Lindsay Corp (LNN) 2015 Q1 法說會逐字稿

Good morning. My name is Vanessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation first-quarter 2015 earnings conference 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 the information concerning possible or assumed future results of operations at the Company, and those statements proceeded by, followed by, or including the words expectation, outlook, could, may, should, or similar expressions. For these statements, we claim 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. Please go ahead, sir.

Good morning, and thank you for joining us today. With 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 first quarter of FY15 were $134.8 million, 9% less than the $147.7 million in the same quarter last year.

US irrigation equipment revenues decreased, and were partially offset by increases in infrastructure and international irrigation sales. Operating margins decreased to 8.8% in the quarter, compared to 10.8% in the same quarter last year, primarily due to lower sales, and approximately $2 million in incremental expenses associated with estimated environmental expenses and acquisition-related expenses. Net earnings were $7.6 million or $0.62 per diluted share, compared with $10.2 million or $0.79 per diluted share in the same quarter last year.

For the irrigation segment in total, sales were $114.7 million, 11% lower than the same quarter last year due to the decline in equipment demand in the US. Irrigation operating margins decreased to 12.8% of sales from 15.7% last year, due to the lower revenue and incremental environmental expenses. US irrigation revenues of $62.7 million decreased 21% on a 27% decline in the number of irrigation systems sold, offset by sales increases in pumping stations and filtration solutions.

Virtually all of the unit sales decreases from the same quarter last year occurred in the cornbelt of the US. While corn prices have seen some rebound over the last few months, they remain relatively below the peak attained in 2012. The commodity price compression is expected to continue to reduce farm incomes in the coming year.

Lower commodity prices, and consequentially lower farm incomes, are expected to reduce US irrigation equipment demand in FY15. However, it remains very difficult to predict the full impact until we enter the primary selling season, starting this second fiscal quarter when we will have more tangible feedback on farmer sentiment, and visibility on market demand.

While the near-term perspective is unclear, it is evident that the conversion to efficient, mechanized irrigation is progressing undeterred in the US, as illustrated in the USDA farm and ranch irrigation survey data released in November. Pivots and lateral systems now irrigate approximately 48% of irrigated acres, as shown on page 9 of our slide deck.

International irrigation revenues of $52 million in the quarter increased 4% over the same quarter last year, most notably in the Middle East, South Africa and Australia. Interest in mechanized irrigation remains very good in most all of the international markets, with many large agricultural projects proceeding as planned, undaunted by the lower commodity prices.

However, there remains significant challenges with selling into Russia and Ukraine, which historically represents a small percentage of our international irrigation sales. The challenges have now been exacerbated by the plummet of the Russian ruble, reducing the purchasing power of our customers in Russia. However, we continue to believe in the long-term growth opportunities the region offers, and we will remain active in the market.

Infrastructure segment revenues were $20.1 million in the quarter, increasing 9% from the same quarter last year. The infrastructure segment generated operating income of $2.2 million in the quarter, compared to $0.5 million in the first quarter of last year on higher sales and improved margins. All of the revenue increase for the segment was generated by our road safety products, with a significant increases in internal sales for use with guard rail. The Road Zipper System sale and installation on the Golden Gate Bridge remains on track for installation in the second fiscal quarter of 2015; and our outlook for infrastructure continues to be positive, although somewhat mitigated by the lack of long-term US highway bill and funding clarity.

Gross profit in the first quarter of $36.9 million or 27.4% of sales, versus $40.2 million or 27.2% of sales in the same quarter last year. Gross margins in irrigation decreased by slightly less than 1 percentage point as compared to last year. Excluding the impact of a higher-than-normal warranty charge in the prior year, irrigation gross margins decreased by approximately 2.5 percentage points, as a result of competitive pricing pressure and increases in input costs. At the same time, our manufacturing operation in Lindsay, Nebraska, we're able to offset the deleveraging impact of lower sales through higher productivity and through reductions in factory expenses.

During the quarter, infrastructure gross margins increased by approximately 6 percentage points, primarily due to product cost reductions, product mix, and cost leveraging on higher volume. While we did not have any revenue in the quarter from the Road Zipper System to be installed on the Golden Gate Bridge, we did receive cost leveraging benefits from production of the barrier transfer machines and the barrier for the project.

