Lindsay Corp (LNN) 2018 Q1 法說會逐字稿

Good morning.

My name is [Roshou] , and I will be your conference operator today.

At this time, I would like to welcome everyone to the Lindsay Corporation First Quarter 2018 Earnings Call.

(Operator Instructions) Please note, this event is being recorded.

During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management's current beliefs, 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.

Through 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. Tim Hassinger, President and Chief Executive Officer.

Please go ahead.

Good morning, and thank you for joining our call.

With me on today's call is Brian Ketcham, Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer.

As you know, the objective of this call is to discuss our Quarter 1 results.

Before we jump into that overview, I'd like to make a few introductory comments.

It's a real privilege to join the Lindsay team as President and CEO.

This is a company that has a long and storied history in the irrigation sector along with its more recent successful entry into the infrastructure business.

Based on what I have observed in my roughly 2 months in the company, this organization, with its portfolio of assets and innovation capabilities, has strong potential to grow.

During this timeframe that I've been in Lindsay, I've invested a lot of time with the management team.

I see a group focused on continuous improvement and that are highly committed to serving our customers.

For those on the call that don't know much about me, I've been in the agricultural business my entire career, and you could really say, my entire life.

I grew up on a family farm in Illinois, and after getting an ag degree, I began what turned out to be a 33-year career at Dow AgroSciences, which was the ag division of Dow Chemical.

The last 3.5 years, I was the President and CEO of Dow AgroSciences.

Throughout that time, I had the opportunity to work in or lead all of the geographies and business units in that company, including 2 years living and working in China.

Those experiences exposed me to several areas that I'm finding very useful in my new role at Lindsay.

Lindsay is a company with 2 business platforms that compete globally, creates innovation and is dependent on having a highly motivated and engaged employee base.

It is these areas that I'm finding to be the best match with my prior experiences.

On my first day at Lindsay, I sent out my 100-day plan to the Lindsay employees.

The focus of this plan of work was to meet with employees, dealers, customers, investors and stakeholders to get their view of Lindsay.

In addition, my plan was to visit our key locations to see, firsthand, our capabilities on the ground there.

Since I started in Lindsay, I have met with over 1,000 people in small group sessions and by the end of January, I'll be able to say that I have visited nearly all of our key locations across the globe.

We are also taking advantage of having a new set of eyes in the company to review each of the businesses and challenge existing assumptions.

To date, I have been really pleased with how the entire organization is taking this relook approach, with the only intent being, how do we get better?

I often get asked, "What have you seen so far, and what do you think will change?" My plan is to give you a more detailed, go-forward look at our next quarter's earnings call, since, by then, I will have completed my 100-day plan and will have had time to reflect on those learnings.

However, I can give you some high-level observations of what I'm seeing so far.

As mentioned before, this organization is very connected to its dealer network and customer base.

We know them well, and many of those relationships go all the way to the leadership team.

This has really struck me as a positive trait that I don't want to alter at all.

Along with that commitment to our dealers and customers, the be-an-owner attitude and a passion for the industry that they work in is very evident and frankly, you see it right away when you join the company.

It's been said before by the Lindsay management team that the growth rate for the Irrigation business in the international market will be higher than in the domestic market.

It is this need to be globally oriented that strikes me as being very important to our future success.

Lindsay sells globally and has a lot of experience in this area.

However, this is an area where I see my prior experiences can contribute to the organization.

A pleasant surprise for me has been in the area of innovation.

I can confidently tell you that this organization has more innovation than I expected to see.

Managing R&D budgets for innovation is something that I have a lot of experience doing from working in my prior company, and this opportunity is something that you'll see Lindsay focus more on, going forward.

In the Infrastructure business, several new products have been, or will be, introduced to meet the MASH standards for road safety hardware.

The recent launch of the MAX-Tension End Terminal is a good example.

For the Irrigation business, the launch of FieldNET Advisor is another example that demonstrates that this company has the potential to move from a company with innovation to a company that has an innovation-based strategy.

This is an area that I'm investing a lot of time in, because I see it as a very exciting part of the company, and how we will differentiate ourselves in the marketplace, going forward.

