Lindsay Corporation (LNN) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Jessica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Second Quarter 2013 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. Joining me on today's call are Jim Raabe, Lindsay Corporation's Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer. Total revenues for the second quarter of fiscal 2013 were a record $175.5 million, increasing 33% from $132.1 million in the same period last year. Revenues in the second quarter of fiscal 2013 reflected higher demand for domestic irrigation systems, stimulated by positive drivers in the agricultural economy and lower demand for infrastructure products, impacted by government funding issues and project delays. As last year's drought conditions across the U.S. pushed commodity prices higher, the recognition of the importance of the efficient mechanical irrigation rose, creating robust demand for irrigation equipment in the current fiscal year. Operating margins were driven to 16.8% in the quarter compared to 14.3% in the same quarter last year. Net earnings were $19.4 million or $1.50 per diluted share compared with $12.8 million or $1 per diluted share in the prior year. Total revenues for the first 6 months of fiscal 2013 were a record $322.9 million, increasing 28% from the same period last year. Net earnings were a record $34.1 million or $2.65 per diluted share as compared to $15.7 million or $1.23 per diluted share in the prior year. As a reminder, the prior year results included a $7.2 million accrual for environmental remediation at our Lindsay, Nebraska facility, which lowered earnings by $0.37 per share. For the irrigation segment, sales totaled $162.6 million in the quarter, 39% higher than last year. Irrigation operating margins improved to 21.7% compared to 19.7% last year. In the U.S. irrigation market, revenues were $117.1 million for the second quarter, increasing 41% over the same period last year, with the largest increases in the corn belt, which was the geographic area most significantly impacted by drought conditions. U.S. irrigation equipment orders remained robust throughout the quarter, reflecting growers' willingness to invest and their concern regarding the potential impact of dry weather. Additionally, approximately 54% of the domestic irrigation orders received during the quarter were designated by the customer as for dryland installation, up from the previous quarter of 47% in a typical year of less than 40%, further signaling concern over dry weather and water availability. Farm commodity prices remained relatively high through most of the quarter and continued to support positive farmer sentiment. As of February 2013, the USDA forecasted 2013 net farm income to be approximately $128.2 billion. This would be the highest on record at 73% higher than the 10-year average. In the international irrigation markets, revenues for the second quarter of fiscal 2013 were $45.5 million, increasing 34% over the same quarter of last year. Revenues increased most notably in South America, Russia and the Middle East. We continued to see strong order activity in our international irrigation markets and believe these markets will generate long-term growth. During the quarter, we also received an award of a $39 million contract in the Middle East, consisting of irrigation machines and ancillary equipment, demonstrating success and further building our position in the international market. No revenue was recognized on that contract in the second quarter, and we expect to recognize most -- all of the revenue on the contract during the remainder of fiscal 2013 and a small amount in early fiscal 2014. For the first 6 months of fiscal 2013, total irrigation segment revenue increased 36% to $296.9 million. In the U.S. irrigation markets, revenues were $213.6 million, rising 49% over the previous year. In the international markets, revenues were $83.3 million, increasing 12% over the previous year, with most of the significant increases in South America, Russia and Canada. Infrastructure segment revenues were $12.9 million, decreasing 15% from the second quarter of last year, primarily due to lower sales, contract manufacturing and Road Zipper system sales. The infrastructure segment generated an operating loss of $2.1 million compared to a loss of $1 million in the second quarter of last year, due to unfavorable mix and amortizing costs over a lower sales base. Infrastructure demand, including for the Road Zipper system project, has continued to be challenging this year due to constricted government funding and project delays. For the first 6 months of fiscal 2013, infrastructure revenues decreased 23% to $26 million from the -- with the largest revenue decrease in Road Zipper systems