Operating expenses in the quarter increased to $25 million from $24.2 million in the same quarter last year. The increase in expenses is attributable to the incremental environmental expenses recorded, and expenses incurred, for the acquisition of Elecsys Corporation, which is expected to be completed at the end of January, pending a positive election result from their shareholders.

After meeting with the EPA in December, we determined that the timeline for our current remediation plans should be extended beyond what we originally estimated, therefore, necessitating increasing our environmental expense estimates. We continue to work with the EPA to determine the best long-term solutions for the site. Unfortunately, these costs are difficult to estimate, and sometimes result in periodic revisions. The environmental and acquisition expenses reduced earnings by $0.11 per diluted share on an after-tax basis.

On the other hand, in response to softened irrigation market conditions in North America, we reduced our SG&A expenses by approximately $1.3 million, as compared to year-ago quarter. These reductions were primarily in personnel-related expenses, consulting and travel. We're continuing to monitor market conditions, and to make appropriate reductions in expenses that will not impact our long-term growth initiatives.

Total operating expenses were 18.5% of sales in the first quarter of FY15, compared with 16.4% of sales in the prior year period. Excluding the environmental and M&A expenses, operating expenses were 17% of sales for the quarter, compared with 16.4% of sales for the same period last year.

The order backlog at November 30, 2014, was $68.3 million, compared to $86.6 million, November 30, 2013, and $79.6 million at August 31, 2014. Year over year, US and international irrigation backlog levels have decreased, reflecting the change in agricultural market conditions, while infrastructure backlog has increased. Our backlog typically represents some long-term irrigation and infrastructure projects, as well as short-lead-time orders; and therefore, as I've indicated in the past quarters, backlog is generally not a good indication of future quarters' revenues.

Cash and cash equivalents were $139 million at the end of the quarter, and were $12.5 million lower from the same time last year. The decrease reflects execution of our capital allocation plan announced in January, including investing $71.1 million of stock repurchases since that time. During the first quarter, we repurchased 381,619 shares, or $30 million, and we continue to execute share repurchases under our 10b5-1 plan.

In summary, FY15 is anticipated to be a continuation of the agricultural cyclical contraction we experienced last fiscal year. The length and severity of any cycle is difficult to predict, but we remain confident in the long-term drivers for efficient agricultural irrigation and water use efficiency globally. During this period, we will continue to appropriately manage expenses, balanced against the important priority of aggressively executing our long-term strategies, and protecting and building our global market position.

We will continue to expand our international footprint, including the opening of our factory in Turkey during the second fiscal quarter. While that additional capacity may create some short-term fixed-expense absorption pressure as we rebalance our manufacturing resources, we are confident in the incremental profit potential of our global expansion plans. We will continue to aggressively pursue expansion into new and developing markets in creative ways. Additionally, we are confident that our investments in competitively advantaged products and services, including our technology and solutions offerings, will continue to position us well now, and as agricultural market conditions improve.

For the infrastructure business, we continue to make significant progress in gaining market strength in our road safety and rail products. We believe we can continue this progress in 2015 with further growth, margin gains, and profitability improvement, despite the lack of long-term US highway funding clarity.

Finally, the strength of our balance sheet will allow us to continue to invest in creating incremental returns for shareholders through investments in growth opportunities, both organic and through acquisitions, increasing dividends, and opportunistic share repurchases.

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

(Operator Instructions)

Your first question comes from the line of Schon Williams from BB&T Capital.

Hi, good morning.

Good morning.

Rick, I wondered if you could maybe just give a little bit of additional color on some of the margin pressures on the irrigation side? I mean, you noted that there was some pricing pressure. You also noted some higher input costs. Wondering if you could just talk about what are the trends that you're seeing? Is it kind of stable? Is it getting worse; is it kind of volatile during the quarter? And then what specifically on the cost side are you seeing in terms of higher inputs?

Well, as I mentioned last quarter, we saw -- or we're hearing anecdotally from our dealers about some increased competitive intensity in some of the markets, which was difficult to really determine whether it was coming from manufacturers or specific regions from dealers, which is always the case. We did see that continue.

We did hear more from our dealers about true competitive intensity, and saw specific projects in various regions where pricing became more competitive. And it wasn't specifically from one competitor or another, but just in general more competitive. And that's not unlike what we would expect to see in a down cycle or down period, as we've experienced recently.

