Lindsay Corporation (LNN) Q2 2012 Earnings Report, Transcript and Summary

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Q2 2012 Earnings Conference Call. [Operator Instructions] During this call, management may make forward-looking statements that are subject to risks and uncertainties and 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. Joining me on today's call are Jim Raabe, Lindsay Corporation's Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer. Revenues for the second quarter of fiscal 2012 were $132.1 million, increasing 10% over the same quarter last year. During the quarter, we continue to achieve global growth in irrigation equipment revenues over the same period last year. However, some of that growth was offset by significantly lower infrastructure revenues primarily due to lower QMB project sales. Net earnings were $12.8 million or $1 per diluted share in the quarter compared with $11.3 million or $0.89 per diluted share in the prior year second quarter. Operating margins increased slightly to 14.3% from 14.2% last year. Total revenues for the first 6 months of fiscal 2012 were $251.3 million, increasing 20% from the same period last year. Net earnings for the first 6 months were $15.7 million or $1.23 per diluted share, approximately equal to the first half of fiscal 2011. However, the first half of fiscal 2012 includes a $7.2 million accrual for environmental remediation at our Lindsay, Nebraska facility recorded in the first quarter of fiscal 2012. Excluding the environmental accrual, operating margin improved to 12.4% for the first half of the fiscal year compared to 11.6% in the previous year. And net earnings increased to $1.60 compared to $1.27 per diluted share for the same period last year. In U.S. irrigation market, revenues were $82.9 million for the second quarter, increasing 25% over the same period last year. In the international irrigation market, revenues increased 36% to $34.1 million. Revenues increased in nearly all of U.S. and international regions with the most notable international growth in the Middle East, Canada, Europe and Latin America. For the first 6 months of fiscal 2012, U.S. irrigation revenues were $143.5 million, increasing 39% over the first half of last year. We are now in the midst of our primary irrigation selling season in the Northern Hemisphere, and quote and order activities are significantly more robust than the same time last year. In the international markets, revenues were $74.2 million for the first 6 months of fiscal 2012, increasing 53% over the first half of last year. Commodity prices continue to support improved irrigation equipment demand. The USDA projects the U.S. 2012 net farm income to be the second-highest on record, only slightly less than 2011 and 28% higher than the 10-year average, continuing to create positive economic conditions for U.S. farmers. The global long-term market drivers of improving diets and a growing population, combined with water use efficiencies available for mechanized irrigation systems, continue to be positive drivers for irrigation equipment demand. Infrastructure segment revenues decreased 47% to $15.1 million in the quarter due primarily to lower QMB system sales. Infrastructure revenues excluding QMB system sales decreased 4% from the second quarter of last year, reflecting flat revenue from the road safety products and lower revenues in railroad signaling structures. QMB system sales were more than 85% lower in the quarter than the same quarter last year due to a sizable project in the comparable period last year and delays in anticipated projects this fiscal year. The project delays are due to funding and nonfunding-related issues, but the delays have not significantly changed our perspective on the likelihood of specific projects or the future demand for QMB systems. Long-term global interest remained strong in QMB as a superior solution to worldwide traffic congestion and improvement in driver and highway worker safety. QMB sales are likely to continue to be volatile due to the project nature of the business. Year-to-date at the end of the second quarter, infrastructure revenues were $33.6 million, 42% lower than the first half of last year. Excluding the lower QMB system sales, infrastructure revenues increased slightly over the first half of last year. As we discussed in previous calls, our infrastructure management team remains focused on improving the growth and profitability of the business through expanded sales and marketing actions, product cost reductions and converting fixed expenses to variable where possible. While progress has been made, there is still more improvement planned. Gross profit was $36.5 million for the second quarter versus $34 million in the same quarter of last year. Gross margins were 27.6% compared to 28.3% for the second quarter of last year, primarily due to lower revenues of higher-margin QMB system sales. Irrigation gross margins improved by more than 2 percentage points from the same quarter of last year as a result of cost leveraging and productivity gains. Operating expenses for the second quarter increased by $600,000 to $17.5 million for the second quarter of fiscal 2012. The increased operating expenses were primarily from the inclusion of an acquired business and personnel-related expenses. Total operating expenses as a percent of sales improved to 13.3% for the quarter compared to 14.1% for the same period last year. Our order backlog was $87.3 million on February 29, 2012, as compared to $52.8 million on November 30, 2011, and $64.3 million on February 28, 2011. The irrigation backlog is more than 50% higher than the same time last year and historically is the second-highest quarter-end backlog, second only to the same period in fiscal 2008. The infrastructure backlog was lower at the end of the quarter versus the same time last year. Cash and cash equivalents were $26.5 million higher at the end of the quarter versus the same time last year, while debt decreased $4.3 million, and $4.9 million of acquisitions were completed. Accounts receivable were $2.4 million higher year-over-year due to the higher sales, while days sales outstanding improved. Inventories increased $13.7 million in support of the peak selling season, and inventory turns improved. Our primary uses of cash remain investing in organic growth opportunities while continuing to seek accretive acquisitions that add businesses and/or product lines. In summary, we are pleased with the continued robust irrigation equipment demand realized during the past quarter and in the current season for the Northern Hemisphere. The global economic conditions for farmers remained positive, supporting continued irrigation equipment demand. In the infrastructure segment, we continue to experience revenue and profit volatility due to the project nature of our QMB product line and the fixed nature of some SG&A expenses. Predicting timing on QMB projects is likely to remain a challenge, but we remain positive regarding the business. The business has provided good returns to shareholders since acquired, and I'm confident that it will continue to provide good returns. I would now like to open it up for your questions. Operator?