and road safety products. The recent passage of a Highway Bill through 2014 should provide a modest improvement environment in the coming quarters. However, sales continue to be constrained by longer-term funding uncertainty. While the recovery of this segment is taking longer than expected, we remain confident that the infrastructure segment will return to profitability and will -- and we will continue to implement initiatives to strengthen and grow the business overall. Gross profit was $50.4 million or 28.7% of sales for the second quarter versus $36.5 million or 27.6% in the same quarter of last year, driven by higher irrigation segment margins. Irrigation gross margins increased approximately 1 percentage point due to a favorable pricing environment, combined with increased productivity and lower input costs. Infrastructure segment gross margins decreased approximately 4% -- 4 percentage points due to unfavorable sales mix for lower Road Zipper system revenues, amortization of fixed cost over lower sales and certain period costs absorbed within the quarter. Operating expenses in the second quarter increased by $3.4 million to $20.9 million. Increased incentive compensation in staffing to support growth were $1.8 million of the increase. Operating expenses as a percentage of sales decreased to 11.9% for the quarter compared to 13.3% for the same period last year, reflecting a significant operating leverage. The order backlog increased to a record $159.3 million on February 28, 2013, as compared to $85.1 million on November 30, 2012, and $87.3 million on February 29, 2012. Our current backlog includes strong domestic irrigation volume along with the $39 million irrigation contract in the Middle East. The current infrastructure backlog is equal to the same time last year and is higher than at the end of the previous quarter. Overall, we believe the existing backlog and order trends will support strong sales in the third quarter. However, we continue to see evidence of a pull-forward in irrigation equipment orders in anticipation of dry weather and possible water restrictions. In addition, the USDA is projecting increases in planted acres and higher crop yields, which is resulting in projections for lower crop prices. Together, these factors could translate into slowing U.S. irrigation equipment demand towards the end of fiscal 2013 and into 2014. Cash and cash equivalents of $160 million were $55 million higher than the same time last year, while debt decreased $4.3 million over the same period. Accounts receivables were $27.9 million higher year-over-year due to higher sales, and our DSO increased 1 day. Inventories increased $9.5 million to support higher sales volumes, while inventory turns improved. Our primary uses of cash remain investing in organic growth opportunities while continuing to seek accretive acquisitions that add new businesses and/or product lines. We continue to expect capital expenditures in 2013 to be approximately $15 million to $20 million, largely focused on manufacturing capacity expansion and productivity improvements. In summary, it was a record second quarter in revenue, orders, backlog and earnings. Irrigation sales and profits have experienced year-over-year increases, driven by positive farmer sentiment towards capital investments, increased farm income and concern over the past and potential future impact of dry weather conditions. Record backlog at the end of the quarter resulted from continued robust irrigation order volumes, along with the award of a large contract in the Middle East. I'm especially pleased with our irrigation production team and their ability to continually find new ways to step up production to meet the needs of our customers. In the near term, we are optimistic that our backlog and the projected higher farm income will translate into continued strong irrigation equipment revenue. However, projections for lower commodity prices could lead to reduced demand over the balance of 2013 and into 2014. Government spending on highway and other infrastructure projects continues to be an impediment to our infrastructure segment. We believe the underlying demand for road safety and improved infrastructure will rebound in the long term, although the timing is uncertain. We continue to focus on operating efficiencies, lean manufacturing and expense control. And we believe we are better positioned for margin improvement when market conditions strengthen. We're confident that the key drivers to our business are favorable and that over the long term, increasing agricultural yields to boost food supply, improving water efficiency, biofuel production and improving transportation infrastructure will remain global priorities. I would now like to open it up for your questions.