Now, on the cost side, the other factor has been we've seen steel price increase approximately 12% to 13% from the same quarter last year to where we are today, with difficulty in this pricing environment and being able to pass through the increases as rapidly as we have in the past. So, that was part of the cost input pressure we've seen. Generally what we've seen is -- I'd probably attribute the margin change that we saw in the irrigation market as about half being related to pricing pressure and half to input cost increases.

Okay, thank you. And on infrastructure, one of your large competitors on the road barriers/crash barriers is going through some litigation at this point. I'm just wondering: Are you seeing any benefits from that, at this point?

Well, we've definitely seen some benefit from that, in terms of the sales of our end terminal, and we're aware of all of the issues that are going on with our competitor in that category. And I think we are one of three companies that can provide those, or have approved end terminals for those applications. So, we are definitely seeing benefit from it. It is difficult to tell how long of duration that will last for, whether it's permanent or whether it's just a point in time, but there's definitely been some benefit.

All right, thanks; I'll get back in the queue.

Your next question comes from the line of Nathan Jones from Stifel. Jim?

Hello.

Can you hear me?

Yes.

Sorry, guys. Could I just get a clarification firstly on the environmental expense? Is this a kind of one-time true-up or are we expecting to see continued higher levels of environmental expenses?

Well, the environmental accrual is something that we estimate on an ongoing basis relative to kind of information that we have available at the time. As Rick indicated, we had a meeting with the EPA in December, and in that meeting a couple of things came out, one of which was some requests for some additional information, as well as we had a change actually in management of the site from the EPA standpoint. So, I think this is just reflective of environmental situations in general, which is -- there are always potential for changes in circumstances, and so we update on a regular basis what that assessment is of what those costs are. And that's essentially what happened in this quarter is, as a result of those changes, we increased the timeline that we expect to be dealing with the environmental issue, and so we increased the reserve.

With respect to ongoing issues, all I can really say is we continue to work with the EPA, and there are a number of uncertainties involved in this type of situation. So, there's always the potential that there'll be changes in the estimates in the future. But I couldn't really comment on any particulars with regard to whether there would be, or when, or order of magnitude type of things.

Understood, but absent any changes, this would be a one-time expense then, to increase the reserve?

Absent any changes, yes, this would be a one-time item.

Okay. If we go on from there, you had 250 basis points down in irrigation. I guess some of that's a little bit of mix change there, with international being a bit higher. You talked on the last call about a typical downcycle seeing 300 to 500 basis points of gross margin compression. Do you expect the pricing pressure to get worse in the next few quarters -- remain the same?

This is Rick. I would not necessarily describe the pricing pressure to get worse. I would say that we would expect it to continue. And when we've talked about the 300 to 500 basis points compression in gross margin, we've talked about it really comprising pricing pressure, input cost changes, and cost deleveraging to some extent as well.

I will point out: Our factory in Nebraska is doing a great job in terms of mitigating the deleveraging impact with lean implementation; it's been very responsive to what's taking place on a fixed-cost basis and to whatever extent possible, to the variable cost and at fixed cost as well. So, from that standpoint, they're doing a great job, but we can't control the pricing issue or necessarily the cost input side.

And I guess the big bright spot was the international revenue there, which grew off a pretty robust number from the first quarter of last year. Are there projects that are going to run out here? Is this a sustainable level, outside of the seasonality, of course? Where are we in the international revenue?

There's nothing significant in the first quarter from a project standpoint that would be running out or anything of that nature. And as always the case in the international markets, we have many pending potential projects that are either in discussion or at various form of taking shape. So, that continues, and we haven't really seen anything change significantly in the international markets.

I would comment that I do believe that commodity price pressures, as we've seen, or contraction as we've seen in the US, does flow over into the international markets. However, as I mentioned in the beginning, we're seeing the progression of these projects really undaunted, in terms of -- they're still proceeding as we have seen in the past.

Okay, thanks very much, guys.

Thank you.

Your next question comes from the line of Brett Wong from Piper Jaffray.

Thanks for taking my questions; Happy New Year. I just wanted to dig into the international side a little bit more for irrigation. Based on your commentary, Rick, it seems -- and your slides -- it seems like your slides are a little bit more cautious than your commentary on demand for irrigation. Is there any concerns there? Why kind of the discrepancy?

I'm not sure I would note a discrepancy in it. I'm not really familiar with what specifically you're referring to in the slides.

