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Hello and welcome to the Lindsay Corporation Fiscal First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to hand the call to Randy Wood, President and CEO. Please go ahead.

Thank you and good morning, everyone. Welcome to our fiscal 2024 first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'd like to start by once again recognizing our dealers, partners and employees around the world for their contributions. Their focus on our customers and execution of our business strategies continues to generate positive results for our shareholders while supporting our purpose of conserving natural resources, expanding the world's potential and improving quality of life. I continue to be very appreciative of the job they're doing. Our fiscal first quarter was highlighted by growth in our North American irrigation markets and improved operating income and margin capture infrastructure segment, driven primarily by growth in Road

Thank you, Randy, and good morning, everyone. Consolidated revenues for the first quarter of fiscal 2024 were $161.4 million, a decrease of 8% compared to $176.2 million in the first quarter last year. Net earnings for the quarter were $15 million or $1.36 per diluted share compared to net earnings of $18.2 million or $1.65 per diluted share in the first quarter last year. Turning to our segment results. Irrigation segment revenues for the quarter were $140.2 million, a decrease of 8% compared to $152.1 million in the first quarter last year. North America irrigation revenues increased 7% to $89.4 million compared to $83.9 million in the first quarter last year. The increase in North America irrigation revenues resulted primarily from higher unit sales volume that was partially offset by the impact of a less favourable mix of shorter machines compared to the prior year first quarter. Average selling prices remained stable and were comparable with the first quarter last year. In international irrigation markets, revenues of $50.8 million decreased 25% compared to record revenues of $68.1 million in the first quarter last year. The decrease resulted primarily from lower sales in Brazil and Argentina compared to record sales in those markets in the first quarter last year. Changes in the timing of funding under the financing program in Brazil that Randy mentioned and the government transition in Argentina following the recent presidential election both contributed to lower sales in the quarter. Total irrigation segment operating income for the quarter was $25.3 million, a decrease of 12% compared to the first quarter last year. And operating margin was 18.1% of sales compared to 18.8% of sales in the first quarter last year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the resulting impact from deleverage of fixed operating expenses. Gross margin remained consistent with the first quarter last year. Infrastructure segment revenues for the quarter were $21.2 million, a decrease of 12% compared to $24.1 million in the first quarter last year. The decrease resulted from lower Road

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Brian Drab with William Blair. Please go ahead.

Hey, good morning. This is Tyler Hutin on for Brian Drab. Thank you for taking my questions.

Good morning.

Good morning, Tyler.

Yeah, I just want to start, I appreciate the color on the South America irrigation situation. Has there been any other impact on international irrigation shipments due to geopolitical tensions or other factors?

If we look at a year-over-year basis, Tyler, I wouldn't say there's anything that's moved the needle significantly one way or the other. If we focus on the quarter that the big shift was really in South America for the reasons that we've cited.

Got it. And then on the previous call, you mentioned that some irrigation projects could be dilutive and infrastructure projects could be accretive. Can you just give some details on how those scenarios typically could play out in the future?

Yeah, I mean I think on the infrastructure side, I'll start there. The Road

Yeah, thank you for the color on that. And just a final question. Just when it comes to data analytics in the field, I saw some articles about farmers maybe having like too much data or information overload. Just how do you and the dealers approach farmers like that and convince some that these solutions are optimal for their operations? And that's all I have today. Thank you.

Sure. And I'll take that one, Tyler. I would agree that there's a lot of data available to our customers and being able to convert that data into insights that they can use to manage their operation is really important. And we really focus on our core, and our core is irrigation and water management. So our tools are very deliberate, very focused and purpose-built to help them manage water and energy to deliver water and the most efficient means possible. So we're not going outside of our core to try and bring more to our customers. We're really focusing on that irrigation and water management core. And the feedback we're getting from customers is that's exactly what they need. When we look at the retention of our digital tools, north of 97%, the customers say, once they start with our platform, they couldn't farm, they couldn't irrigate without it. So I think the direction that our teams are heading are the right direction, and I think that's confirmed with customer feedback and growth we continue to see in those technology platforms.