[Operator Instructions] Your first question comes from the line of Michael Cox.

My first question is on the Golden Gate project. Can you maybe give us a sense for how you expect it to flow through? And I know that some of it is a bit out of your control, but if you can maybe frame up like percentage of the project in the next -- over the next couple of quarters?

Well, Mike, I think the way I would characterize the Golden Gate project is, as we've talked about the previous quarters, we expect that -- have expected that you would see this really culminate into an order or start to see this towards the end of this fiscal year, sometime this summer or early fall. That's still our expectation, and the latest update that we've had has indicated that it would probably be in that timeframe. However, how long that will take in terms of execution of it or what that will consist of at this point, we really don't know. But we still anticipate this project will take place, and it -- we'll start to see something in late summer or early fall.

Okay, that's helpful. In terms of the pull-forward of demand, are there specific areas, domestically, that you're seeing, I guess, geographically that sort of pull forward? Or are you -- is it really broad-based across geographies?

Well, I think the way to think about it is the largest increases in demand we've seen in the U.S. has been across the corn belt, and I would say that's very significantly in the Western states. We've seen it -- and somewhat in the Eastern part of it, but I'd say a little more in the West. And we've heard anecdotally from growers and from dealers that some of the demand is being driven by concern about potential additional drought or future drought in terms of whether this will be alleviated this spring, also about potential water restrictions, meaning they're trying to get the machines in, I guess in anticipation that there could be water restrictions that could cause delays in the future. But I'd say that the general pull-forward we're seeing is pretty broad. And I think you can look at it in terms of pull-forward in terms of water restrictions and pull-forward in terms of the anticipation of a potential drought.

Okay. And I guess one last question on -- you called out Russia as an area of strength. Could you comment a little bit about the subsidy program that's in place there and what that could mean for your opportunity in Russia and maybe spilling over into other parts of Eastern Europe?

Yes. As we've discussed in the past, there have been announcements from the government in Russia about subsidies. And subsidies have been discussed in terms of paying up to as much as 50% of the cost of the equipment. And I think it's quite varied in terms of how we will see that play out by whole blocks or regions. And we haven't really seen much of the activity in Russia today driven by those subsidies. And to our knowledge, it really -- that isn't driving the volume pick-up that we've seen. We've seen more of that is being driven in terms of large projects with either financial institutions or investors that see the opportunities for expanding yield and profitability by adding efficient irrigation, more so than the benefits of the subsidies. And we believe that's still to come.

Your next question comes from the line of Nathan Jones. Richard Hall - Stifel, Nicolaus & Co., Inc., Research Division: This is Richard Hall on for Nathan Jones. Just a few questions. First, regarding the $39 million Middle East contract, do you plan on shipping this product evenly throughout the first half? Or do you think the third quarter will be significantly different than the fourth quarter? And then second, in your press release, you called out that projects of this nature typically have lower gross margins. Could you give us any help on the pricing dynamic of this project and maybe quantify, I mean, I guess how well you think the gross margin will be?

Well, I think, first, I would say, it'd be hard for me to specifically define how this will ship out between the third and the fourth quarter. I would say that the bulk of it will ship between the 2 quarters probably fairly evenly with a little bit going into the first quarter of next year. In terms of the margin piece of this, part of what I would want to describe is that since it consists of irrigation equipment and ancillary components, and the ancillary equipments are typically buyout-type things, the margins on that would be lower because of that mix. And also, it is obviously was, let's say, a contract that was -- a particular bid-type contract that would have been more competitive, but it's more driven by the fact that it consists of a product we make rather than buy out. Richard Hall - Stifel, Nicolaus & Co., Inc., Research Division: Understood. Okay. And my last question, moving more to domestic irrigation. There's definitely a commentary out there that lead times have, I guess, extended out to pretty record lengths, depending where you are in the country. And so I'm just looking for any kind of commentary about cash and utilization in your irrigation facilities, and of course, that's panned out right now how that's trended over the last couple of months.

I would describe it as, during the quarter, we definitely ran at a pretty high level of capacity in certain -- and at times that are practical capacity level, particularly our Lindsay, Nebraska facility, our primary U.S. irrigation facility. Our lead times are probably in the 6- to 8-week time period right now and probably a little more towards that 8-week time period, but in that general range. It's higher certainly than we like. But I would say that our manufacturing operations, as I've commented, I've been very pleased with how that team has performed and that they continue to set new levels and new records in terms of their production levels. So they're able to ramp up and continue to find ways to add additional capacity in various ways, and LEAN has been a big part of that to meet the needs of the customers. So I would say that we've done an outstanding job, and the teams have done an outstanding job of meeting those needs.