Next, since this company sells globally, and is investing in innovation, it is critically important that it has robust global work processes.

Again, I reflect on my prior experience to see where I can add value and given I came from an organization known for process discipline, this is an area that we will invest time and resources to ensure we are effective and productive in this area.

Having robust global work processes in place will help facilitate us reaching our growth potential.

Lastly, I got asked in several of the introductory sessions with many of you, "Tim, how do you see the market going forward?" And I think that question was to determine if I'm wearing rose-colored glasses or not.

First, I'll speak to our Irrigation business and specifically, the ag market.

Since the downward trend on commodity prices started in mid-2014, I would describe our current market as flattening out.

However, I am not predicting a recovery in the near term.

And for that reason, our mindset will be to compete and deliver meaningful results in this current market environment.

And if an upside comes from a more favorable marketplace, we will be prepared to respond, but that will not be our base case.

For the Infrastructure business, spending on highways and bridges within the U.S. is down year-over-year through September, according to an analysis conducted by the American Road and Transportation Builders Association.

However, we are seeing good interest in our Max-Tension End Terminal, and our innovative Road Zipper moveable barrier technology.

Most recently, we received notification that the Road Zipper system will be installed on the Alex Fraser Bridge located in Vancouver, British Columbia.

I will have lot of time later in this call to address any questions you have about these introductory comments.

But now let's move to our Q1 results.

And for that, I'll turn the call over to Brian.

Thank you, Tim, and good morning, everyone.

Total revenues for the first quarter of fiscal 2018 were $124.5 million, an increase of 13% over the same quarter last year.

Net earnings for the quarter were $3.2 million or $0.30 per diluted share compared with $900,000 or $0.08 per diluted share in the prior year.

The impact of foreign currency translation for the quarter was minimal in comparison to the prior year.

Irrigation segment revenues in the first quarter were $103.4 million, an increase of 15% over the same quarter last year.

In the North America irrigation market, revenues increased 28% over the same quarter last year.

The increase was driven by higher irrigation system sales volume across most regions, reflecting a more traditional fall selling season in comparison to the prior year, when we experienced growers deferring equipment purchases.

Revenues from other irrigation product lines, including pump and filtration systems, increased modestly in comparison to the prior year.

In the international irrigation markets, revenues in the first quarter decreased 4% compared to the same quarter last year.

The decrease was primarily the result of a lower level of project sales, while certain markets, including Brazil, Africa and Europe, had higher sales compared to the prior year.

Total Irrigation segment operating margin increased to 7.6% of sales from 5.7% in the same quarter last year, primarily the result of additional sales volume leverage in North America.

Infrastructure segment revenues in the quarter were $21.2 million, an increase of 3% over the same quarter last year.

Increased sales volume in road safety products and higher Road Zipper system lease revenue were partially offset by lower revenue in other product lines.

Infrastructure segment operating margin increased to 15.5% for the quarter compared to 14.5% in the same quarter last year, primarily the result of improved product mix from higher-margin product lines.

Gross margin for the first quarter of fiscal 2018 was 26.0% of sales compared to 25.7% of sales for the same quarter last year.

Infrastructure gross margin improved due to more -- due to a more favorable product mix within road safety products and an increase in higher-margin lease revenue.

In Irrigation, improved volume leverage from higher North America irrigation system sales was tempered by the impact of changes in product mix and changes in the regional mix of international sales.

Operating expenses for the first quarter were $26.2 million, an increase of 2% compared to the same quarter last year.

The order backlog at the end of the first quarter was $80.3 million compared to $55.9 million at the same time last year, reflecting an increase in both the Irrigation and Infrastructure segments.

Included in the Infrastructure backlog is the Road Zipper system order for the Alex Fraser Bridge that Tim referred to earlier.

The value of this order is approximately $14 million, with delivery expected to begin in the third quarter of fiscal 2018 and be completed in the first quarter of fiscal 2019.

Cash and cash equivalents were $109.5 million at the end of the quarter compared to $121.6 million at the end of the prior fiscal year.

Cash was utilized in the quarter to fund working capital increases in support of sales growth as well as capital expenditures and dividend payments.

