Q2 2019 Earnings Call

July 24, 2019

Greetings and welcome to the Valmont Industries' second quarter 2019 earnings call. At this time, all participants are not listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Renee Campbell, Vice President of Investor Relations and corporate communications. Thank you you may begin.

Operator: Greetings, welcome to the Valmont Industries Q2 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Renee Campbell, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Thank you Jackie good morning, and welcome to Valmont Industries' second quarter 2019 earnings call.

Renee Campbell: Thank you, Jesse. Good morning, welcome to Valmont Industries Q2 2019 Earnings Call. With me today are Steve Kaniewski, President and Chief Executive Officer, Mark Jaksich, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a summary of our Q2 results, and Mark will provide additional details on financial performance. A slide presentation will accompany today's discussion, and a link to access the document is located on the homepage of our website at valmont.com. Please download the slide deck to follow along with today's call. A replay will be available for the next seven days, and instructions for accessing it are included in the press release, which is also located on our website.

With me today are Steve Kaniewski, President and Chief Executive Officer.

Mark Jaksich Executive Vice President and Chief Financial Officer.

Tim Francis Senior Vice President and corporate controller.

This morning, Steve will provide a summary of our second quarter results and Mark will provide additional details on financial performance.

A slide presentation will accompany today's discussion and a link to access. The document is located on the home page of our website at <unk> Dot com.

Please download the slide deck to follow along with today's call.

A replay will be available for the next seven days and instructions for accessing it are included in the press release, which is also located on our website.

Renee Campbell: Please note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and will be read in full at the end of this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Please note that this conference call is subject to our disclosure on forward looking statements, which applies to today's discussion and will be read in full at the end of this call.

I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Steve Kaniewski: Thank you, Renee. Good morning, everyone, and thank you for joining us. I would like to start with slide 3 and a recap of our Q2. Net sales of $700.9 million were 2.7% higher than last year. Excluding currency impacts and revenue from last year's divested grinding media business, sales would have grown 5.5%. This growth was led by robust transportation and wireless communication demand in the Engineered Support Structures segment, and continued pricing discipline across all 4 segments. Moving to segment highlights. Starting with the Engineered Support Structures segment, Q1 sales of $258.7 million increased 3.2% over last year. We continued to benefit from very strong order flow, particularly in North American transportation and wireless communication markets.

Thank you Renee.

Good morning, everyone and thank you for joining us.

I would like to start with slide three and a recap of our second quarter.

Net sales of 700.9 million or 2.7% higher than last year.

Excluding currency impacts and revenue from last year's divestiture grinding media business.

Sales would have grown 5.5%.

This growth was led by robust transportation and wireless communication demand and the engineered support structures segment and continued pricing discipline across all four segments.

Moving to segment highlights.

Starting with the engineered support structures segment.

First quarter sales of 258.7 billion increased 3.2% over last year.

We continue to benefit from very strong order flow, particularly in North American transportation and wireless communication markets.

Steve Kaniewski: This demand has resulted in higher backlogs, improved pricing, and extended lead times across the industry. Effects from the severe Midwest flooding that occurred in late March and resulted in the one-week closure of our Valley, Nebraska facility, continued to impact this segment in Q2. While our teams have worked very hard to return to regular production and shipment schedules, continued strong order flow created a buildup of shipments, causing factory inefficiencies and delayed shipments. By adding resources and implementing process changes in our shipping area, these constraints are expected to be resolved during Q3. I want to thank all of our customers for their understanding during this time, and all who have worked with us to remedy the situation. Mark will speak in more detail on the flood recovery in his remarks.

This demand has resulted in higher backlogs improved pricing and extended lead times across the industry.

[noise] effects from the severe Midwest flooding that occurred in late March and resulted in the one week closure of our valued Nebraska facility continued to impact this segment in the second quarter.

Well our teams have worked very hard to return to regular production and shipment schedules continued strong order flow created a build up of shipments, causing factory inefficiencies and delayed shipments.

By adding resources and implementing process changes on our shipping area. These constraints are expected to be resolved during the third quarter.

I want to thank all of our customers for understanding during this time and all of that work with us to remedy the situation.

Mark will speak in more detail on the flood recovery in his remarks.

Globally.

Steve Kaniewski: Globally, sales of wireless communication structures and components grew 20% over last year, supported by robust demand, particularly in North America. Carriers continued to invest in 4G and FirstNet expansions, and momentum for small cell structures in advance of 5G build-outs is also driving sales growth. During the quarter, we completed the acquisition of Connect-It Wireless, a Florida-based distributor of wireless site components. This acquisition is a strategic addition to our Site Pro 1 business, advancing our geographic expansion and addressable market growth strategies. Sales of access systems were slightly below last year due to unfavorable currency translation. In the Utility Support Structures segment, sales of $209.8 million increased 6.3%, driven by sales from acquisition and improved pricing in bid markets.

Sales of wireless communication structures and components grew 20% over last year supported by robust demand, particularly in North America.

Carriers continue to invest in Fourg, and Firstnet expansions and momentum for small cell structures in advance of Fiveg Buildouts is also driving sales growth.

During the quarter, we completed the acquisition of connected wireless a Florida based distributor of wireless side components.

This acquisition is a strategic addition to our site pro one business advancing our geographic expansion and addressable market growth strategies.

Sales of access systems were slightly below last year due to unfavorable currency translation.

In the utility support structure segment sales of $209.8 million increased 6.3%.

Driven by sales from acquisition and improved pricing and bid markets.

Steve Kaniewski: We have been pleasantly surprised by stronger-than-expected demand from grid hardening initiatives, which has caused our lead times and others across the industry to significantly increase from approximately 22 to 26 weeks to 30 to 34 weeks. As a result, we have taken immediate steps to add capacity in existing North America facilities and are developing longer-term plans to meet additional capacity requirements. Sales growth this quarter once again benefited from the solar tracker acquisition that was completed last year. I'm excited to share that later this week, we will officially launch our single-axis tracker solution into the North American market. While we are very happy with the sales growth this year, as expected, we continue to work on supply chain synergies and are optimistic we will begin to see those benefits in 2020.

We have been pleasantly surprised by stronger than expected demand from grid hardening initiatives.

Which has caused our lead times and others in across the industry to significantly increase from approximately 22 to 26 weeks to 30 to 34 weeks.

As a result, we have taken immediate steps to add capacity in existing North America facilities.

And our developing longer term plans to meet additional capacity requirements.

Sales growth this quarter once again benefited from the solar tracker acquisition that was completed last year.

I'm excited to share that later this week, we will officially launch our single axis tracker solution into the North American market.

While we are very happy with the sales growth. This year as expected we continue to work on supply chain synergies and are optimistic we will begin to see those benefits in 2020.

Steve Kaniewski: As we said in prior calls, this business is largely project-based, and revenue can be difficult to forecast each quarter. That said, the CAGRs in this market remain in the high teens, and we expect revenues over time to stabilize as we expand our presence in other markets. Revenues in the offshore wind business were aligned with expected levels, and we anticipate higher sales in 2020. Turning to the coating segment. Q2 sales of $98.4 million grew 7.5%, led by sales from recent acquisitions and favorable pricing across all regions. Excluding currency impacts, sales would have increased 9.4%. As zinc costs have stabilized, we continue to maintain pricing discipline and are utilizing technology to add value and improve the customer experience. Further, we are currently experiencing growth across all geographies, signaling strength in the end markets that we serve.

As we said in prior calls this business is largely project based and revenue can be difficult to forecast each quarter.

