Lindsay Corp (LNN) 2013 Q1 法說會逐字稿

Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation first-quarter 2013 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session.

(Operator Instructions)

During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, Company performance and 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 would now like to turn the call over to Mr. Rick Parod, President and Chief Executive Officer of Lindsay Corporation.

Good morning and thank you for joining us today. Joining me on today's call are Jim Raabe, Lindsay Corporation's Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer.

First-quarter fiscal 2013 revenues of $147.4 million increased 24% from $119.2 million in the same period last year. Revenues in the first quarter of fiscal 2013 reflected higher demand for domestic irrigation systems, stimulated by positive fundamental drivers in the agricultural economy, offset by lower infrastructure product demand impacted by government funding issues and project delays. As drought conditions across the US pushed commodity prices higher through the summer and fall months, the realization of the importance of efficient mechanical irrigation rose creating robust market conditions for irrigation equipment sales during the first quarter.

Net earnings were $14.7 million, or $1.15 per diluted share, for the quarter compared with $2.9 million, or $0.23 per diluted share in the first quarter of the prior year. As a reminder, fiscal 2012 operating expenses includes $7.2 million, or $0.37 per diluted share on an after-tax basis, of accrued expenses relating to environmental remediation at the Company's Lindsay, Nebraska manufacturing facility. In addition to the sales growth, earnings increased as a result of higher irrigation segment gross margins. Operating margins were driven to 15.1% in the quarter compared to 4.3% in the same quarter last year, including the environmental charge.

Irrigation segment revenues totaled $134.2 million in the quarter, 33% higher than last year. Irrigation operating margins improved to 20.5%, compared to 9.7% last year, including $6.1 million of the $7.2 million environmental charge. In the US irrigation market, revenues were $96.5 million for the first quarter, increasing 59% over the same period last year with the largest increases in the drought-impacted corn belt. Drought led to lower yields in 2012 and higher commodity prices, with corn prices increasing 23%, and soybean prices increasing 32% over the same period last year. Higher prices and drought insurance proceeds are contributing to significantly higher farm income, as the USDA forecasted 2012 net farm income to be approximately $114 billion as of November, 2012. This is the second highest on record and 54% above the 10-year average.

During the quarter, our distribution channel indicated continued robust demand, as growers demonstrated willingness to make investments in irrigation to enhance yield and improve farm income. The robust US irrigation equipment order flow also highlighted growers' concern regarding the impact of future dry weather, concern over the continuation of IRS Section 179 favorable tax treatment for purchases, and concern regarding the ability to get irrigation equipment during the upcoming spring selling season.

In the international irrigation market, revenues for the first quarter of fiscal 2013 decreased 6% to $37.7 million from $40.1 million in the first quarter of last year. International irrigation equipment revenues were lower due to a comparably high first quarter of last year, which included a sizable project in the Middle East. Excluding the Middle East market, the international irrigation revenues showed a high single-digit increase over the previous year's quarter. We continue to see strong quoting and ordering activity in our international irrigation market, including increased interest in potentially large projects in Russia. As we have noted in the past, many of our international irrigation markets experienced volatility from period to period, as they tend to be project-based.

Infrastructure segment revenues were $13.2 million, decreasing $5.3 million or 29% from the first quarter of last year. Lower sales were realized in road safety products, Road Zipper Systems, and railroad products. The Infrastructure segment generated an operating loss of $1.3 million compared to a loss of $1.2 million last year, with $5.3 million less revenue in the first quarter of fiscal 2013, reflecting improvement from the significant expense reductions made in the business segment. Infrastructure demand, including Road Zipper System projects, have proven to be challenging due to funding issues and project delays. We've recently been told that the long-awaited Golden Gate Bridge project has entered the final design stage which is anticipated to be completed and result in award of the project during this summer, slightly behind our timing expectations.

While the recovery of our Infrastructure segment is taking longer than initially expected, we remain confident that the Infrastructure segment will return to profitability. But the timing will now primarily be driven by improvements in market demand. The recent passage of a highway bill through 2014 should provide a modest improvement in market demand in coming quarters.