No share repurchases were made during the quarter.

However, a total of $63.7 million remains available under our share repurchase authorization.

The strength of our balance sheet continues to position us to pursue growth initiatives, both organic and through acquisitions and other initiatives to drive improved returns for shareholders.

At this time, I'd like to turn the call back over to the operator to take your questions.

(Operator Instructions) Today's first question comes from Mike Shlisky of Seaport Global.

So just quickly here on the backlog piece.

When you take out the backlog from the Road Zipper order, you're still up 18%, 19% or something like that from the prior year.

Could you kind of bucket for us, whether there's a big skew towards one of the other segment?

Or do you characterize both segments, excluding this single order, as up pretty substantially from the prior year?

Yes, Mike, this is Brian.

I would characterize the backlog, we indicated, it was up in both Irrigation and Infrastructure.

The -- it's predominantly split between the 2, I'd say, the -- obviously, the Road Zipper project for Alex Fraser was the majority of the increase on Infrastructure and the remainder would be on the Irrigation segment.

I'm sorry.

So are you saying that it was flat outside of that single order in Infrastructure?

Or is there other orders that might be causing a positive backlog in infrastructure?

I would say it was relatively flat if you exclude the Alex Fraser Bridge.

Okay, got it.

Also wanted to make a -- just a quick question on the price of metals and pricing in the quarter.

Were there any impacts to your gross margins on the high cost about the galvanizing of steel, et cetera?

And is there any outlook you have for the rest of the year as to how that might, kind of, play out for you guys?

Yes.

If you look at quarter-over-quarter, through the first quarter last year, steel is -- market price of steel is probably up about 10% and zinc is probably up around 30%.

So there is definitely an impact from that.

But we've been able to pass through, I would say, the majority of that, which has been, traditionally, the case.

And that would break down into probably more of a 3% to 4% change at the product cost side.

Going forward, I think we continue to see steel at or slightly above the current levels.

But again, we plan for that -- based on where we see the market trending, we may take on additional inventory if we see steel prices going up and intend to continue to manage margin, so that any change in steel or zinc prices get passed through.

Okay, great.

And just one other one for me.

I know you had up quarter in domestic irrigation and a down quarter in international irrigation.

But basically, your current outlook and your introductory comments to kind of start the call, do you think they might actually reverse in the rest of the year here, given what you mentioned that actually, domestic might be flat to maybe up -- just up slightly.

Or is it international that's improved your growth load right now?

Yes, no.

Thanks, Mike.

And as we look at year-over-year sales, as you've seen, we did see a good, healthy increase there, year-over-year.

Now at the same time, we do want to highlight, we think there's been a return to what we call more normal fall-buying pattern.

So to be even more specific to your question, has this been a result of market share gain?

And we'd say it's too early right now to be able to say that in North America.

Now we have seen some share growth in some of the project-driven markets internationally.

So that's been positive news.

And the other area that I would focus on is that we continue to see FieldNET get recognized as a leading technology in the marketplace.

And that's definitely creating additional opportunities for share growth throughout most of our markets.

So by online, from an end-market perspective, you had some easy comps here in the quarter, but it looks flatter for domestic, but possibly, up for international.

Is that what you're trying to say?

Or are you're saying that it could still be a down year for international?

No, we don't see it as a down year.

What I'm saying is, we did have some markets where we believe we did gain share.

Now obviously, there were other markets that offset some of that growth, and you saw what the total numbers were for the quarter.

But when we come back to North America, what I want to just say is that we think it's been a combination of both.

We've seen farmer sentiment improved some.

There's no doubt there's been some capital investments that have been delayed.

So we saw an improved environment with farmer-buying attitude.

But at the same time, we also saw a, what we would consider to be, somewhat of a shift back to a normal buying pattern.

So it is a combination of both factors.

And our next question comes from Brian Drab of William Blair.

This is Kyle Dicke on for Brian Drab.

It looks like you touched on this on the back of the slide deck.

But just regarding the new tax bill and the ability for farmers to fully expense -- potentially, fully expense capital investments, how much of a tailwind, or a tailwind at all, do you expect that to be to demand next year?