[Operator Instructions] Your first question comes from the line of Schon Williams of BB&T Capital Markets. Aaron M. Reeves - BB&T Capital Markets, Research Division: Aaron Reeves sitting in for Schon this morning. I just had a few questions on the quarter. I guess my first question just goes back to the irrigation segment. We were noticing, as we went through the numbers, that it looks like incremental margins maybe accelerated in Q2 versus Q1. And I guess my question is, if you could just maybe help provide some color onto what extent pricing and volume? And maybe did you see any raw materials released in the quarter? What actually drove that acceleration in incremental margins sequentially?

Yes. Well, I think the first point is that in terms of selling prices on irrigation, pricing was up about 3% in the quarter and about 6% year-over-year. So there's not a significant change from a pricing standpoint. And I would say that from a competitive environment standpoint, it's been, I'd say, comparatively stable in terms of -- the competition has been somewhat pretty typical in terms of what we see. So nothing really unusual from that standpoint. Steel pricing has moved up about 15% from the same time last year, but we're not really seeing a steel impact in the quarter in the sense that we've been able to pass through steel cost increases for the most part. I think most of the margin improvement that we've seen has really been from cost leveraging due to the incremental volumes plus productivity gains in our factory. As you recall, we had an ERP conversion back a couple of quarters ago that did cause some deterioration in productivity, and we've been able to regain most of that, if not all of it, in the last couple of quarters. Aaron M. Reeves - BB&T Capital Markets, Research Division: Okay. Great. I have another question, too, in this business also, in irrigation, but it looks internationally. We noticed that demand seemed to be down versus Q1. I guess my question there is whether or not you think -- is that something that we should be concerned about, like weaker overseas growth? Is this something that you see that's going to persist? Or how would you explain weaker international demand?

I wouldn't read too much into that. Some of it is project oriented when we look at our international revenues, and we did have a larger project in the first quarter. So I wouldn't read anything into that. I think that we're seeing a strong demand in all of the international markets, and we're really getting into the peak of the selling season for Northern Hemisphere market. So I think that we will see a little more, let's say, volatility to some degree, a little more fluctuation in the international markets because of the size and -- of the individual market. But I wouldn't read more into it than that. Aaron M. Reeves - BB&T Capital Markets, Research Division: Okay. And then, I just wanted to touch on the infrastructure side for a moment. Could you give us a sense of what level of sales you're seeing on the QMB side? I'm just really focused on the project sales. So if you could maybe give me a sense of where you are with that and maybe where your backlog stands with QMB.

