Lindsay Corp: Form 10-Q for the period ended Nov 30, 2024

Concerning Forward‑Looking Statements

This Quarterly Report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical are forward-looking and reflect information concerning possible or assumed future results of operations and planned financing of the Company. In addition, forward-looking statements may be made orally or in press releases, conferences, reports, on the Company's web site, or otherwise, in the future by or on behalf of the Company. When used by or on behalf of the Company, the words “expect,” “anticipate,” “estimate,” “believe,” “intend,” “will,” “plan,” “predict,” “project,” “outlook,” “could,” “may,” “should” or similar expressions generally identify forward-looking statements. The entire section entitled “Executive Overview and Outlook” should be considered forward-looking statements. For these statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements involve a number of risks and uncertainties, including but not limited to those discussed in the “Risk Factors” section in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2024. Readers should not place undue reliance on any forward-looking statement and should recognize that the statements are predictions of future results or conditions, which may not occur as anticipated. Actual results or conditions could differ materially from those anticipated in the forward-looking statements and from historical results, due to the risks and uncertainties described herein and in the Company’s other public filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended August 31, 2024, as well as other risks and uncertainties not now anticipated. The risks and uncertainties described herein and in the Company’s other public filings are not exclusive and further information concerning the Company and its businesses, including factors that potentially could materially affect the Company's financial results, may emerge from time to time. Except as required by law, the Company assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements.

Accounting Policies

In preparing the Company’s condensed consolidated financial statements in conformity with U.S. GAAP, management must make a variety of decisions which impact the reported amounts and the related disclosures. These decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In making these decisions, management applies its judgment based on its understanding and analysis of the relevant circumstances and the Company’s historical experience.

The Company’s accounting policies that are most important to the presentation of its results of operations and financial condition, and which require the greatest use of judgments and estimates by management, are designated as its critical accounting policies. See discussion of the Company’s critical accounting policies under Item 7 in the Company’s Annual Report on Form 10-K for the Company’s fiscal year ended August 31, 2024. Management periodically re-evaluates and adjusts its critical accounting policies as circumstances change. There were no significant changes in the Company’s critical accounting policies during the three months ended November 30, 2024.

Recent Accounting Guidance

See Note 1 – Basis of Presentation and the disclosure therein of recently adopted accounting guidance to the condensed consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Executive Overview and Outlook

Operating revenues for the three months ended November 30, 2024 were $166.3 million, an increase of 3 percent compared to $161.4 million for the three months ended November 30, 2023. Irrigation segment revenues increased 5 percent to $147.1 million and infrastructure segment revenues decreased 9 percent to $19.2 million. Net earnings for the three months ended November 30, 2024 were $17.2 million, or $1.57 per diluted share, compared to net earnings of $15.0 million, or $1.36 per diluted share, for the three months ended November 30, 2023. While operating income was similar to the prior year, net earnings were positively impacted by higher other income, driven primarily by an increase in interest income and favorable foreign currency translation results, and by a lower effective income tax rate.

The primary drivers for the Company’s irrigation segment are the need for irrigated agricultural crop production, which is tied to population growth and the attendant need for expanded food production, and the need to use water resources efficiently. These drivers are affected by a number of factors, including the following:

• Agricultural commodity prices – As of November 2024, U.S. corn prices have decreased approximately 8 percent and U.S. soybean prices have decreased approximately 27 percent from November 2023. The reduction in commodity prices is due primarily to higher production levels in calendar 2024 that are resulting in increased supply and higher commodity inventory levels. Agriculture commodity prices continue to fluctuate based on supply factors such as global production and inventory levels and demand factors such as food and feed consumption, biofuel production and the level of China's demand for agricultural imports.
• Net farm income – As of December 2024, the U.S. Department of Agriculture (the “USDA”) estimated 2024 U.S. net farm income to be $140.7 billion, a decrease of 4 percent from 2023 U.S. net farm income of $146.7 billion. This projected decrease is resulting primarily from a reduction in government support payments and cash receipts for crops that is being partially offset by lower input costs.
• Weather conditions – Demand for irrigation equipment is often positively affected by storm damage and prolonged periods of drought conditions as producers look for ways to reduce the risk of low crop production and crop failures. Conversely, demand for irrigation equipment can be negatively affected during periods of more predictable or abundant natural precipitation.
• Governmental policies – A number of governmental laws and regulations can affect the Company’s business, including:
• The Agriculture Improvement Act of 2018 (the “Farm Bill”) was signed into law in December 2018 and provides a degree of certainty to growers, including funding for the Environmental Quality Incentives Program, which provides financial assistance to farmers to implement conservation practices, and is frequently used to assist in the purchase of center pivot irrigation systems. In November 2023, Congress voted to extend the Farm Bill through September 30, 2024, at which date it expired without new legislation or another extension.
• Changes to U.S. income tax laws enacted in December 2017 increased the benefit of certain tax incentives, such as the Section 179 income tax deduction and Section 168 bonus depreciation, which are intended to encourage equipment purchases by allowing 100 percent of the cost of equipment to be treated as an expense in the year of purchase rather than amortized over its useful life. This benefit is being phased out by 20 percent per year over a five-year period, beginning in 2023. For calendar 2024, the allowable deduction is 60 percent of the cost of equipment and in calendar 2025 the allowable deduction drops to 40 percent.
• Biofuel production continues to be a major demand driver for irrigated corn, sugar cane and soybeans as these crops are used in high volumes to produce ethanol and biodiesel. On June 21, 2023, the U.S. Environmental Protection Agency (“EPA”) announced a final rule setting biofuel volume requirements for the Renewable Fuels Standard (RFS) program for 2023, 2024, and 2025. The final volume requirements reflect an increase in total gallons of renewable fuel of approximately 3 to 4 percent in each successive year.
• Many international markets are affected by government policies such as subsidies and other agriculturally related incentives. While these policies can have a significant effect on individual markets, they typically do not have a material effect on the consolidated results of the Company.
• Currency – The value of the U.S. dollar fluctuates in relation to the value of currencies in a number of countries to which the Company exports products and in which the Company maintains local operations. The strengthening of the dollar increases the cost in the local currency of the products exported from the U.S. into these countries and, therefore, could negatively affect the Company’s international sales and margins. In addition, the U.S. dollar value of sales made in any affected foreign currencies will decline as the value of the dollar rises in relation to these other currencies.

The forecasted decline in estimated 2024 net farm income led to tempered demand for irrigation equipment which is expected to continue until the outlook for net farm income improves. The Company has been able to maintain its pricing for irrigation equipment for the most part, while inflationary pressure on steel and other raw material costs, as well as freight and logistics costs, have moderated.

The most significant opportunities for growth in irrigation sales over the next several years continue to be in international markets where irrigation use is less developed and demand is driven not only by commodity prices and net farm income, but also by food security, water scarcity and population growth. While international irrigation markets remain active with opportunities for further development and expansion, regional political and economic factors, including armed conflict, currency conditions and other factors can create a challenging environment. Additionally, international results are influenced by large project sales which tend to fluctuate and can be difficult to forecast accurately. In the fourth quarter of fiscal 2024, the Company began shipment under a multi-year supply agreement to provide irrigation systems and remote management and scheduling technology for a large project in the Middle East and North Africa (MENA) region. The project is valued at over $100 million in revenue, with equipment deliveries expected to continue throughout fiscal 2025.

The infrastructure business continues to be driven by the Company's transportation safety products, the demand for which largely depends on government spending for road construction and improvements. The enactment of the Infrastructure Investment and Jobs Act ("IIJA") in November 2021 introduced $110 billion in incremental federal funding for roads, bridges, and other transportation projects, which the Company anticipates may support higher demand for its transportation safety products as states utilize these funds in construction projects. The federal programs under IIJA run through September 2026 with funding anticipated to extend up to two years beyond that date.

