Lindsay Corp (LNN) 2014 Q2 法說會逐字稿

Good morning. My name is Selena, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation second-quarter 2014 earnings call.

(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 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.

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

Total revenues for the second quarter of FY14 were $152.8 million, 13% lower than the same quarter last year. Sales in the US irrigation market declined 21%, partially offset by a 32% increase in infrastructure sales.

Lindsay Corporation's operating margins decreased to 13.7% in the quarter, compared to 16.8% in the same quarter last year. Net earnings were $13.5 million or $1.04 per diluted share, compared with $19.4 million or $1.50 per diluted share in the prior year.

For the first six months of FY14, total revenues were $300.5 million, decreasing 7% from the same period of last year. Net earnings were $23.7 million or $1.83 per diluted share, compared to $34.1 million, or $2.65 per diluted share in the prior year.

For the irrigation segment, sales totaled $135.9 million in the quarter, decreasing 16% from the same quarter of last year. Irrigation operating margins declined to 18.1% of sales from 21.7% last year, due to the deleveraging of fixed expenses on lower revenue.

In the US irrigation market, revenues were $92.8 million in the quarter, declining 21%. Excluding US sales from the LAKOS filtration business acquired, US irrigation sales declined 25%, representing a slightly larger decrease than we experienced in the first quarter of FY14.

The elimination of the enhanced section 179 depreciation benefits may have contributed to this decline. However, we believe the most significant impact to sales trends has been the year over year decline in crop prices. While we've seen some upward movement in corn prices over the last several weeks, they remain more than 30% lower than a year ago.

The current forecast for 2014 US net farm income is 27% below 2013. For the remainder of FY14, we expect US irrigation equipment revenues to continue to be below last year's levels.

In the international irrigation markets, revenues for the second quarter were $43.1 million, decreasing $2.4 million over the same quarter last year. The revenue reductions occurred primarily in the Middle East, Russia, and Ukraine, and were generally related to the timing of specific projects. While we don't believe the current political issues with Russia and Ukraine affected the demand in the quarter, we do believe the issues now represent a headwind for irrigation equipment growth in the region.

Irrigation revenues in Brazil have remained very strong, but are now compared against record revenues last year. That, along with the substantial completion of the $39 million Iraq project make the potential for increases in international irrigation revenues challenging for the remainder of FY14.

For the first six months of FY14, total irrigation segment revenues decreased 11% to $265.1 million. In the US irrigation market, revenues were $172.6 million, decreasing 19% from the previous year. In the international market, irrigation revenues were $92.4 million, increasing 11% over the previous year, with the most significant increases in Australia and South America.

Infrastructure segment revenues were $16.9 million in the quarter, increasing 32% from the same quarter last year, with the most notable increases in road safety and rail products. In operating income, the infrastructure segment achieved breakeven, as compared to an operating loss of $2.1 million in the second quarter of last year.

For the first six months of FY14, infrastructure revenues increased 36% to $35 million, with increases in nearly all product lines. I'm very pleased with the progress in the infrastructure business, and the improvement in performance in the quarter, which is the lowest seasonal quarter period for the business segment.

We have aggressively pursued sales growth, while improving gross margins and reducing SG&A expenses. We're confident that we are on the path to returning the infrastructure segment to consistent profitability and value creation.

Gross profit in the second quarter for the Company in total was $42.7 million or 27.9% of sales, versus $50.4 million or 28.7% of sales in the same quarter last year. The decline in gross margin represents an overall shift in sales mix, caused by the decline in US irrigation equipment revenues. Gross margins in irrigation declined by approximately 1 percentage point, while infrastructure gross margins improved by approximately 7 percentage points, attributable to a combination of sales mix changes and leverage on higher sales.

During the second quarter, the Company's operating expenses increased by $800,000, including the incremental $2.2 million of operating expenses associated with the newly-acquired LAKOS business. Excluding the acquisition, operating expenses declined $1.4 million, led by reductions in incentive compensation and marketing-related expenses. Operating expenses were 14.2% of sales for the quarter, compared to 11.9% of sales for the same period last year, reflecting the revenue decline.

The order backlog at February 28, 2014 was $89.3 million, compared to $159.3 million at February 28, 2013, and $86.6 million on November 30, 2013. Year over year backlog for US and international irrigation declined, and infrastructure backlog increased, with the inclusion of the Golden Gate Bridge project.

