Lindsay Corp (LNN) 2016 Q4 法說會逐字稿

Good morning. My name is Karen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation fiscal fourth-quarter 2016 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 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.

Good morning, and thank you for joining us today. With me on today's call is Brian Ketcham, Lindsay Corporation's Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer.

Total revenues for the fourth quarter of FY16 were $132.9 million, an increase of 8% over the same quarter last year. Revenues in both irrigation and infrastructure increased in the quarter compared to the prior year. Net earnings for the quarter were $7.8 million or $0.73 per diluted share, compared with a net loss of $3.2 million or $0.28 per diluted share in the prior year. Contributing to the loss in the prior year was a bad debt charge of $5 million for an account in China, and $2.9 million reserve against foreign income tax assets.

Total revenues for FY16 were $516.4 million, a decrease of 8% from the same period last year. Net earnings for the year were $20.3 million or $1.85 per diluted share, compared to $26.3 million or $2.22 per diluted share in the prior year. FY16 earnings included a $13 million increase in the environmental remediation reserve related to the Lindsay Nebraska facility made earlier in the year. On an after-tax basis, the environmental reserve increase reduced net earnings by $8.5 million or $0.78 per diluted share.

For the irrigation segment in total, sales in the fourth quarter were $99.9 million, a 3% increase over the same quarter last year. Irrigation operating margins increased to 8.9% of sales from 4.4% of sales in the same quarter last year. Last year's earnings in the quarter included the $5 million bad debt charge for an account in China. In the US irrigation market, revenues were $57.3 million in the fourth quarter, up 5% from the same period last year on higher unit volume, and relatively unchanged pricing from the prior year. Revenues from other irrigation components, including pump stations and technology products, increased modestly compared to the prior year.

Overall lower commodity prices and reduced farm income continued to affect farmer sentiment regarding capital goods purchases. In the US, estimated record production of corn and soybeans will continue to keep downward pressure on commodity prices. USDA is now projecting 2016 net farm income to be $71.5 billion, dropping 11.5% from the prior year, and declining 42% from the record high set in 2013. Going into FY17, we do not expect to see any meaningful improvement in the macro factors that drive farmer sentiment regarding capital investment. Accordingly, we plan to continue our focus on managing our cost structure, while investing in productivity improvements and selected growth initiatives.

In the international irrigation markets, revenues in the fourth quarter were $42.6 million, increasing 1% over the same quarter last year, even with the inclusion of the 2% decline due to foreign currency exchange rate changes. Increased sales in international project-oriented markets, such as the Middle East and Africa, were offset by declines in Brazil and other markets. The outlook for Brazil is improving now, with steps towards resolution of the political crisis, and showing signs of economic recovery. While lower commodity prices impact international markets, we expect to see agricultural development continuing through the cyclical trough.

For the full year of FY16, total irrigation revenues decreased 7%, with US irrigation revenues declining 4% compared to FY15. The decrease resulted from lower machine unit volume and reduced market pricing, reflecting passing through some of the lower steel costs earlier in the year. The revenue decline was partially offset by the incremental increases from the Elecsys and SPF acquisitions in FY15. In the international markets, irrigation revenues were $159.4 million, 10% lower than the prior year, with approximately 7% of the decline attributable to the negative impact of currency translation. Total irrigation segment operating margins for FY16 increased to 11.7% from 11.5% in the prior year.

Infrastructure segment revenues were $33 million in the quarter, increasing 24% from the same quarter last year. The increase resulted from higher Road Zipper System sales, as well as higher unit volume and road safety products, offset to some extent by a decline in rail and contract manufacturing sales. The infrastructure segment generated operating income of $9.3 million and operating margin of 28.1% in the quarter, compared to operating income of $4 million and operating margin of 15%, in the same period last year. The current quarter included a number of Road Zipper System sales, ranging from $1 million to $3 million in revenue, which contributed to the improved profitability.

For the full FY16, infrastructure revenues of $94.8 million were 13% lower than the record levels in FY15, primarily due to the completion of the large Golden Gate Bridge project in the prior year. Increased Road Zipper System lease revenue road safety product sales in the current year were offset by declines in tubing, rail and contract manufacturing sales. Infrastructure operating margins for the FY16 grew to 19.6% compared to 18.6% in the prior year, showing continued improvement.

We believe that our infrastructure business is positioned for another solid year in FY17. Operating performance continues to improve, and market activity reflects improving demand for our products. As individual states proceed to adopt the new testing standard for road safety products, called MASH, we will incur increased cost for product development and testing in order to ensure that our products are compliant with the new standards. And we will be required to reapply for state certification with MASH-compliant products. This reapplication process may cause some near-term variability in our road safety product revenues.

