Q4 2020 Lindsay Corp Earnings Call
Good morning, My name is correct and I will be your conference operator today.
This time I would like to welcome everyone to Boise Corporation fourth quarter fiscal year 2020, <unk> earnings call.
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After todays presentation, there will be an opportunity to ask questions to ask a question.
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Please note. This event is being recorded during this call management may make forward looking statements that are subject to risks and uncertainties actual.
Management's current beliefs estimates of future economic circumstances industry conditions company performance and financial results.
Okay. So let's exclude the I forgot your concerning possible or assumed future results of operations.
Company and those statements preceded by followed by or including the words expectations outlook could they should or similar expressions.
These statements we claim the protection of the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act that you know.
I'd now like turn the call over to Mr., Ted Pasadena President.
President and Chief Executive Officer.
Good morning, and thank you for joining our call with me on today's call is Brian Ketcham, Our Chief Financial Officer, and Randy Wood, our Chief operating officer.
To take this opportunity to introduce Randy who some of you may not know Randy was promoted to Chief operating officer in August of this year. He has been with Lindsay for 12 years and most recently was the president of our irrigation business. He brings a wealth of experience to this role and with him focused on.
Running the business. This change provides me the opportunity to focus more on growth and M&A activities. After.
After I make some opening comments Randy will provide a business update and Brian will update us on the quarter's financial results.
I will start with addressing the impact of COVID-19 on our employees and business.
Our highest priority continues to be our employee health and safety.
We continue to proactively implement safety measures. According to help organization recommendations and local government regulations at all.
At our sites key actions that continue our.
Ensuring employees are practicing social distancing.
Use of faced coverage.
Hey, it's clean and sanitation efforts.
And staggered work schedules.
We continue to offer work from home for walls that can be done outside of the Lindsay site.
Businesses are all classified ads business essential.
And I'm pleased to say that all nine manufacturing plants are operational and running according to the local demand level.
In terms of business impact related to cope with 19 in the fourth quarter. The primary impact continues to be some project delays.
No cancellations so.
The rapid response team structure across the company that was put in place to address COVID-19 related issues and mitigate potential risks to the business continues to operate.
I'd now like to share with you a few highlights from fiscal year 24.
The first dates go back to a commitment that was made in early 2018.
At that time, we announced that through the efforts of the foundation for growth initiative, we would achieve 11% to 12% operating margin in fiscal year 2000.
Our caveat to that comment was that we would achieve this goal in all market environments similar to fiscal year 27 team.
When we set that commitment we did not foresee an egg market that would become more challenging and a global pandemic all occurring at the same time.
I'm very proud of the Lindsay team to say that we achieved our fiscal year 20 goal, reaching 11.4% operating margin expansion given the challenging environment in which we were operating.
In addition to the operating margin goal we all.
We also focused on culture, and our foundation for growth initiative.
We established a baseline back in February 2018 through the support of a major consultants employee survey that help us understand where we had opportunities to improve our organizational health and align our culture with our strategy.
Our goal was to achieve first quartile status in the comparison against approximately 10000 companies that are used in their benchmarking exercise.
We have conducted an annual employee survey every year since fiscal year 2018, and I'm very pleased to say that we have achieved first quarter sales status. In this your survey that was conducted in the July timeframe. This.
The survey focuses on organizational health and this result gives me the confidence to say our culture has no transform into a strength for the company.
These two achievements are significant for our company and I want to thank the lynsey employees for their dedication and commitment to meeting these goals.
Meeting our operating margin goal was not the only key financial achievement this fiscal year.
In looking as far back as when Lindsay became a publicly traded company. This is the highest gross margin percent result for the company.
In addition, the.
The infrastructure business in fiscal year 20 achieved the highest revenue up.
Operating income and operating margin since Lindsay acquired this business in 2006 and.
In Brazil achieved its highest revenue in local currency. This call. Your 20 since that's business was established in 2002.
One last touchy, but I want to mention in this school year 20, our South Africa plant ran almost exclusively on rainwater further.
Furthering our global focus on sustainable practices in water conservation.
Regarding our foundation for growth initiative.
We continue to see that the margin improvement projects, we implemented are delivering as expected to go even beyond that statement.