It seems that you, in your last comment, you're talking more about how demand or the international market hasn't really changed; whereas in your slides you call it a bunch of factors -- your market factors that look like the foreign market conditions are all pretty negative.

Well, I think there are some market conditions that we would be concerned about going forward. We're seeing things, for example, the Russian ruble; there has been some concern over slowdown in the economy in Brazil. However, we haven't really seen that materialize into anything significant yet. I think there's concern with the European economy to some degree. Certainly what's happening in Greece in terms of election could have some impacts.

So, there's a number of factors that are of some concern, which is always the case, but nothing really significant that stands out. And as I commented, the projects that we have been working on, and tracking and working through with our customer base, have generally been proceeding. The ones I would be more concerned about in the near term would probably be some of the Russian projects, where, with the plummet of the ruble, it's more likely to impact their purchasing capacity, and yet the dialogue is still the same today. So, there's some concern going forward, but I wouldn't really characterize it as certainly the bottom falling out or anything of that nature.

Okay, great. That's great color, thanks. And just on those kind of projects that you're seeing on the horizon, are there any in different regions other than the ones that you had mentioned in your commentary -- Middle East, Africa and Australia? Are there other regions that you see opportunity in?

Well, there's definitely opportunity. I would say that when we look at the growth potential in the international markets, we're looking at Brazil, China, South America, Africa, really many different markets. And in the past, we've really focused on Russia and Ukraine, as well as great potential growth, which I still do see as great potential growth, just more challenging in the near term.

Okay, great. And then, on the technology side, FieldNET, as you called out, has been a good offering -- a strong offering -- and just wondering if there's anything else in the pipeline in new offerings that you guys are considering, or additional functionality for FieldNET as competition continues to increase in that sector?

Well, as I've mentioned in the past, FieldNET is a very good, strong offering for us, and it's been very successful, and we're very pleased with the market penetration we're getting with FieldNET. We will continue to expand on the solution offering in total, and the feature set of FieldNET.

We also believe that the acquisition of Elecsys Corp. adds additional capability and experience for us in terms of expanding what we offer in that market, as well as other water-related market sectors, in addition to the ones they are already participating in. So, I think this is really building our platform to continue to expand that capability and technology.

Excellent, great, I'll hop back in line. Thanks a lot.

Thank you.

Your next question comes from the line of Joe Mondillo from Sidoti.

Hi, guys.

Good morning, Joe.

Just to jump onto that last question, just wondering if you could sort of give us an idea where you are in terms of water use efficiency-type technology, relative to the competition out there?

Well, it's a fairly broad question, and I'm not sure that I could answer it -- (multiple speakers)

Well, I guess maybe more specifically on the irrigation side at least, how does the irrigation equipment, in terms of that technology, compare to your competitors?

Well, I would still characterize our technology on the irrigation side as leading and the best in the industry in terms of its complexity, or let's say its feature set in terms of its full solution offering; integration of the pumping systems plus all of the other factors and features that we have built into FieldNET. I think it is leading in that sense.

There are some other aspects -- other competition we're seeing in other features that we would like to build into FieldNET going forward, but I'm not really going to get into in depth for competitive reasons, but we do see some great opportunities to continue to build out that product line and expand it. We also see opportunities to take what we've done with FieldNET, and apply it into other applications or similar applications also tied to water use efficiency.

Okay. And then in terms of acquisitions, acquisitions is a big part of that strategy of expanding your technology base; you just made a pretty sizeable acquisition, compared to your history at least. Could you talk about how the pipeline looks, and are we anticipating maybe a deal or two more within the next 12 months?

We still have an active pipeline with a couple of good candidates in it that I could anticipate taking place, but I would never really predict timing on those just because, as you know with acquisitions, they kind of come and go depending on negotiations and a number of other factors. So, it's very difficult to predict the probability of acquisitions.

I will say that I'm very pleased with what Elecsys adds in terms of capability that allows us to do quite a bit more in terms of internal organic development of applications and solutions in different markets. We continue to look at acquisitions on the technology side, but they're probably more specific features or characteristics, things that would plug into what we're doing with FieldNET, or other technology products today.

But in addition to that, we're looking at acquisitions that fit other water use efficiency-type applications, for example, more in terms of filtration, more in terms of pump stations, those types of things which have been successful for us that could continue to expand that product line and that offering.

