Lindsay(LNN) - 2022 Q2 - Quarterly Report

Part I – FINANCIAL INFORMATION ITEM 1 – Financial Statements This section presents Lindsay Corporation's unaudited condensed consolidated financial statements, including earnings, balance sheets, and cash flows Condensed Consolidated Statements of Earnings Condensed Consolidated Statements of Earnings | Metric | Three months ended Feb 28, 2022 ($ in thousands) | Three months ended Feb 28, 2021 ($ in thousands) | Six months ended Feb 28, 2022 ($ in thousands) | Six months ended Feb 28, 2021 ($ in thousands) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Operating revenues | 200,137 | 143,577 | 366,288 | 252,062 | | Gross profit | 42,944 | 41,174 | 80,381 | 72,582 | | Operating income | 18,338 | 15,809 | 31,699 | 23,343 | | Net earnings | 14,566 | 11,876 | 22,467 | 18,971 | | Basic EPS | 1.33 | 1.09 | 2.05 | 1.75 | | Diluted EPS | 1.32 | 1.08 | 2.04 | 1.74 | | Cash dividends per share | 0.33 | 0.32 | 0.66 | 0.64 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income | Metric | Three months ended Feb 28, 2022 ($ in thousands) | Three months ended Feb 28, 2021 ($ in thousands) | Six months ended Feb 28, 2022 ($ in thousands) | Six months ended Feb 28, 2021 ($ in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Net earnings | 14,566 | 11,876 | 22,467 | 18,971 | | Foreign currency translation adjustment, net | 1,997 | 481 | (1,353) | 1,864 | | Total comprehensive income | 16,506 | 12,391 | 21,049 | 20,881 | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets | Metric | Feb 28, 2022 ($ in thousands) | Feb 28, 2021 ($ in thousands) | Aug 31, 2021 ($ in thousands) | | :-------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Total assets | 676,584 | 596,648 | 637,185 | | Total liabilities | 320,046 | 277,624 | 298,740 | | Total shareholders' equity | 356,538 | 319,024 | 338,445 | | Cash and cash equivalents | 68,951 | 110,775 | 127,107 | | Inventories, net | 187,328 | 121,566 | 145,244 | | Accounts payable | 74,345 | 39,934 | 45,209 | | Total current liabilities | 161,402 | 114,836 | 138,240 | Condensed Consolidated Statements of Shareholders' Equity Condensed Consolidated Statements of Shareholders' Equity | Metric | Feb 28, 2022 ($ in thousands) | Feb 28, 2021 ($ in thousands) | Aug 31, 2021 ($ in thousands) | | :-------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Total shareholders' equity | 356,538 | 319,024 | 338,445 | | Retained earnings | 543,355 | 511,728 | 528,130 | | Common stock issued (shares) | 19,061 | 18,990 | 18,991 | | Cash dividends paid (6 months) | (7,242) | (6,967) | N/A | | Share-based compensation expense (6 months) | 2,411 | 4,047 | N/A | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows | Metric | Six months ended Feb 28, 2022 ($ in thousands) | Six months ended Feb 28, 2021 ($ in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Net cash (used in) provided by operating activities | (35,851) | 11,128 | | Net cash used in investing activities | (15,616) | (17,686) | | Net cash used in financing activities | (5,475) | (4,510) | | Net change in cash and cash equivalents | (58,156) | (10,628) | | Cash and cash equivalents, end of period | 68,951 | 110,775 | Notes to the Condensed Consolidated Financial Statements This section details the basis of financial statement presentation, revenue recognition, income taxes, inventories, and other key accounting policies - The financial statements are prepared under SEC rules and U.S. GAAP, reflecting management's estimates; recent accounting guidance had no material impact[19][20][21][22][23] Disaggregation of Revenue by Segment | Segment | Three months ended Feb 28, 2022 ($ in thousands) | Three months ended Feb 28, 28, 2021 ($ in thousands) | Six months ended Feb 28, 2022 ($ in thousands) | Six months ended Feb 28, 2021 ($ in thousands) | | :------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Irrigation Infrastructure | 180,759 | 118,572 | 326,667 | 205,929 | | Infrastructure | 19,378 | 25,005 | 39,621 | 46,133 | | Total operating revenues | 200,137 | 143,577 | 366,288 | 252,062 | - Contract liabilities significantly increased to $39.7 million at February 28, 2022, from $21.3 million in the prior year, indicating higher advance payments[28] Income Tax Expense and Effective Rate | Period | Income Tax Expense ($ in thousands) | Effective Income Tax Rate | | :-------------------------------- | :-------------------------------- | :------------------------ | | Three months ended Feb 28, 2022 | 4,638 | 24.2% | | Three months ended Feb 28, 2021 | 2,685 | 18.4% | | Six months ended Feb 28, 2022 | 6,213 | 25.5% | | Six months ended Feb 28, 2021 | 2,472 | 23.7% | Inventories, Net | Category | Feb 28, 2022 ($ in thousands) | Feb 28, 2021 ($ in thousands) | Aug 31, 2021 ($ in thousands) | | :-------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Raw materials and supplies | 86,010 | 62,404 | 69,962 | | Work in process | 11,620 | 8,993 | 8,301 | | Finished goods and purchased parts, net | 96,724 | 58,682 | 75,053 | | Total inventory value before LIFO adjustment | 194,354 | 130,079 | 153,316 | | Less adjustment to LIFO value | (7,026) | (8,513) | (8,072) | | Inventories, net | 187,328 | 121,566 | 145,244 | - The Company is defending product liability lawsuits and a DOJ investigation, with potential material adverse effects despite no probable loss currently[41][42][43][44] - Estimated aggregate accrued cost for environmental remediation at the Lindsay, Nebraska facility is $16.1 million, with a pilot study planned for mid-2022[45] Product Warranty Accrual | Metric | Three months ended Feb 28, 2022 ($ in thousands) | Three months ended Feb 28, 2021 ($ in thousands) | Six months ended Feb 28, 2022 ($ in thousands) | Six months ended Feb 28, 2021 ($ in thousands) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------------------------------ | :------------------------------------ | | Product warranty accrual balance, beginning of period | 12,379 | 10,858 | 12,736 | 10,765 | | Liabilities accrued for warranties during the period | 1,825 | 2,247 | 4,219 | 3,981 | | Warranty claims paid during the period | (1,250) | (1,378) | (4,001) | (3,019) | | Product warranty accrual balance, end of period | 12,818 | 11,786 | 12,818 | 11,786 | - Share-based compensation expense decreased to $2.5 million for the six months ended February 28, 2022, from $4.2 million in the prior year, partly due to a one-time expense[50][78][88] - The Company operates in two reportable segments: Irrigation (center pivot, lateral move, hose reel systems, technology) and Infrastructure (moveable barriers, crash cushions, road safety equipment)[52][53][54] ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and future outlook, including operating results and liquidity Concerning Forward‑Looking Statements - The report contains forward-looking statements regarding future results and financing, protected by the Private Securities Litigation Reform Act of 1995, involving risks and uncertainties[56][57] COVID-19 Impact - COVID-19 has caused supply chain challenges, including increased lead times, limited component availability, and raw material price increases, but demand for products has not been materially affected[58][59] Accounting Policies - Management's critical accounting policies, detailed in the Annual Report on Form 10-K, had no significant changes during the six months ended February 28, 2022[60][61][62] Executive Overview and Outlook Consolidated Financial Highlights (3 months ended Feb 28) | Metric | Feb 28, 2022 ($ in millions) | Feb 28, 2021 ($ in millions) | Change (%) | | :---------------- | :--------------------------- | :--------------------------- | :--------- | | Operating revenues | 200.1 | 143.6 | 39% | | Net earnings | 14.6 | 11.9 | 23% | | Diluted EPS | 1.32 | 1.08 | 22.2% | - Irrigation segment revenues increased 52% to $180.7 million, while infrastructure segment revenues decreased 23% to $19.4 million for the three months ended February 28, 2022, driven by strong agricultural commodity prices[64][67] - International irrigation markets offer significant growth opportunities but are subject to regional political and economic factors, leading to the suspension of business in Russia and Belarus[68] - The Infrastructure Investment and Jobs Act is expected to drive higher demand for transportation safety products with $110 billion in incremental federal funding[69] Backlog of Unshipped Orders | Date | Backlog ($ in millions) | | :--------------- | :---------------------- | | Feb 28, 2022 | 111.0 | | Feb 28, 2021 | 101.4 | - Irrigation backlog is higher year-over-year, while infrastructure backlog is lower[70] Results of Operations Three Months Ended February 28, 2022 vs. 2021 Consolidated Performance (Three Months Ended Feb 28) | Metric | Feb 28, 2022 ($ in thousands) | Feb 28, 2021 ($ in thousands) | % Change | | :---------------------- | :---------------------------- | :---------------------------- | :------- | | Operating revenues | 200,137 | 143,577 | 39% | | Gross profit | 42,944 | 41,174 | 4% | | Gross margin | 21.5% | 28.7% | -7.2 pp | | Operating expenses | 24,606 | 25,365 | -3% | | Operating income | 18,338 | 15,809 | 16% | | Operating margin | 9.2% | 11.0% | -1.8 pp | | Other income (expense), net | 866 | (1,248) | -169% | | Net earnings | 14,566 | 11,876 | 23% | - North America irrigation revenues increased 26% due to higher average selling prices, while international irrigation revenues more than doubled (108% increase) from higher selling prices and unit volumes[74][75] - Infrastructure segment revenues decreased 23% due to lower Road Zipper System sales and lease revenue, partially offset by increased road safety product sales[76] - Gross profit increased 4%, but gross margin decreased from 28.7% to 21.5% due to higher input costs, a $2.8 million LIFO impact, non-recurring factory maintenance, and a higher proportion of lower-margin irrigation revenues[77] - Operating expenses decreased 3% primarily due to lower employee incentive expense, with the prior year including a $1.5 million one-time equity award expense[78] Six Months Ended February 28, 2022 vs. 2021 Consolidated Performance (Six Months Ended