For the total Company, gross profit in the fourth quarter was $39.9 million, with a gross margin of 30.1% of sales, rising 3 percentage points above the same period last year. Irrigation gross margin remains comparable to the prior year, as improved margins in the US were offset by lower international margins. Infrastructure gross margins increased by more than 10 percentage points in the quarter, resulting from an increase in higher-margin Road Zipper System sales, as well as improved product mix and volume leverage in road safety products.

For the full FY16, gross margin improved to 28.8% from 27.9% in FY17. Irrigation gross margin increased by slightly less than 1 percentage point due to higher margin sales mix from the full-year impact of Elecsys acquisition, and from an improvement in other irrigation component margins. Infrastructure gross margin improved almost 3 percentage points due to revenue growth and cost leverage in road safety products in both the US and Europe.

Operating expenses in the fourth quarter decreased to $28 million from $30.7 million in the same prior-year period. Operating expenses in the prior year included a $5 million bad debt charge for an account in China. The quarter included increased selling and engineering expenses, with the engineering expenses primarily driven by development of MASH-compliant road safety products.

For the full FY16, operating expenses were $114.2 million versus $105.6 million in FY15. The increase in operating expenses includes $11.5 million of incremental environmental remediation expenses and $4.8 million of incremental expenses from the Elecsys and SPF acquisitions made in 2015. These expense increases are offset by the $5 million reduction of bad debt charges incurred in the prior year for the account in China, and lower acquisition-related expenses.

The order backlog at August 31, 2016 was $50.7 million, compared to $48 million August 31, 2015. The increase in backlog is primarily in the infrastructure segment, with higher backlogs in both Road Zipper and road safety product lines. Our backlog typically represents some long-term irrigation and infrastructure projects, as well as short lead-time orders, and therefore is generally not a good indication of future quarters' revenues.

Cash and cash equivalents were $101.2 million at the end of the quarter, and were approximately 38% lower than the same quarter last year. We have continued the execution of our capital allocation plan, including investing $48 million in share repurchases in FY16, and $186 million in cumulative share repurchases since January 2014. Since January of 2014, we repurchased 2.4 million shares, reducing our outstanding shares by 17%. As of the end of the quarter, we have approximately $64 million of share repurchase authorization remaining, and we plan to remain opportunistic in our repurchases. The strength of our balance sheet continues to position us for additional growth through acquisitions and other initiatives to drive improved returns for shareholders.

We have now completed the third full year of the cyclical downturn in our irrigation business, and we expect the challenging conditions in agricultural equipment demand will persist as we begin FY17. Irrigation equipment pricing remains competitive but rational in both domestic and international markets. We managed through a brief period of rapid steel cost increases in the US during our third fiscal quarter. And while they remain at elevated levels, we have seen steel costs moderate and decline somewhat during the fourth quarter. During this period, we have been successful in maintaining gross margins, and we expect to continue to do so through effective cost and price management.

While revenues were lower than the previous year, operating margins improved for both irrigation and infrastructure, reflecting our management team's action in managing input costs, pricing discipline on selective investments and initiatives. We also continue to recognize benefits from our many water-related acquisitions. From a financial standpoint, these acquisitions have helped us to improve gross margins, and have provided incremental revenues in markets outside of agriculture. From a strategic standpoint, these acquisitions in water engineering services, integrated pump systems, filtration, irrigation control systems and machine-to-machine controls have positioned us as a leader in irrigation solutions, providing a value-add proposition for our customers beyond our market-leading center-pivot product line.

In the infrastructure segment, sales and profits have been stabilized and improved. In addition, having a long-term federal highway bill in place provides support for road safety product sales growth. The Road Zipper lease business continues to grow. We're also encouraged by the continued market interest both domestically and internationally in our Road Zipper product line.

Headwinds in the international irrigation markets appear to be subsiding. However, Brazil and certain export markets remain challenged. The effects of foreign currency exchange rate fluctuations have lessened, and quoting of international projects has improved.

While the agricultural markets are cyclical and the underlying drivers for our business remain intact, throughout the peaks and valleys of the cycles, farmers remain acutely aware of the benefits of efficient irrigation in increasing yields and quality. We continue to view cyclical troughs like this as opportunities for strengthening our market position, expanding our offering, improving our cost structure and implementing operational efficiencies. All of these will benefit the Company now and long term. We will continue to invest in those initiatives, and are well-prepared to take advantage of opportunities for growth as the cycle turns positive. I'd now like to open it up for your questions.