That said.

The CAGR is in this market remain in the high teens, and we expect revenues over time to stabilize as we expand our presence in other markets.

Revenues in the offshore wind business were aligned with expected levels.

And we anticipate higher sales in 2020.

Turning to the coating segment.

Second quarter sales of 98.4 million grew 7.5% led by sales from recent acquisitions and favorable pricing across all regions.

Excluding currency impacts sales would have increased 9.4%.

As zinc costs have stabilized we continue to maintain pricing discipline.

And our utilizing technology to add value and improve the customer experience.

Further we are currently experiencing growth across all geographies signaling strength in the end markets that we serve.

Turning to the irrigation segment.

Steve Kaniewski: Turning to the irrigation segment. Global sales of $155.2 million were 4.8% below last year. In North America, sales of $102.8 million were 9.7% lower. Macro market conditions continue to weigh on farmer sentiment. Further, historical flooding, a very wet spring across many parts of the US, and low net farm income levels all kept growers on the sidelines. Despite lower volumes in North America, average selling prices were higher due to sustained pricing discipline. On a positive note, we achieved our third highest month of technology sales in May, bringing our total connected devices to approximately 86,000. Growers are recognizing the value of adopting our advanced, easy-to-use technology solutions to improve yield and reduce input costs. Also this quarter, we divested the last company-owned dealership located in Pasco, Washington.

Global sales of $155.2 million or 4.8% below last year.

In North America sales of $102.8 million were 9.7% lower.

Macro market conditions continue to weigh on farmer sentiment.

Further historical flooding, a very wet spring across many parts of the U.S. and low net farm income levels, all cap growers on the sidelines.

Despite lower volumes in North America average selling prices were higher due to sustained pricing discipline.

On a positive note.

We achieved our third highest month of technology sales in May.

Bringing our total connected devices to approximately 86000.

Growers are recognizing the value of adopting our advanced easy to use technology solutions to improve yield and reduce input costs.

Also this quarter, we divested the last company owned dealership located in past a Washington.

Steve Kaniewski: This was done as a part of our growth strategy and belief that independently owned irrigation dealerships support market growth and strengthen our overall presence in the market. International irrigation revenues of $52.4 million increased 6.7% versus last year. Excluding currency impacts, sales grew 11.5%. As expected, the Brazilian market is improving. Our team booked a record number of orders at this year's Agrishow, the largest annual farm show in the country. We also recently opened our first aftermarket parts distribution center in São Paulo State, to support customers more quickly and efficiently and strengthen our leadership position in this critical market.

This was done as a part of our growth strategy and believe that independently on irrigation dealerships support market growth and strengthen our overall presence in the market.

International irrigation revenues of 52.4 million increased 6.7% versus last year.

Excluding currency impacts sales grew 11.5%.

As expected the Brazilian market is improving and our team booked a record number of quarters that this year's Agra show the largest annual farm show in the country.

We also recently opened our first aftermarket parts distribution center in Sao Paulo state to support customers more quickly and efficiently and strengthen our leadership position in this critical market.

Sales growth in Europe , and Middle East markets. This quarter helped offset lower sales in the Asia Pacific region.

Steve Kaniewski: Sales growth in Europe and Middle East markets this quarter helped offset lower sales in the Asia Pacific region, as severe drought in parts of Australia and policy uncertainty in New Zealand have impacted demand in those markets this year. I recently returned from a visit to the Republic of Kazakhstan, where I met with President Tokayev, Prime Minister Mamin, and Minister of Agriculture Omarov to discuss agricultural investment, productivity enhancement, and advanced technology in the region. Market development there is actually very similar to our early market strategy in Brazil. We're very excited to partner with the Kazakhstan ag community on future opportunities in this very important region, building on our geographic expansion strategy. I would like now to turn the call over to Mark for the financial review.

A severe drought in parts of Australia and policy uncertainty in New Zealand have impacted demand in those markets. This year.

I recently returned from a visit to the Republic of Kazakhstan, where I met with President to Kyle Prime Minister My main and Minister of Agriculture Amira.

To discuss agricultural investment productivity enhancement and advanced technology in the region.

Market development, there is actually very similar to our early market strategy in Brazil.

We're very excited to partner with the Kazakhstan AG community on future opportunities in this very important region.

Building on our geographic expansion strategy.

I would like now to turn the call over to Mark for the financial review.

Mark Jaksich: Thank you, Steve, and good morning, everyone. My comments regarding the Q2 2019 are based on comparisons to the 2018 adjusted results, as outlined at the end of the press release. Turning to Slide 4, Q2 operating income of $63.7 million, or 9.1% of sales, was 10% below last year, largely due to approximately $6 million of nonrecurring expenses this year that occurred in the Utility and Coatings segments. Otherwise, profitability improvements in the Engineered Support Structures and Coatings segments and a favorable LIFO comparison were offset by lower operating income in the Irrigation segment and the international portion of the Utility segment.

Thank you, Steve and good morning, everyone. My comments regarding the second quarter of 2019 or based on comparisons to the 2018 adjusted results as outlined at the end of the press release.

Turning to slide four second quarter operating income of $63.7 million or 9.1% of sales was 10% below last year, largely due to approximately $6 million up nonrecurring expenses. This year that occurred in the utility and coatings segments.

Otherwise profitability improvements in the engineered support structures and coating segments and a favorable LIFO comparison were offset by lower operating income in the irrigation segment and the international portion of the utility segment.

Mark Jaksich: I'd also like to note that net interest expense compared to the Q2 of last year was down over $1 million due to the debt refinancing we completed in the Q3 of 2018. Q2 diluted earnings per share of $1.90 decreased 4% compared to adjusted EPS of $1.98 in 2018. Without the impact of nonrecurring expenses of $0.20 per share, EPS for the quarter would have increased 6.1%. Operational efficiency continued to be hampered somewhat during the Q2 by the March flooding event in Valley, Nebraska. Efforts to settle the insurance claim from property and business interruption losses are ongoing, and we expect to recognize those recovery benefits in the second half of this year. Turning now to segment operating income results in Slide 5.

I'd also like to note that net interest expense compared to the second quarter of last year was down over million dollars due to the debt refinancing we completed in the third quarter of 2018.

Second quarter diluted earnings per share of $1.90 decreased 4% compared to adjusted EPS of $1.98 in 2018.

Without the impact of nonrecurring expenses of 20 cents per share EPS for the quarter would have increased 6.1%.

Operational efficiency continued to be hampered somewhat during the second quarter by the March flooding, we bet Valley, Nebraska.

Efforts to settle the insurance claim for property and business interruption losses are ongoing and we expect to recognize those recovery benefits in the second half of this year.

Turning now to segment operating income results in slide five the engineered support structures segment operating income increased 14% over 2018, the improvement resulted from strong market conditions and disciplined pricing in the lighting and telecom markets in North America, along with cost savings associated with the capacity reductions we took in the Asia Pacific region last year.

Mark Jaksich: The Engineered Support Structures segment operating income increased 14% over 2018. The improvement resulted from strong market conditions and disciplined pricing in the lighting and telecom markets in North America, along with cost savings associated with the capacity reductions we took in the Asia Pacific region last year. Turning to Slide 6. In the Utility Support Structures segment, operating income decreased 28% from the Q2 of 2018. Profitability improvements from pricing actions and improved factory performance in North America were more than offset by approximately $5 million of lower profitability in our developing international operations, mainly in solar tracker solutions as well as offshore wind. In solar trackers, while the market activity is strong, the project-oriented nature of the market has been a challenge for us, resulting in Q2 sales and profits that were much lower than Q1.

