Good morning. My name is Nick, and I will be your conference operator today. At this time, I’d like to welcome everyone to Lindsay Corporation Second Quarter Fiscal Year 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. Please note the event is being recorded. During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management's current beliefs, estimates of future economic circumstances, industry conditions, company performance and fiscal financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by, followed by or including the words expectation, outlook, could, may, should or similar expressions. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I’d now like to turn the call over to Mr. Tim Hassinger, President and Chief Executive Officer. Please go ahead.

Good morning and thank you for joining our call. With me on today's call is Brian Ketcham, our Chief Financial Officer. I feel it’s prudent to mention that Brian and I are sitting together in a conference room more than six feet apart adhering to social distancing guidelines. This quarter, in the domestic irrigation business, we saw the resolution of various trade disputes that have been putting downward pressure on farmers’ sentiment. The market facilitation payments administered through the USDA did significantly contribute to farm income. However, commodity prices did not fundamentally change given the uncertainty that existed in China’s expected commodity crop purchases. Until the recent COVID-19 impact, we had observed an incremental improvement in customer sentiment. We continue to make progress on our innovation and collaboration strategies for FieldNET and FieldNET advisor. Year-to-date, our penetration rates with our telemetry technology is up 50% plus versus the prior year. To enhance the opportunity for farmers to gain access to Lindsay’s telemetry technology, and in this case Pivot Watch, Lindsay will be offering this product on Amazon later this spring. Given the do-it-yourself nature of Pivot Watch, this option will enhance penetration with growers who want to go online to buy the product and install it themselves. Also, in connection to our collaboration with Farmers Edge, they recently announced their 2020 Smart Water offering that includes access to FieldNET and FieldNET advisor for their customer base. Early indications are positive based on their customer acceptance and feedback. In the international irrigation business, the global project market remains active but largely uncertain regarding timing. In Brazil, we continue to see growth and we have made several investments to enhance our commercial capabilities. For infrastructure, growth in the Road Zipper business continues to gain momentum. In this past quarter, we were awarded…

Thank you, Tim, and good morning, everyone. My comments regarding second quarter comparisons will refer to adjusted results for the prior year, which omit the impact of Foundation for Growth costs that were incurred in that period. Adjusted results for the prior year are detailed in the Regulation G disclosure at the end of the press release. No adjustments were made to current period results. Total revenues for the second quarter of fiscal 2020 were $113.8 million compared to $109.2 million in the same quarter last year. Net earnings for the quarter were $5.5 million or $0.51 per diluted share compared to net earnings of $200,000 or $0.02 per diluted share in the same quarter last year. Irrigation segment revenues for the second quarter of fiscal 2020 were $92.1 million compared to $95.8 million in the same quarter last year. North America irrigation revenues of $65.7 million increased $8 million or 14% compared to $57.7 million in the same quarter last year. The increase resulted primarily from higher sales of replacement parts, increased irrigation equipment unit volume and higher revenue from engineering project services. Average selling prices for irrigation equipment were slightly higher compared to the second quarter last year. Higher sales of replacement parts were due to the timing of deliveries under our fall restocking program, as we saw a shift in a portion of our sales from first quarter to second quarter. In the international irrigation markets, revenues were $26.4 million compared to $38.1 million in the same quarter last year. The decrease resulted primarily from a large project sale in a developing market in the prior year that did not repeat. In addition, approximately $1.1 million of the decrease resulted from differences in foreign currency translation rates. As previously mentioned, current year project sales in developing markets…

We will now begin the question-and-answer session. [Operator Instructions]. Our first question comes from Brian Drab, William Blair. Please go ahead. Mr. Drab, are you there? Is your line on mute? We’ll move to the next question that comes from Mr. Nathan Jones of Stifel. Please go ahead.

Good morning, everyone.

Good morning, Nathan.

Good morning, Nathan.

I guess I’ll start with the question on everybody’s mind and that’s the impact of coronavirus. I know you guys gave some updates on the impact in the second quarter, but things haven’t really started to pick up at all then. Our checks of your [indiscernible] dealer network really shows that the dealers are not expecting – domestic irrigation dealers are not expecting much of an impact from coronavirus on demand. Could you maybe talk a little bit about what you saw in March specifically if there was a change in the demand patterns relative to what you’d expect in areas if there was a change in the demand pattern as we went through the month?