(Operator Instructions)

Brian Drab, William Blair.

Good morning. Brian.

Good morning.

First, just on the infrastructure segment, you talked about the MASH standards and how that could, number one, maybe drive some variability in revenue. And number two, it's coming with some extra expenses in terms of R&D. Can you just flesh that out a little bit further and talk about the timing and potential magnitude of variability on the top line? And can you give us any dollar amounts in terms of what that expense is, so we can understand how that could weigh on margins?

This is Rick. There's not too much, Brian, that I can split out on this completely, but let me give you a little bit of background or color on this. When we look at the MASH implementation, there's, based on what we see, approximately six states that have now implemented MASH, or are in the process of implementing it as of now. And the impact of those six, in terms of revenue impact to us, is probably in that $1 million range on an annual basis. So I wouldn't call that very significant in terms of what impact it could have to us in our road safety products business.

There is another 10 states that we have identified that have implementation dates upcoming, which could be anywhere from June of 2017 -- actually January through probably November -- January through -- sorry -- June of 2017 would probably be the time period. So those are ones that are up-and-coming that could have an impact that's maybe similar to a little bit less than that.

So we're not seeing anything that's in the near future that's going to be extremely impactful in terms of the implementation of MASH. We are also in process of getting products certified to the MASH standard. So I'm not sure we will miss sales, other than, let's say, the current states where we really don't have a product to supply to those.

Okay. And looking ahead to the first and second quarter in the infrastructure segment, given that you just had close to if not a record quarter in the infrastructure segment -- should we expect a typical seasonal step-back in terms of revenue in the infrastructure segment? Or could this be a run rate or close to a run rate that we might expect going forward?

Well, certainly a seasonal impact going into the winter months, where we will see less in terms of some of the road construction. So it will be less in terms of some of the road safety products, possibly a little less in the leasing as well, during that time period. However, our leasing base, in general, on the Road Zipper part of it, remains pretty strong.

In addition, what we saw in this past quarter were a number of smaller -- as I said, $1 million to $2.5 million to $3 million-range kind of projects in Road Zipper, which, we see more of those as well. So we continue to see that backlog and that pipeline of potential projects still pretty good. But we would definitely expect to see some seasonal impact in the road safety products.

Okay. And that backlog of the $1 million to $3 million movable-barrier projects going into next year, is that comparable to the backlog that you saw going into the fourth quarter of 2016?

Well, first of all, the backlog I'm talking about -- what I was referring to in the $1 million to $3 million of kinds of projects we have just seen, these are not backlog. These are the -- but we're seeing more of those kinds of projects in our, let's say, our pipeline, I should say, not the backlog. And we have larger ones in that pipeline as well. But if you're looking at how does the backlog look relative to the previous year, it's higher.

I guess I meant to say pipeline. As you looked at the fourth quarter of 2016, and you saw this pipeline of $1 million to $3 million movable-barrier projects, is that -- that pipeline is healthy now at the end of the quarter as it was at the beginning?

Yes.

Okay. I will get back in line. Thanks for answering my questions.

Okay.

Mike Shlisky, Seaport Global.

Good morning.

Good morning.

I want to touch first on irrigation. I'm curious if we've entered a more stable phase here. Is your business pretty much at this point mainly parts and replacement, especially in the US? And if we were to see farmer income step down again in 2017, given that it's mainly replacement parts and service, would it be a major impact to your business at this point? Or are there additional new system sales that might not happen in 2017 if farmer incomes don't improve from here?

Well, there's multiple pieces to that question. So let me try to characterize it one way, which is, first, we look at our sales out-the-door in terms of how much of what we sell in the quarter is core conversion, or dry land, or replacement. And this past quarter, roughly 48% of the machines that went out were for replacement, 34% for conversion -- converting primarily from gravity irrigation -- and 18% into dry land.

Now, that's not a very surprising mix, considering that the fourth quarter for us is the end of the season -- basically, it's more harvest time. What we saw when I look back to the previous year, the replacement percentage was very close to the same. In fact, I think it might have been 50% replacement the previous year at the same time. So I don't think we're seeing any, let's say, major change in terms of replacement business versus dry land or conversion that would be unusual, considering where we're at in the cycle.