Your next question comes from the line of Schon Williams. Christopher Schon Williams - BB&T Capital Markets, Research Division: I wonder if you could just address maybe the growth rates that we've seen in irrigation, I mean, certainly outpacing some of the commentary that I'm hearing from dealers and some of your competitors. I just wonder what you attribute the significant outpacing versus the rest of the industry, what do you attribute that to? Is that the dealer network? Is that the geographic mix? What are the things that you would kind of highlight as differentiators versus your competition?

I think there's a combination of things that could contribute to outpacing in terms of how you would look at it from -- in comparison to others or in comparison to the market perspective. I do believe that we've made significant strides in our international markets, and I think projects like this one in the Middle East represent that. I think we're seeing progress in areas like Russia where we haven't had much happen in the past, and we've anticipated it, but we're really starting to see that open up and take off. And I think in the domestic markets, we've seen significant progress with our dealer network in terms of improvements with our dealer network. I also believe our differentiating in terms of the Lindsay advantage of the product and the FieldNET offering and the offering in terms of the engineering through IRZ and the ezWireless broadband communications and Watertronics pump stations, and the turn-key systems have also played a role in all of this. So I think all of those factors would contribute to a success that we're seeing in the market. Whether that outpaces the market or outpaces the competition, I'm really not going to comment on specifically because from quarter-to-quarter, we can see differences in terms of what one competitor will do versus another based on where these sales will take place. But I would say that I'm pleased with the progress we're making with those factors in terms of differentiating the product line and our offering and our dealer network. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. And then to switch gears maybe to infrastructure. I mean, in the past, I think you've talked about fiscal 2012 as -- I want to say that you called last year kind of the -- almost a bottom or a trough for infrastructure. And then the first half of this year, we've not seen much improvement, in fact, deterioration in terms of profitability. I mean, at what point should we start to see a turn in that infrastructure business? I mean, it sounds like you may see a modest catalyst from the Highway Bill, but what is it that you're looking for in terms of the macro environment that we should be looking for in order for -- to see a turn there? And when and if can you get that business kind of breakeven at current volumes? Just some of your thoughts there.

Well, in terms of the specific of when we could see a turn would be very difficult to define. And I can't tell you specifically when we will see that market turn. I would describe it as it's taking longer than what I expected. We expected that we would see more of that change take place this year. And I would say that the Highway Bill funding that's put in place hasn't quite satisfied the need in terms of little more long-term stability that many of the states would like to see. But I think it will be beneficial. I think we will see this spring some improvements in terms of road safety type opportunities and road safety type product sales as more work is taking place. But I do think that it's going to still take a while, longer than I thought it would, to see that market expand. Now that leads us to also evaluate where we are in terms of the cost structure of the business. And I would agree with you, I felt that we were near the bottom at the end of last year or even in the previous quarter. But it's still a struggle there. And at the operating level that it's at, from a revenue standpoint, it is a difficult level, because it doesn't allow for leveraging of fixed expenses. So we will continue to, as we have in the past, reassess, look at what we need to do in terms of cost reductions or margin improvements in terms of the efficiencies and those types of things and continue to look for ways to improve this business. On the other hand, I'm still very convinced that the long-term opportunities for this business are excellent. And the long-term opportunities for the QMB Road Zipper system is excellent, and we have expanded our sales effort in terms of selling to potentially 2 areas where they really don't have the knowledge or exposure of this product. And we're trying to build that knowledge and exposure to create the opportunity, so it takes awhile. So we would expect that those in these other countries will come in time, but it's going to take a little while in terms of developing that market. Christopher Schon Williams - BB&T Capital Markets, Research Division: And when you look further out, Rick, do you still envision that business still being kind of a, I don't know, at a mid-teens operating margin? I mean, is that still plausible, if the market works in your favor?