Yes. Nathan, this is Tim and this is an important question, so let’s talk about it in a broader sense and then we’ll come to exactly what we’re seeing relative to demand as a result of that. But we did move to a work from home direction, as I mentioned, and then for the roles with employees that need to go to the site, we are following the CDC and health official recommendations. The business impact that we had for second quarter, we put as less than $1 million operating income. To your point, we were on the front edge of the COVID at that point in time. Currently, out of our nine manufacturing plants, eight are still fully operational and the one in South Africa at this point is continuing to support replacement parts and service. Now when we evaluate whether to keep a plant running, we really look at three key questions. What’s the current demand level? Is the business classified as business essential? And are the safety guidelines that are in place being followed? And then that determines whether we continue to operate that plant. So in terms of what we're seeing from a demand standpoint and speaks to what you're saying is, overall, I would describe the farm community hasn’t felt the impact as what the urban areas have from a reality and also from just a concern, a perception standpoint. Right now, we would describe on the ag side more concerning would be the lower commodity prices that are across most of the major ones.

And do you see any – I guess to the whole portfolio in March, did you see any deviations relative to what you’d expected to see specifically from COVID-19?

We would describe our demand pattern without going into forward-looking comments here, Nathan, as saying we’ve been encouraged by what we’ve seen so far.

Okay. I guess my next question is, you and everybody else is starting to put practices into your facility that are likely to create inefficiencies. If you make people stay six feet away from each other and all those kinds of different things that you’ve put in, in place within those facilities, I would imagine that that causes some inefficiencies, reduces throughput, increases costs to some extent, I’m sure it varies by different locations. So maybe you could talk about the impact that those things are having on your own operations?

Well, first of all, the types of activities that we’ve implemented what we’d refer to as strict social distancing which leads to things like redesigning break rooms, doing staggered shifts, taking staggered breaks, those types of activities. Definitely that brings another level of complexity and typically complexity can bring some additional costs. But at this point in time, Nathan, I wouldn’t describe it as meaningful in the cost side.

Okay, that’s very helpful. I’ll pass it on.

Thank you.

The next question will come from Mr. Brian Drab of William Blair. Please go ahead.

Good morning. Can you hear me?

Yes. Good morning, Brian.

Good morning.

Okay. Good morning and thanks for taking my questions. So building on some of the COVID concerns, is there any chance that the outbreak or social distancing will affect interactions between dealers and customers or is it – I guess, Tim, you just mentioned kind of the perception and concern regarding COVID maybe in the more rural areas where the deals are being done just so it’s not really hindering the interactions as much?

Brian, I wouldn’t say it’s not having an impact on interactions because social distancing obviously brings – again, I’ll use the word complexity, a level of that to the interactions that are going on. But I think the key here is will it impact demand? And at this point in time we don’t have signs of saying that if a farmer wants to move forward with a purchasing decision that the social distancing guidelines are getting in the way of that transaction occurring.

Okay. And I was thinking about this and I would imagine that potentially the outbreak has more of an effect on some of the smaller growers versus some of the corporate farms like Frito-Lay, et cetera. Can you comment at all about what your exposure is to the larger corporate farms, whether that’s a majority or minority of your irrigation sales?

Yes. Brian, this is Brian Ketcham. I think we have – a large part of our business is directed towards more of your large corporate growers. I think to your point on companies like Frito-Lay, it also speaks to the pressure that’s being put on right now on commodity prices related to potatoes as an example with restaurants and schools being closed, I think there’s some downward pressure on potato prices. There’s also some downward pressure on dairy. But I guess given the time of year that we’re in, a lot of the purchasing decisions for this year have already been made. I think the big unknown at this point is how long does this situation continue and what is the impact on commodity prices as we get into next fall and post harvest time.

Okay, thanks. And then if I could just ask two questions on the infrastructure side. Can you give us any sense for the timing of the revenue and how much will come in each quarter from the UK Road Zipper project?

Yes. So we will begin delivery probably in April picking up in May. Our expectation is that we will have this in place by the end of our first quarter next year. But if you – there’s some variables and assumptions in regard to people being able to work on the project and things like that which at this point we feel comfortable with that situation. So I think it’s – if you divide that 28 million over a six-month period, that will give you a general flavor for how that would fall.

Okay. Is it fair to – I guess see if I get the quarters right, then you have a May quarter, right; July, July, August. So I guess in the May quarter, maybe 20%; August quarter, 40%; and then the November quarter, 40%. Is that a rough – even in the ballpark of roughly how to think about the distribution?