Turning to slide six in the utility support structure segment operating income decreased 28% from the second quarter of 2018.

Profitability improvements from pricing actions and improved factory performance in North America were more than offset by approximately $5 million of lower profitability in our developing international operations, namely in solar trackers solutions as well as offshore wind.

In solar trackers, while market activity is strong the project oriented nature of the market has been a challenge for us, resulting in Q2 sales and profits that were much lower than Q1.

Profitability in the offshore wind business continues to be weak from challenging market conditions with five smaller competitors exiting the business over the last 12 months, we expect pricing improvements and the increasing market demand to result in improved profitability in 2020.

Mark Jaksich: Profitability in the offshore wind business continues to be weak from challenging market conditions, with 5 smaller competitors exiting the business over the last 12 months. We expect pricing improvements and increasing market demand to result in improved profitability in 2020. Segment operating income also included a $3 million expense for the completion of a settlement of a customer accommodation matter that originated in 2015. Excluding this expense, operating profit was $19 million or 9.1% of sales. In the coatings segment on Slide 7, operating income of $15.1 million was comparable to 2018, despite a one-time $3 million expense related to a legal matter that we elected to resolve this year.

Segment operating income also included a 3 million dollar expense to set up for the completion of a settlement of a customer accommodation matter that originated in 2015. Excluding this expense operating profit was $19 million or 9.1% of sales.

In the coatings segment on slide seven.

Operating income of $15.1 million was comparable to 2018, despite a one time $3 million expense related to a legal matter that we elected to resolve this year.

Segment sales and operating income benefited from continued pricing benefits arising from our technology offerings as well as the recent acquisitions of CSP coatings in New Zealand and United Galvanizing in Houston, Texas.

Mark Jaksich: Segment sales and operating income benefited from continued pricing benefits arising from our technology offerings, as well as the recent acquisitions of CSP Coatings in New Zealand and United Galvanizing in Houston, Texas. Excluding the legal settlement costs, segment operating income was $18.1 million or 18.3% of sales, the best second quarter performance in this segment since 2014. The coatings business continues to perform well, and we are pleased with its operating results. Turning to the irrigation segment in Slide 8, operating income decreased 22% compared to last year. Lower profitability was primarily driven by lower volumes in North America.

Excluding the legal settlement costs segment operating income was $18.1 million or 18.3% of sales the best second quarter performance into segments since 2014.

The coatings business continues to perform well and we are pleased with its operating results.

Turning to the irrigation segment on slide eight operating income decreased 22% compared to last year.

Lower profitability was primarily driven by lower volumes in North America.

Mark Jaksich: Value-based pricing, due in part to our technology solutions and the benefits from lean management and cost control, both played a critical role in maintaining segment operating margins of 13.9% and 13.5% of sales in Q2 and year-to-date, respectively, despite the lower sales volumes. Turning to cash and balance sheet highlights on Slide 9. As expected, we recognized strong operating cash flows of $113 million so far this year, including $105 million in Q2. Our focus on working capital optimization has been a priority for the management team throughout the year. We expect cash flow to be strong in the second half of 2019, driven by our ongoing efforts to further improve working capital performance and assuming a stable raw material price environment.

Value based pricing due in part to our technology solutions and the benefits from lean management and cost control. Both played a critical role in maintaining segment operating margins of 13.9% and 13.5% of sales in Q2 and year to date, respectively. Despite the lower sales volumes.

Turning to cash and balance sheet highlights on slide nine as expected we recognize strong operating cash flows of 113 million. So far this year, including $105 million in the second quarter.

Our focus on working capital optimization has been a priority for the management team throughout the year.

And we expect cash flow to be strong in the second half of 2018, driven by our ongoing efforts to further improve working capital performance and assuming a stable raw material price environment.

Mark Jaksich: A summary of our capital deployment is on Slide 10. Year-to-date capital spending was $49 million, driven by the plant expansions previously mentioned and the construction of a galvanizing facility in Western Pennsylvania, all in support of market growth opportunities. We expect the full year capital spending to be between $90 million and $100 million. During the quarter, we deployed $24.7 million related acquisitions and returned $37 million to shareholders, capital to shareholders through share repurchases and dividends, ending the quarter with $256 million of cash. Our adjusted tax rate for the quarter was 24.8%, in line with our expectations. Let me now turn to Slide 11 for an update on our 2019 outlook.

A summary of our capital deployment is on slide 10.

Year to date capital spending was 49 million driven by the plant expansions previously mentioned and the construction of the galvanizing facility in Western Pennsylvania, all in support of market growth opportunities.

We expect the full year capital spending to be between $90 million and $100 million.

During the quarter, we deployed $24.7 million related acquisitions.

And returned $37 million to shareholders of capital to shareholders through share repurchases and dividends ending the quarter with $256 million of cash.

Our adjusted tax rate for the quarter was 24.8% in line with our expectations.

Let me now turn to slide 11 for an update on our 2019 outlook.

Mark Jaksich: We are benefiting from robust backlogs in our utility and ESS segments and expect sales and profitability growth in both segments for the balance of the year. In the ESS segment, we expect margins to continue to improve from a more stable raw material price environment and continued pricing improvements in the marketplace. In the Utility Support Structures segment, strong North American backlogs are expected to drive sales and operating income growth. We expect modestly better sequential performance in our international utility business for the balance of the year. While irrigation markets remain challenged, we are seeing some signs of market stabilization and expect current improvements in commodity prices to provide somewhat of a tailwind to farmer sentiment. Our coatings business continues to perform well and is driven by the general economic growth and industrial demand across our regions.

We are benefiting from robust backlogs in our utility in the FSS segments of expense expect sales and profitability growth in both segments for the balance of the year.

In the segment, we expect margins to continue to improve from a more stable raw material price environment and continued pricing improvements in the marketplace.

In the utility support structure segment strong North American backlogs have expect are expected to drive sales and operating income growth and we expect modestly better sequential performance in our international utility business for the balance of year.

While irrigation markets remain challenged we are seeing some signs of market stabilization and expect current improvements in commodity prices to provide somewhat of a tailwind to farmer sentiment.

Our coatings business continues to perform well and is driven by the general economic growth in industrial demand across our regions.

Mark Jaksich: The Q2 non-recurring expenses are not expected to be recovered. As a result, we have adjusted our full-year diluted EPS guidance to a range between $8.10 and $8.70 from $8.30 to $8.90. We are updating our revenue growth projections to 6% to 7% from 7% to 8% previously, and operating margin expansion to a range of 10 to 40 basis points from 20 to 50 basis points previously, based on lower international irrigation sales and foreign currency effects. As the dollar continues to strengthen from earlier in the year, our outlook on foreign currency translation effects is now expected to be unfavorable compared to 2018 by about $40 million, or 1.5% of sales, with the associated negative EPS effect of about $0.13.

The second quarter nonrecurring expenses are not expected to be recovered.

As a result, we've adjusted our full year diluted earnings per share guidance to a range between 810 and 870 from 830 to 890.

We are updating our revenue growth projections to 6% to 7%.

From 7% to 8% previously and operating margin expansion to a range of 10 to 40 basis points.

From 20 to 50 basis points previously based on lower international irrigation sales and foreign currency effects as the dollar continues to strengthen from earlier in the year our outlook on foreign currency translation effects is now expected to be unfavorable.