Well, the backlog, first of all, is relatively growing in the infrastructure business. And we don't really have a significant project, QMB project, in backlog and infrastructure at this time. Where you'll see our backlog spike up on infrastructures is when we do have the QMB projects because they're typically pretty sizable. We're still seeing very strong interest in the projects, and our overall project list that we track is still pretty robust and not that unusual from -- or different than what we've seen in the past. I think what we're seeing in the past couple of quarters, and primarily in the last few months, is some projects slipping out on timing. And as it is a project-based business, it does make a difference when you see a pretty sizable project that we expect will happen, say, in the second quarter, and all of a sudden it slides out and becomes indefinite. We're really not clear when that's going to happen, whether it will be in the next quarter or the quarter after. And that's really what we're seeing. And as I mentioned, some of these are funding, but many are nonfunding related, meaning it could be related to road construction project that hasn't been completed in order to accommodate the QMB or some other -- or negotiations that are taking place for the contractor and the city or state. So there's a number of other factors that could come into play, but it is project oriented, so we will see it'd be fairly lumpy. Aaron M. Reeves - BB&T Capital Markets, Research Division: Okay. Fair enough. And one final question. I'll jump back in the queue. Can you just sort of tell us what you're seeing from an M&A standpoint, just if there's anything in the pipeline, anything look attractive right now, sort of what your expectations are for M&A over the next couple of quarters?

Well, we're certainly very active from an M&A standpoint in terms of we've got a very active list, and we're tracking a number of different companies and a couple of different sectors that we think could be synergistic and fits with us. So we're going to stay very active in this because we think there are some good opportunities for growth that will provide good returns to shareholders. So I would expect that you should see us still continue be very active. I would add that during the past, we've had a number of small acquisitions that were primarily adding some capabilities or technologies to the business. That's not our current focus. We're focusing on larger-sized acquisitions, probably in the $50 million revenue and up at this time. So I think when we do make acquisitions, we should expect they would be in that size. It doesn't mean that we would not make a small one if the opportunity came up that we found a significant fit in some way, but that's not our current focus.

Your next question comes from the line of Ryan Connors of Janney Montgomery Scott.

So a couple of questions. First off, Rick, I want to talk a little bit about the U.S. irrigation business in particular, just a couple of questions there. Number one, just to what extent, if at all, do you think a relatively mild winter in terms of weather play a role in the quarter for better or worse? And then number two, can you just talk about the geographic distribution of the strength in the U.S. irrigation business? In other words, is it the core kind of Nebraska and other plains markets that are driving the strength? Or is there strength in sort of some of the nontraditional pivot markets?

Well, first, Ryan, in terms of the weather, I'd say that it's difficult to pinpoint that as a specific driver for the sales that we've seen. And I say that because even going back to the previous quarter, we were seeing strong order activity and strong revenue. And there was discussion about Section 179, for example. We talked about what impact that would have. And the strong order and sales activity continued great through the year end and has stayed pretty strong. Now what we have seen is that our product sales were probably a little higher in the quarter due to the good weather and people able to get out and work on the machines a little quicker than what they might have if the weather had been, let's say, more typical winter and a harsher winter. But I don't think there's anything real significant to read into -- in that part of it. So I think weather-wise, nothing major. And I'm sorry, the second part of your question was...

Just had to do with as you're seeing the strength in the U.S. business, is it mostly driven by sort of Nebraska and the other sort of traditional pivot markets? Or are you seeing greater adoption in some of the markets that traditionally have not utilized irrigation that heavily?

Well, the regional split in the U.S., what I would -- how I would describe it, is basically all of the regions have been strong compared to the previous year, all of them up from the previous year with really one exception. The one area that has struggled this season has been Texas. And as you know, with the drought they've suffered this past year, I'm not really surprised at that. But all the other regions, for the most part, are up. And surprisingly, not all, but most of them, are up a very similar percentage. So it's been pretty strong across the country.