Yes, I think it’s in the ballpark. I think the May quarter would be probably a little less than that just because of the startup will be later in April and then into May. So you’re probably looking at maybe 5 million or 6 million in the quarter.

Okay, 5 or 6 in the May quarter. Did you say 5 million or 6 million?

Yes.

Okay. And then last question is, how excited are you about the prospects for a major infrastructure bill? How would that affect your business?

Brian, we definitely believe there is the potential of that. We’re monitoring that closely. We do see that as a significant opportunity for our business. There is a level of excitement here of what potential that could bring.

All right. Thanks very much and good luck.

Thanks.

Next call is from Ryan Connors of Boenning & Scattergood. Please go ahead.

Thanks. Good morning. I want to just probe a little deeper on the issue of commodity prices. I appreciate the optimism and the idea that maybe this could be just a transitory impact, but I know the USDA has been out there with some pretty aggressive forecast on planted acreage for corn, as you alluded to Tim. A lot of those decisions were made before this all came out and they’re saying that restaurant demand is down in terms of food and so forth. So you can paint a pretty dire picture as we get into the fall if the weather cooperates and this is less than transitory on the demand side. You can paint a pretty dire picture of what commodities could look like 6, 9, 12 months down the road. So I guess I’d frame it this way. You talk about Foundation for Growth and your margin targets and that sort of thing. When you laid that out, you kind of said, look, that’s with no help from the cycle, which is appropriate to manage the business independent of that. How do you frame the Foundation for Growth, margin targets, et cetera in light of what could be not only a lack of help from the cycle, but some damage so to speak from this cycle?

Yes. Ryan, this is Tim. We’re going to continue with what we’ve said at the very beginning that we were going – expectation and commitment that we could deliver 11% to 12% in a market similar to 2017. To your point, commodity prices have definitely seen that downward pressure with what we’re seeing in the near term here. Having said that, we feel very good about what we’re delivering on Foundation for Growth. We’re quite open about saying that we are delivering on the projects that we laid out. Example to highlight is in Road Zipper and the shift-left strategy. We feel excellent about what’s happening. So we’re going to stay with the position that we laid out a couple of years ago but bring proof points of how we’re doing along the way. And one of the things that you continue to hear us focus on is what we’re doing on the shift-left strategy. We think this is really adding a lot of value to the company.

Got it, okay. And then one more, more specifically as it relates to Foundation for Growth initiatives and just restructuring the business in general. I guess one of the benefits of having gone through that is that you enter a rougher patch maybe with a leaner shop, but I guess the flipside of that is maybe there’s fewer levers to pull going forward. So if we look at some of the fixed lines in the model, like G&A and things like that, is there room to make more moves if you have to if the market heads south or do you risk kind of cutting into bone there?

These projects continue [indiscernible] I find very positive about our Foundation for Growth. There hasn’t been a case of just the original projects [indiscernible]. We’re continuing to build a funnel of all the ones coming forward. So this starts to become part of the culture. Ryan, another thing I want to highlight and I think this is really critical is we put four behaviors in place into our company two years ago. And as – even in this new environment, those new behaviors are really helping us manage the business in this rapidly changed environment. It has helped us a lot in how we’ve communicated and how we’ve structured what we call our response management. So in total we believe Foundation for Growth [indiscernible] in this environment. And I wouldn’t say that [indiscernible] because we’re continuing to find new [indiscernible] into our funnel going forward.

Great. It’s very helpful. Thanks for your time today.

Thanks.

The next question is from Joseph Mondillo of Sidoti & Co. Please go ahead.

Hi, guys. Good morning.

Good morning, Joe.

Good morning, Joe.

I was wondering – I just sort of wanted to ask another question sort of related to commodity prices just maybe in a different way. How much do you guys anticipate such as corn demand there to be affected by this downturn? I know ethanol is a big component of corn consumption and then obviously there’s the food aspect of demand. And relative to what you just posted in the North America part of the irrigation segment which was better than I was looking for, how much is that sort of just totally in the past and really it looks good that things were trending in the positive, but things have changed so much since the February quarter. Could you maybe frame your answer sort of with that kind of context?

Yes. Joe, you asked on corn, so I’ll specifically address that crop. Right now, USDA [indiscernible] we’re going to have the most planted acreage on corn since [indiscernible]. So there’s definitely a large interest gravitating towards that crop. A downward pressure on that corn is clearly ethanol. On the other side is the Phase 1 China trade deal we have. So this is from China on corn, which is helping there. There is some optimism that could Phase 1 also include ethanol. So that is a key question here is lift will come from the China Phase 1 trade deal. But definitely there is downward pressure across the board on the key commodity crops.

