Q3 2020 Lindsay Corp Earnings Call
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Good morning, My name is Eric and I will be your conference operator for today at this time I would like to welcome everybody sort of Lindsay Corporation third quarter fiscal year 2020, <unk> earnings call.
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During this call management may make forward looking statements that are subject to risks and uncertainties, which reflect management's current beliefs estimates of future economic circumstances industry conditions company performance and financial results forward looking statements include the information.
Concerning possible or assumed future results of operations of the company and those statements preceded by followed by or including the word expectation outlook, good may should or similar expressions.
Are these statements we claim the protection of the Safe Harbor and forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Now, let's turn the conference over to Mr., Tim passenger passenger.
President and Chief Executive Officer. Please go ahead.
Good morning, and thank you for joining our call Whitney on today's call is Brian catch up our Chief Financial Officer, Oh start with addressing the impact of Cobiz 19 to our employees and business.
Hi, its priority continues to be our employee health and safety to the best of our knowledge. We Didnt had nine employees globally with confirmed cases of co mid 90. Fortunately I can report that eight of these employees have recovered and one was just diagnosed.
We continue to proactively implement health and safety measures. According to help organization recommendations and local government regulations.
At our site key actions that we have taken include ensuring employees are practicing social distancing. According to guidelines use a faced coverage enhanced cleaning and sanitation efforts and staggered production schedules.
Our company continues to work from home for roles that can be done outside of the Lindsay Lindsay site. Our businesses continue to be classified as business essential and as a result of that all nine manufacturer manufacturing plants, our operational and running according to.
The local demand level.
In terms of business impact related to covert 19 in the third quarter. The primary impact has been some project delays, but not cancellations.
We continue to operate the rapid response team structure across the company that was put in place to address Kobin 19 related issues and mitigate potential risks to the business going forward before I provide an update on each of the businesses I'd like to take this opportunity to thank our employees.
Who continued to deliver our commitments to our customers in this new environment.
The third quarter in the domestic irrigation business had an earlier spring in most of our key regions at the end of the quarter you Sta corn planted acreage estimate was 93% complete versus 64% the prior year.
This past quarter has seen several unfavorable factors such as reduced ethanol use that has driven commodity prices to a lower level.
Even though we have seen farmer sentiment reflect this significant decline in commodity prices our year to date sales in the domestic business is on par with the prior year.
In last quarters earnings call I mentioned that our year to date, new device growth for field that was up 50 plus percent versus the prior year.
Since then.
We have continued to advance the pivot watch strategy within offering through Amazon targeted towards the do it yourself market segment.
Another important action this quarter was the acquisition of net irrigate net irrigate has coverage and 37 states and two Canadian provinces within installed base share of the us remote monitoring market of approximately 5%.
This acquisition aligns to our strategy and it strengthens the market leadership position Lindsay has in the Aiotv space, specifically as it relates to remote monitoring capabilities in combining net irrigation market share with the organic growth Lindsay has generated year to date.
Growth in new devices is 200% versus the prior year.
In the international irrigation business the global project market remains active the delays we were experiencing in this market that I mentioned in the last quarters earnings call have improved.
Although some restrictions that need to be managed are still in place in general we saw the international borders opened during this quarter, primarily in Africa, and the Middle East There has been an increase in new project enquiries driven by food security concerns in Brazil.
We continue to see growth and our recent investments to enhance our commercial capabilities have been instrumental in achieving this increase.
For infrastructure, the highways, England project for supply of a moveable barrier system for use intent United Kingdom is currently being fulfilled.
We have successfully leveraged our global manufacturing footprint to mitigate risk and because of this action our delivery of product is on schedule.
Overall, we continue to see good progress being made in our infrastructure business. However, we did see some project delays that are connected decoded 19, approximately 12 million in sales that were expected to occur in quarter three have been delayed for this reason.
Regarding our foundation for growth initiative, we continue to see that the margin improvement projects, we implemented are delivering as expected.
I'd now like to turn the call over to Brian to review, our third quarter results.