Compared to 2018 by about $40 million or one and a half a percent of sales with the associated negative earnings per share effective about 13 cents.

Finally, before I turn the call back over to Steve you May have noticed the announcement about my plans to retire from Belmont.

Mark Jaksich: Finally, before I turn the call back over to Steve, you may have noticed the announcement on my plans to retire from Valmont. It has been a privilege to spend most of my career with Valmont and our outstanding people across the organization. I will work diligently to help effect a smooth transition to my successor when that is determined, to help ensure that Valmont continues to be successful going forward and for the benefit of all of our stakeholders. With that, I will now turn the call back over to Steve.

There has been a privilege to spend most of my career with Belmont and our outstanding people across the organization.

I will work diligently to help effect a smooth transition to my successor when that is determined to help ensure that belmond continues to be successful going forward and for the benefit of all of our stakeholders with that I will now turn the call back over to Steve.

Steve Kaniewski: Thank you, Mark. On behalf of all of Valmont and myself, I want to thank you for your years of hard work and dedication. During your tenure, you have epitomized our core values, leaving a strong legacy of professionalism and class. Thank you again. Turning to Slide 12. Last quarter, we introduced Valley Insights by Prospera and the launch of anomaly detection as the first critical milestone on the path to autonomous crop management. As a part of that launch, we set an initial goal to monitor 1 million acres by 2020. I'm excited to say that even in limited release, we have already exceeded this goal, proving that customers are clearly excited about the technology. In fact, 1 dealer was able to demonstrate to a grower how Valley Insights detected issues in his field up to 30 and 60 days before NDVI could.

Thank you Mark.

On behalf of all Valmont and myself I want to thank you for your years of hard work and dedication.

During her tenure you have a pit demise, our core values, leaving a strong legacy of professionalism and class.

Thank you again.

Turning to slide 12.

Last quarter, we introduced valley insights by Prospero and the launch of anomaly detection as the first critical milestone on the path to autonomous crop manage.

As a part of that launch we set an initial goal to monitor 1 million acres by 2020.

I'm excited to say that even in limited release, we have already exceeded this goal proving that customers are clearly excited about the technology.

In fact, one dealer was able to demonstrate to a grower how valley insights detected issues in his field up to 30, and 60 days before Nvidia I could.

Steve Kaniewski: This momentum has elevated our market presence in the technology space. We will continue updating you on our roadmap on future calls. Turning to Slide 13. To summarize the balance of the year, the revisions to our financial outlook are driven by lower project demand in international irrigation markets, the impact of non-recurring expenses recognized this quarter, and foreign currency impacts. While recent improvements in commodity prices have provided a small tailwind in the irrigation segment, we are not yet seeing a meaningful turnaround in demand, although this should become clearer with the outcome of the growing season. We expect continued sales growth of our technology offerings, especially with higher labor costs, as these solutions will lead to better returns for the grower. We expect margin improvement in our infrastructure businesses in the second half of 2019.

This momentum has elevated our market presence in the technology space and we will continue updating you on our roadmap on future calls.

Turning to slide 13 to summarize the balance of the year the revisions to our financial outlook are driven by lower project demand and international irrigation markets.

The impact of nonrecurring expenses recognized this quarter and foreign currency impacts.

While recent improvements in commodity prices have provided a small tailwind in the irrigation segment, we're not yet seeing a meaningful turnaround in demand.

Although this should become clear with the outcome of the growing season.

We expect continued sales growth of our technology offerings, especially with higher labor costs. As these solutions will lead to better returns for the grower.

We expect margin improvement in our infrastructure businesses in the second half of 2019.

Steve Kaniewski: in ESS, strong demand, particularly in North America markets, plus the benefits of our 2018 operations transformation and a more stable raw material cost environment, will drive higher margins. Record backlogs in our utility business and incremental demand from grid hardening efforts across the US are supporting improved segment performance there. As I've always said, we remain committed to pricing discipline and leadership within all segments in the markets we serve, and we will continue to perform against our stated capital allocation goals while generating strong cash flows. I will now turn the call back over to Renee.

And yes, as strong demand, particularly in North America markets, plus the benefit of our 2018 operations transformation and a more stable raw material cost environment will drive higher margins.

Record backlogs in our utility business and incremental demand from grid hardening efforts across the us are supporting into segment performance there.

As I've always said, we remain committed to pricing discipline and leadership within all segments in the markets we serve.

And we will continue to perform against our stated capital allocation goals, while generating strong cash flows.

I will now turn the call back over to Renee.

Thank you Steve at this time, Jesse you May open up the call for questions.

Renee Campbell: Thank you, Steve. At this time, Jesse, you may open up the call for questions.

Thank you ladies and gentlemen at this time, we will be conducting the question and answer session. We ask that you. Please limit yourself to one question and one follow up and then re queue for any additional questions.

Operator: Thank you. Ladies and gentlemen, at this time, we will be conducting the question-and-answer session. We ask that you please limit yourself to 1 question and 1 follow-up, and then re-queue for any additional questions. If you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be handset before pressing the star key. Our first question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

If you would like to ask a question. Please press star one on your telephone keypad, a confirmation to indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the Q.

For participants using speaker equipment and maybe.

Handset before pressing the star team.

Our first question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Nathan Jones: Good morning, everyone.

Good morning, everyone.

Where data.

Steve Kaniewski: Good morning, Nathan.

Nathan Jones: Congratulations, Mark. I just want to start at a high level here. I mean, you guys had $0.20 of non-recurring charges here. You cut the guidance by $0.20. You're also talking about lower international irrigation project demand, and then that $0.13 of FX impact, negative FX impact. Should we be thinking that you're trending towards the lower end of guidance? Steve, I know we've talked about some of the pricing tailwinds in ESS and the spot market in USS. Are there offsetting things that have improved over the last quarter that offset those kind of other two negatives outside of the non-recurring expenses?

Congratulations Mark.

Just want to start it started at a high level here I mean, you guys at 20 cents of nonrecurring charges here and you've got the guidance by 20 cents. You also talking about lower international irrigation project demand and then that 13 cents of FX impact negative FX impact.

I did should we be thinking that you're trending towards the lower end of guidance. So Steve I know, we've talked about some of the pricing tailwinds in NSS and the spot marketing U.S. as they're offsetting things that have improved over the last quarter that offset those kind of other two negatives outside of the <unk> the nonrecurring expenses.

No David in the international irrigation piece, you kind of called out before in the first quarter and say that that was kind of baked into our guidance, but if you look at what the way that irrigation has trended.

Steve Kaniewski: You know, Nathan, the international irrigation piece, we had kind of called out before in Q1 and said that was kind of baked into our guidance. If you look at with the way that irrigation has trended, you know, from our expectations from the beginning of the year, it's probably a safe assumption to say that, you know, moving towards the bottom end of the range is more stable position than it would be. We do still have a lot of potential upsides to that. Those are still yet to develop.

So from our expectations from the beginning of the year, it's probably a safe assumption to say that.

Moving towards the bottom end of the range is more.

Stable position that it would be we do still have a lot of potential upside to that but those are still yet to develop.

And then so maybe you could talk about the puts and takes that would get you towards the top end no towards the bottom end of that guidance range.

Nathan Jones: Maybe you could talk about the puts and takes that would get you towards the top end or towards the bottom end of that guidance range?

Yeah that would be a lot there's a number of projects on the international irrigation front, which still to come through.