Now, I think the other part of it that I would describe is that, from the overall sales standpoint, in what we're hearing from dealers in the US market, the -- let's say, the current demand at the end of the quarter was fairly tepid from a standpoint of farmers are still hesitant and reluctant to spend a lot and buy a lot of equipment. However, they do still view efficient irrigation as a good investment to improving their yields and improving the quality of the product that they produce. So we still see the demand.

The fourth quarter is a tough one to use as a base because, as I said, it's primarily the end of the selling season in the US. And what we saw is fairly typical, where we are seeing a higher replacement percentage, but we're also seeing a little more volatility, where US sales were down some, and international sales were a little better. So it's a little different mix looking at it from that order rate toward the end of the quarter, in terms of what was happening. But it's not unusual to see this at the end of the selling season.

Okay, got it. And that brings up a two-part follow-up question. I guess, one, are you seeing any, at this point, pent-up demand if we were to see an improvement in farmer income? And have you been hearing about farmers just delaying replacement, trying to just patch together for a couple more years in this soft patch? So I guess, could there be a big snapback of orders if we do see an improvement in farmer incomes?

And then, secondly, could you give us a sense as to, this year, what do you think is the peak ordering season coming up for next spring delivery? I guess I'm kind of concerned about what the prices of corn and soybeans might be during those exact times.

Well, generally, in terms of the peak, we're going to start to see our order activity picking up probably around the January, February time period. We will begin to get a glimpse of what this next season will look like. And then, probably beginning, I would say, by the end of May, it's starting to ramp down pretty quick, because the farmers want to get these machines in prior to planting, and it's important to get that done at that stage.

So that's generally what we would see at the season. We would expect the same thing this next year. So we'll get an indication of what's coming at that point. The first part of the question, could you repeat that?

Sure. I was curious to see if there's any pent-up demand. If we see any kind of farmer increase, are there guys holding off for an extra year or two, trying to patch together until you hear about the (multiple speakers) --

Oh, yes. There's definitely some pent-up demand in the sense of there are people who will be doing more, let's say, repairs on machines, and holding off on some of the replacement. We do see that now.

There is also the normal trend of, when we see farm income improve, and we see then the resulting farmer sentiment improve, farmers then step up to start adding in irrigation equipment at a faster pace. And generally, that's a regular ongoing process. So as the income improves, they will be turning their land that isn't irrigated into more efficient, productive farmland by adding irrigation, as a general rule.

Okay. One last one, I think, from me was, I think you had put it in the slides here that they were tightening credit in certain farm situations. And I guess I was wondering if you were talking specifically about irrigation-related deals or overall farm economy in general deals? And are the changes enough that would impact the payback on buying something new or replacing something at this point?

Mike, this is Brian. I think it's more of a commentary on the overall ag situation. And what we've seen and what's been reported is, credit conditions slightly deteriorating. But I would say they are still overall pretty healthy.

Okay. I will hop back in queue. Thanks very much.

Nathan Jones, Stifel.

Good morning. This is Adam Farley on for Nathan.

Good morning.

Could you guys talk a little bit about how the highway bill is impacting the infrastructure segment?

Yes. In talking to our salespeople, I think it's more anecdotal at this stage, where they are definitely seeing a higher level of activity in terms of our dealers quoting equipment, seeing more projects that are being talked about around the table to get started. I would say that it really hasn't resulted into increased revenue to us at this point. But the activity level is definitely picking up, and there's just a lot of interest now.

So I think from the standpoint of giving more visibility and stability to the funding aspect of it, we will see that impact revenue overall. It may not be a sharp hockey stick-type increase, which, I wouldn't expect that. But I would expect to see a little more solid revenue stream and increasing project rate.

Okay, great. And then shifting to irrigation, I know you guys said you managed through a little bump-up in raw materials costs. But how are you guys planning on passing through any additional increases in raw materials, especially in this low-demand environment and coming off this bumper harvest?

Historically, what we have done is, we see a buy opportunity in raw materials, where we've seen the prices falling in steel or zinc or others, we'll make some hedge buys and make sure that we're covered in terms of the demand going forward -- usually for probably close to a quarter's worth. When we see commodity prices coming down, as we have seen with steel, we generally will revert back to more spot market buying and have a little less in terms of that hedge. So we've been pretty effective in terms of covering rising costs and being able to pass those through effectively, as well as being able to take advantage of it when it comes down.

Okay, great. Thank you for taking my questions.

Thank you.

Tyler Etten, Piper Jaffray.

Hey, guys; good morning.

Good morning.

I was wondering if you could talk a little bit about what's driving the Road Zipper growth, and if this is something that is going to be more sustainable? I know you guys have talked about the road safety products a little bit already, but just Road Zippers alone.