Approach taken in this initiative is rapidly becoming part of the company's culture.
Focusing on continuous improvement has become established throughout the company.
Now I will turn the call over to Randy provide a business update.
Thank you, Tim and good morning, everyone before.
The fourth quarter is generally a seasonally slow period in the North American irrigation business strong damage becomes more of a market driver during the summer months. This year store volume was down slightly from prior year, but more than 10% below the five year average for the quarter.
Flying demand fundamental saw lots of movement in the quarter. Most of this volatility was bullish for commodity prices and farm income. So our customers were pessimistic due to low commodity prices early in the quarter. We did see a steady improvement of customer sentiment as we approach the end of the fiscal year.
Government support in the U.S. was visible for the 2019 harvested crop with the 16 billion dollar krona virus food assistance program or see Fabs announced earlier this year through most of the quarter growers dealt with uncertainty regarding additional support for the 2020 harvest that was addressed with the announcements or the second round of she's out payments.
Mid September when a further $40 billion in government aid was announced.
We continue to see strong growth in technology penetration.
New subscription volume for the 2020 season inclusive of the net irrigate acquisition worked up 174% versus prior year.
We've also seen renewal rates approaching 97% so were successfully retaining customers in addition to attracting new ones.
In international irrigation, we continue to see strong results in most mature markets, including Brazil, where as Tim mentioned, we had a record year for revenue in local currency.
Market conditions in Australia have also continued to improve with recent rains and our new or expanded regional distribution center is performing very well there.
International project activity remains robust several projects in tenders are currently visible across multiple regions. Although timing is uncertain. Many of these are across the mid Eastern Africa, where we continue to see irrigation projects supporting food security investments.
We continued shipment of our large Mideast project in Q4 and had our largest shipping quarter ever from our Turkey facility.
In the infrastructure business, we saw generally flat results globally and road safety products for the quarter, we continue to see adoption or the mash compliant product line, where sales were up more than 120% versus prior year. The absorb them in particular is doing very well due to its rapid deployment capabilities, which increased worker safety and.
Deficiency.
We are also pleased to see that the president signed the continuing Appropriations Act, which extended the fast Act probably one year. In addition to the extension to Highway Trust Fund Wars infused with $13.6 billion to continue funding for important road infrastructure projects.
Road Zipper project sales were a significant contributor to the quarter on a year over year basis, we completed delivery of a large highways, England project in the UK, we were able to support our clients are aggressive timeline and leveraged our global manufacturing footprint to fill the project on time, well also pulling ahead barrier shipments to Japan to meet customer.
Requests these accelerated shipments allowed us to offset the impact of Coburn related project deferrals in the quarter.
Our road Zipper project funnel remains robust due to the successful implementation of our ships left strategy that provides earlier visibility of project demand while timing of project deliveries is always difficult to predict we have seen some planned projects get pushed out of Q1 due to uncertainty regarding the pandemic.
We're also seeing construction delays continue into the first quarter as regional and local governments manage their corporate response class in some cases deliveries will be moved and in others orders could be cancelled as previously communicated we are working to reduce the lumpiness of our road zipper business by maintaining and growing our strong funnel in addition to increasing.
At least portion of this business and we are pleased with progress in both areas now I will turn it over to Brian to discuss our financial results.
Thank you Randy and good morning, everyone Mike.
My comments regarding fourth quarter and full year comparisons will refer to adjusted results for the prior year, which are detailed in the regulation G disclosure at the end of the press release no adjustments were made to prior year results.
Total revenues for the fourth quarter of fiscal 2020 increased 26% to $128.4 million compared to $101.9 million in the same quarter last year.
Net earnings for the quarter were $14.7 million or one dollar and 35 cents per diluted share compared to net earnings of $5.8 million or 54 cents per diluted share in the prior year.
Total revenues for the full year fiscal 2020 increased 7% to $474.7 million compared to $444.1 million in the prior fiscal year.
Net earnings for fiscal 2020, or $38.6 million or $3 and $53.56 per diluted share compared to net earnings of $15.6 million or $1.45 cents per diluted share in the prior fiscal year.
Irrigation segment revenues for the fourth quarter increased 9% to $75.6 million compared to $69.5 billion in the same quarter last year.