Steve Kaniewski: That would be a lot. There's a number of projects on the international irrigation front, which still could come through. You know, there was the, in the utility segment, particularly in North America, with the way that lead times have pushed out, if we can gain some additional capacity, both here in North America and/or our ability to do some jobs in China, that also would be a help to get us there. If steel, frankly, continues to abate, that's probably not fully baked into our guidance at this point. We're just going based on where steel has kind of been. There are some potential tailwinds as much as there are some, you know, headwinds that we faced from the early part of the year here.

You know there is the in the utility segment, particularly in North America.

With the way that lead times have pushed out if we can gain some additional capacity.

Both here in North America, and or our ability to do some jobs in China.

That also would be a help to to get us there and if steel frankly continues to abate.

That's probably not fully baked into our guidance at this point. So we're just going based on where steel has kind of been.

And.

So there is there are some potential tailwinds as much as there are some headwinds that we faced from the early part of the year here.

Nathan Jones: Okay, maybe just one on ESS. You talked about the disruption from the flooding at the Nebraska campus there. Can you quantify the impact that had on results in Q2? I think you said it's supposed to be sorted out during Q3. Do we expect any impact there? I know you guys have been targeting to get to double-digit margins in ESS. Is that still something that's in range for the back half of the year, or does this kind of thing push that off a little bit?

Okay, and then maybe just one on NSS you talked about the disruption from the from the flooding. It then Nebraska campus day can you quantify.

The impact that that had in results in the second quarter. I think you said, it's supposed to be sorted out during the third quarter do we expect any impact there.

You guys have been targeting to get to double digit margins in NSS is that still something that teen range for the back half of the year or is does this kind of being pushed that off a little bit.

Yes, there is probably about $10 million of revenue that we were just unable to really kind of get through the system.

Steve Kaniewski: Yeah, there's probably about $10 million of revenue that we were just unable to really kind of get through the system in Q2. That would really kind of move over into Q3. In terms of double-digit for the segment, yes, it's definitely within range based on what we're seeing, both in the backlogs, cost controls, and pricing.

In the second quarter, so that would really kind of move over into the third quarter and in terms of double digit for the segment, yes, it's definitely within range based on what we're seeing both in the backlogs.

Cost controls and pricing.

Great I'll pass it on and get back in queue. Thank you.

Nathan Jones: Great. I'll pass it on and get back in queue. Thank you.

Steve Kaniewski: Thanks, Nathan. Thank you.

Excellent. Thank you.

Thank you. Our next question is from Chris Moore with CJS Securities. Please proceed with your question.

Operator: Thank you. Our next question is from Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore: Hey, good morning. Yeah, maybe just on the utility side, can you maybe just talk a little bit further on the international operating margin weakness and kind of, you know, why you believe it's gonna improve second half of this year and into 2020?

Hey, good morning.

You may be just on the utility side can you maybe just talk a little bit further on the international.

Operating margin weakness and you kind of you know.

Why you believe it's going to improve the second half of this year and into 2020.

Sure, Chris and welcome the international side of the business is kind of a developing piece of our business the win part.

Steve Kaniewski: Sure, Chris, welcome. The international side of the business is kind of a developing piece of our business. The wind part, you know, we had moved previously from ESS over to utility. The wind was anticipated to be weaker this year, quarter-over-quarter and year-over-year. That really played out as kind of as expected. The Convert Italia, the solar tracker part of the business, really what has taken place there is we had some orders that, as we did, the acquisition came over. We didn't really have a chance to optimize the supply chain, like we would have on newer quoted orders as we go forward. That was why we anticipated some drawback there. We also had a couple of project-related costs that were unanticipated in some of our South America projects.

We had moved previously from NSS over to utility.

The wind was anticipated to be weaker this year quarter over quarter and year over year.

And that really played out as as kind of as expected.

The convert Italia, the solar tracker part of the business.

Really what has taken place there as we had some orders that as we did the acquisition came over we didn't really have a chance to optimize the supply chain.

Like we would have on newer quoted orders as we go forward. So that was why we anticipated. Some drawback. There. We also had a couple of project related costs that were unanticipated.

And some of our South America projects and.

Steve Kaniewski: enerally, having to get the supply chain synergies in line has taken a little bit longer than we would have liked. If you look at the wind part of the business, wind, particularly in North Europe, is anticipated to see an increase in demand in 2020 and 2021. The pricing environment, we believe, will improve, one, as a result of that, plus the bankruptcies of the competitors that have taken place there. In Convert, in the solar business, as we gain more orders and geographies, we can get better supply chain optimization.

Just generally are having to get the supply chain synergies in line is taking a little bit longer than we would have liked so.

If you look at the when part of the business wind, particularly in North Europe is anticipated to.

See an increase in demand in 2020 and 2021.

And.

The pricing environment, we believe will improve.

One as a result of that plus the bankruptcies of the competitors that have taken place there.

In convert and the solar business.

As we gain more orders and geography, as we can get better as supply chain optimization, and then as we come into North America.

Steve Kaniewski: As we come into North America, you know, later this week, we really have the ability to source things like steel and do production in our irrigation facilities and do much more of it within our own control. Those are some of the factors that we feel will start to turn this around more in 2020 than through this year, but we should see second half be an improvement over the first half thus far, too.

Later this week, we really have the ability to source things like steel and do a production in our irrigation facilities and do much more of it within our own control. So those are some of the factors that we feel will start to turn this around more in 2020, then for this year, but we should see.

Second half being improvement over the first half.

Thus far too.

Got it very helpful I'll jump back in line.

Chris Moore: Got it. Very helpful. I'll jump back in line.

Thanks, Chris.

Steve Kaniewski: Thanks, Chris.

Thank you. Our next question is from Brian Drab with William Blair. Please proceed with your question.

Operator: Thank you. Our next question is from Brian Drab with William Blair. Please proceed with your question.

Brian Drab: Hey, good morning, and congratulations, Mark.

Hey, good morning, and congratulations Mark.

Thanks, Brian .

Steve Kaniewski: Thanks, Brian.

Brian Drab: Hey, I just wanted to first start on Utility, can you just, you know, help reconcile what, you know, we saw in the quarter with your comments that the lead times are extending and demand is up? You know, the revenue level for Utility in the quarter was the lowest it's been in about 1 year. Is that demand and backlog kind of, you know, did that build in the second half of the quarter? Can you just help reconcile that? Thanks.

Hey.

I just wanted to ask first on utility and can you just.

You know help reconcile what what we saw in the quarter with your comments that the the lead times are extending and demand is up.

The revenue level for utility in the quarter was the lowest it's been about a year.

So is that demand and backlog tenant.

<unk> did that build in the second half of the quarter and can you just help reconcile that thanks.

Steve Kaniewski: Yeah, some of that, Brian, was booked, you know, 2 quarters previously. Some of the mix that came through was very heavy in substation and distribution poles, as opposed to transmission and some larger structures. There was also, you know, at least initially, an expectation, and we had talked about this last year, we thought North America would be down slightly. Some of our capacity that we had adjusted to, we also had pulled down, and now we're having to kind of pull that back up. It's a little bit capacity related and a little bit market related as to why North America was a little bit softer in Q2.

Yes, so some of that Brian was booked two quarters previously some of the mix that came through is very heavy in substation and distribution poles.

As opposed to transmission and some larger structures. There was also.

No.

At least initially an expectation and we had talked about this last year, we thought North America would be down slightly so some of our capacity that we had to adjust it to we also pulled down and now we're having to kind of pull that back up and so it's a little bit capacity related a little bit market related as to why North America.

It was a little bit softer in Q2.