Okay. Interesting. And then I just wanted to revisit the prior question there on margins. And you talked about kind of the drivers and ERP being a benefit. As you look forward, what do you see as a margin potential, in irrigation in particular, now that you've got that ERP system in place? And I mean, is there a potential for a reasonably significant step change in margins if unit demand is stable here and even improves a little bit?

I think there's always that opportunity. I think there's a number of factors that are driving margins from our standpoint. One has been productivity improvements in the factory, as I mentioned, the ERP piece. The other one is volume related in terms of leveraging fixed expenses. That can be impactful in terms of margin. Another one is steel pricing. And if we saw some pullback in steel pricing that allowed us to hold on to that price, that could be an improvement in margins. So there's a number of factors that can play into it. And the other one, of course, is what happens with competition. And that one can go either direction. But I think the opportunity for steps improvement is there. I'm not -- of course, you're projecting or forecasting that as we're not getting any guidance in terms of future quarters.

Right. Okay. And then just one final, a little bit of a bigger-picture question. So my understanding is that there's a significant amount of acreage that will be expiring out of the Conservation Reserve Program, the CRP program, this year and that re-enrollment in that program will be pretty weak just because of how -- the stronger earnings potential on that land outside of the CRP program. So do you -- what's your view on that issue? As acreage comes out of CRP, we're kind of looking at that as a positive in terms of right opportunity for additional demand as that acreage goes into agriculture production. Do you look at that the same way? Or what's your view on that issue?

Well, I have a mixed view in the sense of that. I probably considered something like a 50-50 perspective on that one, Ryan, in the sense that some of the acreage that will come out of CRP is probably not prime acreage in terms of acreage that will be either high yield or that they'll even -- may even have water -- not have water access. So it's really a mixed view. I don't really put too much emphasis on that. What I see as more positive is the current commodity prices. The fact that there will be some more acreage that will be put into production, I really think, is generally beneficial. So I think there is some opportunity in that acreage, but I wouldn't consider it significant.

Your next question comes from the line of Brian Drab of William Blair. Brian Drab - William Blair & Company L.L.C., Research Division: Could you give us just a rough sense, breakdown of QMB sales year-over-year and even if it's down 1/3 or down 1/2 or something like that?

Well, as I mentioned in the comments, it's down about, I think it was 85% roughly from the same quarter last year. Brian Drab - William Blair & Company L.L.C., Research Division: Oh, I'm sorry I missed that. Okay.

Yes. It's a very significant decrease. But also in the second quarter of last year, we had part of the second half of the New York bridge project that was being completed. So there was a pretty sizable project that was in that quarter. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. Yes. Sorry, I didn't -- I missed that. So -- then the pushouts that you're referring to, is it -- can you give us a little bit more of a sense if it's projects that you are expecting in the third quarter that may be moved to the fourth? Or is it more fiscal 2012 moving to fiscal 2013?

It's a difficult one, Brian, in the sense of we have one of the projects that we expected in our planning process, say, earlier in the year that would have been in the second quarter. It was one that we also had expected could happen last year. And now I would say it's definitely one that I consider to be a 90-plus percent probability that the project will happen. It's a question of which quarter it will fall into. And I wouldn't be able to predict that at this point because there's still discussions and things going on around it. Some of the -- and the projects will range in size from, say, $2.5 million to $3 million project to a $15 million project. So there are very different size ranges in here, but they are moving around. And some of it has to do with funding. And maybe to some extent, while we view projects and have seen projects that were from everything we've heard theoretically funded, we've seen attempts to take funding from a funded project and move it into other things. So there's a lot of activity that's taking place, so that makes it very hard to predict. I think the more important aspect of this is that those projects, when we do get them, are very -- they're profitable. They provide very good returns to shareholders. It will always be a little lumpy to predict, but we still think the market for those projects and the probability of getting the projects that have been on our list is still very high. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. Great. And then just one more kind of high-level question on the irrigation side. A lot of investors are struggling trying to figure out how to model irrigation given record farm income in 2011, the likely step-down, maybe even though it might be just modest step-down in 2012. What is the -- what are the fundamental drivers that are leading to increasing demand for irrigation equipment rather than, say, flat demand albeit at a record level? What's driving the continued growth?