The backlog of unshipped orders at November 30, 2024 was $168.2 million compared with $86.8 million at November 30, 2023. Included in these backlogs are amounts of $17.4 million and $2.8 million, respectively, for orders that are not expected to be fulfilled within the subsequent 12 months. The backlog in both segments was higher compared to the prior year, with the increase in irrigation backlog resulting from the addition of the large project in the MENA region. The Company’s backlog can fluctuate from period to period due to the seasonality, cyclicality, timing and execution of contracts. Backlog typically represents long-term projects as well as short lead-time orders, and therefore is generally not a good indication of the next fiscal quarter’s revenues.

Results of Operations

For the Three Months ended November 30, 2024 compared to the Three Months ended November 30, 2023

The following section presents an analysis of the Company’s operating results displayed in the condensed consolidated statements of earnings for the three months ended November 30, 2024 and 2023. It should be read together with the industry segment information in Note 13 to the condensed consolidated financial statements:

($ in thousands)

(1) Includes $8.0 million and $7.9 million of corporate operating expenses for the three months ended November 30, 2024 and 2023, respectively.

Revenues

Operating revenues for the three months ended November 30, 2024 increased 3 percent to $166.3 million from $161.4 million for the three months ended November 30, 2023, as irrigation revenues increased $6.9 million and infrastructure revenues decreased $2.0 million. The irrigation segment provided 88 percent of the Company’s revenue during the three months ended November 30, 2024 as compared to 87 percent for the three months ended November 30, 2023.

North America irrigation revenues for the three months ended November 30, 2024 of $77.7 million decreased $11.7 million, or 13 percent, from $89.4 million for the three months ended November 30, 2023. The decrease resulted primarily from lower unit sales volume, as well as a less favorable mix of shorter machines, and slightly lower average selling prices compared to the prior year. An anticipated reduction in net farm income for calendar 2024 has resulted in lower demand for irrigation equipment.

International irrigation revenues for the three months ended November 30, 2024 of $69.4 million increased $18.6 million, or 37 percent, from $50.8 million for the three months ended November 30, 2023. The increase resulted primarily from revenues related to shipments for a large project in the MENA region, along with higher sales in Europe and other parts of Latin America compared to the prior year. This increase was partially offset by lower sales in Brazil, where market demand remains lower than the prior year due to lower local commodity prices that have had a negative impact on farmer profitability and liquidity. The current year also includes an unfavorable impact of foreign currency translation of $2.1 million compared to the prior year.

Infrastructure segment revenues for the three months ended November 30, 2024 of $19.2 million decreased $2.0 million, or 9 percent, from $21.2 million for the three months ended November 30, 2023. The decrease was primarily attributable to a difference in the timing of Road Zipper System lease revenues and lower sales of road safety products compared to the prior year.

Gross Profit

Gross profit for the three months ended November 30, 2024 of $50.0 million was comparable to $49.9 million for the three months ended November 30, 2023. Gross margin was 30.0 percent of sales for the three months ended November 30, 2024 compared with 30.9 percent of sales for the three months ended November 30, 2023. Lower irrigation gross margin resulted from a higher proportion of international irrigation project revenue in the current year that was dilutive to gross margin. This impact was partially offset by higher gross margin in infrastructure resulting from improved manufacturing efficiency and lower operating expenses.

Operating Expenses

Operating expenses of $29.1 million for the three months ended November 30, 2024 increased $0.3 million, or 1 percent, compared with $28.8 million for the three months ended November 30, 2023. Higher administrative and selling expenses were partially offset by lower engineering and research expenses.

Other Income (Expense), net

The Company recorded other income of $1.2 million for the three months ended November 30, 2024 compared to other expense of $0.1 million for the three months ended November 30, 2023. The change resulted primarily from higher foreign currency transaction gains of approximately $0.7 million compared to the prior year. The current year was also favorably impacted by higher interest income and lower interest expense totaling $0.3 million compared to the prior year.

