments. So, it is actually, once more, simply timing.

Ryan Connors

Acquired it. Thanks on your time.

Randy Wooden

Thanks.

Operator

Thanks. The following query is from Brian Drab with William Blair. Please go forward.

Tyler Hutin

Hey, good morning. That is Tyler Hutin for Brian. Thanks for taking my query. It was talked about that about $20 million value of orders in your backlog usually are not anticipated to be fulfilled inside the subsequent 12 months. I am simply questioning what these orders are largely associated to.

Brian Ketcham

Sure, I would say the rise year-over-year in that class is roughly 15 million and that’s primarily associated to a multi-year lease that we have signed on the roads of Versailles, the renewal of a lease that we have had in Texas that could be a multiyear lease.

Tyler Hutin

Okay, thanks. And what’s driving the decrease gross sales of highway security merchandise within the worldwide markets?

Brian Ketcham

That is actually once more, in Europe, being the winter months, issues like climate can influence the timing of that. We did see a rise within the U.S., and once more, supported by extra federal funding and U.S. Street Development. We anticipated to see highway security merchandise develop within the US. However that, I’d say, roughly in Europe within the quarter it was extra timing and weather-related.

Tyler Hutin

Acquired it. And only a couple extra, I perceive the timing of roads that persist within the undertaking. Do you simply have any particulars on how that pipeline is evolving?

Brian Ketcham

Sure. I do assume as we have moved into the fiscal yr now we do have an improved line of sight to tasks shifting ahead in that funnel and we do really feel good that we’ll see some tasks acknowledged in fiscal 2024, probably in This fall at this level. I believe timing will dictate how a lot of that will get into our fiscal 2024 versus how a lot spills into 2025, however you However as Randy talked about in his feedback, we be ok with the expansion prospects for this yr, but in addition the subsequent few years primarily based on our undertaking gross sales funnel.

Tyler Hutin

Thanks. After which, lastly, simply within the powerful atmosphere, sort of following on one of many earlier questions, so you have got working margin above 14% within the quarter. Is it most likely fairly protected to say that you’re going to end the fiscal yr above 14% regardless of a few of the near-term headwinds in home and worldwide irrigation? Thanks.

Brian Ketcham

I am unsure I caught the query fully, Tyler.

Tyler Hutin

I am simply questioning, do you assume you may possible end above 14% for working margin within the fiscal yr? Type of in keeping with your five-year common goal?

Brian Ketcham

Sure, I imply, I believe there’s quarter-to-quarter there’s undoubtedly seasonality fourth quarter being our lowest within the U.S. So, I believe we be ok with the place we’re at from a margin standpoint. I believe that the influence of a few of the quantity decreases that we have seen notably in Brazil will have an effect on us and primarily based on our capability to react to that from a spending standpoint, I imply, our goal is to guard our working margins. However I believe we really feel like we have finished a reasonably good job up so far.

Brian Ketcham

Okay. Thanks. I will go it alongside.

Operator

Thanks very a lot. The following query is from Jon Braatz with Kansas Metropolis Capital. Please go forward.

Jon Braatz

Good morning, Randy. Good morning, Brian.

Randy Wooden

Hello, Jon.

Brian Ketcham

Hello, Jon.

Jon Braatz

Randy, on the $50 million funding that you just’re making in your facility, clearly you’ve got finished a very good job over the previous couple of years in enhancing margins and manufacturing margins. Incrementally, what’s going to that $50 million get you within the years forward?

Randy Wooden

I believe there’s just a few attention-grabbing areas that we have talked about. Clearly, we detailed some new amenities, actually linked the capability and capabilities. We’re making some huge investments, modernizing, galvanizing. We’re growing automation, robotics, enhancing materials circulate. In the long run, we predict that is actually going to place us to react quicker and possibly extra effectively than we’ve got up to now to market demand, whether or not that is up or down. A few of the new trade 4.0 applied sciences that monitor the manufacturing tools, and the way in which I like to consider it, we’re actually taking FieldNET and FieldNET Advisor and the instruments that we have developed for our prospects, and we’re leveraging these comparable varieties of applied sciences within our manufacturing unit. So, we’ll have higher monitoring of machine efficiency, keep forward of upkeep, these varieties of issues.

And naturally, we’re all the time very conscious of any alternative to enhance security for the staff. So, I believe that flexibility in automation, the modernization, leveraging some new capabilities in each knowledge and manufacturing tools, we’re excited in regards to the investments. And I can let you know, we had a beautiful groundbreaking ceremony final week, and the folks inside the ability, they’re fairly energized and enthusiastic about it too.

Jon Braatz

So, Randy, for example over the cycle your margin in that facility is X. With this $50 million funding, what do you assume you may — how a lot do you assume you may enhance that margin over the cycle?

Brian Ketcham

Hey, Jon, that is Brian. I will leap in on that one. It does, and near-term provides us that capability to flex up and flex down with out actually having so as to add or take away quite a lot of labor. And so, that is an enormous a part of it. I believe I’d view it as extra, within the near-term, being extra stabilizing for margins. I imply, clearly, you are going to have a rise in depreciation that offsets a few of the productiveness financial savings that we’ve got. However I believe as you, for example demand will increase considerably prefer it did a few years in the past, our capability to flex up we must always be capable of decide up some margin simply due to the much less reliance on having to exit and discover labor, which in Nebraska is troublesome with the low unemployment price.

Jon Braatz

Okay. Brian, about lower than two years in the past, you established a relationship with Pessl. Am I announcing that accurately?

Brian Ketcham

Pessl, sure.

Jon Braatz

Okay. What have you ever seen in these previous two years that resulted in you guys taking a 49.9% funding? What have you ever seen that has inspired you?