Okay, great. And then just lastly, Jim, I was wondering if you could expand on the recognition of the Golden Gate project? I think you guys mentioned there was a cost benefit related to the first quarter. And then I guess the installation is happening I think this weekend, so is all the revenue going to hit in the second quarter, and should we see any other benefits or any recognition in the back half of the year regarding that?

So, you are correct: The Golden Gate installation is scheduled to occur this weekend, and the revenue recognition for the project would all occur once that installation is complete, and it's up and running. So, it would all fall into this quarter.

With regard to the comment on the margin impact in the first quarter, there was a fair amount of production, both of machines and of barriers, that were going through our manufacturing plants. And so we had higher utilization and better absorption as a result of the production that occurred in the first quarter. And that did help the margins on the infrastructure side.

So, how does that translate into the margin in the second quarter? Do you not see as high of a margin, even though you see the revenue recognition, or how does that work?

No, the margin should still be the same in the second quarter from the revenue recognition. It's just a matter of things like -- we don't have -- we have lower idle resources; we have better utilization of the overhead costs. And so it's really just a matter of where we might have some negative manufacturing variances when we have normal production levels. When we've got higher production levels like this, those excess costs are reduced in the quarter.

Okay, got you. Thanks a lot, guys.

Your next question comes from the line of Brian Drab from William Blair.

Hi, Jim. Just following up to that last question, on the Golden Gate Bridge, I'm wondering how much -- can you quantify the impact on the gross margin maybe on a consolidated basis, or impact on operating margin overall from that increased productivity in the quarter?

On a consolidated basis, is not a tremendously significant number. First of all, obviously the revenue base in the infrastructure business is much smaller than the irrigation business. But then even within infrastructure, the bigger impacts were overall sales volume and the cost reductions that Rick alluded to in his comments on some of the cost changes that we had made, as well as just the mix of business, and within the road safety business has a little bit higher margin than what we see in some of the other areas of infrastructure. So, it's a relative -- that productivity piece is a relatively smaller amount versus some of the other impacts.

Okay, so, if I rank-ordered the items or factors that impacted margin in the quarter -- can you just help me do that? There's mix and infrastructure, cost cutting, productivity is toward the bottom of the list?

Yes, I'd say, generally, that ranking is pretty accurate.

Okay. Can you tell us what percentage of the irrigation segment sales are now associated with non-pivot business: pumps, filtration systems and other? Just roughly maybe?

We don't have that handy and available. We haven't disclosed that in the past, and I don't think we are prepared to do that at this time.

Okay. And then, this was asked I think to some extent earlier, but in terms of the operating expenses, you talked through the uncertainties related to the EPA situation. But as we move into the second quarter, barring any continued increased expenses related to environmental issues, would we reasonably expect that operating expenses might be down about $1 million or $1.5 million, commensurate with what you caught in the first quarter? Year over year, looking at second quarter operating expenses, could that be down $1 million or so?

Yes, with respect to the SG&A expenses, I think the way I would think about it -- because there's obviously some seasonality in the Business, but excluding those costs we had in the first quarter related to acquisition and environmental, and assuming we wouldn't have similar type expenses, we're expecting that our SG&A for the year will probably be in the range of around 16%. And I'd also say that's exclusive of the addition of the Elecsys, because their SG&A does run a little bit higher.

The other point I would probably add is, is that there's a fair amount of commission related to the Golden Gate Bridge project in particular, and so the commission expenses might be a little bit higher in the second quarter as well.

Okay, so, 16% for the year. We did $9.4 million in the second quarter in G&A, and you'd have to assume that's $10 million-ish or even $11 million for the rest of the year to get to 16%. Just not down year over year, so I'm wondering if we could talk a little bit more about that. I don't see how you get to 16% if you've cut $1 million per quarter out of your operating expenses. Where is that mainly coming out of? It would be coming out of G&A, wouldn't it?

Well, the 16% is -- is total SG&A, as a percentage of sales, and obviously if you exclude the $2 million in the first quarter, we were at about 17%. It's a seasonally lower quarter. So, as you see some of the revenue changes -- and we are obviously also looking at other costs and opportunities where we can reduce some costs as well. But I think in that 16% range should be about where we're at.