Gross profit was $42.9 million, or 29.1% of sales, for the first quarter, versus $30.2 million, or 25.4%, in the same quarter last year. Irrigation gross margins increased approximately 4 percentage points due to a combination of lower input costs, a favorable pricing environment and fixed cost leverage on higher sales. Infrastructure gross margins decreased approximately 4 percentage points due to unfavorable sales mix and deleverage of fixed costs over a lower sales base.

Operating expenses in the first quarter decreased by $4.6 million to $20.6 million. The decrease in operating expenses is primarily related to the prior year's expense accrual of $7.2 million for environmental remediation, partially offset by current period increases in R&D expense of $1.1 million and personnel-related expenses of $1.1 million. Operating expenses as a percentage of sales improved to 14% for the quarter, compared to 21.1% for the same period last year, inclusive of the $7.2 million environmental charge.

Our order backlog was $85.1 million on November 30, 2012, as compared to $52.8 million on November 30, 2011, and $57.1 million on August 31, 2012. Irrigation backlog was significantly higher than a year ago, led by US Irrigation order strength, while Infrastructure backlog is lower. US Irrigation equipment orders remained robust throughout the quarter, reflecting growers' willingness to invest and their concern regarding potential impact of dry weather. Approximately 47% of the domestic irrigation orders received during the quarter were designated by the customer as for dry land installation further indicating concern over dry weather and water availability. We believe the irrigation equipment backlog represents pulling forward some volume, at least in part, from the second half of fiscal 2013. However, it is difficult to estimate that effect at this time. In the upcoming US spring selling season, we will be regulated by conditions that exist at that time, including farmer sentiment.

Cash and cash equivalents of $152 million were $43 million higher compared with last year while debt decreased $4.3 million over the same period. Accounts receivable were $12.2 million higher year over year, due to higher sales. And inventories increased $9.6 million with improved inventory turns. Our primary uses of cash remain investing in organic growth opportunities, while continuing to seek accretive acquisitions that add new businesses and/or product lines. We continue to expect capital expenditures in 2013 to be approximately $15 million to $20 million, largely focused on manufacturing capacity expansion and productivity improvements.

In summary, it was a record first quarter for Lindsay Corporation in revenue and earnings. Irrigation sales and profits have experienced year-over-year increases, driven by positive farmer sentiment towards capital investments, increased farm incomes, and concern over past and future impact of dry weather conditions. In the near term, we're optimistic that increased commodity prices and projected higher farm income will translate into continued strong irrigation equipment demand. However, it's still too early to predict sales factors for the upcoming primary selling season.

We're pleased with the Company-wide operating margin gains over the first quarter of last year, even as we've continued higher levels of investment in Irrigation segment in product development and market participation plans in international markets. We're pleased with the operational improvements in the Infrastructure segment, while this business remains in a cyclical trough. The improvements that have taken place in the segment have included enhanced pricing, management, product cost reductions and SG&A expense reductions. While we believe the underlying demand for road safety and improved infrastructure will rebound in the long term, current spending levels on highway and other infrastructure projects continue to be an impediment to our Infrastructure segment recovery.

As we proceed into 2013, the drought conditions experienced this past year have reinforced the importance of efficient water use for yield enhancement preservation and at the same time driven commodity prices higher, improving irrigation equipment demand. We are confident that the key drivers to our business are favorable and that over the long term increasing agricultural yield to boost food supply, improving water use efficiency, biofuel production, and improving transportation infrastructure will remain global priorities.

I would now like to open it up for your questions.

(Operator Instructions)

Nathan Jones from Stifel Nicolaus.

This is actually Richard Hall on for Nathan Jones this morning. Great quarter. My first question relates to domestic irrigation. You mentioned that the corn belt region of the US is pretty strong. Could you go into a little more detail about the other regions in the US, where the relative pockets of strength and weaknesses were?