Excluding the Iraq contract from the prior year, international irrigation backlog increased year over year. Our backlog typically represents long-term projects, as well as short lead time orders, and is therefore generally not a good indication of the next quarter's revenues.

Cash and cash equivalents of $165.5 million were $5.9 million higher compared to the same time last year, while debt decreased $2.1 million. Accounts receivables were $6 million higher and inventory was $3 million higher year over year, primarily due to the acquisition of the filtration business.

Our current estimate for capital expenditures for 2014 is between $15 million and $20 million. Our capital expenditure planned investments include a manufacturing operation in Turkey, which is planned to be operational early in FY15. This plant should accommodate our long-term growth plans in Europe, Africa and the Middle East, and other developing regions, as needed.

During the quarter, we repurchased 79,000 shares in the few weeks available while the window was open, as part of our capital allocation plan announced January 2014. We also continue to pursue water-related acquisitions that enhance our competitive positions, and provide attractive returns to shareholders.

In summary, the US irrigation market has slowed significantly as compared to the past several years of record crop prices, and the significant draught. International markets remain active, but small and large projects have experienced some delays, which we attribute to the decline in global grain prices. Despite the political and cyclical headwinds, we're optimistic about the future, and are expanding our irrigation equipment manufacturing capacity selectively.

The infrastructure business has improved its profit profile and generated growth in an environment of constrained government spending. We believe this business can continue to grow and improve in profitability, as we gain share in each of our markets, and as we identify and develop new zipper system applications worldwide.

In addition, our balance sheet remains strong. We will continue to invest in growth and productivity, both organically and through acquisition, and we will utilize excess cash to improve returns to shareholders.

We believe there are opportunities for strategic synergistic acquisitions that further differentiate our market position, and add new growth opportunities. We will maintain our acquisition discipline, to ensure we achieve value creation for shareholders.

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

(Operator Instructions)

The first question comes from Brett Wong of Piper Jaffray.

First, just wanted to dig into the Eastern Europe issues a little bit more. I'm wondering if you can provide some more color on the previous overall growth expectations that you had in Russia and Ukraine, and how the political concerns in the region have now changed those views?

I think I would address it by talking about the international market in total, and we have historically described the growth rates for the international markets as double-digit, in the 15% growth range, and some of the markets are more developed, similar to the US, like Europe and Brazil, and likely to respond to what we've seen in terms of commodity changes. Many of the other markets are developing, and are more project-based and Russia and Ukraine definitely fit that category, and they'll be affected by commodity prices as well. But also by other changes, for example, the political situation we're seeing and capital availability, et cetera.

I'd characterize Russia and Ukraine as the change that's taking place today as being important in terms of producing -- basically creating a headwind for us going forward, but I would also say from a risk standpoint, our sales in that region have been below 5% of our irrigation revenues in total, so there's not a significant risk to our revenue base. I do think that we could see some delay in projects, given the political situation.

Great. Thanks. And then on the infrastructure side, what are your current thoughts and expectations around a highway funding bill, specifically on timing? And based on your view, what impacts are you seeing for the infrastructure segment next year?

I don't have a specific view in terms of the timing of the highway funding, highway bill funding; I really don't know what will happen with that. There's obviously many different perspectives. I do think that getting a longer term highway bill in place will be beneficial to our business.

I apologize for the siren in the background. We do think that not having that in place today has been really a bit of a difficulty in terms of providing growth opportunities in that market, but at the same time, we've been able to pick up market share and we'll continue to be aggressive in gaining sales in other ways.

Great. Thank you very much. I'll hop back in line.

The next question comes from the line of Nathan Jones of Stifel.

This is actually Richard Hall on for Nathan Jones today. Can you guys hear me with that siren in the background?

Yes, I apologize for that. This happens to be apparently a test. Yes, go ahead.

Sorry about that. You briefly mentioned this in your prepared remarks. If we think domestically, obviously corn prices are down significantly year-over-year. But however since the beginning of 2014 and 2013, corn prices are up pretty significantly, about 20%. Have you heard anything notable, any kind of change in the quarter -- (technical difficulty).

One second. Sorry. Go ahead.

Did you get any of my question?

Could you just repeat that last part? You started with have we heard anything--.

Yes. I'm just curious. Corn prices are up pretty significantly since the beginning of 2014. Have you heard anything significant from any dealers as far as tone or confidence on a quarter-over-quarter basis, year-over-year?