Yes.

Your next question comes from the line of Josh Berman.

This is Josh in for Brian Drab. So first thing, the backlog of 87% sequentially, and then it looks like 41%, even if you take out the Middle Eastern project, is it safe to assume revenue in the third quarter will be up versus the second quarter, both in domestic irrigation and overall?

Yes, this is Jim Raabe. And we don't provide specific quarterly or annual guidance, but certainly, the backlog will contribute significantly to what we'll see in the third quarter. It is typically the seasonal highpoint for us. And so, we would normally expect to see some increase between second and third quarter. And certainly, the Middle East project will contribute some to the fourth quarter as well. So certainly, backlog is going to contribute to the volume in those periods.

Got it. And then, so just -- can you give some perspective on the possible impact of the drought, what it could do for you guys over the next few years? With all these new customers in the market, do you think the tailwind associated with the drought can lead to multiple seasons of strong demand? Or would you think most of the benefit will be realized kind of in the near term?

I think it remains to be seen. It will be interesting to see what happens this spring regarding the weather conditions and the drought. If you look at the most recent drought monitored, you'd see the percent -- some frequent improvement in the Eastern states in terms of the drought. In the Western states, there's still quite a bit of dry area and not a significant improvement yet, but some. And it really is too early to say what impact we'll see during this next quarter. I know that this will be the indicator when we see what the weather conditions are like in the spring. It's a tough situation for the farmers, given the drought that we've had and the impact that it had in this past year. And it was a great realization of the importance of efficient irrigation and the role that it played in there. But I think there's a great deal of concern still in terms of what the next season will bring and what impact that will have on overall yields.

Got you. And then moving over to international side. Do you think this -- we've seen a couple of large orders in the Middle East now this quarter and then last year. Do you think this would be indicative of more stable increased order activity? Or do you expect orders in the Middle East to be lumpier on a quarterly basis?

I would still anticipate that the Middle East projects that we see and the orders that we see will tend to be a little lumpy. They are still -- tend to be fairly sizable and often a bid-tender type project, so I think we're still going to see some lumpiness in it. I don't think we've seen any kind of an even flow in the projects in that region yet.

All right. And then lastly, if you don't mind, in the infrastructure side. Now or towards the end of March, where kind of construction season is getting going, have you seen any pickup in activity, let's say, now versus the end of the quarter?

I won't really comment on in terms of anything forward-looking in terms of our orders for infrastructure or the irrigation business at this point outside of the quarter. But I'd say that we are getting that production schedule. I would anticipate that we're going to see more in terms of demand for the Road Safety type products or even leasing of the Road Zipper type system during this season than what we have seen up to this point in that fiscal year.

[Operator Instructions] Your next question comes from the line of Ryan Connors.

I had a question on capacity utilization. You talked a little bit about it earlier, but let me kind of invert that and talk about how you see incremental or I guess decremental margin potential if, in fact, we do get a moderating demand scenario as you talked about a couple of times. And specifically, I guess you've done a really good job adding capacity without necessarily deploying a lot of capital. And so with that in mind, how do you view yourself as positioned from a margin standpoint if, in fact, we're to get some kind of a moderation in unit demand?

Well, as you know, the decreasing market part is always a more challenging one for many companies. I would say that we have done that fairly well in the past when we have seen some moderation in the market. And part of that is due to the fact that the labor and overhead is a relatively small portion of our total cost of goods sold. There always is a challenge to be able to respond fast enough on those, but that's really the key. I'm not overly concerned about that, and right now, I'm not projecting that moderation. We just have some concerns in terms of what may happen this spring with either weather conditions or with potential crop prices and acres planted and things. There are still a number of unknowns out there in terms of what this next season will be.

Your next question comes from the line of Andrew O'Conor.

I wanted to know, Rick, can you further characterize the contract win in the Middle East? I mean, in which country was the contract won? And is it a one-off situation? Or would there be a likelihood of follow-on contracts? And is this a new customer for Lindsay?