Okay, thanks. I think I'm probably low on the selling expense related to the Golden Gate Bridge. And then, can you update or tell us what the number was in terms of replacement versus dry land versus flood conversion in the quarter?

Yes, this is Rick. We saw the numbers kind of reflect what we had historically seen -- almost the even split of a third, a third, a third in the quarter. So, it was back to those kinds of levels. In fact, more precisely, the conversion was 36% of sales, the dry land was 30%, and replacement 34%.

Okay. And then lastly, you've been averaging about $50 million, $51 million over the last five quarters in the international irrigation segment. And I was a little -- I'm still left uncertain with how to model that going forward, given, Rick, you laid out very well the reason to be cautious going forward, but also some reason to be optimistic. Can you give us any sense for if that $50 million average per quarter in that international irrigation business is a reasonable expectation, or do we go up or down from there for the balance of the year?

It's very difficult. I'm not going to really project what the quarter sales would be. I would just say that the international markets, as we've talked about in the past, are really a combination of many different markets with a lot of different factors taking place. And we've described them as historically being double-digit kind of growth, usually in the teens in terms of overall annual growth.

We haven't seen anything that significantly changes our view or perspective on that. It will vary from quarter to quarter, depending on projects in specific regions, as we've seen in the Middle East and different areas. So, I can't really give a specific number in terms of what to project for that.

All right, thanks very much.

Thank you.

Your next question comes from the line of Andrew O'Connor from BMO Asset Management.

Good morning, Rick, Jim.

Good morning.

Wanted to know: Did Lindsay have a working relationship with Elecsys prior to the acquisition offer? And then secondly, what industry segments were Elecsys revenues derived from, for the prior 12 months, amongst water, energy, agriculture, and transportation? Thanks so much.

Lindsay did not have a relationship with Elecsys prior to identifying them as an acquisition candidate. They were something that came about by our review of potential targeted sectors or industries, and appeared as a very good target from an acquisition standpoint. We did not have a prior relationship.

I think their website has -- probably does a pretty good job of breaking out some of the markets that they participate in, which included some water-related, oil and gas, rail industry, and a few other sectors, including some in irrigation. But I think their website does a pretty good job of breaking that out.

So, would that revenue pie change considerably, Rick, once they become a part of Lindsay?

I don't foresee a significant change in that pie. I think that, obviously, there's work that we see Elecsys taking on for us -- more that they will do and opportunities for some consolidation of some of our activity with Elecsys. But in addition, we see opportunities to continue to grow their business in total in all of the sectors that they're in, and that's our desire. We think they've got a lot of capability, both from a manufacturing and technical standpoint, and we plan to expand on that.

Okay. And then lastly, I read in the release that the Company expects to raise $100 million via long-term debt over the next several months. So, I'm wondering what portion of the Elecsys acquisition will be financed with debt, and then what portion with cash? Thanks again.

This is Jim, and I would say that the debt is -- it's connected to the Elecsys transaction in that the timing is about the same. But I think it's more broadly connected to our overall strategy with regard to our growth initiatives to increase our organic growth through CapEx, as well as external growth through acquisitions. But then also, returning cash to shareholders through increases in dividends, as well as opportunistic share repurchases. So, the debt will help us to accomplish those objectives with our capital plan, and certainly with a $70-million acquisition, the debt will replenish our cash, kind of at about the same timeline as the acquisition gets completed.

Okay, thanks, Jim.

Your next question comes from the line of Kevin Bennett from Sterne, Agee.

Hi, guys, good morning.

Good morning.

Just a quick question on the buyback: We've had a couple of quarters now I guess between $20 million and $30 million per quarter. Jim, I guess, should we expect that level going forward or -- I mean, I know you said you're going to be opportunistic, but just trying to get a gauge on what we should expect there.

I wouldn't necessarily point to a particular number that you should expect; as you alluded to, we expect to be opportunistic. We've had a 10b5-1 program in place that we would expect to continue. And the design of that program is to allow us to really take advantage of the stock price situation. So, we would expect that we would buy more if the stock were to go down, and buy less if it were to go up.

But we are committed to the share repurchase program. We think it's an appropriate use of capital for shareholders' benefit, and we'll continue to execute it as we have.

Got you. And then, should we be focused more on the $100 million or the $150 million at this point? Do you have any comments on that?

Well, the Board authorization is for up to $150 million, and so we're focused on that number as we go forward.