I think it would be fair to say that all of the regions across the US were pretty strong. We saw most regions increased. We saw the highest percentages of the increase through the corn belt region. But there weren't really any regions that I would say were down, in any sense. There may have been a few ups and downs due to some order flow in the first quarter versus fourth quarter. But nothing that really stood out as anything significant. I would say it's primarily, when you look at the sales by region, you can see the impact of the drought and the increases in those drought areas.

Awesome. Thanks. And my second question is, can you give us a sense -- I'm talking about domestic irrigation again -- in terms of revenues, the split between entire pivot systems versus parts, maybe what that split was and how that's changed over the last year or so, and if either has been particularly stronger than the other?

We don't split out our parts revenue specifically, Richard. But we have said in the past that we estimate that the parts market for irrigation equipment is roughly about 15% of, let's say, whole goods sales, from an industry perspective. And I think that's the way to think about it, is it typically would run in that level. There will be times quarter to quarter when that will change, depending on the specific time of the year where farmers may be trying to get parts in, in advance of the season. But typically over the year that's the range that we would see.

Awesome. Great. I will get back in queue. Thanks.

Brett Wong from Piper Jaffray.

Congratulations on a great quarter. I was wondering if you could provide any more specific breakdown of the backlog on a percentage basis, just in terms of what is domestic Irrigation, international Irrigation infrastructure.

I really can't provide more breakdown on the backlog. The only comment I would add to it is that the majority of the backlog would be domestic Irrigation at this time of the year. We have seen increases in our international Irrigation backlog, but the majority of the backlog would be domestic. And, as I commented, the Infrastructure backlog is down some.

Okay, great. And then can you provide any color on the geographic concentration of the backlog? Are you seeing any increases in the southern states in the US at all?

I would say that we have seen increases in the southern states in terms of our order flow in the last year or so, particularly in some of the southeast region. But in terms of the backlog specifically, I don't have that information and we don't break that out.

Okay. And then just one last question. In December, outside of this quarter, of course, but did you experience higher orders than you typically do because of what's thought to be expiring beneficial tax policy?

It's very hard to define the specific cause of the December order rate being higher, and it was high. But as we talked to growers, there were a number of factors that were driving that. One was certainly the concern about the drought. There was concern about being able to get machines at the peak of the next season. There were concerns about what was going to happen with Section 179. And really concern about just getting water to apply to their crops for this next season in areas where primarily dry land application. So it was difficult to really differentiate any one as standing out. But I would say historically, as we've come to the end of the calendar year, we haven't really seen significant pops due to Section 179. And as it turned out this year, really, whatever would have happened in terms of driving Section 179 really didn't make much difference because it was extended.

Okay. Great. Thanks a lot.

Schon Williams from BB&T Capital Markets.

Congrats on the quarter. I wonder if you could just comment about why you specifically mentioned the pull forward in demand. Was there any pricing that went in prior to the end of the calendar year? I'm just trying to think of, why do you think that you may be pulling orders forward?

What I see in the numbers, Schon, tells me that, one is we've seen a high level of sales in dry-land applications. And what we're seeing is farmers are very concerned about the drought and the potential future impact of more drought or dry weather. So they're obviously pulling forward, to some degree, some of those applications that we think eventually would take place anyway, whether it was later this year or next year or the year after, whatever. Some of those dry-land areas, we do believe irrigation would get added. So there is some pull forward from that standpoint.

And in terms of the potential pull forward into the second half, potential for pull forward in the second half of '13, it's really looking at it from a perspective of we know that farmers have expressed some concern about being able to get equipment at the peak of the season. And we don't really know to what extent that is driving some demand. But we could see some of that in the order numbers that we've seen to date.

Okay. And then just anything in terms of pricing. Can you talk about any new pricing or what the environment is currently?

I think as the irrigation margins have shown, certainly the irrigation margins were up. The irrigation margins were showing positive impact. And it was a combination of lower input costs, some lower steel price, and a favorable pricing environment. And we've seen that through this past quarter. So there was nothing that was driving pricing to, let's say, be attractive that would pull through any volume. I would say it was a good pricing environment because the demand has been robust.