Certainly, the commodity prices are driving the growth. The farmers are optimistic in terms of the future and in terms of profit opportunity. They -- their balance sheets are in good position, so they're in a position to be able to take on debt. The return on the investment for irrigating versus non-irrigating versus dryland farming is significant. It's probably in the 3- to 5-year payback period in most cases. But in some cases, it's -- it can be 1 to 2 years. So it's a good return to add that. And I think one of the things that I've noticed in looking at the historical data that we collect quarter to quarter on application of the equipment is, as you recall, in a typical year, in standard times, we would see about 1/3 of our equipment go into dryland, 1/3 in the conversion and 1/3 into replacement. And the numbers have been more in the 40% range into dryland in the recent couple of quarters. So there's a significant increase in that because of the return that it provides and that profit opportunity. So that's really the primary driver. It's different than any other agricultural equipment in my opinion in the sense that it can provide that very significant return when commodity prices rise. Brian Drab - William Blair & Company L.L.C., Research Division: Yes. Okay. That's helpful. I guess not to press the issue, but I feel like those long-term drivers, the fundamental drivers, were in place in 2011. And is there anything that you can point to that changed in 2012 or gotten better in 2012 compared with 2011? Or is it really just kind of continuing growth in a good growth market?

I think that's part of it. I think there is some momentum that has been created in terms of the -- what we saw in 2011 extended into 2012. So some of that is -- has some built-up momentum in the agricultural market, and we're seeing that momentum still taking place more in the international markets in the sense that there's a few of them that are still lagging in terms of achieving that growth rate. For example, Russia is still coming up to speed, and I think we're just starting to see that turn on. China is still really turning on. So I think some of the markets are not catching up to the momentum that we've seen in the U.S. market yet.

Your next question comes from the line of Brent Long [ph] of Piper Jaffray.

I'm sitting in on behalf of Mike Cox. And I just want to focus a bit on the international. I'm wondering, for the irrigation segment, of the regions that you mentioned, where do you see the greatest sales momentum?

Well, the -- I guess in terms of the sales momentum, we had some very strong regions during the quarter. Europe was strong in the quarter. Canada, the Middle East was strong in the quarter. We had a number that were strong in the quarter, and yet some of the best momentum and the biggest potential ones that I see still are Russia and Ukraine, China. I think Brazil has some strength. But Brazil and Argentina are going through some drought conditions in parts. So that will play a role and have some impact. But I would say that the highest-potential markets still globally are in Russia, Ukraine, China and some markets in the Middle East.

Okay. And are you -- how do you -- how is the credit availability in those regions, in those international markets?

Well, it's spotty in terms of Russia and Ukraine. It can be a little more challenging there. China, typically, we're not dealing with significant credit issues because in many cases, the customer is the Chinese government. And it'll be in one region or province or another. So we're dealing generally with government in those cases. However, I would say that doesn't assure a timely payment, but it's a -- it does assure that the funds will be there for payment.

Okay. And then final question just on the international margins, is there a scale or revenue level that we should look for to start seeing international margins converge to the domestic business? Or does a component sourcing make that impossible?

Well, it's certainly not impossible. A lot of it has to do with the scaling of our international factories. And most of our international factories, we have started those with sourcing tubing locally and galvanizing outside suppliers locally versus being very vertically integrated, as we are in our U.S. operations. As the volume is increasing in markets, we will continue to explore and expand vertical integration of our factories in those markets. And we're close in a couple of areas where we may invest more to -- in terms of vertical integration. But as those businesses in those markets grow, we will add more in, and it will reduce our cost basis.

Your next question comes from the line of Carter Shoop of KeyBanc.