All right. And then I guess I should ask since no one did and I don’t think it’s probably going to be overly significant, but the South African plant closure. How significant is that to your overall business?

Today, we are working on the assumption that it would be a three-week temporary closing and with that assumption, Joe, we would not call it meaningful, assuming that it continues to play as we’ve described here.

All right. And a couple of questions on the infrastructure segment. First off, that Japan Road Zipper $10 million delivery that you’re expecting in the third quarter, was that in the backlog? And then can you talk about how just the overall infrastructure segment sort of outlook is in a scenario of a severe just overall recession, what the challenges are? How effective that business would be or not be just to give us a sense?

Hi, Joe. This is Brian. Both the UK project and the $10 million Japan order were added to the backlog prior to the end of the quarter, so they are in backlog. And I think in terms of the infrastructure business, what we’re being told is – and especially with these two projects, they are definitely high priorities for England and for Japan and they expect to continue to go forward in spite of the coronavirus situation. When you look at the U.S. and the DOTs that we’ve talked to, they do their planning on a multiyear horizon. So they want to continue to move forward with the projects that they’ve got planned this year. If not, it causes a significant disruption in their entire planning process. So what we’re being told today is the projects that we’ve got planned and are looking at for this year are going to continue to go forward.

All right. And then one last question just in terms of the – actually two questions. First off, CapEx was a little light in the second quarter. Are you still expecting that 15 million to 20 million like you were originally anticipating? And then number two on the balance sheet, just given the strength of the balance sheet, I probably would assume that you’re going to be a little conservative in the near term. But just sort of more thinking about long term with Foundations for Growth largely completely, how are you thinking about sort of utilizing the balance sheet? Is acquisitions part of your strategy going forward, or just could you give us an update on that for sort of long-term strategy with the balance sheet?

Yes. First of all in regard to CapEx, yes, during the first six months we’ve only spent about 5.3 million. And the reason for that being a little bit lower than expectation is that some of that CapEx activity was planned to build barrier and machines for the Road Zipper lease fleet and that spending was temporary diverted to building up inventory to supply the UK project as well as the Japan project. But in the second half of the year, we are still expecting we’ll spend between 10 million and 15 million in the second half which will get us into that 15 million to 20 million range for the year. Just in general, regard to capital allocation, I would say the priorities remain the same I think right now given the current uncertain environment, liquidity and capital preservation is important. We at this point would continue to probably be in a little bit of a holding pattern when it comes to share repurchase. In terms of acquisitions, we continue to have a number of discussions with potential targets. I think one thing we are seeing in that regard too is a little bit of a wait and see situation with some sellers right now.

Okay. Thanks a lot. I appreciate it.

The next question is from Jon Braatz of Kansas City Capital. Please go ahead.

Good morning, Tim and Brian.

Hi, Jon.

On the international irrigation side of the business, obviously, the COVID-19 impact really began – began having a bigger impact I should say in March and into April. When you look at the international irrigation business, would you expect to see added pressure to that piece of the business and maybe even more difficult second half than what we saw in the first half?

Jon, the area in the international business that I would highlight to address that part of the question is the Middle East. We had started to ship a large project order into that market and that order had been put on hold due to border closures which was tied to COVID-19. We do expect the shipments to continue into late Q3 and into Q4, but that’s assuming the border crossings are allowed. We see signs of great project demand that will be tendered later this year, but not likely for fiscal year '20 delivery. That’s where I would describe the biggest impact of COVID-19 at this point in time. The other area I would highlight is South Africa, given the fact that our client is temporary [indiscernible] that’s due to an overall country mandate. So that’s one area where we do think activity will be slowed also due to this.

Okay. Thank you, Tim. Brian, one question. On the income instatement, there was $1 million other expense item in the quarter. What was that?

Yes. Jon, it was in the irrigation and the primary drivers there was some severance costs both in the U.S. and in the international business due to workforce reductions. There were also commercial development activities in the U.S., some marketing initiatives around our technology products. And then in Brazil with some of the dealer development expenses with new dealers that were added during the quarter.

Okay. Is the workforce at the level that you would like it to be or would we see – would you anticipate any other workforce reductions?

Jon, I would describe that at this point of time we feel good about where we’re at, but we’re still – there’s always a continuous improvement mentality. So I’m going to say there won’t be changes, but at this point we feel good about where we’re at recognizing that there is more unknowns in this environment going forward due to COVID-19.