Okay, thanks. And then one more here. Could you just talk about what you envision for infrastructure for 2013? Obviously the Golden Gate project sounds like it may be pushed into fiscal Q4 now versus fiscal Q3. I am just wondering should we be taking what has been a soft start to the year -- is that the level that you see this base demand at? Or is there something that tells you that base demand is getting better in the back half of the year, excluding that Golden Gate project?

I would characterize it as the first quarter really doesn't tell us a lot about what will happen with the Infrastructure business segment, as it is typically a pretty low quarter anyway in terms of road safety products and some of the other products. So I would expect that we'll see some pickup certainly in the season, more the summer months, spring and summer months, in terms of the road safety products. But I think it's definitely in a trough at this stage. As I said in the comments, I think it's a trough cycle at this point. So until we start to see more government spending, more infrastructure spending loosen up, it's hard to see the Infrastructure business getting much stronger.

At the same time, we still have good demand, interest in our QMB system, our Road Zipper systems. And the Golden Gate bridge project is probably likely to be delayed a little. We expected to see more of an order and some potential shipments in the fourth quarter. It could flow into 2014. But at this stage none of it is a sure thing. Even, I wouldn't call the Golden Gate bridge project a sure thing in any way. So they're all questionable as projects until we actually see the order.

Thanks for the update, guys. I will get back in the queue.

Brian Drab from William Blair.

Congratulations on a great quarter. My first question is around the pull forward. And you've mentioned this dynamic where farmers may be concerned that they are not going to be able to get equipment during the peak selling season. Can you give us a sense for, last year, during the peak selling season, in your third quarter of fiscal 2012 you did about $150 million in revenue in the Irrigation segment. When you are running at $150 million in revenue, what level of capacity utilization are you at? And can you talk a little bit about how you calculate that in terms of how many shifts and what you can do to -- what's the maximum level of revenue that you could squeeze out of the operation as it is today? And where were you last year in terms of capacity utilization?

I'm going to answer that question a little bit differently. And I'd look at it from this past quarter perspective. You can see the sales numbers for the first quarter. During the quarter we were running at a pretty high level of capacity and relatively close to our practical capacity for our domestic manufacturing level. And what that caused was our lead times pushed out, which we would typically see, say, two to three weeks on a lead time is out to six to eight weeks right now in terms of lead time on orders coming in. Now, when I look at it on a global basis, we have much more capacity in terms of, we may be in the 65% to 70% of capacity, with opportunities to add more. And we are adding capital investment to expand capacity.

Even domestically we can add capacity, but it becomes more adding of manual processes and outsourcing more, whether it's outside galvanizing or purchasing more components. We can handle larger volume, if it's in the production schedule and forecast. And we have some lead time on that. So the difficulty in what we saw in the past quarter is that the order flow was very robust, very strong. And we love to see that. But it wasn't necessarily forecasted. It was higher than what we expected. So there were times when it was difficult to keep up with that from a order production standpoint. Not necessarily a real practical capacity standpoint.

I think our manufacturing operation did a fantastic job of managing through and getting out the orders that they did. And really having multiple sources on components, and being able to keep the components' supply moving. So I wouldn't put a cap on our capacity at this point, Brian. I would say that we certainly were stretched a bit during this past quarter. And, as we go forward, I think we have opportunities to continually raise our domestic and our global capacity.

Okay, thanks. And whenever analysts hear the term pull forward, it indicates that there are sales, or pressure on sales maybe, in the quarters where the sales were pulled from. But it feels more like this is the case here, is that sales were pulled forward maybe because people are just so concerned that it's going to be tough to get equipment. And you are not really making a statement on weaker sales in the back half of the year. It seems like there's still even the opportunity, or you still perceive the opportunity for an increase in sales in the back half of the fiscal year in the Irrigation segment, even if you have this pull forward. Is that fair?

Yes. I would characterize this as somewhat cautioning on looking at the backlog number and extrapolating that out to sales numbers for the next couple of quarters. Because I do believe that there is some things in those numbers that would reflect that there are some farmers that have placed orders in advance of when they normally would because of concern about either drought, or concern about the ability to get the orders in the shorter lead times that they have seen in the past. So it's a caution about not going too far out with that.