Kyle, this is Brian.

I think it's definitely a favorable factor.

It's hard to assess right now, how much of a tailwind that it would provide.

It depends on the farmers' taxable income position.

I think that.

But it's definitely something that would support the market, for sure, going forward, across all equipment, agricultural equipment.

Okay.

Great.

And then congratulations on the Alex Fraser deal.

Are you able to provide any more details on that, regarding how many QMB units, how many miles of barrier?

And then I know you gave the $14 million, kind of, from Q3 '18 to 1Q '19.

Is that kind of a -- is that weighted evenly between the 3 quarters?

Or how do you, kind of, see that, in terms of revenue playing out?

Yes.

I think there are probably more details coming out later, and I think the customer is planning a marketing release.

But I think it's around -- a little over 3 kilometers of barrier and, I think, a couple of machines.

As far as how it falls in fiscal '18, I would say that the majority of it will be in '18.

There will be some that spills over into the first quarter next year.

Okay, great.

And then just one last one.

Looking at, kind of, the Irrigation gross margin, you mentioned mix changes there, the headwind.

But is there anything else underlying there, any changes in kind of the pricing environment, or from a competition standpoint?

Yes.

I -- we don't -- our selling margins, I would say, were consistent with where they had been in the first quarter last year.

Again, I think there's a mix component within irrigation equipment where, during the quarter, probably a higher percentage of shorter machines compared to in the past, which has a little bit of a negative mix impact.

But then I think the other, probably biggest impact, was just in that change in regional mix on the international side.

And our next question comes from Joe Mondillo of Sidoti & Company.

Just a follow-up on that last question.

Relative to the prior recent quarters that you've seen in terms of international mix, where does it stack up?

Was this one of the weaker, sort of, regional mix quarters that you've seen in a while?

And then in terms of the backlog and sort of the outlook and what you're expecting, where do you see that mix going over the next year?

Yes, Joe, I think a couple of components to that.

Obviously, there's the project-related area and that -- the projects can vary as far as margin levels, and that's part of the mix.

But then I think in the regional mix that we called out, some of our export markets, say, Australia, Mexico, generally tend to have higher-margin profile.

And in any 1 quarter, the change in regional mix can make a difference.

I think Europe being up this quarter, again, is probably more of a year-over-year comp than anything.

I think it was -- it had been impacted similarly in the past to the domestic market with lower commodity prices.

So it's a little bit of a mixed bag.

And in terms of going forward, is there any reason that you believe that these, Australia, Mexico, will remain, sort of, at the levels where they were in this quarter?

Or do you think they bounce back?

Or how do you sort of look at, going forward?

We would expect improvement, as the market recovery continues in some of the established markets, internationally.

Okay, great.

And then on the Alex Fraser Zipper project, I'm just wondering, when we last spoke in early October, where were you in the process of, sort of, landing this project?

And could you give us an idea of what the rest of the pipeline looks like with other projects, going forward?

Yes.

I mean, I think, as we've mentioned in the Road Zipper projects that they can be in discussion for quite a period of time, and then up here in the backlog.

I think Alex Fraser, probably, has been in some form of discussion for about 2 years.

As far as the pipeline, I would say, the pipeline continues to improve.

I think, again, Alex Fraser is probably an example that really, kind of, got its start based on seeing what the Golden Gate Bridge project was like.

And I think that project has definitely increased the awareness and interest level in Road Zipper as a solution for applications like that.

Okay.

And so the perspective that I was actually trying to sort of get at.

Is there a chance that we could expect some other large project like this to be landed over the next quarter or 2?

Is it hard to say?

Or how healthy is that pipeline, I guess, relative to the next 18 months or so?

Yes.

Joe, this is Tim.

I'll try to address it, but I won't be able to give you an exact answer on that.

Just to give you kind of set expectations on the front end here.

We do not include sales and backlog until a contract is signed.

And to be specific on your prior -- your other point is, this actual deal, Alex Fraser, got inked between the time of the last call and this call.

So that's the timing of when that occurred.

Now we do understand your desire to get more transparency on the backlog or potential size of this.

So we are going to spend time evaluating what I'll say, the disclosure threshold is to use.