Thank you, Tim and good morning, everyone.
My comments regarding third quarter comparisons will refer to adjusted results for the prior year, which omit the impact of foundation for growth costs that were incurred in that period.
Adjusted results for the prior year are detailed in the regulation G. disclosure at the end of the press release.
No adjustments were made to current period results.
Total revenues for the third quarter of fiscal 2020 increased 2% to $123.1 million compared to $121.1 million in the same quarter last year.
Net earnings for the quarter were $10.1 million or 93 cents per diluted share compared to net earnings of $5.5 million or 50 cents per diluted share in the same quarter last year.
During the third quarter fiscal 2020 shipment and project delays related to covert 19 impacted consolidated revenues by approximately $14 million.
In addition, higher production costs were partially offset by lower costs in other areas such as travel and entertainment.
The impact on net earnings for the quarter regarding these these items is estimated to be approximately $4.5 million or 42 cents per diluted share.
Irrigation segment revenues for the third quarter fiscal 2020, where $93.5 million compared to $98.6 million in the same quarter last year.
North America irrigation revenues were $60.9 million compared to $63 million in the same quarter last year.
The decrease resulted primarily from lower irrigation equipment unit volume, which was partially offset by the impact of higher average selling prices a portion of the reduction in unit volume was the result of fewer storm damage replacement orders compared to the prior year.
In the international irrigation markets revenues were $32.6 million compared to $35.6 million in the same quarter last year.
Higher volumes in Brazil, and certain other regions were more than offset by unfavorable effects of foreign currency translation of approximately $3.5 million and cobot 19 related shipment delays of approximately $2 million.
We expect the revenue from these delayed orders to be realized in the fourth quarter.
Total irrigation segment operating income for the third quarter of $15 million was $3.4 million higher than the prior year and operating margin improved to 16.1% compared to 11.7% and the prior year.
Operating income and margin improvement resulted primarily from improved cost and pricing performance attributed to the foundation for growth initiative as well as from increased margin contribution from technology products and services.
Infrastructure segment revenues for the third quarter fiscal 2020 were $29.6 million, an increase of $7.1 million or 32% compared to the same quarter last year.
The increase resulted from higher road zipper system sales and lease revenues, which were partially offset by lower sales of road safety products in Europe.
In addition sales of approximately $12 million were impacted by coated 19 related project delays.
We expect to at least a portion of this revenue to be realized in the fourth quarter with the potential of some of it moving to fiscal 2021.
Infrastructure segment operating income for the third quarter of $8.6 million was $5 million higher than the prior year and operating margin improved to 28.9% compared to 16% and the prior year.
Operating income and margin improvement resulted primarily from increased sales and higher margin product lines and from improved cost and pricing performance.
Turning to the balance sheet and liquidity Lindsay is well positioned with the strong balance sheet and sufficient liquidity as we faced the uncertainty and challenges presented by the global Corona virus pandemic.
Our total available liquidity at the end of the third quarter was $171.5 million with $121.5 million in cash cash equivalents, and mark marketable securities and $50 million available under our revolving credit facility.
Our total debt was $116.4 million at the end of the third quarter and of that amount $115 million matures in 2030.
At the end of the quarter, we were well within the financial covenants of our borrowing facilities, including a funded debt to EBITDA leverage ratio of 1.8 compared to a covenant limit of 3.5.
At this time I'd like to turn the call over to the operator to take your questions.
Thank you.
We will now begin the question and answer session to ask a question you referenced Star then one on your Touchtone phone.
If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw yourself from the Q. Please press Star then too.
We will pause to one moment to assemble a roster.
Your first question comes from Nathan Jones with Stifel. Please proceed with your question.
Good morning, everyone.
Good morning.
Oh, let's start with this 12 million Bucks of deferred revenue on the road projects can you talk about how concentrated this is too or is it one project a few projects a whole bunch of things would you expect to guys to catch up in the fourth quarter does the fact that that part of this year.
That has been delayed Dan delay so the shipments so maybe things move data fourth quarter into next year, just any color you can give us on how that.