Okay. Got it. And then do you have any visibility then to some of the projects internationally that are going to occur this year and comparing that with projects that occurred last year? Do you have some difficult comparisons coming up again in international for the balance of fiscal year?

I can't think of any real difficult comparisons coming up. I think that I'm very optimistic about some of the potential projects that we see on the table today, and that we're having discussions on, whether it's in Russia or other international markets. And I think that the international markets still have more upside than what we saw in the first quarter. But in terms of any difficult comparables, nothing really comes to mind on that.

Okay. Thanks very much.

Ryan Connors from Janney Montgomery Scott.

Congratulations to everybody there on a great result. There has been a lot of focus on the dry-land conversion, obviously, because of the drought. But I wondered if you could comment, Rick, a little bit on the replacement side. There is a replacement cycle story here in some of the more established pivot regions like Nebraska. And in theory those farmers did real well, that already are operating pivots, did real well this year also. So, is that business up, as well and to what extent? And what's your view of the contribution of the replacement cycle to the growth opportunity?

Certainly the replacement piece of business is extremely important going forward. And as we're building this installed base that replacement business is building, as well. I think in this past quarter we've seen still pretty good replacement level. I think it's approximately 30% of the machines that were sold were for replacement. And about 23%, then, would have been conversion from flood or gravity to pivot. So that was a lower percentage. So I'd say that the replacement market is holding up quite well. And, obviously, it's building at a pretty good rate.

Now, why would you think that the flood conversion would be declining in this environment? Because one would think that it's more important than ever, given the drought conditions to make the most efficient use of a water resource.

I do agree in terms its level of importance and the level of opportunity there. I probably would not characterize it, Ryan, as decreasing. I would just say, on a percentage basis, dry land expansion was such a significant percentage in the quarter. And that was driven by the high commodity prices, the concern over the drought, and water availability, that that really over-shadowed some of the, let's say, ongoing conversion that's taking place.

Okay. And then I know you mentioned it in your prepared remarks but I just want to revisit it because the balance sheet is really -- you're generating so much cash and obviously you are pretty much out of debt. So what's the urgency level? Is there a time line in your head that if we don't see something compelling on the M&A side in the next, say, six or nine months that there would be a consideration of a buyback or something like that? Because obviously you're really building up cash here.

Yes, we are. And we do give serious consideration to buybacks and special dividends and our dividend rate and all of those other factors. As we looked at just recently, we believe that the Company has many active acquisition candidates that are interesting. Some of some significant size. So, while I wouldn't put a time frame on the closure of any of those, because it's very difficult to speculate on it, I would say it's certainly an important activity. And one where we believe it could potentially be the best use of cash, outside of some of our more short-term organic uses. But we do consider share buyback and certainly any other use of cash. Anything to generate returns for shareholders.

Is there a certain level, a round number, where, as big a deal as you would like to go? In other words, would you be hesitant to do a deal over $100 million or $50 million? Is there any rule of thumb in your head in those terms?

I would say that we have looked at many sizes of deals initially. I would say probably six months ago I stated that we were looking for deals of $50 million or more. I would say we've looked at deals in the $100 million and $150 million. So I am not ruling out anything in that larger-size parameter, as well. Ideally, I would like to see some $50 million acquisitions. However, they are hard to find and some of those are a little tougher. But we are seeing some bigger ones that also make a lot of sense for us.

Great. Congrats again. Thanks for your time.

Chris Shaw from Monness Crespi.

I wanted to ask a question around the pricing again. It sounds like it was up year-over-year. I know typically I think in the past, when the input cost deal has came down, that pricing somewhat follows that. Because of the demand this year, is that not happening? Or do you see that happening later in the year?

I would characterize it as that's what's happened during the first quarter, is that demand was very robust. And while steel prices did pull back a little bit, and there were some opportunities for margin improvement there, we did not see the give back from our competition in terms of pricing, as we have seen in the past. Our hope certainly would be that that would hold. Steel tends to have flattened out at this point. We would like to hold onto the position that we have. But that's been the case through the quarter.