North America irrigation revenues were $39.8 million compared to $41.5 million in the same quarter last year the dk.
The decrease resulted primarily from lower engineering services revenue related to a project in the prior year that did not repeat.
Irrigation equipment unit volume and sales of replacement parts were higher in the quarter compared to the prior year.
But this was offset by the impact of lower average selling prices.
In the international irrigation markets revenues of $35.8 million increased $7.8 million or 28% compared to last years fourth quarter.
Higher sales volumes in Brazil, Australia, and the Middle East were partially offset by the effect of differences in foreign currency translation rates compared to the prior year of approximately $3.4 million.
Total irrigation segment operating income for the fourth quarter was $5.8 million compared to $6.3 million in the same quarter last year and operating margin was 7.7% of sales compared to 9% of sales in the prior year.
Operating margin.
In the current quarter was negatively impacted by expenses of approximately $1.6 million related to an increase in the environmental remediation liability as well as severance costs.
The environmental <unk> remediation liability was increased by $1 million in connection with a revised plan to remediate environmental contamination at our Lindsay Nebraska site that was submitted to the EPA in August.
Excluding the effect of the increase in the environmental remediation liability and severance costs operating income for the quarter was $7.4 million and operating margin was 9.8% of sales.
For the full fiscal year total irrigation segment revenues were $343.5 million compared to $351.5 million in the prior fiscal year.
North America irrigation revenues of $219 million were essentially flat compared to the prior year.
International irrigation revenues for the year were $124.6 million compared to $132.9 million in the prior fiscal year.
After considering the unfavorable effect of differences in foreign currency translation rates of approximately $8.6 million.
International Air Gary Irrigation revenues were also assessed essentially flat compared to the prior fiscal year.
Irrigation operating income for the full fiscal year was $40.2 million or 11.7% of sales compared to $33.3 million or 9.5% of sales in the prior fiscal year.
Operating income and margin expansion resulted primarily from improved cost and pricing performance attributed to the foundation for growth initiative.
Infrastructure segment revenues for the fourth quarter increased 63% to $52.8 million compared to $32.4 million in the same quarter last year.
Increase resulted from higher road zipper system sales compared to the prior year.
As Randy mentioned in his remarks, we were able to complete our deliveries for the highways, England project as well as the Japan order during the quarter.
Infrastructure segment operating income for the fourth quarter was $20.1 million, an increase of 115% compared to $9.3 million in the same quarter last year.
Infrastructure operating margin for the quarter was 38% of sales compared to 28.8% of sales in the prior year.
This improvement resulted from an increase in higher margin road zipper system sales and from improved cost and pricing performance.
For the full fiscal year and infrastructure segment revenues increased 42% to $131.2 million compared to $92.6 million in the prior fiscal year.
Infrastructure operating income for the full fiscal year was $43.8 million compared to $16.8 million in the prior fiscal year after.
Operating margin for the year was 33.4% of sales.
18.1% of sales in the prior fiscal year.
Turning to the balance sheet and liquidity.
Lindsay is well positioned with a strong balance sheet and sufficient sufficient liquidity as we continue to face the uncertainty presented by the global Corona virus pandemic, we're also well positioned to invest in growth opportunities that we identified our.
Our total available liquidity at the end of the fiscal year was $190.9 million with $140.9 million in cash cash equivalents and marketable securities and $50 million available under our revolving credit facility.
Our total debt was $115.9 million at the end of the fiscal year of which a $115 million matures in 2030.
At the end of the fiscal year, we were well within the financial covenants of our borrowing facilities, including a funded debt to EBITDA leverage ratio of 1.5 compared to a covenant limit of 3.0.
At this time I would like to turn the call over to the operator to take your questions.
We will now begin the question and answer session.
Ask a question you May press Star then one on your Touchtone phone Jerry.
Sure you'll see on speakerphone, please pick up your handset before customer Keith.
Withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question will come from Nathan Jones with Stifel. Please go ahead.
Good morning, everyone.
Good morning.
Oh I, let me say congratulations on getting to that 11% to 12% margin target. This year Oh, My I did say I for one was a bit skeptical that you could get there so congratulations on making that call.