Okay, cool. Then, lastly, following up on the last caller, raising a bunch of debt, and then your cash balances right now are still kind of twice what you want it to be. I mean, can you go into maybe some of the organic growth initiatives that you guys have going on right now, or you have planned, to use some of that cash?

Well, the organic growth initiatives that we have are primarily on the capital side, and as we've alluded to, primarily focused on expansion of our capacity in the international markets. And you've heard some of that with what we're doing in Turkey with the opening of the plant here in the second quarter, as well as last quarter. We mentioned the fact that we acquired the facility that we were leasing in Brazil.

And all of this is really around helping us with our vertical integration in our international markets, so that as those markets grow, we can be increasingly competitive and efficient in those plants. So, I wouldn't necessarily point to anything in particular, other than to say it's those types of additions that we're looking to execute going forward.

Got you; that makes sense. Thank you, guys.

Thank you.

Your next question comes from the line of Chris Shaw from Monness Crespi.

Do you guys see any impact from the later harvest in the quarter? Do you think it either delayed sales or pushed sales potentially into the second quarter at all?

We really haven't heard much about that really having an impact. I'd say our dealers, in general, have -- there may have been a little bit of a delay in terms of the harvest having some impact in terms of their sales during the quarter, but really not much of anything significant that I'm aware of.

I guess, subsequently, the Section 179 -- do you see any late rush at the end of the year, where people take advantage of that, once that got passed, retroactively?

Well, it was so late in the year that it really couldn't have much impact unfortunately in terms of the year. I wouldn't be surprised if there were some orders that came in towards the end of the year, and because of the Section 179 passing, but I'd say it would be a fairly small, insignificant amount in total -- nothing that would really be very significant. It would have had to have occurred much earlier in the year to really have had an impact.

And then, when you're talking the irrigation -- the growth in both pumps and filtration -- I don't know exactly what drives the demand for pumps and filtration. And is filtration -- is that just all the Claude Laval -- the LAKOS product?

The filtration is -- yes, the Claude Laval LAKOS product, yes. And in terms of the increases in pump systems and filtration, some of them will be into markets outside of agriculture as well. For example, our Watertronics business sells pump stations into golf courses and landscape applications and some municipal applications. Claude Laval sells pump stations into heat transfer-type applications and other type of industrial applications outside of agriculture. So, those are areas of growth; but in addition would be the project sales where we are selling pump stations and filtration systems, along with our pivots.

Okay, great. That helps, thanks.

Thank you.

Your next question comes from the line of Richard Hayden from Tipp Hill Capital.

-- heard this in the past, but how much capacity is being added through the Turkish facility, and what is the capital investment?

Well, I would say it's similar from a capacity standpoint; whenever we add a facility, we do it in a little bit of a phased approach so that we can add production cost-effectively. Over time it could be much larger; and we, as I said, we would phase it as we saw volumes increase. But it's not a significant amount of production capacity, although it will help us to move some of our export business closer to our customers there.

And what was the capital expenditure for it?

Oh, the CapEx number is roughly $10 million or $12 million.

And how much of the export business that you are doing would be manufactured in that facility?

I don't recall exactly the number. We export to a variety of areas around the world from our US facility, and this will service basically Europe: western Europe, eastern Europe, northern Africa.

Okay, thank you.

Your next question comes from the line of Jose Garza from Gabelli.

Hello?

Hello. Good morning.

Good morning. Just a couple of quick ones: Jim, just -- how are you guys going to segment the Elecsys acquisition, once it's completed?

So, we're still working through that. At the current time, we expect it to fit into the irrigation segment, but we do need to work through that a little bit before we make a final determination.

Okay. And then, just thinking about FX and how you guys are kind of maybe changing a little bit based upon what the current environment is right now versus where you kind of started at the beginning of the year -- any changes to maybe your capital plan or how you guys are approaching that?

I'm not sure I understand exactly your question. Could you repeat that?

Any changes to your capital plan, just based upon the environment, and remind us kind of where you think capital expenditures are for the year.

Okay, well, we're planning on capital expenditures of about $20 million to $25 million. We haven't modified that outlook, but we certainly have the flexibility if we were to see further changes. But at this point we're continuing with our original plan.

Okay, great. Thank you.

Your next question comes from the line of Richard O'Reilly from Revere Associates.