Okay. And I know in the past you have mentioned, I think, traditional irrigation areas like Texas that have, I think, been somewhat drought prone for a number of years now growing slower or being flat. Was that the case again this quarter? Or are areas like that picking up, as well?

I don't know specifically on Texas, to be honest. I didn't look at that specifically. I would say that what we saw, as Texas had a couple years of drought, is we did see that, in the early stages of it, some increases in sales of equipment. This is back a couple of years ago now. And then as water became in shorter supply and more of a problem, the sales dropped off in Texas. And I can't speak specifically to what happened during this last quarter.

Thanks a lot.

Joe Mondillo from Sidoti & Company.

Just a couple questions. In terms of the gross margins, I know we covered pricing, but you mentioned that of the 400 basis points it was based on the lower input cost pricing and the higher volume leverage. Could you just talk about the contribution to each of those? Was it evenly spread amongst the three?

Yes, Joe, this is Jim. Pretty evenly. A little bit more on the input costs than the pricing and a little bit less on the leverage but pretty evenly overall.

Okay. And then, obviously, one of the drivers amongst this whole trend with the drought and dry land and irrigated has to do with a yield, obviously. Could you just talk about, of this year, this past historical dry year, what's the difference between irrigated and non-irrigated yields?

I don't have the specific yield data in terms of irrigated versus non-irrigated. It's been difficult to try and get a handle on it. But we have seen very wide ranges. And corn production in irrigated versus non-irrigated, depending on regions, where you could see farms side by side with yields that could be almost nothing, 25 to 30 bushels per acre, next to one that's irrigated that could be in the high 200s bushels per acre. And that was not unusual to see during this past season, depending on the region and the part of the country.

Okay. And then just lastly, the QMB revenue a year ago compared to this year, could you give us some color on that?

We don't split out QMB specifically in our Infrastructure segment revenues. We do see times, however, when Infrastructure, the QMB, as we're now trying to call more frequently the Road Zipper System sales, will be in the 15% of Infrastructure sales to 50%, and sometimes even higher. And it was towards the lower end. So the QMB, or Road Zipper System sales were pretty low end in the Infrastructure segment revenues this past quarter.

And of that range -- just trying to get an idea of what the comparison year-over-year was. So a year ago?

A year ago it was more in that 20% to 25%.

Okay, thanks. Thanks a lot.

David Rose from Wedbush Securities.

Most of my questions have been answered. But I do have a couple of follow-ups. I was wondering if you can talk a little bit about some of the constraints you had in the quarter and how you expect those to play out in the second quarter. More specifically, we're looking at some lead times as much as three months, from what I picked up. How are you managing that with your suppliers? I think you touched upon a little bit of it but maybe you can go into a little bit more detail. And then, second, if I can go to the Infrastructure business, just more specifically what is driving the reduction in your QMB leasing, where customers are going away?

In terms of the lead times, David, I would say that what we saw is our lead times have stretched from two to three weeks to about six to eight weeks out. So it's not hugely significant. But a large part of that comes down to the forecasts that are made, and then manufacturing to that production forecast in that production cycle. So our manufacturing group has done a great job in terms of continually modifying that cycle -- or the forecast, rather, based on the new information that's coming in and as the orders have come in. And those orders have continually exceeded the forecast through that first quarter.

So the manufacturing team was constantly trying to either expedite some of the materials coming in, the purchase components and expediting some of the manufacturing processes. This first quarter would typically be a very low quarter for us. We were running at a relatively high level of production, with high levels of employment at the domestic factory in order to keep up with that. But they have done a great job in terms of managing through it.

When you get to constraints, the constraints would be primarily that forecast visibility plus the supplier delivery times. I would say our suppliers have also done a great job in responding to our needs. And we have, in almost every case, multiple suppliers. So we have choices there. You also look and notice that our balance sheet, on our balance sheet, that our inventory is higher. And part of that would consist of decisions we have made to carry more inventory to support this higher level production run. So, from that standpoint, some of the constraints we are dealing with by carrying higher inventory.