Well, for a couple of different reasons, I won't define who the customer is other than to say that it's a government entity type contract in the Middle East. And I would say that I would characterize it as a fairly new relationship with more opportunities for the future. So I think that there are more opportunities there, not just in this particular country, but throughout the region. And we will see more activity of this type. But I do believe it will continue to be lumpy.

Okay. And then further to this and to the extent you can, how would you characterize the competitive environment for new irrigation contracts globally?

Well, generally, it's pretty competitive in terms of we'll see different competitors that will come in and bid. I think there's a definite perception from the customer standpoint of a differentiation in quality between a few competitors and, let's say, some of the more regional competitors. So I believe we're in good position when we bid, and we're not necessarily required to or have to bid at the lowest price, because there is a differentiation seen between us and, at least, one of our other competitors in terms of quality level. So I think we're in a pretty good position. I do think that if it's going to go to a lowest bidder, we're often not going to be that, because we do have a pretty good quality standard and a very high -- good quality product.

Your next question comes from the line of Joe Mondillo. Joseph Mondillo - Sidoti & Company, LLC: I was wondering if you could just talk a little bit about the international part of the irrigation business. You saw a good amount of growth this quarter, but sort of modest over the last several quarters. And it's been sort of lumpy as well. So I was just wondering if you could talk about -- a little bit about that in terms of long-term growth rates. And then also, if you could quantify sort of the geographic regions and where you see a lot of your demand, that'd be great.

Well, in terms of the international markets, we've seen good growth in a number of areas. But I would characterize it as a -- there's still quite a bit of our international business that is export, in export from primarily the U.S., and that would include significant markets like Mexico and Middle East and Canada, as well as Australia and New Zealand. Those are important markets for us and we've had good growth. We also have business units in South America and Africa and Europe that cover -- and in China and also cover Russia and Ukraine out of our European operation. And we've seen particularly good sales in the last quarter in South America. And also, our European business is still doing very well, and we've seen growth in Russia and Ukraine. China is at kind of a low point in the season, and we really have not seen much happen there this season. But we've had very good growth over the last few years in China, and we anticipate good growth going forward. Joseph Mondillo - Sidoti & Company, LLC: So was it sort of just balanced over all those different regions...

I think South America stood out and certainly Russia and Ukraine stood out in terms of performance for the quarter. And I think that the state of Mexico was probably pretty high on the list as well in the quarter and the Middle East. Joseph Mondillo - Sidoti & Company, LLC: Okay. And long-term growth rates in sort of your international business, do you think that accelerates over the long term, and you may been seeing sort of much more modest growth than compared to the domestic demand at least?

Well, in the past, we've described the long-term growth rates for the international irrigation markets as being in the teens, probably in that 12% to 15% range as the long-term international irrigation growth rate. I would still put them in that category, and I think it will be up and down and also influenced by projects. But generally, those are the type of growth rates we see in the international markets. I'm not ready to call that differently. I do think that there are some factors, for example, the Russian market, I believe, is potentially very substantial that could influence those growth rates going forward. Joseph Mondillo - Sidoti & Company, LLC: Okay, that's helpful. And then could you just remind us -- I don't know if you've disclosed sort of about what the size of the Golden Gate Bridge project is, and also, how's the pipeline of that QMB business look?

Well, we haven't disclosed the size of the Golden Gate project to us, there is a number that's out in the Golden Gate Bridge authorities website in terms of the total value of the project, and I don't recall the amount specifically. I think it was $26 million. That includes the roadwork and other things that they need to do. And ours, of course, would be a portion of that amount. And in terms of the pipeline, I would describe it as less than what we've seen in a couple of years ago. However, we're in the process of rebuilding that pipeline, and we're rebuilding it in a sense of having people on the road talking with government officials in countries that have not been our customers in the past. And as I commented earlier, we're really trying to create the demand and believe that this is -- that the Road Zipper system is a product where we need to create the demand by raising awareness and showing the benefits in terms of traffic mitigation and managing traffic on bridges. So we're in the process of rebuilding that pipeline and believe that it will take a little bit of time to get it back to the levels we saw 2 or 3 years ago. Joseph Mondillo - Sidoti & Company, LLC: Okay, great. And then just one last one. In terms of infrastructure, aside from the Golden Gate project, how are you looking at that infrastructure business in the second half compared to the second half of last year? Are we going to see a growth year-over-year? Or how is that going -- how do you think that's going to look?