Do you expect that to play out and catch up.
Yeah. Nathan this is Tim the first what is the $12 million comprise of.
One medium sized project and then several smaller ones.
To your later question on that at this point, we don't know of any other delays, but I do want to say in this environment, there's always that risk that exist, but we think as we see look at these particular delays than most of that delay will occur in the fourth quarter, but there could be some.
Spillover into our first quarter 21.
So the way we should think about it diaries. The plan is that you'll catch up that 12 million in the fourth quarter, you're not anticipating slipping out into the next fiscal year, but it's possible that they will.
There is possible some of that well, yes, yes, okay fair enough I think that helps.
Nathan can you. Please go ahead.
Just to add a little bit color to that and.
What we saw during the quarter is in most of this delays in the us with projects.
Is that procurement departments for state and local governments were directed that priorities were directed to procuring medical supplies and so some of the.
Getting the right approvals and things like that for some of these projects got delayed as a result of that but.
That situation as we saw some improvement as we kind of ended the quarter.
Okay, then I wanted to ask about the funnel of new project opportunities in new business opportunities.
Typically on the on the infrastructure side on the roads, you decide and if you're saying guys progress at the same kind of pace or if maybe you are saying some of those delayed impact when you would expect booked new work you guys take would be any delays in orders that we might say from those kinds of things.
Well first of all the the the orders that other that outside of this $12 million, we talked about are continuing to deliver and in terms of the funnel data and we've said this before and we fulfill this are the key points is we're seeing more machines being leased than ever before.
We've got.
Potential projects in our sales funnel that represents.
More country representation than ever before and we still claim. This is the best sales funnel we've ever seen so at this point, we still feel optimistic looking forward related to the road zipper potential.
And then just wanted to one more housekeeping one you had about 20 cents, let divining hit on that other income line below the line expense that can you just.
Talk about what that was and if we're going to likely to stay numbers like that again.
Yep Yep. This is Brian the increase resulted from higher foreign currency translation losses.
Related, particularly to intercompany transactions with foreign subsidiaries. So, yes, I would say the majority of that related to Brazil, but all of the foreign currencies weakened against the dollar during the quarter.
But.
That's impacted us I would say on a year to date basis as well.
Okay. That's helpful I'll pass it on thank you.
Thanks, Dave.
Your next question comes from Joseph Mondillo bumps, the Dougherty and company. Please go ahead your question.
Good morning, Tim Brian.
We're enjoying joke.
So first question just to sort of I guess jump on infrastructure since we were on that topic.
How much of the 28 million relative to the highways, England and the 10 million related to the gym, Japan follow on.
In Threeq, two and then.
Our how are you thinking about that.
For for Q1 Q.
Yeah, Joe this Brian So first of all with the Japan order, which was $10 million. We saw just over 1 million of that in the third quarter and we would expect the the majority of that to be delivered or the the remainder of that to be delivered in the fourth quarter.
On the highway in England project $28 million project 8 million approximately delivered in the third quarter and what we had said previously was it's about a 5 million a month kind of a run rate. So we would expect about 15 million in the fourth quarter and the remaining $5 billion in Q.
One.
Okay great.
And then just shifting the irrigation the margin there surprise me the upside the year over year expansion in the Incrementals better than even we have seen in the past couple of quarters.
You mentioned that improvements to cost and pricing as well as benefits to your growth in technology were factors.
Should we expect that sort of year over year benefit that incremental improvement that we saw in threeq to continue and was there anything sort of abnormal.
In the quarter that may be made the margins, maybe a little stronger than what.
They really sort of should be on a normalized basis.
Yep.
First of all we would attribute most of that increase to the foundation for growth, probably roughly about 4 million for the quarter.
And.
Probably at least two thirds of that being sourcing so as volume third quarter being our highest volume quarter in domestic irrigation. That's it was higher than what we've seen in the first couple of quarters and will be higher than what we see in fourth quarter, but.
And then obviously with the North America sales volume being down that was offsetting part of that and then we did attribute some of the margin improvement too.