Sounds good. Thank you and I'll pass it along.

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

Good morning, everyone.

Good morning, Nathan.

Good morning, Nathan.

And Happy New Year. I want to go to Brazil, Argentina. You've had some challenges in, I mean, particularly in Brazil. Government changeover, there was FINAME financing wasn't available for a while. Now they're shifting around the way that's happened. It seems like Brazil has been down pretty significantly, at least three of the last four quarters. So you should have some pretty easy comps coming up. Does that lead to the expectation that we should see pretty significant year-over-year growth for the next few quarters out of Brazil especially? Or is there enough uncertainty in the way that FINAME financing is going to come out for you to not be confident enough to say that?

Yes. I think obviously the last -- you said three out of four quarters, we did have a, yes, strong fourth quarter in Brazil once that FINAME financing became available for the first quarter. But financing continues to kind of keep a lid on the demand there in some respects. There's a lot of dependence on that government program because of the difference in the rates compared to the commercial rates. But having said that, what we've seen the last four or five months is the central bank rates in Brazil have come down about 200 basis points. They're expected to come down another 50 basis points in January. So we're seeing more availability of commercial financing through commercial banks outside of FINAME, which I think is another positive. But the demand environment in Brazil is still strong. I would say it's just the financing plays a key in some of the timing, and we're seeing that in the first quarter this year.

Obviously, some issues in Argentina. What's the relative size for you guys between Brazil and Argentina? Is Brazil significantly bigger?

We haven't broken that out specifically, Nathan, but your instinct is correct. Brazil would be significantly more impactful to us than Argentina in terms of market size.

Got it. And then I just wanted to go back to the domestic business. I thought that growth year-over-year in the first quarter was pretty encouraging. Crop prices have been on the decline through 2023, which all else equal, would suggest that farm income will be lower in '24 than it was in '23. There's obviously the most tested with that with crop inputs and financing costs and all those kinds of things. Is it reasonable to think that you know farm income is down in '24 and that should probably lead to domestic irrigation down in 2024? Or is that no way you're thinking about it at this point?

I think at a macro level, obviously, I think your logic walks based on history, Nathan. I think the anomaly this coming year in 2024, if you think back to where we were Q2, Q3 of last year, we talked a lot about customers taking that wait-and-see approach that they were waiting for interest rates to come down, waiting for inflation to stabilize, waiting for pivot prices to come down. Right now, we see a lot more stability. So just the fact that we think we'll -- we won't see that -- those delayed purchase decisions. Just a more normalized seasonal order pattern next year will offset some of that market softness and maybe some of those end-of-year machines and first quarter machines that we saw this year we're going to see that more naturally in the second and third quarter next year. But I think it will be difficult to predict some significant upside in the market just because those fundamentals related to farm income and crop prices and their impact on customer sentiment. It'd be tough to see line of sight to significant growth. But I think, again, with the comps that we have, particularly year-over-year for Q2 and Q3, we don't see the market falling apart either. And farmers are profitable. They invest.

Yeah, thanks. I'll pass it on.

Thank you. The next question comes from Brian Wright with ROTH MKM. Please go ahead.

Thanks. Good morning and thanks for the question. Just wanted one more on the Brazil situation. Given the dryness in Mato Grosso and hearing that it could be a game still a game time decision come February and March for the Safrinha season as far as Plan A sectors. Is that like should we be thinking about that as a positive backdrop as far as potential and why your commentary on the strong kind of quoting levels that you're seeing?

I think the weather there and that's going to be obviously the biggest market for that Safrinha second season crop. And if there is some risk to germinating a crop, maturing a crop, irrigation obviously is going to offset some of that risk. So we would view that as a potential tailwind to the continued market opportunity in Brazil. But as Brian mentioned earlier, it's going to be about access to capital. And do they -- have they sold the first crop given them the cash flow they need to go into the second and potentially the third crops in some parts of the country. So there's certainly some good macro tailwind there, but they still have to get access to funding. And again the FINAME program is going to be supportive. We're seeing the central bank rate continue to drop, and that's going to be supportive of financing. So we do see that as some potential upside.