Well, I'm not going to make a projection because it is definitely impacted by what happens with government spending and with road projects. And as I've commented on before, I really can't predict when that will turn or what's going to happen with it. I think that we continue to believe that the long-term opportunity there is substantial, and we'll keep evaluating what we have to do to keep improving our performance in that business, which means improving margins or expense reduction or whatever we have to do. Joseph Mondillo - Sidoti & Company, LLC: Okay. And in terms of margins, do you have -- can you quantify any sort of savings that you may see in terms of any initiatives?

Not at this time.

Your next question comes from the line of David Rose.

Most of my questions have been answered, so I just have a couple of quick ones. One on capacity, you've addressed capacity within your factories. Can you outline what are the biggest bottlenecks in the supply chain for you and what you're doing to address those?

Well, there's no specific bottleneck in the supply chain that comes to mind. I think I would describe it more as some of the difficulty that we had from a, let's say, a practical capacity standpoint. It was reacting to the inflow of orders at a rate that was above what was forecasted. So while we forecast and we create production schedules to that forecast, we were continually surprised that we would see orders come in at the higher rates and have to, at sometimes, accelerate or expedite materials coming in, but also add more people and more capability and capacity and some function. So there isn't any one that stands out. I think the difficult part is always ramping up in a period where -- of uncertainty or sometimes, ramping down in periods of uncertainty, also, when you can't determine or adequately forecast what that production schedule should look like. That was the biggest challenge through the last quarter.

You've outlined additional manufacturing capacity and productivity initiatives as part of your CapEx plans. As you look into 2014, at what point would you have to increase capacity? I mean, if you see sales up 10%, demand's up 10%, I mean, is there some sort of benchmark at which you're looking?

Well, I wouldn't describe it as a specific benchmark. I would say that we are continually evaluating capacity and methods to expand capacity. And some of our expansion in the short term can be done by adding more manual operations or semi-automated type operations in our existing facilities. But we're looking at our production expansion, our capacity expansion projects. We're also looking at what we do with our international business units to add in more capabilities, like tubing production or galvanizing or expanding our manufacturing operation, which, to some extent, takes additional capacity out of -- or production out of the U.S. manufacturing to help balance that capability. So adding global capacity for us is beneficial in total. It allows us to utilize that capacity across the globe.

Okay, that's helpful. And then lastly, you said that competitive dynamic is sort of global. But can you address China as we've seen a number of competitors increase? What has that done to your outlook and your competitive position? You mentioned globally that price is not an issue for you. You don't compete on price. But how does that play out in China?

Well, I would never say price is not an issue and that we don't be compete on price. It's always a factor. And while we've had to watch our competitive position from a price standpoint, in terms of not getting either too far ahead or out of the market from a price standpoint. But I would say that we have more competitors in China than we had a few years ago, more local Chinese competitors. And it's always a concern when we get more competitors because we do get more price competition. However, I'd say that the quality standards are not the same. And as I said, our machine is excellent, and we really don't have quality concerns. And the perception of our brand is excellent, which helps to reinforce that. So we can really differentiate ourselves from the local competitors in terms of the quality of the equipment that we sell and our services. But in addition to that, since we are a local producer, we're producing at a competitive cost from a labor and overhead and material standpoint. So as long as we're local, we're not overly concerned from a competitive -- from a perspective of being competitive.