So under that scenario, as a follow-up, does that imply that margins can improve, given that you are better prepared than you were in the first quarter? I imagine there was some disruption. You worked overtime, as you mentioned. Now you have ordered ahead of time. There's probably less service cost issues with respect to customers. So does that provide upside to margins for the irrigation business?

The higher level of productivity that we can run, obviously, does enhance margins. But there are other factors that come into play. One of those is certainly steel costs, input costs, it could be steel and zinc -- steel is certainly the most important one -- in terms of what costs they are at. And then also pricing and really what our competitors do from a pricing standpoint. Those are often more important than what happens from a productivity standpoint in the factory. However, there are opportunities to improve productivity, as we can improve our manufacturing efficiency with greater visibility or less interruption by having stock on hand. But it doesn't really tell the whole story because the issues of the input costs plus the pricing from competition is significant in that formula.

Okay. And then, I'm sorry, lastly, given your ability to project what you have done to manage the unexpected increase in volumes, you prepared yourself for this period. But you have to think longer term, I imagine. Can you talk about CapEx expenditures and what you're thinking in terms of plant expansion in 2014 or '15?

As I mentioned in a comment earlier, we plan to spend roughly $15 million to $20 million in CapEx this year. A lot of that CapEx would go into some of our international plant expansion. And we see opportunities to expand those international factories, which reduces their cost of production. It also adds some capacity, which could also, in some instances, offload from the US manufacturing plants, as well, for some of our export products. So we do anticipate investing in capacity expansion. Now, that doesn't rule out some capacity expansion in the US operation. However, I would say more of that tends to be smaller type items. And we can expand our capacity quicker by adding some more manual processes in the domestic operations.

Okay. Thank you.

(Operator Instructions)

Andrew O'Conor from BMO Asset Management.

Rick, gentlemen, great quarter, guys. In light of your prior comments, Rick, can you better quantify or dissect irrigation equipment demand for the first quarter and then what you see for the full year '13 between first-time buyers and existing or repeat irrigation equipment customers? I may have missed this. Again, can you better dissect irrigation equipment demand between first-time buyers and repeat irrigation equipment customers? Thanks so much.

Thanks for the question. It is a good question. However, I don't have that information to really be able to dissect. And we have not in the past dissected that in terms of the type of buyers. I would say that we've seen definite interest from new buyers when we are looking at the dry land percentage. That would indicate to me, in other words, the 47% of systems going out into dry land, that it's going to be a combination of our existing customers who are expanding their irrigation installation and new customers who are probably putting in irrigation for the first time. But outside of that, I really can't characterize or dice that up any further for you.

So simply, Rick, would it be more of one than the other? More first-time buyers as opposed to repeat buyers here for the next few quarters?

Honestly, Andrew, I can't get to that level of detail. I don't have that information.

All right, sir. Thanks again.

David Rose from Wedbush Securities.

I just wanted to follow up on the QMB question I had. Is there some clarity as to why we're seeing some existing customers that were leasing the QMB equipment not repeat their purchases? Is it budget issues? Maybe you can provide a little bit more color.

From the indications that I've seen and have, I would say I think that the QMB leasing is down primarily because of the road construction projects being less. And as we see road construction projects increase, I would expect we will see more of the Zipper System or QMB leasing take place, as well. I also think there is some issues where, in some cases, we did see contractors on leasing projects that did pull back in terms of cost savings from leasing the systems. But I don't think that's a long-term issue. I think that's a short-term budgetary issue.

Okay. Great. Thank you.

At this time there are no further questions. I will now turn the conference back over to Mr. Parod for closing remarks.

For our business overall, the global long-term drivers of water conservation, population growth, increasing importance of biofuels, and the need for safer, more efficient transportation solutions remain very positive. In addition to the overall business enhancements that have taken place, we recognize our strong cash position and are focused on seeking and executing against acquisition objectives that will generate additional growth opportunities. Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins, and strategic acquisitions. I would like to thank you for your questions and participation in this call.

Thank you. That concludes today's conference call. You may now disconnect.