Randy Wooden

Sure, I will take that one, Jon. That is Randy. And that relationship really has been formalized inside the final yr, so it is nonetheless comparatively early. However once you have a look at sort of the synergies of having the ability to transfer their {hardware} and software program companies by our channel, they seem to be a world firm, we’re a worldwide firm, however we do not overlap in quite a lot of these areas. So, we do see some speedy alternatives to assist each firms. And I believe the thrilling half is absolutely in regards to the knowledge and the digital alternatives that the acquisition, the funding creates. And we will enhance instruments like FieldNet Advisor, utilizing enter from subject sensors. We are able to increase knowledge analytics and the fashions that we’ve got to offer higher water administration and steerage. They usually’ve bought over 80,000 put in units all over the world. And that creates some large income alternatives for annual recurring income and the broader integration with the FieldNET platform. So, we really feel we have an excellent firm, nice founder, and possession, and we’re actually going to hit the bottom operating.

Jon Braatz

Okay. Brian, I assume it’ll be accounted for as an fairness funding?

Brian Ketcham

Sure, that is right.

Jon Braatz

Okay. All proper. Thanks.

Operator

Thanks. The following query comes from Brett Kearney with American Rebirth Alternative Companions. Please go forward.

Brett Kearney

Hello, Randy, Brian, Alicia. Good morning. Thanks for taking my query.

Randy Wooden

Hello, Brett.

Brian Ketcham

Hello, Brett.

Brett Kearney

I simply had a follow-up on the Pessl devices settlement. Congratulations. It looks as if an effective way to deepen the partnership there. Simply curious geographically these 80,000 put in units they’ve, would you say given the place they’re primarily based, it is extra geared in direction of Europe and alternative, clearly, Lindsay is powerful globally, however extra you are capable of deliver them into your present relationships North America, Brazil they usually have some prospects possibly you are not as effectively penetrated within the European area?

Randy Wooden

Sure, I believe their footprint I’d say is weighted in Europe, however once you have a look at the map they’re in all places they usually’re concerned just a little extra within the specialty crops, orchards, vineyards, fruits and nuts these varieties of issues. So, we see them possibly in several areas of North America than our present footprint. However their tools, their expertise, the flexibility to combine with FieldNET, FieldNET Advisor after which the opposite digital platforms, we predict we will take them in all places on the planet with us, Brett.

Brett Kearney

Glorious. Very useful. Thanks, Randy.

Randy Wooden

You wager.

Operator

Thanks. [Operator Instructions] The following query comes from Nathan Jones with Stifel. Please go forward.

Adam Farley

Good morning. That is Adam Farley on for Nathan. I need to begin on Brazil. What’s your expectation for the Brazilian market over the near-term? Ought to we anticipate Brazil to possibly get incrementally worse?

Randy Wooden

In our view, Adam, Brazil is hard within the short-term and a few of the elements that Brian talked about in his notes, we view all of these actually as being short-term headwinds in that market. Climate this yr was difficult relying on whether or not you had been within the north or the south, it was too moist, it was too dry. However quite a lot of what we see once more is it’s extremely short-term. So, once we have a look at mid to long-term outlook for that market, it is nonetheless in our view going to be one of many important progress markets on the planet and simply their capability to generate three crops.

We have met with quite a lot of state officers right here in Omaha over the previous a number of months. We have different visits deliberate for the subsequent couple of weeks. And once you see the quantity of land that they’ve, most of those massive ag manufacturing states are lower than 2%, lower than 4% penetrated with irrigation. So, we do see extra curiosity from state degree governments and positively proceed to have help from federal authorities there. So, we have made quite a lot of investments in Brazil. A few of our strongest workforce members are there and we’re bullish on Brazil within the long-term simply navigating sort of the short-term headwinds proper now.

Adam Farley

All proper. Thanks for that colour. Perhaps wanting outdoors of Brazil, may you give us an replace on demand fundamentals for the markets outdoors of Brazil and South America and possibly additionally the worldwide undertaking funnel?

Randy Wooden

Positive. After which, we touch upon Brazil and South America as a result of they are surely the large movers now when huge needle movers now once you have a look at worldwide revenues. If you go round the remainder of the world, there’s quite a lot of places and takes. And nothing that’s up considerably, nothing that’s down considerably. However quite a lot of the opposite markets sort of offset the minor ups and downs. The undertaking demand that in our view continues to be very robust each the close to and the long-term, and once we speak about undertaking exercise, we’re speaking about particular items of land, particular purchasers, particular designs which are being labored on and relying on which undertaking we speak about, Center East clearly may be very robust, Japanese Europe, Northern and Sub-Saharan Africa. A few of these we’re actively quoting together with a number of opponents relying on the place we’re on the planet. A few of these we’re working by confirmed letters of credit and arranging financing and supply particulars. Identical disclaimer as all the time on these, that timing is absolutely powerful to foretell, however we do like what we see within the undertaking funnel and each brief and long-term undertaking exercise.

Adam Farley

Okay. Thanks for taking my questions.

Randy Wooden

You wager. Thanks, Adam.

Operator

Thanks. This concludes our question-and-answer session. I want to flip the decision again over to Randy Wooden for closing remarks.

Randy Wooden

Nicely, thanks all for becoming a member of us as we speak. We’re very happy with our outcomes year-to-date and I need to thank our world workforce for all of their efforts and accomplishments. Regardless of a tempered near-term outlook in just a few of our worldwide irrigation markets, we stay optimistic in regards to the firm’s long-term prospects. We respect your curiosity in Lindsay and stay up for updating you on our continued progress following the shut of our fiscal 2024 third quarter. Thanks for becoming a member of us.

Operator

The convention has now concluded. Thanks for attending as we speak’s presentation. You might now disconnect your traces.