Feb 28) | Metric | Feb 28, 2022 ($ in thousands) | Feb 28, 2021 ($ in thousands) | % Change | | :---------------------- | :---------------------------- | :---------------------------- | :------- | | Operating revenues | 366,288 | 252,062 | 45% | | Gross profit | 80,381 | 72,582 | 11% | | Gross margin | 21.9% | 28.8% | -6.9 pp | | Operating expenses | 48,682 | 49,239 | -1% | | Operating income | 31,699 | 23,343 | 36% | | Operating margin | 8.7% | 9.3% | -0.6 pp | | Other expense, net | (3,019) | (1,900) | 59% | | Net earnings | 22,467 | 18,971 | 18% | - North America irrigation revenues increased 35% from higher unit sales and prices, while international irrigation revenues increased 101% from higher selling prices and unit volumes[84][85] - Infrastructure segment revenues decreased 14% due to lower Road Zipper System sales, partially offset by higher lease revenue and increased road safety product sales[86] - Gross profit increased 11%, but gross margin decreased from 28.8% to 21.9% due to higher raw material costs and an $8.8 million LIFO impact[87] - Operating expenses decreased 1% due to lower employee incentive expenses, partially offset by increases in other areas, with the prior year including a $1.5 million equity award expense[88] - Other expense, net, increased 59% primarily due to higher foreign currency transaction losses[89] - The effective income tax rate increased from 11.5% to 21.7%, influenced by a $0.7 million share-based compensation benefit in the current year and a $1.7 million valuation allowance release in the prior year[90] Liquidity and Capital Resources Cash, Cash Equivalents, and Marketable Securities | Date | Amount ($ in millions) | | :--------------- | :--------------------- | | Feb 28, 2022 | 93.9 | | Feb 28, 2021 | 130.3 | | Aug 31, 2021 | 146.7 | - Net working capital increased to $288.9 million at February 28, 2022, from $260.8 million in the prior year, while cash used in operating activities totaled $35.9 million for the six months ended February 28, 2022, a significant change from $11.1 million provided in the prior year[94] - Cash used in investing activities decreased to $15.6 million from $17.7 million, with increased marketable securities purchases offset by lower property, plant, and equipment purchases[95] - Cash used in financing activities increased to $5.5 million from $4.5 million, mainly due to higher proceeds from stock option exercises[96] - The capital allocation plan prioritizes organic growth (capital expenditures of $15.0-$20.0 million for fiscal 2022), increasing dividends ($0.33 per share paid in Q2 FY22), synergistic acquisitions, and opportunistic share repurchases ($63.7 million remaining)[97][98][99] - The Company has $115.0 million in Senior Notes due 2030 and a $50.0 million unsecured Revolving Credit Facility with no outstanding borrowings, remaining in compliance with all financial loan covenants[100][101][102] ITEM 3 – Quantitative and Qualitative Disclosures about Market Risk This section reports no material changes to the Company's market risk disclosures since its most recent Annual Report on Form 10-K - No material changes in quantitative and qualitative disclosures about market risk since the last Annual Report on Form 10-K[105] ITEM 4 – Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports no significant changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of February 28, 2022[106] - No significant changes in internal control over financial reporting occurred during the last fiscal quarter[107] Part II – OTHER INFORMATION ITEM 1 – Legal Proceedings This section refers to Note 8 – Commitments and Contingencies for details on the Company's legal proceedings and environmental remediation matters - Legal proceedings information is incorporated by reference from Note 8 – Commitments and Contingencies[108] ITEM 1A – Risk Factors This section indicates no material changes to the risk factors previously disclosed in the Company's most recent Annual Report on Form 10-K - No material changes to risk factors since the last Annual Report on Form 10-K[109] ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities and use of proceeds[110] ITEM 3 – Defaults Upon Senior Securities This section reports that there were no defaults upon senior securities during the period - No defaults upon senior securities[111] ITEM 4 – Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[112] ITEM 5 – Other Information This section states that there is no other information to report for the period - No other information to report[113] ITEM 6 – Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications, and interactive data files - Exhibits include corporate governance documents, CEO and CFO certifications, and Interactive Data Files (Inline XBRL)[115] SIGNATURES SIGNATURES This section contains the required signatures for the Form 10-Q, certifying its submission by the Senior Vice President and Chief Financial Officer - The report was signed on April 5, 2022, by Brian L. Ketcham, Senior Vice President and Chief Financial Officer, on behalf of Lindsay Corporation[118][119]