No, I think the way that the dealers would describe it is -- I apologize. This will end soon, I hope. Would describe it is, that they had seen difficulty during the first quarter, and at the end of the first quarter, into the second, of still a significant amount of inquiries and quotes, and a lot of activity, but more difficulty, in terms of just getting the deals closed.

I think that remains the situation today, is there's still a lot of interest. It may not be certainly as high as it was last year, but getting those turned into closed orders has been more difficult for them. That's how the dealers would characterize it.

Okay. Great. Thanks. And then just switching over to infrastructure.

I guess, could you provide us with any update on the Golden Gate project, if there is any? I recall, you expect the first revenue to hit in the beginning of FY15, and then substantially get the most or have the project finished by the end of 2015. Is that still the case?

Yes, that project is beginning from the standpoint of we've begun production on many of the components for that, on the elements of the project. And that will be -- we will begin installation on that, I believe it's in the fall of this year. So we'll see that revenue in next year.

All right. Great. Thanks.

Next question comes from Brian Drab of William Blair.

So, first question on gross margin. So is 27.2% in the first quarter, and then adjusting for the 150 basis points warranty issue, would have been 28.7%, and looking at the sequentially gross margin moved from that 28.7% down to 27.9% in the second quarter. So I'm just thinking about the major factors that could impact gross margin sequentially.

We have total revenue up a touch, about $5 million. Typically, international irrigation sales are lower margin than the domestic sales, and international went from 40% or so of irrigation in the first quarter down to 32% in the second quarter, so that should have been a bit of a tailwind for margins.

I'm just wondering what drove sequentially the 80 BPs of gross margin compression. My guess it had to do with QMB mix within infrastructure, maybe pricing in the irrigation business? Thanks.

Yes, Brian. I would say that when you talk about it sequentially, excluding the adjustment in the first quarter, it is primarily mix-related. There wasn't really anything unique about the quarter, but there is a little bit of a mix shift in total in the businesses, and that's really where the majority of the shift would have been.

And Jim, could you talk any more about the mix shift? Is it within irrigation, or is it within the infrastructure business?

Am I correct in thinking maybe QMB sales stepped down a touch from the first quarter? You sounded a little more -- I think you sounded a little more optimistic about -- or positive about the QMB results in the first quarter.

Yes, no, it's really kind of a mix between the businesses, more than anything else. And then I would also say we had a little bit better -- in the first quarter we had a little bit better pricing, versus cost, impact in the core international business, where this quarter on a year-over-year basis, we didn't lose margin from price and cost, but we didn't really pick up any margin either. So there was a little bit of a margin impact there within the domestic business.

Okay. Okay. And then what's the balance today between -- within irrigation, between the large corporate farms in the US and individual farmers? How does that break down and what was the -- what did the relative decline look like in each of those categories in the quarter?

I can't split out that percentage of the large farms versus others for you at this point, I don't have that segment data. But I can tell you that when I look at where the decline took place, as is the same situation with the first quarter, it was relatively consistent across the corn belt region. We saw still pretty solid sales with the Pacific Northwest and a few other pockets, but across the corn belt, the impact was fairly consistent.

Okay. And Rick, am I safe in still assuming -- I think in the past, you said that the individual farmers account for the majority of -- like 50% to 70%, probably somewhere in that range of the sales?

They certainly account for a very high percentage, Brian. I don't have a specific amount, but I would say that also, I'd characterize customers that purchased more than one pivot as a very high percentage. In other words, ones that would have multiple pivots and buy over multiple years, our equipment, would be a pretty high percentage as well.

I think the other observation out of the quarter that we often have talked about is the percentage that went in -- equipment that we sold that went out the door into dry land application, or replacement or conversion, and what we saw in this quarter was about 40% of the machines were going to replacement. Around the same time last year, that would have been about 29%.

Ad last year we would have seen about 50% -- over 50% going into dry land. This year it was about 39% in the quarter. So I think that's showing a significant change due to commodity price, and what the difference is in application of the equipment today.

Okay. That's very interesting information. And the last thing I'd ask just is on moratoriums.

We heard a little more about moratoriums, especially in Eastern Nebraska lately. Are you feeling the impact from that, or is it relatively minor?

It's relatively minor at this point. I think we could see more, but at this stage I would say it's relatively minor.