Tyler, I can't hear you well, but I did hear -- I believe you were asking about what was driving the Road Zipper System sales. And I would say that this has been an ongoing process of making people aware of the product and its benefits. Because it is very unique and there's nothing else really like it from a comparison or competitive standpoint.

So the key has been to work with municipalities and states and governments in other countries to understand the benefit from a traffic mitigation to congestion management standpoint, and how this product can really be used also in road construction. And as we have done that, we have seen that the interest has increased. Often it's been funding issues that have gotten in the way, and I will say there is generally a pretty long gestation period on some of these projects. But we are seeing the benefits of the work that's been done over the years in terms of increasing the awareness and potentially the demand for this product.

Some of the projects often start as fairly small, where we could see a $1 million project or, say, a $3 million project in a country or a city or a state, and as they get experience and become comfortable with it and see the benefits of it, we may see more add-on projects. I think typically we have seen, where we do have projects, we will see more projects in that same state or that same region, or on more bridges in the same area. So generally, once they really get that awareness, we start to see it pick up. And that's, what we're seeing now, also supported by a little bit better funding.

One difficulty is, it can often be lumpy in the sense of, it can be larger projects at a time or like the Golden Gate Bridge, which we worked on for many years. Or it can be a series of small ones like this, but then you can have another month or couple of months where you really don't have those projects. So it can be a little lumpy, but it's very beneficial and can be very profitable. So the demand is definitely improving from that standpoint.

Is that funding state level or federal level?

I'm sorry, I didn't hear that part.

Is the funding state level or federal level?

It's both. It can be any of those, yes.

Okay.

And it is also international. So we are seeing -- some of our projects are also international. Some of the interest we have now and have had, in terms of our pipeline, has been international.

Okay. Can you hear me better now?

Much better. Thank you.

Okay, thanks. Maybe shifting to the stock repurchase, this was the first quarter in almost three years that you guys didn't make any stock repurchases. And I also see in the slides that you guys are planning to spend $100 million to $150 million for acquisitions, and you guys are still above your cash target. Is it safe to assume that you guys will be putting share repurchases on hold until we see a deal come through? Or am I reading too much into this?

Tyler, this is Brian. We did take a pause in repurchase activity during the fourth quarter to reassess market conditions, our cash position, and alternative uses for our cash. As we begin FY17, we continue to plan on opportunistic share repurchase, as we have in the past.

It would be, I believe, too strong to say that you won't see repurchases until there is an acquisition. We view them both as good things and good investments to make, and we are constantly looking for good, strong, water-related, accretive acquisitions that really fit our business. And we will continue that search as well.

Okay, thanks. Maybe just two more for me. With the CapEx guidance for the next three years of $15 million to $20 million annually, could you talk about what sort of projects those would be in, or maybe if they are trying to get into new regions internationally, or what they may be? And, also, if there's any indication of further discounting in the irrigation segment from competitors, or do you think that the pricing has stabilized at this level?

I'll take the CapEx portion of the question. The $15 million to $20 million is what we are expecting in FY17. In addition to a portion of that being maintenance and replacement, I think that what we're targeting is some cost reduction-type investments, productivity improvements, perhaps some vertical integration in some of our international businesses. As well as capacity expansion in certain geographical markets as we assess the market conditions.

In terms of the pricing question, I'd say that the pricing, as we've seen it through this trough, has generally been pretty rational. We've seen at times some increased price competition -- this is irrigation we're talking about. And we do see that in projects today where it seems a little more competitive than probably where it was maybe three years ago.

That's not too surprising in a trough situation, with big projects coming up. I'd say, in general, it's still pretty rational. As our margins have shown, we managed through that well. I don't really see a change in that.

From time to time, we hear from our dealers or we'll see in specific situations a little bit more pricing, let's say, competitiveness, or something that will come up. And as I've said in the past, it's difficult to tell whether it's coming from a specific dealer in a region, or whether the company is behind it, or what's causing it. Some of the increased price competition we're seeing today in the international projects is also from competitors outside the United States. But in general, I'd still describe it as nothing really out of the norm, and pretty rational, and I expect it to stay basically the same as that.

Okay. Thanks for taking my question.

Jose Garza, Gabelli & Company.

Good morning.

Good morning.

How are you, Rick?

Good.

I wanted to talk about, in the irrigation segment, just thinking about the businesses you have acquired, notably Elecsys and LAKOS. Where do they stand at year-end in terms of ballpark numbers and expectations going into 2017?