But what we can give you as a directional statement here, we are seeing an increase in interest, and we do think the Alex Fraser contract is a good proof point of that.

And our next question today comes from Brett Wong of Piper Jaffray.

I just wanted to dig into the domestic demand on irrigation a little bit more.

I know you've touched on this.

But really, the -- why demand and sentiment kind of picked up in the quarter.

And just wondering, was it -- as we've seen with some machinery replacement, kind of, during this period, stronger-than-expected yield resulted in higher income than originally budgeted, and so some growers who've been meaning to put an irrigation bid.

Basically, that tied to the stronger yields that we've seen this year, that's driving kind of the sentiment improvement and the demand improvement.

Yes, Brett, this is Brian.

I think what we saw in the quarter, traditionally, we've said over a longer period of time, the breakdown between dry-land, conversion and replacement has been roughly 1/3, 1/3, 1/3.

In this particular quarter, which actually matches up pretty well with the first quarter last year, we saw a higher amount of conversion, probably -- well, it was 42% conversion, replacement was 34%.

So what drove the conversion is primarily in the Northwest area of the U.S., where what we're seeing is replacement of older wheel-line technology with center pivots.

And I think that is -- there's different crops in the northwestern, traditional corn and soybeans.

But we did see broad-based demand across all of our regions.

And again, I think some of it may be, also, this past season, machines ran longer, put a lot more hours on them.

So the people that were holding off on replacement, maybe have reached that time when they need to make that replacement decision.

But we'll, obviously, see as the next quarter plays out too, if it's just a shift in the demand or -- again the year-over-year comparables were -- last year was kind of an anomaly there.

So Brett, this is Tim, just to build on what Brian has said.

So there what do you put in place, and then -- but we do think there -- we've seen some positive signs of, I'll say, more favorable farmer sentiment.

But we're hesitant to try to indicate what it's going to mean, going forward, because it's 1 quarter we've seen it.

We can say when we look back on this quarter "Yes, we did see some -- an improved farmer sentiment, specifically in North America".

Okay.

That's helpful.

And I guess, kind of, on that same point Tim, if you look at next year and assuming we get to trend line yields again, and you have kind of this range-bound grain price environment, as you've kind of suggested here, do you think that you will continue to see this, kind of, positive sentiment?

Or is there maybe a pullback in how farmers feel, given that the environment is still pretty tough?

You see us avoiding -- hitting that direct, because we're not sure.

We think there's an improvement.

I think the question on the table is, how much?

And I'm hesitant to try to give a specific on that, because we only have the 1 quarter here to go off of where we've seen it.

So we think is a very positive sign is, again, not only the increase, but the movement back to what we would call more of a normal fall-buying pattern, is a positive sign.

But to what level this is going to drive, that's what we're hesitant and really believe next -- the end of next quarter, we'll have a better sense of if there is a directional change there.

And our next question today comes from Ryan Connors of Boenning and Scattergood.

I had kind of one big-picture strategic question, and then kind of a more of a housekeeping item as well.

So big picture, Tim, thanks so much for laying out your big-picture vision and so forth.

I want to kind of build upon on that a little bit.

And you mentioned, you don't have rose-colored glasses when it comes to the commodity prices and so forth as the driver of growth and value, and you're going to focus on what the company can do independently to drive value.

I mean, can you just expand on that a little bit and talk about the platform of Lindsay, talk about M&A priorities and product-development priorities.

Do you see this remaining?

Do you see this as an irrigation platform?

Do you see it as an agricultural-products platform?

Do you see it as an industrial platform?

I mean, what direction do you think, if we operate on the assumption that we are in kind of a -- we're not going to expect the big ag up-cycle anytime soon, what direction do you take it in, in terms of growth?

What's your vision there right now?

Yes.

So Ryan, let me first of all introduce where am I spending my time in the short term, and then if I can broaden that out and try to address your question more head-on.

I'm still in this 100-day plan.

So my focus is listen and learn.

And I -- as I mentioned in my introductory comments, I am trying to bring the fresh set of eyes.

So we are doing a lot of relook, whether it's strategy, processes or key differentiation points, getting the small group feedback has been very helpful and getting out to all of the locations.