First on just investing in the business organically, it sounds like maybe some vertical integration opportunities in international markets. And then inorganically, acquisitions sound like there might be a little bit larger. And based on the size of the deals we're looking at, I would imagine those aren't going be to further vertically integrate the business. So maybe help me understand what types of end markets you're looking at for acquisitions. Is it more on the irrigation segment, more on the infrastructure segment or something outside of your core competencies today?

Well, first, in terms of the organic growth, I think the 2 primary areas where we would be looking at from an organic growth standpoint would be in adding new products, product line expansions and vertical integration. In addition to that, we'll continue to invest in things like geographical expansion. So those will potentially require some capital. And when we look at our acquisition opportunities, we're looking at primarily water use efficiency and transportation safety. And I would say that the emphasis has been more on water use efficiency-type products to date, and we'll continue to be looking in that area. We're looking for businesses that will be synergistic to those 2 core businesses of ours.

Okay. And then on the kind of financial hurdles, when you think of the potential acquisitions, what type of financial hurdles do you have at the board level in regards to efficiency and accretion, if there are any?

Well, our view has been that we expect the acquisitions to be accretive within a year of the acquisition. That's one of the first ones. We also obviously look at the multiples that we're going be paying for an acquisition. And it is difficult. We do see that in the M&A market, some of the potential ones we've looked at, particularly in the water space in the past, have been bid up pretty heavily, which causes us to walk away. We've been pretty comfortable, and probably that may be 6x to 8x EBITDA-type multiple. I wouldn't rule out others, but it's been in that range where there's a fair level of comfort, especially when we can see a synergy. And we also, for each of the acquisition -- specifically significant acquisitions that we look at, we'll model in 3 scenarios, kind of a base case, worst-case and best-case scenarios, before we proceed with the deal.

Okay. And moving over to the order trend in the quarter, can you talk a little bit about the linearity that you saw? Obviously, a huge acceleration in orders on a year-over-year basis versus the November quarter. Was that a little bit more front end weighted? Did you see the orders come on a little bit stronger towards the end of the quarter? And then is that persisting in the current quarter here, fiscal 3Q?

Well, I won't go too deep into the current quarter, but I would say that it was pretty consistent through the quarter. As I mentioned, what we're looking at coming up to year end and thinking that we may see more of the orders being driven by the Section 179 ending, we didn't really see that. Our order rate continued to be solid and did through the quarter. And as I mentioned in my opening comments, we did continue to see robust order activity into our peak selling period as we're in right now.

Great. Last question, how should investors think about the likelihood of a large booking in the QMB side in the second half of the year? I mean, it sounds like the potential is for more projects to get pushed out. So at the low end, it seems like no projects, no large projects. What would be kind of a bold case scenario in regards to how many projects could potentially be booked in the second half of the year for QMB?

Well, I'm not really going to give an estimate or projection on that in the sense that we look at it as there's a number of those that are opportunities that could fall into the second half of the year. But as we've seen in some quarters, we've seen some of those slip out. All of those are wonderful projects when we get them. We're very happy to get them. But I'm not going to really forecast or project projects for the second half.

Your next question comes from the line of Jeff Beach of Stifel, Nicolaus. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: I'm impressed with the small increase in the SG&A expense in spite of some small acquisitions. Is this something you can sustain out into the future SG&A growing meaningfully lower than your revenue base?

Yes, Jeff, this is Jim Raabe. I would say that this is kind of a good indicator, as far as a good indicator of the current run rate, and we look at SG&A for the year in that 15% range. I think it's a very disciplined organization with regard to how we approach SG&A, and our intent is to continue to lever it. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And second, can you give us some additional color on the 3 segments in infrastructure outside of the QMB rail structure, road safety, contract manufacturing? I know in the last quarter, you indicated you saw a good outlook for rail in this year, and it doesn't sound like it occurred in the second quarter. But can you just talk about the outlook there?