Steve Kaniewski: What we're seeing now, why we're ramping the production hours in the existing facilities, is simply to meet this new market demand, again, coming primarily from the grid hardening efforts in the West and in the Southeast. We've been, like I said, pleasantly surprised as to how robust it's actually been and to the money that's being spent in those areas. As we look into 2020, we expect that to continue, as well as the normal drivers for the business in terms of grid hardening, replacement of lines, and again, that substation part of the business should continue. That's kind of how we feel about North America, and then obviously, my answer to Chris on the international side.

What we're seeing now and why we're ramping the the production hours in the existing facilities is simply to meet this new market demand again coming primarily from the grid hardening efforts in the west and in the southeast.

So we've been like I said pleasantly surprised at how robust it's actually been into the money that's being spent in those areas. So as we look.

Into 2020, we expect that to continue.

As well as the normal drivers for the business in terms of grid hardening replacement of wines and again that sub station part of the business.

Should continue so.

That's kind of how we feel about North America and things and then obviously with my answer to Chris on the international side.

Right. Okay. Thank you and then.

Brian Drab: Right. Okay. Thank you. You talked a little bit about Convert Italia. I'm just wondering if you could, you know, give us a little more detail around how you know, would grade these acquisitions, Convert, Walpar, Derit, Larson is newer. You know, can you maybe just give us some comments on each of those? You know, like Walpar, you expected $0.12 of accretion in the first year, and we're, you know, about a year into it now. Can you maybe grade yourself on or grade each of these acquisitions and just give us an update on how you think they're doing?

You talked a little bit about convert Italia I'm, just wondering if you could give us a little more detail around how you you know would would.

Great. These acquisitions convert raw are different.

Larsen as newer but.

You know can you can you maybe just give us some comments on each of those and like Rob are you expecting 12 cents of accretion in the first year and we're you know we're about a year into it now.

You may be great grade yourself on greet each of these acquisitions and just give us an update on how you think that you're doing.

Sure Calmer Italia is definitely meeting expectations in terms of market growth.

Steve Kaniewski: Sure. You know, Convert Italia is definitely meeting expectations in terms of market growth, the technology of the product, the ability for us to come into North America, and being invited in there, and really just having to build the supply chain synergies. That's as expected. We knew it would take a year. Maybe we're a quarter to a quarter and a half behind in really kind of building some of those synergies. The Larson acquisition has been a very strong acquisition. We're seeing the case actually be stronger because people want to camouflage, and with our existing telecom customers, it's going very, very well.

The technology the product the ability for us to comment in North America.

And being invited in there.

And really just having to build despite seeing synergies that's as expected we knew it would take.

A year, so maybe were a quarter to quarter and a half behind and really kind of building some of those synergies.

The Larson acquisition.

Has been a very strong acquisition, we're seeing.

The case actually be stronger because people want to camouflage and with our existing telecom customers, it's going very very well.

Steve Kaniewski: The Walpar acquisition is behind kind of where we thought it would be, and that's primarily coming from a DOT spend in the Southeast that was a little bit abated during 2019, but we see and already have good backlogs as we look into 2020 with that acquisition. Probably just a little bit of a delay in where we thought it would come in. We talked about the coatings acquisitions. Both United and CSP are doing very well and to our expectations, and frankly, exceeding slightly. You know, the Derit, which was the acquisition in India, we said it was a coatings and both utility kind of acquisition.

The ballpark acquisition is behind kind of where we thought it would be.

And that's primarily coming from the Ti spend in the southeast that was a little bit abated.

During 2019, but we see and already have good backlogs as we look into 2020.

With that acquisition, so probably just.

A little bit of a delay in where we thought it would come in.

We've talked about the coatings acquisitions, both United and CSP are doing very well and to our expectations and frankly exceeding slightly.

And then ER.

You know the female which was the acquisition in India.

And we said it was a coatings and both utility kind of acquisition the coating side has done very very well.

Steve Kaniewski: The coatings side has done very, very well, and the utility side is taking us a little bit longer to get some of the customer approvals, than we'd like, but we've been able to direct the capacity to domestic India or, Middle East customers. That's tracking. Frankly, with the trackers, that will become a very critical solar facility for us as we move forward. That's kind of the run around the different acquisitions.

And the utility side, it's taken us a little bit longer to get some of the customer approvals.

Than we'd like but we've been able to direct the capacity to.

Domestic India or middle East customers, and so that's tracking and frankly with the trackers.

That will become a very critical solar facility for us as we move forward. So that's kind of the.

The run around the different acquisitions, yeah, Yeah, that's really helpful. Okay. Thanks very much.

Brian Drab: Yeah. Yeah, that's really helpful. Okay, thanks very much.

Thanks.

Steve Kaniewski: Thanks.

Thank you. The next question is from Ryan Connors with Boenning and Scattergood. Please proceed with your question.

Operator: Thank you. The next question is from Ryan Connors with Boenning & Scattergood. Please proceed with your question.

Great. Thanks, Good morning, and congratulations Mark on your retirement also congratulations to you and I on your on your recent promotion there.

Ryan Connors: Great. Thanks. Good morning and congratulations, Mark, on your retirement. Also, congratulations to you, Rene, on your recent promotion there. I wanted to talk about these $6 million in nonrecurring costs. Can you just give us a little more detail? I mean, the both are a little bit cryptic in terms of the description, the legal matter, and also this customer accommodation in USS. Can you just kind of give us a little more background on exactly what's happened in each of those cases?

I wanted to talk about these these two these 6 million in.

In nonrecurring costs. If you can you just give us a little more detail I mean, there's both are a little bit cryptic.

In terms of the description the legal matter and also this customer accommodation and U.S. assay can you just kind of give us a little more.

Background on exactly what happened in each of those cases.

Yeah, I'll touch on the one Ryan the customer accommodation.

Steve Kaniewski: Yeah, I'll touch on the one, Ryan. The customer accommodation, if you recall, back in 2015, we had an extremely large customer, where we decided to go into an inspection regime. We at the time, I think, it called out a $15 million number related to that inspection regime. We had gone through. It was a multiyear agreement. We've worked through that, and in order to speed it up and to complete it, we decided to settle some things with them ahead of time, where that program would have gone into next year. On the coating side, that was a litigation matter in Australia that we had that frankly, probably wouldn't have been settled until sometime, maybe Q2 next year.

If you recall back in 2015, we had a.

Extremely large customer, where we decided to go into an inspection regime.

And we at the time I think you called out a 15 million dollar number related to that inspection regime. We had gone through it was a multi year agreement we've worked through that and in order to speed it up and to complete it we decided to settle some things with them ahead of time, where that program would have gone into next year.

On the coating side that was a litigation matter in Australia that that we had that frankly, probably wouldn't have been.

Settled until sometime maybe second quarter next year.

Steve Kaniewski: There was an opportunity to get some certainty around that litigation. Australia can be a very fickle place. We decided that the ability to settle it now gave us a better financial proposition than potentially risking going further into next year.

But there was an opportunity to get some certainty around that litigation.

Australia can be very fickle place and so we decided that the.

The ability to settle it now.

Ah gave us a better financial proposition, then potentially risking going further into next year.

Okay, that's very helpful to get the background there.

Ryan Connors: Okay, that's very helpful to get the background there. My other question was bigger picture, kind of strategic in nature. You know, you talked about adding capacity, and I guess my question is, you walk us through the decision process on, you know, why add capacity here? I mean, why not just sort of auction off the production slots? You know, the company, and I guess the industry has kind of had some, you know, been bitten by late cycle capacity expansion in the past. Just interested, given some of the macro, you know, uncertainty out there, like, why add capacity at this stage rather than just price it?