Good morning, gentlemen. Does the drop in energy and fuel costs make much of a difference to your domestic customers? And I'm thinking in terms of pumping cost, or do they buy electric and it's water is the big cost?

They're primarily buying electric. Water is a tough one because there's often very little cost with the water itself that they're using, but electricity would be a cost. The reduced energy cost in total is beneficial to farmers in terms of their overall input cost in farming operations, which does improve their profitability per acre or per bushel in crop production. So, that can be beneficial to us from a standpoint of expanding that profit, which, therefore, makes it sometimes often more beneficial to add in irrigation to expand yields as well. So, there are some definite benefits from that farming standpoint when energy costs are reduced.

And I guess on the international side, it could be a negative, depending on the customer and the particular country. Would that be a general assumption?

There are some cases where there'll be markets where it can be a negative because it will reduce obviously the energy revenues coming into that country and may reduce some of the projects that we could see in certain regions. And that's something that we're watching as well. But there are many investments that are taking place with funds, say, coming out of the Middle East into various projects around the world that have been fairly strong in terms of the activity level of projects. And whether they'll proceed as planned, we really don't know. But we haven't seen anything change yet.

Okay, good. Thank you for the answer.

Thank you.

Your next question comes from the line of David Rose from Wedbush Security.

Hi, good morning.

Good morning.

This is actually James Kim calling in for David. Most of my questions have been answered, but one question I have, just following up on the international operations -- irrigation operations -- and you spoke obviously about improving margin profile there, the vertical integration and lean. Is there anything else you could talk about, other than the expansion of Turkey and the timing of potentially closing the margin spread between domestic and international, which you had previously commented was between 5% and 7%? I know it's going to be a long process, but as your international sales continue to make a bigger portion of your Business, just curious what your thoughts are there, and if you could talk about your progress there? Thank you.

Well, there's nothing really specific to comment on at this time, other than to say I don't view this as necessarily a really long process. I do view it as a process that will take place as market opportunities are realized, in the sense that we're watching in Brazil for example, where we've considered additional CapEx investment there to do some things with our factory. If that market slows down, that may postpone making some of those investments. But we really -- it's too soon to call that in terms of whether it will proceed as we're expecting or not. But we're looking at each market individually; and as the market warrants in terms of demand or growth opportunities, we will invest additional capital and expand our vertical integration.

Just quickly: Is the margin gap still about 5% to 7% at this point?

That's a generalization we've made in terms of all of the international business units together, and said that they're in the range of that 5% to 7% margin difference, mostly due to the vertical integration, and that would still be generally the case.

Great, thank you.

(Operator Instructions)

Your next question comes from the line of Peter Van Roden from Spitfire Capital.

Hi, guys.

Good morning.

Just going back to the pricing impact on margins -- so, you said that the impact on margins in past cycles have been 300 to 500 basis points. Is that on the gross margin side or the operating margin side?

Well, that comment was on gross margin, and it was not in reference to solely pricing. This is just talking about what we've seen in downcycles in the past would be a 300- to 500-basis-point reduction in gross margins, and generally domestic irrigation segment tied to pricing pressure and input cost changes combined, and some deleveraging of costs due to the lower volumes.

Got it. And then, as you guys think about sort of the health of your dealer network, how are they holding up in this downturn?

The dealers are holding up quite well. We haven't really seen anything negative with the dealer network yet. I would say they're holding up well. They're used to these cycles.

I always get a little concerned with some of the newer dealers who haven't seen this cycle before, and they tend to, in really peak periods, respond to it and want to invest more and grow fast, and find that that's not necessarily the right thing to do is to throw a lot of money into it because there is the downside of the cycle. But I'd say our dealers are pretty experienced, well established, and in pretty good shape, and we don't anticipate any major dealer issues in this process.

Okay, well, thanks, guys, good luck.

Thank you.

There are no further questions at this time. I would now like to turn the call back over to Mr. Parod for closing remarks.

While we're in the midst of a cyclical downturn for the irrigation segment, the global long-term drivers and water conservation, population growth, and the importance of biofuels and the need for safer, more efficient transportation solutions remain positive. Lindsay's committed to creating value for shareholders through organic growth, dividends, accretive acquisitions, and share repurchases.

I'd like to thank you for your questions and participation in this call. Thank you.

This does conclude today's conference call. You may now disconnect.