Well, we don't split out the specifics in terms of the financials on the numbers, Jose, but I'd put it into a perspective of -- Elecsys, first. It's really met our expectations. As you know, we merged one of our businesses, a former acquisition, into that business. It has performed very well, and we see a lot of potential with Elecsys in terms of their end-to-end technology. And it has also strengthened our capabilities and position with FieldNET. So Elecsys is doing exactly as we expected.

LAKOS is the filtration business out in Fresno. It's had a little bit of a struggle the last couple of years, with relatively flat sales, so a little behind what we expected. But we still see some very good opportunities in terms of growth for that business, and they are investing in new products as we speak, and other ways to expand that business. So still optimistic in terms of where that can go and how that fits into our overall offering for solutions in the irrigation market.

Okay. And then, on the infrastructure piece, some notable positives in 2017. How do we think about the margin in that business, Rick, considering all the puts and takes?

Well, you've seen now for the last two years, really, that there's been a margin improvement in the infrastructure business. And it's been a combination of cost and expense management, some restructuring in that business, a focus on increasing revenues in a couple of key areas, a focus on pricing discipline and growth in many ways. So I think some of those activities we would expect to continue to progress and continue to show benefits in the next year.

As I mentioned, some of the difficulties that we face -- and I wouldn't call them headwinds, I would just say the ongoing difficulty of this business -- is, one, the Road Zipper side of it can be project-based and a little lumpy, which makes it tough for you guys with your models. And the infrastructure, the road safety part of it, is going through a little bit of a transition now with this MASH standard that will require that we do some things in terms of potential modification, or testing and modification of some products. But I still am very optimistic about where this is going as well. So I don't see those as major impacts, in a negative way, on the business. I think it's made tremendous improvements and success in the last couple of years.

Okay. And how would you characterize the demand in Road Zipper? Are municipalities more shifting -- more thinking about a lease versus a purchase on those?

No, I wouldn't characterize it that way. I would say that we do see demand for both. From time to time, we've had projects that were pretty large that were in our pipeline that we've expected would be sales and would typically be sales that customers have talked to us about leasing. That usually doesn't go that way.

Where we do see the leasing is more in road construction projects, where they will want to lease it and use it for anywhere from six months to potentially two or three years in a road construction project. That's usually where we are seeing the leasing. We are still very open to, however, leasing on larger projects also. Particularly since, as I said before, we found that once we get the Road Zipper into a market, whether it's a US market or an international market, we often see follow-on projects for Road Zipper after that.

Okay. Thanks very much, guys.

Thank you.

Ryan Connors, Boenning & Scattergood.

Thanks, good morning.

Good morning.

I don't want to beat the dead horse on the infrastructure, Rick, but obviously, I don't think the market had a good handle on where the numbers would come in. So I think it is important to nail this down. So can you give us any kind of granularity? You mentioned Road Zipper and road safety both contributing to the strength there. Can you size those two relative to one another in terms of, was it equally 50/50 the upside from both of those, or was it shaded one way or the other?

I think from an upside standpoint in terms of dollars, it was probably pretty close to equal between the two. So it's not a huge difference in terms of the dollars of, let's say, from a comparative standpoint to the same quarter last year. And if we were looking at what's the overall composition in the infrastructure part of it, we're often seeing that the Road Zipper part of it can be anywhere from very small percentages, up to 30%, 40%, 50%, depending on the size of projects.

So it's a very difficult one to estimate in terms of a percentage of the infrastructure revenues, and does fluctuate from quarters. But in terms of the dollars of additional revenue this quarter over and above the previous quarter, they are pretty equal in terms of their contribution.

Got it. And then, on a bottom-line basis, the Road Zipper is a bit higher margin typically. Is that a fair statement?

Yes. It's a bit higher, and actually this quarter, probably a little higher considering the revenue level. And I say considering the revenue level because it's not a huge number like a Golden Gate Bridge project. Still, the margins were very good in Road Zipper, because in one of the smaller projects, it was the sale of a machine and sale of some former lead-leased barrier with very depreciated and low cost base.

Got it; okay. And, now, can you remind us of the IP situation with Road Zipper? Obviously, when you are doing this well, potentially attract attention. Are there any patents rolling off at any point that could maybe bring in knock-offs or anything like that? Can you give us an update there?

There is a series of patents involved in this product, including patents on the equipment, the truck and the barrier itself. I'm not current on the dates of those rolling off. I know that some have rolled off and some are still in process and in place, and I don't really know the specifics on that at this time.