Margin coming from that basically the technology sales and services.
Okay.
And last question for me I, just on the international irrigate irrigation side also better than I was expecting here, especially given sort of the macro.
Challenges that we're facing.
In the last conference call you mentioned that you are potentially seeing some delays in middle eastern projects as well as some challenges with South Africa.
What what drove the quarter did you see those delays in middle East and how did South Africa trend.
Transition and what is the it sounds like the outlook is not maybe.
Extremely strong in maybe the near term, meaning the fourth quarter, but maybe you see some improvement in next year could you just expand on all that.
Yeah, Joe This is Brian.
The third quarter, we still have experienced a project delays so that didnt.
Tim had mentioned borders opening up that happen later in the quarter. So we'd expect fourth quarter, we we may see that project.
Start to the ship.
I would call out Brazil.
Again that market's been.
Positive for US all year that was up we saw some improvement in Australia New Zealand.
And.
Overall, the balance of the market South Africa, I would say was relatively stable year over year.
And.
Yes region is active.
But overall.
We were pretty.
I would say pleased given the environment on the international irrigation side that.
Cobot impact that we saw there was all in the international market as well.
And just a follow up there with corn prices crop prices being where they are.
Just the general macro environment to see excluding currency to see volumes up 1%.
Is that a surprise.
And.
Or is that sort of not a surprise in that sort of indicative of what you think of the international markets at this time.
Okay.
I, Yeah, I don't know that it's a surprise I think it is kind of indicative of where those markets are are at the present time and it's a little bit of a mixed bag, obviously, Brazil is sitting very favourably with their lower currency and.
The farmers there are doing very well and then you you do get weather conditions and.
Food security is becoming a bigger topic now with because of coated and so there's a number of different dynamics that come into play in international markets.
Okay, alright, thanks for taking my questions appreciate it.
As a reminder, if you wish to ask a question. Please press Star then one on your Touchtone phone.
Our next question will come from Brian drop of William Blair. Please proceed with your question.
Nailed my last name.
Good morning.
That's the first time in 15 years, that's happened so.
And just looking at the margins in irrigation I just wanted to follow up on that or you know the just looking at the second quarter in the third quarter for irrigation revenue was essentially flat.
From from second quarter third quarter, and then you know that operating margin.
Adjusted operating margin went from about 10% to 16% and I know, Brian you said I think 4 million in.
In foundation for growth, but were there.
Foundation for growth benefits in the second quarter or does that all just really start to show up and you get the benefit from that in the third quarter, why such a significant step function increase from quarter to quarter.
Yes.
Definitely ramped up we saw benefit in the first and second quarters, but it ramped up.
In this third quarter and I would say that we've seen not only from a sourcing standpoint, but operationally we've seen a we're starting to see those improvements.
Both domestically and international we've had that the focus on the international operations as well and I would say, it's more of a ramp up during the third quarter and some of it is volume related but.
I would say as the projects got implemented.
We expect there to be some ramp up like we saw in the third quarter.
So if yes.
Just to say then add onto a Brian saying is and then we've had we really feel colleague and so we've had improved pricing discipline.
During this year. So the combination of both is what we would attribute to the margin improvement.
Okay.
You gave the for 4 million.
Foundation for growth for the third quarter is that for the whole company first of all or just irrigation segment.
That was just irrigation we would say there was probably about a million in infrastructure, So 5 million for the quarter.
Okay, and what would what would that those two numbers that foundation for growth for irrigation Foundation for growth for the whole company have been for the second quarter.
What we had said is the SEC first and second quarters were about 3 million each and 5 million. So we're at a $11 million year to date.
Okay got it.
Okay.
And.
Can you say.
Anything about how much pricing contributed to.
Revenue growth or what you know what the impact of pricing was it in more quantified way for the third quarter.
Yes, I'd say low single digits.
Well senior leader.
Hi here, Okay yeah.
And then just on these oh.
Higher margin new technology products.
Is that is there any way that it'll give us a sense for what percentage of revenue those account for now and how much higher those margins are then though.