Income Taxes

The Company recorded income tax expense of $4.9 million and $6.0 million for the three months ended November 30, 2024 and 2023, respectively. The effective income tax rate was 22.1 percent and 28.5 percent for the three months ended November 30, 2024 and 2023, respectively. The lower effective income tax rate resulted primarily from an increased proportion of earnings in lower rate foreign jurisdictions compared to the prior year. The impact of discrete items was minimal in both periods.

Liquidity and Capital Resources

The Company's cash and cash equivalents totaled $194.1 million at November 30, 2024 compared with $190.9 million at August 31, 2024, and cash, cash equivalents, and marketable securities totaled $175.7 million at November 30, 2023. The increase resulted from the excess of cash provided by operating activities over the cash used in investing and financing activities. The Company requires cash for financing its receivables and inventories, paying operating expenses and capital expenditures, and for dividends and share repurchases. The Company meets its liquidity needs and finances its capital expenditures from its available cash and funds provided by operations along with borrowings under its credit arrangements described below. In the normal course of business, the Company enters into contracts and commitments which obligate the Company to make future payments. The Company does not have any additional off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. The Company believes its current cash resources, projected operating cash flow, and remaining capacity under its continuing bank lines of credit are sufficient to cover all its expected working capital needs, planned capital expenditures and dividends. The Company may require additional borrowings to fund potential acquisitions in the future.

The Company’s total cash and cash equivalents held by foreign subsidiaries were approximately $94.1 million, $70.8 million, and $84.3 million as of November 30, 2024, November 30, 2023, and August 31, 2024, respectively. The Company considers earnings in foreign subsidiaries to be indefinitely reinvested and would need to accrue and pay incremental state, local, and foreign taxes if such earnings were repatriated to the United States. The Company does not intend to repatriate the funds and does not expect these funds to have a significant impact on the Company’s overall liquidity.

Net working capital was $372.3 million at November 30, 2024, as compared with $359.3 million at November 30, 2023 and $367.4 million at August 31, 2024. Cash provided by operating activities totaled $21.6 million during the three months ended

November 30, 2024, compared to cash provided by operating activities of $21.9 million during the three months ended November 30, 2023. Higher net earnings in the current year were offset by increases in working capital.

Cash flows used in investing activities totaled $8.8 million during the three months ended November 30, 2024 compared to $18.2 million during the three months ended November 30, 2023. Purchases of property, plant, and equipment were $9.1 million, compared to $6.9 million in the prior year. The prior year also included net purchases of marketable securities of $10.7 million, while no such purchases or maturities occurred in the current year.

Cash flows used in financing activities totaled $5.3 million during the three months ended November 30, 2024 and were comparable to cash flows used in financing activities of $5.4 million during the three months ended November 30, 2023.

Capital Allocation Plan

The Company’s capital allocation plan is to continue investing in revenue and earnings growth, combined with a defined process for enhancing returns to stockholders. Under the Company’s capital allocation plan, the priorities for uses of cash include:

• Investment in organic growth including capital expenditures and expansion of international markets,
• Dividends to stockholders, along with expectations to increase dividends over time,
• Synergistic acquisitions that provide attractive returns to stockholders, and
• Opportunistic share repurchases taking into account cyclical and seasonal fluctuations.

Capital Expenditures

Capital expenditures for fiscal 2025 are expected to be between $35.0 million and $40.0 million, including equipment replacement, productivity improvements, new product development and commercial growth investments. The increase over recent levels of capital expenditures is primarily related to modernization and productivity improvements planned at certain manufacturing facilities. The Company’s management does maintain flexibility to modify the amount and timing of some of the planned expenditures in response to economic conditions.

Dividends

In the first quarter of fiscal 2025, the Company paid a quarterly cash dividend to stockholders of $0.36 per common share, or $3.9 million, compared to a quarterly cash dividend of $0.35 per common share, or $3.9 million, in the first quarter of fiscal 2024.