Yes. I would say that your perspective on the rail is right and that we do see a good opportunity, and we have seen some good interest. We've had a couple of good quarters in the past. Some of it was driven by some of the PTC, the positive train control, activities that will take place. What we've seen in the last couple of quarters is that the rail activity has been down. And primarily, what we're making is railroad signaling structures. And we found that we definitely were impacted by the flooding that took place last year in the spring and held on through the summer. And we haven't really seen that pick back up since then. So we think there's still good opportunities for rail, but we haven't seen that return to the kind of robust levels that we were running at previously. In terms of the road safety products, they're generally running flat to a little bit up from the same time last year. So we've seen that performing pretty well, the first 5 manufacturing which consists of the contract manufacturing. And our tubing business is also relatively flat. When you look at all of those pieces together outside of the QMB, I believe the number was a 4% decrease in the quarter and up slightly for the year. So overall, there isn't much change in that year-over-year in those other pieces. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: And outlook for the contract manufacturing and tubing, that sounds like it ought to be doing -- registering some pretty good growth over the course of, let's say, the next several quarters. Is that the case?

I think there's definitely opportunity for growth in the tubing business. And I think that the tubing sector end market in total has some excellent growth opportunities. We'd like to see that expand, our business expand in that area. In the form of the contract manufacturing, that's really not a piece of our business that is expanding. We've got a good relationship with our select customer base there that we want to maintain. However, we're not actively pursuing contract manufacturing-type projects. We look more for growing the proprietary products within our business.

Your next question comes from the line of Joe Mondillo of Sidoti & Company. Joseph Mondillo - Sidoti & Company, LLC: Just in terms of the QMB, it seems like domestically, you would be sort of tough also in Europe just given the budget constraints municipally, as well as federally. I was wondering if you guys are trying to attack other markets that are maybe easier to win contracts.

Absolutely. I think that the -- when you look at the QMB product line and the system in total in terms of what it does from a traffic mitigation and road safety standpoint, it's really a pretty significant product in any area where there's a major metropolitan area with a large population base, particularly those with bridges. So we still see many growth opportunities within the United States. Outside the United States, we've had good success in Australia and New Zealand, Puerto Rico, some in Europe. But as you said, some markets are more impacted than others. But the second part of that is that we've really taken an approach of developing a prospecting approach to this or marketing aspect of it. But we're looking at all of the major metropolitan areas throughout the world and identifying those that are potentially good candidates for the solution and developing marketing activities to approach those markets. So I think whether the next sale happens in Brazil or Australia or Puerto Rico or Hawaii or wherever it is, we don't really know, but I'd say that we're actively working in many cities around the world. Joseph Mondillo - Sidoti & Company, LLC: Could you talk about how you go about actually marketing the product? Do you have sales agents all around the world and you go to municipals or cities? And how does that work?

In some cases, it's distributors who are distributing our other safety products or bringing opportunities to us. In some cases, it's a rep who may be finding an opportunity and bringing it to us. I think the ones that we see often are also ones where they know of the product and the government agency is contacting us directly. I love those, but I really like for us to be more proactive in terms of finding those before the government agency has to contact us. But it really comes from a number of different options and solutions. We've also created a great video on -- that shows the benefits of the QMB system that we've used in working with some of the government agencies to help educate the benefits of that system, which has -- which, I believe, will drive demand as well. Joseph Mondillo - Sidoti & Company, LLC: Okay. And then just changing subjects, a couple of small things. First off, how long out did your backlog go?

How long -- are you referring to the total backlog or the infrastructure QMB backlog? Joseph Mondillo - Sidoti & Company, LLC: The total backlog.

Well, I'd say the total backlog is relatively short in duration in the sense that it's mostly irrigation, and backlog typically will represent less than a month of sales. However, we are seeing some extended lead times in orders at this stage, where typically, we would able to fill orders in, let's say, 2 to 3-week time period. We're probably in the 4- to 5-week time period in many cases in irrigation today. So that backlog is a little longer than normal, but it's still pretty short in length. Joseph Mondillo - Sidoti & Company, LLC: So that backlog at the end of February was about March's backlog?