Okay. Thank you. And then I guess a follow-up there has been talk in Brazil about putting together an incentive program to -- for the conversion of pastureland to cropland. Just is there kind of any headwind or headway that's been made on a regulatory or legislative front on that in the past quarter or two?

In our view not a lot that would be actionable in the near term.

Okay. Okay. Great. And then just a real quick balance sheet question. Marketable securities were up pretty nicely sequentially you know up to over $10 million in the quarter. Just what kind of securities are you buying there?

These would be high-grade commercial paper and other things where, and generally, it's going to be beyond 90 days, but six month maturities or so. But an opportunity to get some additional rates interest income. So it's just a little bit of an allocation of cash from compared to where we were at the end of the calendar year.

Okay. Great. And then I guess one last one, if I could. Inventory picked up a bit sequentially in the quarter. Just thoughts on that?

I would say it's mostly going to be a seasonal kind of a thing as we get into the main selling season in North America. That's probably the biggest driver of the increase. And if you go back to 2023, over the course of the year, we reduced overall inventories about $40 million. So a slight uptick in the first quarter is really more of the seasonal nature of the business.

Okay. Great. That bodes well for North America in next quarter. So that's great. That's all I've got. Thank you so much for the questions.

Thanks, Brian.

Thank you. [Operator Instructions] The next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, Randy and Brian.

Good morning, Jon.

Good morning, Jon.

On the domestic international front, domestic irrigation front, how does the demand profile vary per region, Midwest versus maybe Southeast, Northwest. Are you seeing any significant difference in sort of the demand picture by geography?

Yeah, Jon, this is Brian. What we saw in our first quarter was really demand increase in almost all of our regions. We're seeing in the Southeast and Mid kind of that -- Great Lakes region, which -- Great Lakes region typically has been more of a supplemental irrigation market, but we've seen nice growth there. We've seen it in the corn belt in the Midwest. So I'd say first quarter, it's really been pretty broad across all the regions.

Is there something specific in the Great Lakes area that may be driving a different profile there from the past?

There's probably a couple of things, Jon. It's a pretty big seed corn area. And we see seed corn acres growing there, and it's mandatory to irrigate that crop. And really just shifting climate patterns, and we've talked a lot here about what customers have to invest in a crop to put it in the ground. That's really some cost if they don't get water. So I think just the risk management and the yield enhancement benefit of irrigation it's driving a lot of investment in that part of the world.

Okay. Thanks. Brian, it looks like maybe you're selling prices are sort of flattish year-over-year, and I suspect it might continue to be that way. But we're all seeing higher costs, maybe not as significant as we've seen in most -- in the past couple of years. But when you look at the cost pressures on your business, how is that -- do you think you'll be able to offset those cost pressures with productivity? Or is there going to be a little bit of impact on your margins because of some rising costs?

Yes. I think we have seen steel from November to December, the CRU for hot-rolled coil has gone up 25%. I mean, it had softened a fair amount going back into 2023. So structural steel continues to maintain at a higher level. But I'd say where we're positioned now. I mean I think steel is kind of the biggest variable. A lot of the other inflation has kind of abated a bit. But we expect I think if you go back to probably last quarter, I mean, maybe the view was we would have to give price back if raw materials softened, but we're not seeing that situation today. I think where raw materials appear to be headed is -- would be supportive of maintaining price.

Okay. All right. Thank you very much.

Thank you. This concludes our question-and-answer session. I would now like to turn the call back to Randy Wood for closing remarks.

Well, thank you all for joining us on today's call. While current commodity prices and US net farm income are down from recent highs, growers remain profitable. And while they're investing cautiously, we feel this will continue to support stable demand for irrigation equipment in North America. The international project pipeline for irrigation investments remains robust and supportive to our long-term growth trajectory. These projects are driven by food security and stabilizing global grain supplies, and we're uniquely positioned to identify and win these project opportunities as we execute our strategy. We expect to continue the strong momentum we've seen from Road