Okay. Thanks.

The next question comes from Joe Mondillo with Sidoti & Company.

The international backlog, just wondering if you could give us a little more color on that, in terms of the back half of this fiscal year. Are you anticipating -- I know you're going up against very tough comp compared to a year ago, but sequentially, compared to the first half of the year, are you expecting sequential growth, or similar levels that we saw in the first half?

I think to go back to the comments I made earlier, Joe, the international backlog is higher when you take out the Iraq contract. Obviously, the Iraq contract was a significant element of our backlog in the past.

We really don't define our backlog or break that out any further for competitive purposes and other reasons, in terms of the detail of that. But I would just say I think the international markets are still performing well, but as I mentioned also, we do have some tough comps, particularly in South America and Brazil.

Right. So I don't recall how big that -- I don't know if you -- I think you disclosed something in terms of the Iraq contract, but I don't recall how big that was. I guess just directionally, I'm not looking for actual numbers, but just directionally, are you expecting an absolute sequential growth of first half to second half, or are we looking at similar levels? Knowing what you know with the backlog.

Well, let me just speak to it -- this is Jim, by the way. Let me just speak to it more from a year-over-year standpoint, because last year, our international revenues were larger in the second half than they were in the first half. And I think as Rick alluded to, we do see some headwinds in international.

We're not -- we are not counting out the possibility of having year-over-year growth, but obviously it will be much more difficult to do with both having the Iraq contract in the back half of the year, as well as some of the other political headwinds that we have. So I think I'd look at it more on a year-over-year basis than necessarily a sequential basis.

Okay. So we could potentially meet the levels that you saw last year, even still without that huge Iraq contract?

I think it would be very difficult to have growth with the Iraq contract last year.

Good enough.

If you're asking if it's possible, certainly it is. The concern we have is the Iraq contract completion, the comps in Brazil, and also what's happening in Russia and Ukraine today.

I think that definitely affects, creates a headwind, and affects the ability to see the projects that we did see last year. Even though they're not significantly material, it does affect our growth rate for international.

Okay. In terms of the irrigation margin overall, there's a couple different dynamics going on, specifically with international.

As that chunk gets bigger, that sort of weighs on the margin, but it looks like if you do see -- it does look like you're going to see a tough comp in the back half of the year. If you do see smaller international sales as a percent of the total, at least compared to the first half of this year, it looks like as a percent of the total, international will be falling possibly?

So how do we look at sort of that dynamic versus sort of the deleveraging dynamic on the smaller sales base? In other words, is it going to offset and you're going to see flattish-type margins that you saw from a year ago? Or do you still anticipate year-over-year headwind on the margin profile?

Well, I think that last year we saw -- we actually saw international as a percentage of the total irrigation actually higher in the second half than it was in the first half, and I wouldn't be surprised to see it higher again this year. So that would actually have a little bit of a negative impact on the margin. Now, that does include export business as well from the US, so it isn't just a US versus international, when you look at the leverage within the US manufacturing.

So I do think that we will have -- there's certainly a good probability that we'll have a higher percentage of international in the second half than we have in the first half, and that will have some downward pressure. And then I would just say we continue to work on how we manage the cost within our plants to reduce the amount of deleverage. But probably the last thing I would say is, as we've said in the past, the bigger impact on margin tends to be pricing and input costs, and we have seen a little bit of pressure on the steel side, and we don't have great visibility into the pricing side, but if we do see more competitive pressure from -- in a down cycle, that would have an impact as well.

So in the first half of this year, the margin decompression that you've seen on the year-over-year comparison, has that been largely pricing and input prices, or has that been more so international mix, or smaller sales base?

It's been larger, the mix. Because we have had -- the bigger decreases in sales have come in the domestic markets, where year-to-date, our international markets are actually up a little bit.

So as a percentage of the total on a year-over-year basis, the mix has shifted more to the international side. If you're asking, though, about the second half versus the first half, I think the international mix as a percentage of the total will also be higher than the first half.

Okay. And then just lastly, I was just curious, did you see any benefit or are you starting to see any benefit from the drought that we saw in the West Coast? And how much does the West Coast make up your domestic sales?

Well, to speak to California specifically, it's not a significant percentage of sales. It has been a growing market in the last couple years, with some good potential, but it is not a significant or material piece of our revenue.