So my goal is to come with a more direct answer to your question here in the Q2 earnings call.

Just a few comments, though, that I can say.

Obviously, Irrigation has been the foundation of this company.

And I see key driver here and a key need is, we need to be able to deliver the meaningful results from that business that we have.

Now on to the Infrastructure.

We're in a market where U.S. infrastructure is clearly in need of repair.

We know we've got developing countries starting to adopt and enforce safety standards.

So I see a growth potential in that business better than global GDP rate.

This segment has contributed 25% to 35% of the company's operating income over the last several quarters when sales were 20-or-less percent of the total sales.

So this has been a very important contributor to the company, and at the same time, you're seeing increasing standards being implemented, MASH being the very obvious example.

So we're -- we are taking a fresh look at everything.

But I like how this segment is performing.

So I'm going to pause on going any farther in answering your question until we've had at least this next quarter to get through the 100-day plan and reflect back on it.

But I see, obviously, the ag -- the irrigation segment is one how we get more results.

And I'm quite intrigued and have a very favorable view so far of what I've seen of the Infrastructure business.

So hope that addresses, at least for now, and more to come.

Yes.

No, I appreciate that, and will look forward to that the next quarter.

My housekeeping question, and I apologize if I missed something, I came on the touch late.

But tax rate, tax reform, I know it's something that you probably don't have a fine -- a real detailed pinpoint answer on right now.

But we're, obviously, even more in the dark than you are on how this will impact Lindsay from a tax rate standpoint.

So any color you can give us, just even directionally, on what the impacts of tax reform will be on your tax rate?

And what the key, kind of, moving parts are?

Yes, Ryan, this is Brian.

With the statutory rate dropping from 35% to 21%, it definitely will have a beneficial impact on our effective tax rate.

For our fiscal 2018, it's a transitional year.

So 4 months, we'll be at 35% and 8 months at 21%.

So it's a blended statutory rate of about 25.7%.

There are some one-time items upon reenact -- upon enactment, one of which is being deemed repatriation of foreign earnings.

That could add a point or 2 to the effective tax rate.

And some of it depends on the mix of foreign earnings, obviously.

But I -- for fiscal 2018, we're expecting the effective tax rate could be 2 to 4 points lower than what we saw in Q1.

Next year, as we work through the transition, it should come down further than that.

But we've got -- in any year, it could be 35% to 40% of our earnings coming from foreign operations.

And now it's a flip-flop.

U.S. rates are going to be the lowest in some of our -- where we -- other countries where we're operating, we'll be at higher rates.

So it will be -- we'll be higher than the U.S. statutory rate.

It could be 5 to 7 points above that.

Okay.

So there's -- one of the things that we've heard from others is, that impacts on different things, like where components are being sourced and excise taxes.

It sounds like you're expecting a pretty straightforward application of that lower statutory rate without a lot of complexity on supply-chain issues.

Is that fair?

Yes, I would say, for the most part, I mean, we're in these markets in order to serve the customers and not from a sourcing standpoint.

So -- but there're -- we'll be taking a look at sourcing as well just to make sure that with the lower U.S. rates, there's definitely an advantage to do more in the U.S., which is just the opposite of the way it has been.

So we'll, definitely, be taking a look at it.

But in general, I wouldn't expect significant shifts.

And our next question today comes from Jose Garza of Gabelli & Company.

Welcome, Tim.

You guys talked a little bit about the Max-Tension.

Just, I guess, give us a sense of where things kind of stand in terms of approvals?

Maybe at the state level?

Or however you guys are looking at it just to kind of get a sense for the adoption of that?

Yes.

So we have submitted to many of the states that we will be looking to get that approved.

Many of the states have come back and have approved the product already.

I would describe our situation right now as we're well positioned for the MASH sunset date, which is the end of June of next year.

So we feel we're progressing towards being in a very good position.

Okay.

And you don't have, like, I guess, the number of states?

I -- we're not in a position to give the specific numbers.

Okay.

And I guess, just, housekeeping, Brian.

Are you guys going to break out, I guess, the domestic versus the, I guess, North America now on the irrigation side, just the revenue there?