[Operator Instructions] Your next question comes from the line of Chris Shaw. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: Can you give us an update, with the cash continuing to increase, what the status of maybe the M&A pipeline is right now? How close you might be on anything?

Well, I couldn't describe how close we are on anything. I would just say that the M&A pipeline is probably, I would describe it as active or more active than anything I've seen for us in the last couple of years. And I think that we continue to look for opportunities and businesses that, with our core businesses and particularly the irrigation business, in some way, it adds to our offering and differentiation, as well as looking for businesses of significant size that are additional add-ons to Lindsay and are synergistic to what we do. But we continue to see a lot of really good opportunities, and that pipeline is bigger and a little broader than what we've seen in the last couple of years. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: You'd be hopeful to get, maybe, deals on them in calendar '13?

I'm always hopeful to get deals on in any time period, but I would never make that projection just because there are so many factors, in terms of having willing sellers and reaching on agreed-on price and a number of different factors. But I'm always hopeful of getting one done, and frankly, usually disappointed that we didn't get one done. But we'll keep at it, and we'll find the right things that fit. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: And then I'm a little newer than some of you guys, and so when would you first start seeing sort of a shift in demand trend from either lower farmer incomes or lower crop prices? Is that something that you'd start seeing in the fourth quarter, typically for looking out for next year then? Or are we still some time away from that?

I wouldn't project a time to specifically see a demand shift. I think that there's a number of variables that we watch and we'll be monitoring. And I think that at this stage, it's a little early to call what will happen during this next season or the one after, and I say that because it will be -- a large part is driven by what happens with yields during this next crop cycle. Now there's a lot of discussion about how many acres will be planted of corn. That's not known yet, and then what the yields will be. And the yield, of course, is going to be affected by weather conditions, as well as other things. So all of those will -- really have played a role in determining crop prices that have an impact on our demand in the future. But it's too soon to really make a call on that. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: Do you know from past drought events what kind of tale -- that demand tale might have been in the past? Or are there drought -- I know this one seems fairly more significant than anything we probably had since the '80s. But do you have any impression of what that could be?

I really couldn't describe the past events. I would say that they vary in terms of we've had some droughts that were multi-year droughts. And we've seen that the irrigation demand kept us throughout that drought period. And we've had droughts where it was very severe in 1 year in a small geographic region and got to the point of killing demand for irrigation because there wasn't enough water to irrigate. Now that's not the case that we're facing, obviously, across the corn belt today. That's why some of the growers get concerned about water availability, and we believe that there's some pull-forward in it that face the things like low moratoriums or whatever that could be in place. But I think that there's not a specific model to say that this is what will happen in a drought. A lot of it will depend on what happens during this next season.

And your last question comes from the line of Matt Keegan [ph].

Sort of seeing that -- the last question in terms of the cash. I mean, at this point, you're almost at $12.5 a share in cash. And given that you had a big infrastructure acquisition a couple of years ago, I think arguably, it's had its challenges. Is M&A your only or your major priority in terms of cash use? Or would you start looking at other things? Your dividend yield is only about 0.5%, maybe you feel like your stock to be undervalued and buy back some stock. Are those on the table in addition to acquisitions?

Yes, all of those are on the table. We do discuss and consider all of those options at any time, including share buybacks and expanding the dividend, and all of the options that you would consider. They're all available to us, we do look at them. I do think that the acquisition opportunities today are real, that there are some, but we consider all of those options.

Thank you. This does conclude the question-and-answer portion of today's call. I would now like to turn the conference back over to Mr. Rick Parod for closing remarks.

For our business overall, the global long-term drivers of water conservation, population growth, increasing importance of biofuels and the need for a safer, more efficient transportation solutions remain positive. In addition to the overall business enhancements that have taken place, we recognize our strong cash position and are focused on seeking and executing against acquisition objectives that will generate additional growth opportunities. Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins and strategic acquisitions. We thank you for your questions and participation in this call. Thank you.

Thank you. This does conclude today's conference call. You may now disconnect your lines. Presenters, please hold the line.