All right, Tim, thank you very much.

The next question comes from Chris Shaw of Monness Crespi. Please go ahead.

Hi. Good morning, everyone. How are you doing?

Good morning, Chris. Good, Chris.

If I could ask on irrigation I guess sort of more broadly, if you go back and historically you guys were very tied to corn prices it seemed like going back a decade or so, I’m just wondering given that the – and you’ve given the percentages of new irrigation systems versus parts and all that more recently. That’s really gone down in terms of new irrigation systems. Just looking now, is the correlation between sort of corn prices maybe and your irrigation sales not as correlated just because new systems are such a lower percent at this point and it’s mostly the price on parts or other kinds of irrigation maybe for other crops? And then actually, is corn that big – has that really shrunk as an actual end market for you?

Chris, this is Brian. Well, to your first question just in the most recent quarter, new dry land irrigation or new irrigation for first time was actually 34% of the total sales. So it still remains within that range that we’ve talked about in the past of a third dry land conversion replacement, but we did see different parts of the country where there’s still new development going on in the U.S. To your question on corn, I think we definitely – there’s a strong – corn drives a lot of irrigation, but there are other markets where we’ve talked about the potato market, dairy market, other different types of crops in the Southeast and other areas, but corn is still definitely a driver of the overall business.

Do you have a percentage of what the corn end market is for your overall irrigation sales in the U.S. at all?

No, we really don’t. And part of the reason is even with potatoes and some of the other crops, corn is still a rotational crop. So it’s still important in some of those markets as well. It’s not really clearly defined.

All right, that makes sense. And then just a quick one on infrastructure, the UK project and Japan project are both – those are both sales. There’s no leasing involved in either of those, is there?

That’s correct. Yes, both sales.

All right, got it. Thanks a lot.

Thanks, Chris.

[Operator Instructions]. Our next question is a follow up from Nathan Jones of Stifel. Please go ahead.

Hi, guys. Just a follow-up question on the part sales during the quarter. If I recall correctly, there was an absence of part sales in the first half of calendar 2020 with all the flooding that went on last year. And the anticipation was that some of it will be caught up last year and some of it would be caught up this year. So can you comment on – was this a more normal level of part sales that you saw this year versus last year, or are we at an elevated level of part sales catching up from some of the damage that was done in the flooding last year?

Nathan, this is Brian. Part sales in our first and second quarters are generally going to be driven by the restocking program that we’ve put in place post harvest. And as you recall in our first quarter, we were down in part sales year-over-year and we attributed that to timing of the deliveries this year. And so we saw that happen in our second quarter. So I would say overall year-to-date, our part sales are fairly similar to where we were a year ago. I think the flood impact is – we’re probably in that period of time now when these floods really started to impact and then into the summer when some of those machines never – some of the farmers didn’t plant and so the machines didn’t run last year. But so far year-to-date, I would say we’re on par with where we were a year ago.

Okay. So potentially some year-over-year increases in parts sales over the next couple of quarters. Just one more on the infrastructure business, the Road Zipper business. You talked about having a funnel that was bigger than it has ever been last quarter and clearly converted a couple of big orders this quarter. So I’m sure it’s smaller than it was a quarter ago. But can you talk about the pipeline of opportunities, how mature those things are, how much more cultivating they need and when you would think you might be able to turn some of those into more orders?

Nathan, this is Tim. Without giving numbers, what I’ll describe that has been a part of the Foundation for Growth. We’ve got a lot more, I’ll describe it as sophisticated sales funnel, different stages and tracking how long it takes to move to each age. What we’re really excited about is that we’re getting a higher percentage of our business as we continue to go forward into this shift-left category and that is bringing an additional opportunity for demand that we haven’t had before. So not only are you seeing better results immediate in terms of the sales that we’re getting, but we’re able to look back several years – we’re able to look forward, I should say, several years into the future here and we see good activity and then we’re tracking each of those stages, how long it takes for those projects to move forward. So that’s why I’m able to say that we have the best sales funnel that we’ve ever had at this point in time. It isn’t just because of the near term. It’s in total.

Okay. Thanks very much and stay safe.

Thank you.

Thank you.

At this time, there appear to be no more questions. Mr. Hassinger, I’ll turn the call back to you for closing remarks.

This concludes our second quarter earnings call. Thank you for your interest and participation. Have a great day and be safe.