I might have missed that before.

Yes, yes, Jose.

We're breaking out between North America and international, whereas in the past, it was U.S. and international.

And the difference there being Canada being included now in North America.

And it's really -- market characteristics are similar to the U.S., and we manage it internally.

Canada is managed as part of North America.

So it just makes sense to report, externally, the same way that we manage it internally.

Okay.

So are you going to give the historicals by any chance?

No.

You can see the impact on the quarter in our...

Yes.

So it's kind of like [$9.5] million or so of run rate?.

Yes.

It's not a significant number in total.

And our next question today comes from Chris Shaw of Monness, Crespi.

If I can ask the margin question again in Irrigation, maybe, looking at it slightly differently.

I guess I was just expecting higher margin percentage, given the gains in sales.

And if you look back at Q1 '16, you just did slightly less sales but had $5 million more in profit.

Some I'm just -- I can't imagine that's all just from the break down in different geographies on the international side that are -- is there something else that's happened over the past 2 years?

I know I'm going back to a time before either of you guys, so maybe, it will be hard for you to answer.

But if you have any color?

Yes, Chris.

I mean, I think, if you go back 2 years ago, there's quite a change in -- within international as well as within some of the domestic irrigation businesses where we've added some other businesses.

But I would say, within -- the biggest change year-over-year is within the international irrigation.

And one thing back, 2 years ago, in the first quarter, that those results also included recovery of receivable that had been previously written off.

So the comps are not really apples to apples.

But I think the biggest thing -- 2 things, really.

There's a change in the regional mix of sales between the 2 periods.

And then I -- the other thing is the Turkey plant is now fully operational, and it wasn't in the first quarter of '16.

So that -- that's definitely had an impact, especially in the, kind of, lower overall volume environment.

So we would expect, clearly, improvement, going forward.

We expected to see a little bit more leverage this quarter as well.

But a variety of factors played into that.

All right.

That's very helpful.

And then on to the tax, I guess, the, sort of, the expansion of Section 179, is it that the -- why would -- I thought that was already in place for this year, and I thought that was only just expanding the program to higher, I guess, level of spending.

Why would you think it'd be a tailwind then, just because it's continuing mostly?

Or do you think the actual, what -- I didn't think -- I guess I didn't think irrigation projects went up to $1 million really in United States.

Yes.

I mean, it's 2 things.

One is, it's continuing; and then the other thing is that it's now -- the limit has been taken off.

So to the extent that you're looking at multiple systems or other agricultural equipment, it's not -- you don't have to necessarily prioritize.

But that's the biggest thing, is that the limit has been increased.

Okay.

And then just lastly, is there any impression, I mean, I know the fires in California seem to be around a fairly fertile agricultural area.

Is there -- have you any sense of internal damage to irrigation systems out there?

Or have you heard any feedback from customers or...

Yes.

I mean, the fires were in an area that isn't our type of agriculture.

It's going to be in the vineyards and fruit trees and things like that.

So that's not an area that we would have our equipment.

And our next question is a follow-up from Mike Shlisky of Seaport Global.

Other questions here.

First, I just want to ask about your selling expenses.

You have sales up 13%, but essentially the same spelling expenses kind of, year-over-year.

Is that the, kind of, run rate $10 million, we should expect going forward in your best quarters or your worst quarters of last year was almost the exact same selling expense all year around?

Is this the right kind of run rate going forward at this point?

Yes, Mike.

I would say in general, yes, it represents the run rate.

I would say it can vary a little bit.

Again, our Road Zipper project that could have some commissions attached to it.

But I would say, in general, it's -- it doesn't vary that much with sales.

Okay.

And then secondly, I just want to get a little bit color on the Alex Fraser Bridge project here.

It's been so long since we've actually you've seen any full order from start to finish, kind of, going through the book.

So can you just kind of take us through some of the timeline.

I know it sounds like it's a 3/4-type project.

Is it -- are the sales, kind of, back-end loaded once you're actually getting it installed?

Or is it kind of evenly throughout the entire 3 quarters?

And the same question for the profitability.