Other products.
We havent broken out the revenue and but.
On the margin side I would think of it in terms of subscription.
Revenue and margins associated with that type of revenue so there.
A much higher than what the equipment margins would be so we're seeing with the growth in subscriptions that Tim and referred to.
We're starting to see that.
Impact on I mean, it's impacting revenue, but clearly a very supportive of margins as well.
Okay, and then just two more just kind of housekeeping question with the Japan Order is a 10 million total order and we did 1 million in the.
Third quarter is that right in the balance comes in the fourth quarter, and so 9 million around about.
Yes, that's right that's right. Okay, and then do you have the breakdown of but how it looked in terms of dry land conversion and replacement.
Yeah, so for the quarter dry land was 28% conversion 37 and replacement 35.
Got it okay.
Right, Thanks very much.
Yes.
Okay.
Jim will come from Chris Shaw with month, that's Crespi. Please go ahead with your question.
Yeah. Good morning, everyone, how you doing.
That's good for.
I was just because it wasn't a tax rate I had to 18% for the quarter and I think last quarter was 20 and I feel like that's lower than I know it typically what we'd expect for at least the full year for effective rate. It has it changed at all in terms of what do you guys expect or it could be lower going forward as well.
No I would say, it's the expectation is still around that 23 and half percent.
Which would probably be what we'd see in the fourth quarter at what impacted.
A second third quarter's part of it is a.
Change in mix with the different tax jurisdictions.
A couple of other discrete items that affected the third quarter, some uncertain tax positions that expires.
And then on the I know someone asked earlier about the other income what you said it would has a lot to do with intercompany.
FX transfer I'm, just trying to get a little more color on I don't what is being transferred why why did the end up in other versus maybe the FX impacts not end up into segments themselves.
Spending a little bit.
Yeah. This is.
Mostly related to intercompany balances so the U.S. supplies components to our international sites and then the you know that international sites have a payable back to the U.S. So the balance on that is.
Impacted by currency translation treated as a transaction loss, which shows up below the line other impacts our you know with that.
The net investment changes flow through equity, but this was through but below the line.
Okay that makes sense and then another quick one not I just thought it seems like a just from what I've been reading that Nebraska, it's pretty dry this year I'm not sure. If that's right, but you guys are there, but I also wanted to ask how big Nebraska is a the irrigation Mark I know, it's pretty big for you guys. So like we can you give a percentage in terms of the the end market for you.
Yeah.
I don't have a next percentage, but it's definitely one of the very leading states in terms of pivot irrigation. So it is a critical one for the business.
And hasn't been pretty dry there this year it seems like it has.
Yes, it's real parts I mean, I would describe to US. If you were to go across the irrigation area growing conditions, they've been favorable but like always you're going to have some variability and there has its been very hot dry actually through a lots parts of Nebraska here over the last several weeks.
Got it thanks a lot.
Your next question will come from Jon Braatz of KCC, Inc. Please go ahead with your question.
Good morning, Brian Tim.
Yeah.
Tim as you look out into next year.
What comp.
What about the incremental.
From a foundation for growth cost might we see or benefits I should say see in in 2021, and then secondly, some of the call some of the spending that might be deferred during my you might not have seen this year because of cobot 19 will you begin to loosen up to purse strings.
As the economy opens up and maybe spend a little bit more on travel entertainment. So on do you see that happening in 2021.
Yeah, So John on the foundation for growth one of the real exciting things on a personal side here is we've been able to now moved this into part of our culture. So what I mean by that is we're seeing now projects coming through the stage gate process that are moving through again so.
It will continue into 21 and beyond its really part of the continuous improvement culture that we've been working to create in the company. So.
We've had the first initial projects that have come through and you're seeing the benefits of that we've got other projects that will be coming on that we want to continue with that the second part of your question about the pursuing the work from home and I think this represents a lot of companies feedback in a definitely would be.
Our feedback has gotten better than we've had expected. So I think there's going to be changes in how we approach business. As a result of this will we do more travels and today, where you could maybe use the term it's been more of a lock down approach, yes, but I don't see is going back to the full extent.