Okay, but nothing major, imminent that would compromise what you are doing (multiple speakers).

And I think it's still a fairly niche-y market, where it also takes a pretty big investment to get into it when you start looking at the production of the equipment, plus the production of the barrier and the testing and meeting the specifications of the things that are required. It's not easy to just get into this.

Okay. And then the last one for me, there's an interesting milestone in this quarter, is that EBIT in infrastructure actually exceeded irrigation -- which, looking back at our model, hasn't happened in a long time. And you mentioned the difficulty of modeling that business, given the lumpiness. Now that it's this large in the mix and causing this kind of volatility in the numbers and the stock, would you consider at some point offering some kind of a range estimate on infrastructure, or some kind of greater granularity to manage expectations a little better in that business? Or is that somewhere you just don't really want to go?

Well, I don't really want to go certainly to giving any guidance or breaking it out into too much granularity from the standpoint of one of the points that you raised, which is whether it's drawing attention to any one piece or from a competitive standpoint or any other reason. Certainly, we are open to helping you understand it better, and helping any of you understand it better in terms of being able to model it. But as you know, it's difficult to model. It's also, unfortunately, sometimes difficult to forecast. But it's a very profitable business as that comes in.

Understood. Great. Well, thanks for your time this morning.

Thank you.

(Operator Instructions)

Brian Drab, William Blair.

Just a couple more questions on infrastructure. You commented, Rick, on the source of the upside barrier versus general highway safety. But can you give us a sense -- I don't know if you have yet this morning -- for the breakdown in the quarter in terms of revenue between those two categories?

We haven't, Brian, and we generally do not give a breakdown in terms of splitting out the pieces of it.

Yes. Roughly? I know you don't typically, but not even roughly?

Well, let's say that, roughly, I would say that the Road Zipper side of it would be in the 25% to around 30% range in terms of the revenue.

That's helpful. And then, in terms of other dynamics that could be driving some of this performance in infrastructure, have you talked yet this morning about share gains potentially from Trinity? And can you update us on the competitive landscape, and if you are able to continue to gain some share, possibly, there?

I wouldn't describe the current situation for us as resulting in share gain right now. I would say that we've gained share over the last couple of years, and have been able to hold a pretty good position. I think that it's a little trickier, as Trinity does have a MASH-compliant end terminal, as I understand it. So we do see that.

I wouldn?t say we're losing share, but it is important for us to have our MASH compliance end terminal for those markets that we want to hold onto. That's why that's an important aspect for us, and why we're having the product development activity involved in that. So right now, I think we're in a pretty good position, and we really don't want to give back anything that we have picked up.

Is this MASH-compliant situation resulting in the release of some pent-up demand, where projects, whoever is running the project, didn't know which highway safety barrier they were going to use and were waiting to find out which ones were going to be MASH-compliant? And now they know in these several states and are all of a sudden buying?

I haven't heard anything that would indicate there's any kind of pent-up demand that we're seeing out of this. I think it's likely that it could create some, however, where what we could see is that since some of the states are choosing now to -- or some have adopted MASH already, and some are in the process of doing it and have future dates for it, they might hold some of their projects. Or at least the implementation of, say, the stage that would involve either end terminals or crash cushions, to be able to put MASH-standard products on those. So I'm not really sure if we could see some of that in the future. But to date, I would say that we really haven't seen a pent-up demand coming out of the market that is driven by this MASH standard.

Okay. And then the last question is, you've had a management change in the infrastructure segment. Is there any chance that Dave Downing is just driving the sales team a little bit harder than his predecessor, or something along those lines?

Well, for Dave's sake, I will say, absolutely yes. (Laughter) But I think the sales team has been pretty driven over the last year and a half or so, and they are doing a great job. Dave is doing a great job. I think that they are focused on the right things. Dave certainly is contributing in terms of the leadership there -- on other aspects of it too, in terms of helping with the -- driving the MASH implementation part of it. Or let's say, getting the products for MASH implementation, and other aspects of that business, as well as helping with Elecsys and other things.

Has there been a fundamental change at all in how you're going to market, though, given the change in management? Or not really?

Not really.

Okay. All right. Thanks for all the detail.

Thank you.

Chris Shaw, Monness, Crespi.

Hi, guys; how are you doing?

Good.

You made some sort of positive comments or optimistic comments around irrigation in Brazil, and I would just like a little more color around that. But were they specific to irrigation or was it more broadly viewed as the economy there? It seems like it has some potential to pick up in the future. Or was it specific to irrigation?