And I guess then in true Wall Street fashion. The question then becomes out what next what have you done for me lately are they.
[noise] began kind of structural moves that you can continue to make we didn't the cost structure or are we to a period now where its continuous improvement grinding they margins high a kind of whats the plan from yeah to continue moving forward.
Yes, so well first of all thank you, Dave and I. Appreciate your acknowledgement of that we're really pleased with the result, we were able to get to your question. If you think of the key strategic initiatives that we brought have brought forward. During this time the foundation for growth implementation, we've implemented on road zipper the.
Chip left we're continuing to expand that we've got a good playbook in place and we want to continue to broaden our global reach related to that on road safety products. We are still in the implement.
The whole implementation of the match transition and you know Weve gone from primarily in intermodal business to a cash cushion business, which has been very positive on the irrigation side we.
We have a global footprint, we're putting a real emphasis around technology and we'll continue to put an emphasis there, but I don't want to lose side or something you said earlier, because we see this as a key part of our strategy going forward is we moved from you or we are in the process of moving from transformation to continuous improvement and so all that.
The discipline and the methodology that we've gained from the foundation for growth, we're going to continue that in the area of continuous improvement. So sitting here today, Nathan those would be the key areas of emphasis for us.
Maybe just follow the continuing on down that continuous improvement and cultural kind of outlined can you talk about the kinds of things that you view as the big improvement in the culture within the organization that it helps you to drive towards these 11% to 12% margin and where do you think there's room for improvement in it.
Culture to continue driving growth in margins going forward.
Yes, that's front and center for us they've been the results I talked about were.
We're off to a real key factor in achieving those results was us focusing on four behaviors.
We will go to the point of our performance review process is aligned to those four behaviors. That's been a significant driver for us in improving and addressing cultural changes that we felt were critical if you go back where we launched foundation for growth. The reason, we highlighted culture is because we.
Said, we've got the risk if we didn't address culture, we would gain margin improvement, but then lose it over time, if you don't impact the culture. So we're in very good shape related to that the next stage for US is now we want to make sure our culture is very aligned with.
The continuous improvement focus and this is now where our emphasis on we've made great progress over these last three years in this area. We want to continue in that so that we have a organization that is very healthy in the way that we have measured it and it is also very a lie.
And to our corporate direction and that's the areas of emphasis that we're on right now.
Great if I could just slip one more in there was a comment Randy made in his prepared comments about potential delay.
Potential delays and possible project cancellations I'm going to assume those are domestic projects that you guys are talking about and related to that the decline in state and local budgets and potential highway funding issues that are coming around that can you talk about how much of that.
How much of that you think may be at risk.
Assuming we don't get any federal government assistance I guess, it's a caveat that goes into that.
And what kind of the magnitude if they see that that might be delayed or potentially cancelled. If if they are funding doesn't come through.
Sure and new furnace sales in last couple of quarters, and again and again in todays opening statement. We have seen some delays we do not believe we're seeing cancellations road zipper at this point, we've had approximately $10 million worth of projects that we would say have been pushed out to a later.
Start date.
We still see these projects be an active we believe there is a high probability of success occurring we're staying close with the decision makers related these projects, but the timing for securing them. It is difficult to predict right now.
Okay. Thanks, I'll get back in queue.
Great. Thanks.
Next question will come from Brian Drab with William Blair. Please go ahead.
Hi, good morning, and thanks for taking my questions.
This is Nathan did it obviously I want to.
Say, congratulations on achieving the target for the margins and and and.
And I'm.
I'm looking at the.
Thank you.
The 2020 year, and then looking at 2021, and I mean is it and an incredible results and.
Results and infrastructure, obviously and by my count.
That included about 45 million or so in large road zipper project revenue.
And so.
So that you know unfortunately every great success of course, it creates a difficult comparison for the next year. So I'm just wondering.
Things like you know is is that large road zipper project revenue still your highest gross margin revenue and.
And.
If you can't duplicate that which I assume that will probably not have that much large project revenue and 21.
Is that going to make it hard in 21 to to sustain that 11% to 12%.
On operating margin it seems like it would it would have to be down given what I've heard so far on the call.