Before I think we found a tool here that we can use more effectively than maybe we thought a prior.
When you look at all those changes that you see may be forthcoming.
How material are they I mean, what kind of level of spending do you think you might be able to.
Two cod.
Relative to before but just because of what you you've been learning.
Yes, I would not put it into significant level I would if I'm comparing the two questions you bet here, John clearly the bigger opportunity for US is continuing through the foundation for growth finding cost savings et cetera, and our manufacturing or through sourcing as opposed to read continuing to.
Have a lower travel budget yeah, Okay, alright. Thank you.
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Your next question will come as a follow up from Joseph Mondillo. Please go ahead.
Hi, guys. Thanks for taking my follow up questions. Just a few first Tim you sort of talked about how the planting season has been really efficient this year in very early.
I missed your sort of follow on comments related to how that affects the early part of for Q relative to maybe last year could you just.
Repeat sort of your thoughts there.
Well as an earlier seasons, so which earlier planting season to clarify so would lead to you would anticipate and earlier fall as a result of that.
We're seeing it's not it's less of a year this year, which would imply.
The the irrigation equipment is working more which should create an opportunity for more part opportunities where last year. We had a lot of regions that the irrigation equipment, just didnt run because it was a more rainfall that even people want it so those would be the big differences in comparing last year to this.
Okay. So last year was very late in the planting season and it was very well.
Yeah, right late and what.
So I guess just in terms the lateness does that do you have a tough comp early and the early part of for Q because the season with so late last year and maybe some of the demand got pushed in the early Fourq you is that factor at all.
Yes, Joe This is Brian I would say it impacted activity more with in the third quarter, whereas last year, we saw a very strong may.
I'd say this year was more balanced throughout the third quarter, but wouldn't anticipate any of that impacting fourth quarter at all.
Okay, and then I wanted to ask just regarding the macro picture U.S.D.A.
Adjusted their estimates earlier this week.
No that was a big surprise to the markets I'm corn prices shot up soybean prices are back up to $9.
What are your thoughts on that and you know a you know just generally about farming sentiment or what how are you seeing things out there.
Yeah. When you look at our domestic business and clearly what you just mentioned Joe is very helpful with the reflection in the uptick in commodity prices, but I would also describe it is we're in a period of a high level of uncertainty.
We've got several unknowns, you've got the impact of covert 19, you got the unknown on what the government support program could look like going forward.
And there is clearly still some uncertainty around the U.S., China phase one deal outcome. So given those factors at this point, we still would describe we see some headwinds coming into our fall selling season.
Okay.
Lastly, I just wanted to follow up on the acquisition that you made sort of a small acquisition.
But.
Just could you could you expand on the strategy, there and is that sort of indicative of.
What you're thinking you know in the past you've talked about two strategies with M&A, which is technology on irrigation and then trying to.
Leverage your road zipper on infrastructure, but just focusing on irrigation it sounds like net irrigate sort of marketshare or sort of a footprint play where you can leverage into places where maybe you're not is that sort of the strategy or are there other.
Options to strategize in terms of M&A within irrigation.
So Joe we see net irrigate as as an example of what we talked about being in that area of expanding technology.
Not only being able to help create technology, but also increase our position in the market. So we think it aligns really well with that strategy and they're bringing us roughly a 5% market share and then our intent is to transition this business to the Fieldnet platform. So we really see it right.
Than that.
Category that we have talked about as one of the two sweet spots for us in M&A.
And just to follow on their do they do do they have any technology that you do not or is it just purely a marketshare play.
It's a complementary story they do have some things that we believe will help our offering but the biggest value. They bring to US is this this up market share that I talked about earlier.
Okay, Great alright, thanks, a lot good luck.
Thank you thanks, Joe.
At this time there Peter be no further questions Mr. Hassinger I'll turn the conference back to you for any closing remarks.
This concludes our third quarter earnings call. Thank you for your interest and participation.
The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.
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