And my other question was bigger picture kind of strategic in nature.

You know you talked about adding capacity and I guess my question is.

[noise] you walk us through the decision process on why add capacity here I mean, why not just sort of auction off the production slots you know the company and I guess the industry.

He has kind of had some have been bitten by late cycle capacity expansion in the past.

So just interested given some of the macro.

You know uncertainty out there like why add capacity at this stage rather than just price it.

Steve Kaniewski: It's a great question, Ryan. I was a part of bringing the capacity down on the last time related to this. What we're doing really is looking at capacity from our existing facilities perspective. It's not a very capital-intensive kind of capacity add, nor would it be difficult to pull the capacity out based on market conditions. Really looking more and more like our irrigation segment, that as capacity can build up or go down with the market, we're looking for that kind of flex capacity there. We're not adding any bricks and mortar, and it's really just looking at, you know, if we have Jasper, we have Tulsa, we have Monterrey, Valley, and Columbus, you know, that we can do more within those existing facilities as it is.

It's a great question, Ryan and I was a part of bringing the capacity down when the last time.

Related to this what we're doing really is looking at capacity from our existing facilities perspective, so it's not a very capital intensive.

Kind of capacity add nor would it be difficult to pull the capacity out based on market conditions.

And so I'm really looking more and more like our irrigation segment that as capacity can build up or go down with the market. We're looking for that kind of flex capacity.

There, so we're not adding any bricks and mortar and it's really just looking at you know if we have Jasper we have Tulsa, we have Monterrey.

Valley and Columbus, you know that we can do more within those existing facilities. As it is there's also an element of this that simply just automation.

Steve Kaniewski: There's also an element of this that's simply just automation, and the automation front makes sense for us long-term anyway, really just kind of pulling it forward. As we look at the long-term capacity planning, you know, we're definitely very aware of the market and how the market can be fickle and change pretty quick. We're gonna be very cautious as we approach any kind of long-term capacity builds. Right now, It's very important for us to meet this from a market perspective because of the alliances that we have with our customers. We have to come through for our customers in that regard.

And the automation front makes sense for us long term anyway.

Really just kind of pulling it forward.

As we look at the long term capacity planning, we're definitely very aware of the market and how the market can be fickle unchanged pretty quick so we're going to be very cautious as we approach any kind of long term capacity builds right now.

This is just to.

That's very important for us.

To meet this from a market perspective, because of the alliances that we have with our customers and so we have to come through for our customers in that regard.

Got it Okay makes a lot more sense in that context. Thanks for your time.

Ryan Connors: Got it. Okay, it makes a lot more sense in that context. Thanks for your time.

Steve Kaniewski: Thanks, Ryan.

Thanks Ryan.

Thank you. Our next question comes from same Karimi with D.A. Davidson. Please proceed with your question.

Operator: Thank you. Our next question comes from Zane Karimi with D.A. Davidson. Please proceed with your question.

Michael Michaelevich: Hey, good morning, guys. First question, kind of on that 20% growth highlighted in communication. How much of it was driven by the acquisitions, and how should we think about organic growth there in the near term?

Zane Karimi: Hey, good morning, guys. First question, kind of on that 20% growth highlighted in communication. How much of it was driven by the acquisitions, and how should we think about organic growth there in the near term?

Hey, good morning, guys.

First question kind of on that 20% growth highlighted in communication.

How much of it was driven by the acquisitions and how should we think about organic growth there in the near term.

Yes. Good morning, this is mark that the acquisition.

Mark Jaksich: Yes, good morning. This is Mark. The acquisition of Connect-It Wireless is a fairly small business that didn't have much impact. The lion's share of that growth really came out of North America, both in components and in structures. The international side of that is mostly Asia Pacific, and that was fairly muted and continues to be so, but the real engine there has been North America.

Connected wireless is a fairly small business. It didnt have much impact the lion's share of that growth really came out of North America, both in components and in structures.

The international side of that is mostly Asia Pacific amount was fairly muted.

It continues to be so, but the real engine there has been North America.

Okay, Great and then switching a little bit to irrigation more so when should the big lift in orders in Brazil begins to materialize into sales for irrigation, how should we be thinking about that as well.

Michael Michaelevich: Okay, great. Switching a little bit to irrigation more so, when should the big lift in orders in Brazil begin to materialize into sales for irrigation? How should we be thinking about that as well?

Zane Karimi: Okay, great. Switching a little bit to irrigation more so, when should the big lift in orders in Brazil begin to materialize into sales for irrigation? How should we be thinking about that as well?

Yeah, I would say that this is mark again that'll take place most likely throughout the next few quarters a lot of these are dependent on getting all the financing in place.

Mark Jaksich: Yeah, I would say that, this is Mark again. That'll take place most likely throughout the next few quarters. A lot of these are dependent on getting all the financing in place, to some degree, it's dependent on how quickly the financial institutions and the government moves as far as getting the approvals done. Usually, they'll cycle through within probably 2 to 3 quarters typically. We'd certainly expect to see that, through the balance of this year and maybe some into next year as well.

And so to some degree you're a little bit it's dependent on how quickly the financial institutions and the government moves as far as getting the approvals done, but usually those cycle through within probably two to three quarters typically so we'd certainly expect to see that.

Through the balance of this year and maybe some into next year as well.

Great. Thank you for those answers.

Michael Michaelevich: Great. Thank you for those answers.

Zane Karimi: Great. Thank you for those answers.

And.

Thank you as a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.

Operator: Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. We do have a follow-up question from the line of Nathan Jones with Stifel. Please proceed with your question.

We do have a follow up question from the line of Nathan Jones with Stifel. Please proceed with your question.

Steve Kaniewski: Hey, guys. I just wanted to follow-.

Nathan Jones: Hey, guys. I just wanted to follow-.

Hey, guys.

Just wanted to follow up with a couple of questions on the pricing dynamics in the market here. I mean, you guys are talking about very robust demand in E.S. as lead times stretching out very robust demand in U.S. as lead times stretching out adding capacity to meet that demand.

Nathan Jones: Follow up with a couple questions on the pricing dynamics in the market here. I mean, you guys are talking about very robust demand in ESS, lead time stretching out, very robust demand in USS, lead time stretching out, adding capacity to meet that demand. Can you talk a little bit about the pricing dynamics that that's creating for you guys? Your ability to, you know, cover more than raw material inflation or, you know, as steel is deflating here, your ability to hold on to those pricing levels, your willingness to use price to gain share or not. Just some color there on those kinds of dynamics.

Can you talk a little bit about the pricing dynamics that that's creating for you guys your ability to.

Yeah cover more than raw material inflation or you know I still deflating here your ability to hold on to those pricing levels.

Your willingness to use price to gain share or not just just some color there on those kinds of dynamics.

Yeah, I'll touch on it a little differently between utility and he assess.

Steve Kaniewski: Yeah. I'll touch on it a little differently between Utility and ESS. You know, in the Utility market, our alliance customers, you know, those are pricing arrangements. They're a big part of our volume, and therefore, you know, they benefit in these kinds of time periods, from having locked in with us earlier from a capacity perspective. However, there's still a bid market out there, and we have to fill that bid market, and we've been, I would say, ultra-selective in the types of orders that we're taking from a bid perspective, and we've really been able to push up pricing in an extremely meaningful way, like, you know, 400 or 500 basis points, of just pushing that up, and we continue to push it up as capacity becomes more constrained.