That drought is not making a big difference at this point. I think it's getting to the stage of whether or not farmers will have, and has gotten to the stage really, of whether or not farmers will have water available for irrigation at all, and that's the battle that's going on right now. And the longer that drought goes on, the more severe it could become, and therefore affect whether or not there's any irrigation in operation.

At this point it really hasn't had an impact on our sales. I think that there's definitely opportunities there, and the opportunities would be to really see the gravity irrigation or flood irrigation eliminated, and switch to more efficient irrigation such as our pivots, our mechanized irrigation equipment.

I'd like to see the state investing more in it. They've announced some subsidies for changing to more efficient irrigation, but we haven't really seen what that's going to entail yet.

Is that region less than 5% of your domestic sales? I know you have a -- when you look at that map of yours with the concentration, it looks like you do have a good footprint there, but I guess the total sales is just not that big.

I don't have the specific number in terms of the size of -- what impact that has on our revenue. I would just say it's not a very significant impact. It is a growing region for us, but it's not a significant impact on our revenue today.

Okay. All right. Thank you.

Our next question comes from Schon Williams of BB&T Capital Markets.

Rick, you mentioned Section 179 possibly having some effect. I'm just wondering, I understand most of those systems had to be installed by December. Did you see a bit of a rush to get systems out the door and installed in December, and then a bit of a drop-off as we moved into January, February time frame?

Yes, Schon. We talked about this a little after the first quarter, and we really didn't see anything that we could define as kind of a rush in terms of getting things in at the end of the calendar year. So I really didn't expect that this had much impact.

Now, what we've heard since then from dealers is that it did have more of an impact, and it wasn't so much represented as a rush as people were really taking advantage of the enhanced Section 179, probably for many months towards the end of the year. So it was a pretty good flow of orders coming in, and we did see a change.

And we do believe that it had some impact. We just really don't know how much. And it's very hard to differentiate that between the effect of commodity prices.

Is there an expectation, that may be re-implemented maybe at a lower level? I mean, are dealers counting on that at this point? I mean, there's been some talk about possibly, maybe after the fall elections, extending it retroactively through the beginning of the year.

I'm just trying to get a sense of, what are dealers telling you at this point? Are they counting on an extension of that, or they're not counting on that, and more demand we've seen is, again, more a function of where commodity prices are?

The comments I hear from people are that they are expecting or have some level of expectation that it will get reinstated and we'll see more enhanced Section 179 in place. However, I think as we all feel, it's really hard to know what will get approved today. But that is an expectation that's been discussed, because it has been done in the past.

Can you help me understand on the buyback and just how the timing works? I know you announced a capital allocation plan in January. I would assume there's some blackout period as you get towards the end of February. Can you help me understand what your corporate policy is, and how long the blackout lasts, and just some of the timing issues?

Sure. Basically, we follow the blackout period that's similar to what we follow for our officers, which is a couple of weeks, just prior to the end of the quarter. So to your point, we did start the repurchase after we announced the capital allocation plan, but there was a relatively short period of time for us to execute repurchases, prior to running up against that blackout period.

The other comment I'd make is that, as we outlined in our capital allocation plan, we plan to invest $100 million to $150 million in opportunistic share repurchases, and we have -- we plan to have repurchase activity every quarter during the open window period.

That's helpful. Thanks for the color.

(Operator Instructions)

The next question comes from Chris Shaw of Monness, Crespi.

You mentioned the timing of projects in international. There was a strong first quarter for international irrigation. Can we interpret the timing of projects may be pulled somewhere, I guess more concentrated in the first quarter than just the natural course of that, and there was less in the second quarter so a more proper look at how that business is sort of combining -- looking at the entirety of the first half, and not just quarter by quarter?

I'm not sure I got the last half of that question, please. I didn't understand that. Could you repeat that?

I was just saying, is it better to then look at the full year or half a year versus the quarter-to-quarter because the projects are somewhat lumpy?

Well, I think the nature of the projects that we participate in, the irrigation projects are lumpy, and I wouldn't read much into the change from one quarter to the next in the sense that in many cases, especially in the developing markets like Russia and Ukraine, parts of Africa and even China, they will be project-based.

So the timing slipping may not be really indicative of anything other than the fact that it's a project, and there could be delays in whether it's either land acquisition or various activities that could cause that to happen. So I wouldn't read more into that, and I think looking at it over a six month period is a better picture, looking at it over a full year is a better picture. But quarter-to-quarter, it's difficult looking at the international revenues because of that project level of activity.