Is this going to be a project that has the similar margins to the overall segment?

And are any of the profits back-end loaded, given the installation of that project?

I'll make a few comments for the project itself, and then Brian can jump in and give you more what that will mean from a revenue standpoint for us.

The final project planning is underway now, as you can expect, and the implementation, we believe, will be completed by the second half of 2018.

So we believe it will be completed in the 2008 (sic) [2018] calendar-year timeframe.

So Brian, do you want to give a view how that will look from a revenue standpoint?

Yes, each contract is different Mike.

But this one allows for revenue recognition upon delivery.

So it should be -- well, it's dependent upon when we actually deliver the product.

But there is a possibility that some of it could rollover into the first quarter.

But we think the majority of it will be in -- within fiscal year.

And then from the profit standpoint is, do you not recognize it until it's officially installed, and you've done all your work on it?

Or is it as soon as it's delivered?

No, profit will be recognized as the revenue is recognized.

And again, is this kind of like that could have margins that are in line with the rest of this segment?

Or might this be something that is little bit lower margin to start?

And then there's part and service over time that might help you with higher margins in the future years?

Yes, we are not going to comment on profitability of the specific order.

And our next question today is a follow-up from Joe Mondillo of Sidoti & Company.

Two questions.

One, on the inventory, I think, I asked the same question last quarter.

Inventory for this quarter was up 17%, year-over-year.

And I think, in October, you mentioned that was internationally driven.

So I guess, even though this quarter was quite a little weakish on the international front.

Should I expect international growth return later this year?

Yes, Joe, the inventory, I would say, is most of the growth is in the international irrigation business.

There is some in domestic as well as in the infrastructure side.

But the majority of it is in the international.

And again, the supply chain, the channels are longer, but it is to support what we think will be the growth in the business.

But the timing of these international projects that the reason why the inventory is up.

Is there any chance that this extends into fiscal '19?

Or can we expect international growth to return this year?

Yes.

I mean, the timing of the projects does contribute to the inventory.

There's no doubt about that.

As far as when that takes place, generally, it's not -- it doesn't go over a 12-month period.

So I would think, within the fiscal year.

Again, it depends on what comes in and out of the backlog.

But in general, I would say it's at a high -- higher point right now than what we would anticipate, going forward.

Okay.

And then just lastly, acquisitions.

You haven't really done much over the last couple of years.

Just wondering, do you think that changes at all in terms of opportunities?

Or is it going to sort of just be consistent is what it is?

Just the opportunities there, just aren't as much as maybe in the past?

Joe, this is Tim.

I'll take a shot here at this.

As I said a couple of times, we're still in this 100-day plan, so trying to determine where our best opportunities should be focused on.

We are very open to bolt-on opportunities.

We'd -- if the right opportunity comes, we do have a very strong balance sheet.

But I do want to come back to you.

My focus right now -- our main focus is on implementing this 100-day plan, and trying to sort out exactly where our priorities are.

So that's where majority of the effort is going right now.

And our next question is a follow-up from Brett Wong of Piper Jaffray.

Just wanted to ask about the Brazil market.

You mentioned that it's still favorable there.

But just wanted to see what you're seeing in that market, given the weaker fundamentals with lower grain prices and a less favorable effects compared to this time last year?

We're seeing some extremes there.

You -- first of all, weather, we're seeing some difference between south and north in terms of wet versus dry.

So we're getting some variability there in Mato Grosso or [Cornik] region.

Yield reduction has definitely played a factor there.

Interest rates, have remained favorable.

So with all of the volatility though, we still are rather optimistic for potential growth in Brazil.

So we still see it as a good growth opportunity for us.

And this concludes our question-and-answer session.

I'd like to turn the conference back over to Mr. Hassinger for any closing remarks.

Great.

Well, thanks for your interest and participation in today's call.

And this concludes our first quarter earnings call.

I'm looking forward to updating you on our progress on our Quarter 2 call to be held at the end of March.

We thank you for joining us, and we wish you all a safe and happy holiday season.

Thank you, sir.

Today's conference has now concluded, and we thank you all for attending today's presentation.

You may all disconnect your lines, and have a wonderful day.