Utility market our alliance customers you know those are pricing arrangements. They are a big part of our volume.

And therefore, they they benefit in these kinds of time periods from having locked in with US earlier from a capacity perspective. However, there is still a bit market out there and we have to fill that bid market and we've been I would say ultra selective in the types of orders that we're taking from a bid perspective, and we've really been able to push up pricing.

In an extremely meaningful way like you know four or 500 basis points of just pushing that up and we continue to push it up as capacity becomes more constrained.

Steve Kaniewski: The adding of capacity really is to help alleviate, as I mentioned on the earlier question, our alliance customers and, you know, satisfying their needs. In ESS, we're really seeing a nice environment overall develop in terms of declining steel prices, but robust demand. Not only are we able to hold the line on pricing, we're still pushing up prices. We're still looking at areas where we can do that based on capacity constraints, based on just market conditions, supply, demand. You know, over the last year, we've done four price increases in the ESS segment, the last two of which are nothing to do with material inflation or deflation, right?

The adding of capacity really to help alleviate as I mentioned on the earlier question.

Our alliance customers and you know satisfying their needs.

Ah, Yes S. We're really seeing a nice environment overall developed in terms of declining steel prices, but robust demand. So not only are we able to hold the line on pricing, we're still pushing up prices.

And so we're still looking at areas, where we can do that based on capacity constraints based on just market conditions supply demand and.

Over the last year, we've done four price increases.

And he has that segment.

The last two of which are nothing to do with material inflation or deflation right. So it's it's simply the ability to pass along additional price, which is why we feel confident with the backlog that we have in the second half of the year that we'll be able to perform and that should be a good tailwind going into 2020 as well.

Steve Kaniewski: It's simply the ability to pass along additional price, which is why we feel confident with the backlogs that we have in the second half of the year that we'll be able to perform. That should be a good tailwind going into 2020 as well. In coatings, even though zinc has abated, again, we've maintained a pricing discipline there, based on volumes and really have been able to hold price extremely well in the coatings segment. Even in irrigation, we did a small price increase early in Q1 that we've been able to get to stick and then maintain our pricing discipline across the rest of the markets. You know, pricing is a big thing for us here and something we talk about very regularly as a management group.

In coatings or even those inc. has abated.

Again, we maintained a pricing discipline there.

Based on volumes and really have been able to hold price extremely well in the coating segment.

And even in irrigation.

We did a small price increase early in the first quarter.

That we've been able to get to stick and then maintain our pricing discipline across the rest of the market.

So.

Yes pricing is a is a big thing for for US here and something we talk about very regularly as management group.

Steve Kaniewski: You know, we're encouraged by the overall pricing environment and the capacity. You know, taking out the capacity that we did in ESS also has really allowed us to not have to just try and fill a factory.

And so you know we're encouraged by the overall pricing environment.

And the capacity you know taking out the capacity that we didn't need Msas also has really allowed us.

And not have to just try and fill the factory.

Maybe one maybe a bit more for mark on that front.

Nathan Jones: Maybe a bit more for Mark on that front. You've talked about raising prices and declining steel and zinc prices. Maybe, Mark, you can talk a little bit about how that flows through the P&L. you know, what kind of lower inventory costs you're going to see flowing out in the back half relative to the first half, and also the pricing levels, second half versus first half?

You talked about rising prices and declining declining steel and zinc prices, maybe mark you can talk a little bit about how that flows through the paying now you know what kind of lower inventory cost you're going to see flowing out in the back half relative to the top and also the pricing levels second half versus first off.

Mark Jaksich: Right. Let me address the cost side of the equation first. You know, raw material prices have, as you stated, have been moderating. We've seen more of that decrease during the Q2. If you think about it in terms of inventory turns, on a FIFO basis, you would expect that to start to manifest itself in the P&Ls, starting in the Q3 and then more so even in the Q4. There's always about a 3 or 4-month time lag, just in general terms. The pricing depends somewhat on the backlogs as well. I think usually it's about the same time period, particularly, I would say, in utility, a little bit longer because the backlogs are longer. With ESS as well, it'd be a few months and so forth.

Right.

Let me, let me address the the cost side of the equation first.

Your raw material prices have as you stated have been moderating we've seen more of that decrease during the second quarter. If you think about it in terms of inventory turns on a FIFO basis, you would expect that to start to manifest itself in the females.

Starting in the third quarter, and then more so even than the fourth quarter and then so there was always about a three or four month time lag just in general terms.

And the pricing depends somewhat on the backlogs as well so I think usually its about the same time period.

Particularly I would say in utility a little bit longer because the backlogs are longer and with NSS as well would be a few months and so forth irrigation on the other hand pretty short cycle business, you'll see pricing actions show up more quickly in the PML just because you don't deal with large backlogs typically.

Mark Jaksich: Irrigation, on the other hand, pretty short cycle business. You'll see pricing actions, show up more quickly in the P&L just because you don't deal with large backlogs typically.

But also in our LIFO, our LIFO will probably accelerate as we go into the third and fourth quarter as well that's correct I think the bottom line here is that you guys are expecting to have better pricing across the majority of the business and lower input costs coming out through inventory across the majority of the businesses in the second half of the year.

Steve Kaniewski: Also our LIFO. Our LIFO will probably accelerate as we go into Q3 and Q4 as well.

Mark Jaksich: That's correct.

Nathan Jones: I think the bottom line here is that you guys are expecting to have better pricing across the majority of the business and lower input costs coming out through inventory across the majority of the businesses in the second half of the year.

That's interesting.

Steve Kaniewski: That's a true statement.

Excellent thanks, very much for the help.

Nathan Jones: Excellent. Thanks very much for the help.

Operator: Thank you, ladies and gentlemen. We have reached the end of our question and answer session. I'd like to pass the floor back over to Ms. Campbell for any additional concluding comments.

The better question and answer session. So I'd like to pass before back over to MS. Campbell for any additional concluding comments.

Thanks, Jessie and thanks to everyone for joining us today as mentioned today's call will be available for playback on our website.

Renee Campbell: Thanks, Jesse, thanks to everyone for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter.

Or by phone for the next seven days look forward to speaking with you again next quarter.

Included in this discussion are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Operator: Included in this discussion are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors believed to be appropriate under the circumstances. As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements.

These forward looking statements are based on assumptions that management has made in light of experience and the industries in which Belmont operates as well as management's perceptions of historical trends current conditions expected future developments and other factors believed to be appropriate under the circumstances.

As you listen to and consider these comments you should understand that these statements are not guarantees of performance or results.

They involve risks uncertainties, some of which are beyond valmonts control and assumptions.

Although management believes that these forward looking statements are based on reasonable assumptions you should be aware that many factors could affect they'll month actual financial results and cause them to differ materially from those anticipated in the forward looking statements.

Operator: These factors include, among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statement included in this discussion is made as of the date of this discussion, and the company does not undertake to update any forward-looking statement. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

These factors include among other things risk factors describes from time to time investments reports to the Securities and Exchange Commission as well as future economic and market circumstances industry conditions.

Company performance and financial results operating efficiencies availability and price of raw material availability and market acceptance of new products.

Product pricing domestic and international competitive environments and actions and policy changes of domestic.

And foreign governments the company cautions that any forward looking statement included in this discussion is made as of the date of this discussion and the company does not undertake to update any forward looking statements.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Q2 2019 Earnings Call

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