No, the comment was really regarding positive things that we're seeing in Brazil from the standpoint of, we've seen improvement in customer sentiment, and some stabilization in the market there. We believe that the funding that -- let's say, that modern infra program and others have some attractive interest rates still there. But it will be a little bit driven by how quickly they approve applications for that funding and how fast those funds are released.

But we're seeing some real, let's say, improved sentiment in general to investing and moving forward in agriculture in Brazil. There are some -- also the growth markets up in the Northeast, that Mapitoba region, has been severely impacted by drought this year. So we've seen some market decline there, where they really haven't had the water to put into irrigation at this stage. But, in general, I think the sentiment is definitely getting a little better.

Okay. And then, if I could flip to infrastructure as well. I guess I'm trying to figure out the -- you said the projects this quarter is, Road Zipper averaged $1 million to $3 million or something. And there was one, I guess, that was the sale of the machine and the barriers. I'm just looking at -- why was the Golden Gate Bridge project so big? I think it was at, like, $13 million in revenue. Was it multiple machines? Just the length of the barriers? I thought the sale of the machine would be more than a $3 million project. I'm just trying to figure out what gets sold in these projects?

In some cases it could be one truck for moving the barrier -- basically, a barrier transfer machine -- and some length of barrier, which becomes probably a $2.5 million to $3 million-type project. And we had a couple of those. Other cases like Golden Gate Bridge, maybe multiple trucks and a lot of barrier, because of the size of the bridge. So it really depends on the size of the project.

Often what we see with these smaller projects, where it might be a $1 million project, let's say, that will be either additional barrier to add to something they have, or that may be a smaller one that could be $1.5 million or something for an additional truck. We also see that once they get this first project in for $2 million, or $2.5 million to $3 million, they will be looking at the next project. But they want the experience of seeing what that barrier transfer machine and the Road Zipper System does for them.

Okay; great. That helps a lot. Thanks.

Thank you.

Mike Shlisky, Seaport Global.

Hey, guys, thanks for taking my question here. I did want to follow up on that last question about Brazil. Could you just tell me directionally, if you can, whether you saw growth in your business in Brazil in the quarter, or whether you saw a decline in that business? And also, not really sure about the environment, but how does your presence look in Argentina, where we're seeing some pretty good increase in crop production?

Well, Brazil, I would say that it was directionally down from where we were at the same quarter last year. But some of this is, let's say, somewhat project-driven by what's happening at a particular time. So I'm not considering that a major issue. However, I'd say that it still hasn't recovered. We haven't seen a recovery in terms of revenues in Brazil. We're seeing improved farmer sentiment and some recovery indications, but we haven't realized that yet.

In terms of Argentina, that's not a big market for us. We do sell into Argentina, but it's a relatively small market in general, and we will see upside potentially there over time.

Okay; great. I also want to ask about the upcoming presidential election. It kind of seems like both the main candidates are pretty in favor of growing the infrastructure spending across the country. I was curious if you think we need to have both the president and the congress in the same party to see any kind of actual movement there? Or are you getting a sense that after the highway bill, and post the election, there will be some additional cooperation to increase infrastructure spending overall here?

This is just an opinion. I don't believe that we need to have them in the same party. I think we just need to have them go the same direction, and that seems to be one of the toughest parts. But there's definitely, I think, on both sides and both parties, a belief in the need for improved infrastructure. The question is, at what pace and what is the offset? What will they invest in instead of that, if not infrastructure? But I think everybody recognizes the need for improvement in infrastructure.

I guess I was kind of asking, if we have both the executive and Congress in the same party, does it make it any easier to pass more spending? Or do you feel like there's still a lot of discord there?

I really hate to speculate on that. I think there's a fair amount of discord. I just don't really know. I think anything would help. But I really don't know. I think it's been a difficult environment over the last few years, and it's going to take some time, I believe, no matter what happens, for that to heal.

Okay; got it. Well, thank you very much.

We have now reached the end of our allotted call time. I will now turn the call over to Mr. Parod for closing remarks.

The global long-term drivers of water conservation, population growth, the importance of bio-fuels, and the need for safer, more efficient transportation solutions remain positive. We are uniquely positioned for developing and delivering turnkey solutions.

Our offerings include a broad line of market-leading irrigation solutions for agriculture, providing the best irrigation management and control technology. Engineered pump stations, filtration solutions, as well as providing energy-absorbing road safety solutions, and solutions for expanding the capacity of our existing roads and bridges. 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 would like to thank you for your questions and participation in this call.

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