Okay. And then, US irrigation, did dealers talk about any impact from the weather? I know it's always -- winter not the best time to buy irrigation, or think about it, in a sense.

But did the snow keep people out of the dealerships at all? Did you get any feedback from your dealers on that?

We haven't heard a lot of feedback regarding the weather, other than the fact in some areas there's concern about delay in planting, and that means therefore customers are making some decisions as well in terms of buying equipment. There could be some impact.

I really don't have much more other than some general comments on that. There really hasn't been a lot more that we've heard on the weather impact.

Finally, on LAKOS. I think if you work back from the percentage growth numbers, LAKOS maybe contributed $5 million in sales this quarter.

If that's right, that seems like less than I would have thought. Maybe I've got the seasonality wrong on that. I thought it would be stronger than that $5 million in sales.

I think the math you're running is off of a with and without LAKOS number that we're giving, but that's a domestic number. So there is international business as well.

And historically they've had up to a third of their business on the international side. So your math would be on the -- more on the domestic side.

All right. Okay. Thank you.

The next question comes from Kevin Bennett of Sterne Agee.

Jim, a quick follow-up. On the corporate expense line, looks like it took a nice step down in the second quarter, and was wondering if you could help out for the year if this $3.5 million is good for the rest of the year or will it step back up?

It is a little bit lower, tends to be a little bit lower in the second quarter because we have some of our kind of audit and other costs take a step down in the second quarter. We also had some benefit on the -- some of our healthcare costs, some of the changes we made in our health insurance programs. But so we do expect that to step up a little bit, although I would expect it to be in that $4 million range, so maybe a $0.5 million higher or so, balance of the year.

Got it. Perfect. That's helpful. And then Rick, I know you guys are actively looking in the M&A market. Is there anything you can tell us or help us -- what you're looking at, how close anything maybe, or what you're seeing in the market?

I couldn't comment on how close we are. I'd say we're still seeing a lot of activity in the market in terms of a lot of potential candidates, primarily around the water aspect of the pumping and the filtration side, things that we have pieces of today.

And I'm optimistic about those. However, most of them are pretty small, so we're not really talking about large deals but we're talking about ones that further strengthen our differentiated position but add to growth opportunities for the future.

Got it. Perfect. That makes sense. Thank you, appreciate it.

The final question will come from the line of Peter van Roden with Spitfire Capital.

Just a quick question on irrigation margins. Some have been talking about where they think it's going. Seems to me you have done a pretty good job of keeping them where they are today, given the downdraft in the domestic market. Can you talk about some of the stuff you've been doing to keep that steady?

I think a couple of key points to this has been, one, what's happening with the pricing environment, and frankly what we've seen in the pricing environment is, it is competitive, but we haven't really seen a significant change in competitive intensity in pricing. Generally, we've had some cost increases that came through in the form of steel and some other commodities that we've been able to pass through in terms of pricing. So that's a big factor in it.

In addition, our factory has been very responsive, and a lot of this is tied to the Lean implementation, and the fantastic job that our manufacturing operation has done in being able to respond to higher and lower volumes. Being able to ramp up in the peak of the season and at different times in the peak of the cycle, and be able to pull back as needed.

That does get more difficult at times as volume comes down, but they've been very effective in terms of taking costs out at the lower production levels. In addition, we've had some small staff reductions, minor ones, but it's generally tied to the pricing environment and the reaction from the -- that our factory has made.

Got it. And then final question from me is, you guys talked a little bit that inventory was up year-over-year because of the LAKOS deal, but days have also been creeping up a little bit over the past couple of quarters. Is there any reason for that?

Are you talking days in inventory?

Yes.

It's up a little bit. Some of that is just some of the seasonality, various of our locations increased their inventory a little bit in advance of the third quarter. So we would expect that to come down over the balance of the year.

Okay. That's all I had. Thanks.

Thank you. I will now turn today's conference call over to Mr. Parod for any final remarks.

Well, we have experienced a near-term decline from peak irrigation revenues, drivers for the Company's markets of population growth, expanded food production, and efficient water use, support our long-term growth goals. We are committed to creating shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions, and share repurchases, congruent with our capital allocation plan.

We thank you for your questions and participation in this call today. Thank you.

Thank you. This will conclude today's conference call. You may now disconnect your lines.