Well, I wouldn't characterize it in terms of a specific month. I don't really have that information because it's going to be also a combination of domestic and international orders. But I would say that backlog typically turns pretty fast. Joseph Mondillo - Sidoti & Company, LLC: Okay. all right. And then also, you mentioned China and Russia's opportunities. What percent of sales is that of your current sales? And how are you positioning to attack those markets?

Well, both of those, when we look at the -- first half of this year would be very insignificant in terms of sales for the first half. Those markets are really turning on for the season now at about this time. So we'll see potentially more activity in the next quarter to 2 quarters in those markets. China for us usually happens in the second half of the year. I wouldn't describe or break out a specific percentage of sales for any region. I would say that China's been one of the fastest-growing regions we've had in the last couple of years.

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

This is Michelle in for Dave. My first question is, how are you measuring your progress on the ERP? And could you quantify the benefits or headwinds in the quarter?

Well, I think that we are monitoring our progress relative to the overall productivity of the plant in the utilization of the tools that we have there. I think to date, our -- as we mentioned at the end of fiscal year, our focus was really on trying to get back to kind of more normal productivity in the first couple of quarters. And I think we've accomplished that. Now we're really looking at how we can use the tool going forward, but it's -- we certainly have overall productivity measures that we use in the plant that are driven by a number of factors. And the utilization of the ERP is one of them, but it's also somewhat subjective with regard to the overall efficiency on workstations and individual processes and those kinds of things.

My next question, can you provide more color on international, what you're seeing maybe in Eastern Europe? Are there any new distributors? And then can you comment on Latin America and the Middle East?

Well, in terms what we're seeing in Eastern Europe, there's still very strong interest. We've also seen that there's been difficulties, as we discussed earlier, with credit in some of those markets. But the growers that have the money still have strong interest. And we're seeing that conversion starting to take place where, say, 2 years ago, they were interested in talking and looking at the new technologies and seeing what we had to offer. Now we've seen in the last couple years, the order rate is picking up. So I think it's starting to accelerate. It's still not in a real high level yet, but we will continue to see acceleration in that market. Middle East is -- tends to be still pretty project oriented for us. We had some projects that really where primarily in the previous quarter and some of it in the second quarter. But it will be a little more project oriented in the Middle East region. Latin America, we've seen good growth certainly in Brazil. We see some growth opportunities now in Argentina. We've seen Chile market, overall good, but it's not a very big market. And Mexico, of course, has been a good market for us. So overall, I'd say the Latin American market is strong and has still a lot of potential.

Great. And my last question is in the second quarter of 2011, steel cost rose 12% over 2010. Could you provide us insight on how we should think about your ability to manage these costs for the remainder of the year? For example, how much pricing would the company need to take in order to keep up with inflation?

Could you repeat the first part of that? I missed -- I'm sorry, it was a little quiet.

How do you think about your ability to manage costs, steel costs, for the remainder of the year? How much pricing would the company...

Did you say steel costs or fuel costs?

Steel.

Yes, I understand. Okay.

Yes. I think that, obviously, fuel affects in both our outbound and inbound. And the inbound kind of is factored into our overall costing, and that indirectly gets fed into our steel costs and those kind of things. And I think Rick has already alluded to what we've seen there, which is about 15% increases year-over-year but a little bit kind of more flattening with steel prices. From an outbound freight standpoint, we try to manage that to be relatively neutral from the standpoint of what we charge for getting our deliveries to our dealers and to our customers. And I think we manage it from that perspective.

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

For our business overall, the global long-term drivers of water conservation is population growth, increasing importance of biofuel, and the need for safer, more efficient transportation solutions remain very positive. In addition to the overall business enhancements that have taken place, we continue to have an ongoing structured acquisition process that will generate additional growth opportunities throughout the world in water and infrastructure. Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins and strategic acquisitions. I'd like to thank you for your questions and participation in this call. Thank you.

This concludes today's Lindsay Corporation Conference Call. You may now disconnect.