Yes, so let's talk about the infrastructure business.
Really build on what I had mentioned to Nathan earlier, the shift left strategy related to road zipper progressing exactly like we had hoped it would on the road safety a shift of our portfolio aligned to mash continuing to progress right.
We're real pleased about the progress we're making there now we did have a very large project the highways, England. That's non repeatable at this point. So what we see is our business outside of highways, England is continuing to move in a positive direction, but the ability to recapture that form.
Value of the highways, England will have some challenge.
Related to that so direction of the business I feel extremely good but to be able to in one year rig recover that full amount of that project will be a challenge.
And right now as you look into 21, there there aren't any major projects like Japan, or UK project right now and.
That that you're expecting to contribute revenue right and 21.
Yeah, We've got what we believe is the best funnel sales funnel, we've ever had but those types of projects typically have a little bit a little longer runway to get them to finalization. So.
Nickel to say today, whether we'll be able to get that size of project if.
In this particular fiscal year.
Right, Okay and then.
And then.
Well just one more question just on the international irrigation market.
Can you talk a little bit more about what what you're seeing.
They're at and expectations for 21 and it is.
It is possible can you comment on your.
Your largest competitor one that's.
Largest irrigation project I think in the history of the industry out you know did.
Did you did you pass on that are there risks associated with that that troubled you any comments you could make on that since it's such an enormous project.
Yes, So let me address the international overview, and then now more specifically address the project that you're referring to that recently was announced when we look at the international business and if I break it down with mature markets versus developing regions on the mature markets, let's start.
First of all with Brazil, I made some opening comments about the the record that had been set there we do see some planting delays that have occurred due to drought, but we see growth.
Growers and expect these growers to see strong incomes going forward and this continues to be a growing market for US Australia is doing well after the recent rains. So we have seen market recovery in that particular area on the developing regions. There's good signs of project demand live.
Into food security, especially middle East and Africa timing I would describe as being the uncertain as is often the case with these type of projects, but there is good visibility on specific projects that will go forward. So overall, we do expect to see an increase.
On a full year basis in this market now to your very specific question about the project in Egypt that was mentioned we're aware of the update from our competitor regarding this multi year tender, we didnt participate in that tender with an offer we would.
We would describe the offer as being very competitive.
At pricing levels consistent with previous project wins that have occurred in that territory.
This project is consistent with other opportunities that we see in the region. We expect these opportunities to continue to be very competitive and we will be active in this space.
Okay I appreciate all that color. Thank you you bet.
You bet. Thanks for the question.
Our next question will come from Jon Braatz, with Kansas City Capital. Please God more.
Good morning, everyone.
Good morning, John Randy is a question for you it's been some time since weve seen grain prices at.
At attractive levels of where they are today and hopefully it continues to be that way, we'll see.
But do you sense on the domestic front that over the past three or four years ago.
The market, obviously has been depressed do you think there's some pent up demand.
That.
That needs that will go could be fulfilled with these higher higher grain prices are.
It is it is there is there an opportunity here to see some accelerated growth so in the domestic front.
Yeah. Thanks for your question, Jon I think you're right, we do see growers deferring new large capital investments, maybe replacing machines that are out there and why there is a willingness to invest in parts and maintenance to maybe extend them for one more year. So I do think you are right to expect that as commodity prices have improved.
Net farm income has improved obviously a lot of come from government support now as well propping up net farm income we would expect to see some of those growers that had been deferring those investments to probably be prepared to make a decision. This year. So I think you're spot on there. We've got assumption is is $4 corn a magic magic.
Number.
You know, it's it's always been a magic number and are we peaked above I think I saw for 15 plus years earlier say <unk>.
Oh, it's become a I think a magic number for growers, Okay, Alright, alright, thank you very much.
Thank you John.
Again, if you like test and question. The Star then one Star then one ask your question.
At this time there appear to be no more questions.
Sure Hassinger I'll turn the call back to you for closing remarks.
Well I'd like to remind everyone of our virtual investor event on.
On Tuesday November 17, beginning at 10 am Eastern time. This session will be an opportunity to hear more about our innovation and growth strategies. So this concludes our fourth quarter earnings call. Thank you for your interest and participation.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.