Share Repurchases

The Company’s Board of Directors authorized a share repurchase program of up to $250.0 million of common stock with no expiration date. Under the program, shares may be repurchased in privately negotiated and/or open market transactions as well as under formalized trading plans in accordance with the guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended.

During the three months ended November 30, 2024, the amount of common stock repurchased by the Company under the program in open market transactions was immaterial. There were no shares repurchased during the three months ended November 30, 2023. As of November 30, 2024, the repurchased shares were held as treasury stock and $41.4 million of the authorization remained available for future share repurchases.

Long-Term Borrowing Facilities

Senior Notes. The Company has outstanding $115.0 million in aggregate principal amount of Senior Notes, Series A (the “Senior Notes”). The entire principal of the Senior Notes is due and payable on February 19, 2030. Interest on the Senior Notes is payable semi-annually at a fixed annual rate of 3.82 percent. Borrowings under the Senior Notes are unsecured. The Company used the proceeds of the sale of the Senior Notes for general corporate purposes, including acquisitions and dividends.

Revolving Credit Facility. The Company has outstanding a $50.0 million unsecured Amended and Restated Revolving Credit Facility (the “Revolving Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) expiring August 26, 2026. The Company intends to use borrowings under the Revolving Credit Facility for working capital purposes and to fund potential future acquisitions. At November 30, 2024 and 2023, the Company had no outstanding borrowings under the Revolving Credit Facility. The amount of borrowings available at any time under the Revolving Credit Facility is reduced by the amount of standby letters of credit issued by Wells Fargo then outstanding. At November 30, 2024, the Company had the ability to borrow up to $50.0 million under the Revolving Credit Facility. The Revolving Credit Facility may be increased by up to an additional $50.0 million at any time, subject to additional commitment approval. Borrowings under the Revolving Credit Facility bear interest at a variable rate equal to the Secured Overnight Financing Rate (“SOFR”) plus a margin of between 100 and 210 basis points depending on the Company’s leverage ratio then in effect (which resulted in a variable rate of 5.94 percent at November 30, 2024), subject to adjustment as set forth in the loan documents for the Revolving Credit Facility. Interest is paid on a monthly to quarterly basis depending on loan type. The Company currently pays an annual commitment fee on the unused portion of the Revolving Credit Facility. The fee is between 0.125 percent and 0.2 percent on the unused balance depending on the Company’s leverage ratio then in effect (which resulted in a fee of 0.125 percent at November 30, 2024).

Borrowings under the Revolving Credit Facility have equal priority with borrowings under the Company’s Senior Notes. Each of the credit arrangements described above include certain covenants relating primarily to the Company’s financial condition. These financial covenants include a funded debt to EBITDA leverage ratio and an interest coverage ratio. In the event that the loan documents for the Revolving Credit Facility were to require the Company to comply with any financial covenant that is not already included or is more restrictive than what is already included in the arrangement governing the Senior Notes, then such covenant shall be deemed incorporated by reference for the benefit of holders of the Senior Notes. Upon the occurrence of any event of default of these covenants, including a change in control of the Company, all amounts outstanding thereunder may be declared to be immediately due and payable. At November 30, 2024 and 2023, the Company was in compliance with all financial loan covenants contained in its credit arrangements in place as of each of those dates.

Contractual Obligations and Commercial Commitments

There have been no material changes in the Company’s contractual obligations and commercial commitments as described in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2024.

There have been no material changes from the Company’s quantitative and qualitative disclosures about market risk previously disclosed in the Company’s most recent Annual Report on Form 10-K. See discussion of the Company’s quantitative and qualitative disclosures about market risk under Part II, Item 7A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2024.

Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and the participation of the Company’s management, including the Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of November 30, 2024.

Changes in Internal Control over Financial Reporting

The CEO and CFO determined that there has not been any significant change to the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes from risk factors previously disclosed in the Company’s most recent Annual Report on Form 10-K. See the discussions of the Company’s risk factors under Part I, Item 1A in the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2024.