Lindsay Corporation (LNN) Q3 2013 Earnings Report, Transcript and Summary

Good morning. My name is Holly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Lindsay Corporation Third 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 is Jim Raabe, Lindsay Corporation's Chief Financial Officer. Total revenues for the third quarter of fiscal 2013 were a record $219.5 million, increasing 28% from $172.1 million in the same period last year. Revenues in the third quarter of fiscal 2013 reflected higher demand for irrigation systems, stimulated by positive drivers in the agriculture 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 efficient mechanical irrigation rose, creating robust demand for irrigation equipment. Operating margins were driven to 18% in the third quarter, compared to 16.7% in the same quarter last year. Net earnings were $26.1 million, or $2.01 per share, compared with $18.8 million, or $1.47 per diluted share, in the prior year. Total revenues for the first 9 months of fiscal 2013 were a record $542.5 million, increasing 28% from the same period last year. Net earnings were a record $60.1 million, or $4.66 per diluted share, as compared to $34.5 million, or $2.70 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 $0.37 per share last year. For the irrigation segment, sales totaled $200.9 million in the quarter, 34% higher than last year. Irrigation operating margins improved to 21.9% compared to 20.9% last year. In the U.S. irrigation market, revenues were $118.3 million for the third quarter, increasing 12% over the same period last year, with the largest increases in the corn belt. Farm commodity prices remained relatively high by historical standards, which supported positive farmer sentiment. As of February 2013, the USDA forecasted net farm income to be approximately $128.2 billion for 2013. This would be the highest on record and 73% above the 10-year average. While irrigation equipment demand remained strong during the primary selling season, the impact of drought conditions that had favorably impacted irrigation demand over the past 12 months has diminished by rainfall throughout the corn belt. Now the concern has switched from the impact of the drought to concerns over delayed planting and crop quality due to the heavy rains in the Midwest, increasing yield uncertainty. In the international irrigation markets, revenues for the third quarter of fiscal 2013 were $82.6 million, increasing 88% over the same quarter last year. Revenues increased most notably in the Middle East and Brazil. During the quarter, we recognized approximately 40% of the $39 million Middle East contract that we received last quarter. We expect to recognize most of the remaining revenue on the contract during the fourth quarter of fiscal 2013 and a small amount in early fiscal 2014. Irrigation equipment revenues in Brazil more than doubled over the same quarter of last year, fueled by proven success from mechanized irrigation and very attractive interest rates offered by the Brazilian government for agricultural equipment. Equipment revenues in Russia and Ukraine also increased significantly off a relatively small base, reflecting our success in establishing a strong market position in the region. In most of these international markets, mechanized irrigation represents substantial yield enhancement opportunities, while still having minimal market penetration. Adding the efficient mechanized irrigation is often one of the most impactful elements in closing the yield gap between developing markets and the efficient farmers in the U.S. While the irrigation revenues in developing regions are often less consistent and project-based, they represent substantial near-term and long-term growth opportunities, enabled by our global presence. For the first 9 months of fiscal 2013, total irrigation segment revenues increased 36% to $497.9 million. In the U.S. irrigation market, revenues were $331.9 million, rising 33% over the previous year. In the international irrigation markets, revenues were $166 million, increasing 40% over the previous year and the most significant increases in Brazil, the Middle East and Russia and Ukraine. Infrastructure segment revenues were $18.6 million, decreasing 17% from the third quarter of last year, primarily due to lower sales of Road Zipper systems and road safety products. The infrastructure segment generated operating income of $0.2 million, compared to operating income of $1.4 million in the third quarter of last year, due to unfavorable mix in amortizing costs over lower sales base. Infrastructure demand, including for Road Zipper system projects, has continued to be challenging this year due to constricted government funding and project delays. For the first 9 months of fiscal 2013, infrastructure revenues decreased 20% to $44.6 million, with the largest revenue decrease in Road Zipper systems and road safety products. While the Road Zipper system sales are project-based and are, therefore, more inconsistent, road safety product revenues are more seasonal and reflect government spending on road works. Although the environment for infrastructure sales continues to be constrained by longer-term funding uncertainty, we're seeing indications of improvement from recent sales trends. Infrastructure backlog increased modestly in the third quarter as compared to the prior year. Gross profit was $63 million, or 28.7% of sales, for the third quarter versus $49 million, or 28.5%, in the same quarter of last year. Gross margins in irrigation improved modestly, while infrastructure gross margins declined by approximately 3 percentage points on lower revenue. U.S. irrigation gross margins increased due to strong pricing, manufacturing productivity and expense leveraging, offset by the mix of lower margin international irrigation sales. Operating expenses in the third quarter increased by $3.2 million (sic) [$3.3 million] to $23.5 million. The increase was primarily driven by high incentive compensation, staffing and increased accounts receivable reserves. We've continued to take advantage of our substantial irrigation revenue growth by investing in new product development at historically high levels to expand and further establish our technological leadership position in irrigation. Even with the added investments, operating expenses, as a percentage of sales, decreased to 10.7% for the quarter, compared to 11.8% for the same period last year, reflecting significant operating leverage. The order backlog on May 31, 2013, was $80 million compared to $159.3 million on February 28, 2013, and $44.5 million on May 31, 2012. The increase in current year backlog reflects increased equipment demand in Brazil and carryover volume from the Middle East order announced in the second quarter. There are also modest increases in U.S. irrigation and U.S. infrastructure backlog on a year-over-year basis. Cash and cash equivalents of $170 million were $50 million higher than the same time last year, while debt decreased $4.3 million over the same period. Accounts receivables were $35.2 million higher year-over-year due to the higher sales, and DSO increased 4 days. Inventories increased $10.3 million in support of higher sales volume, 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 now expect capital expenditures in 2013 to be approximately $14 million to $17 million, largely focused on manufacturing capacity expansion and productivity improvements. In addition, we have historically increased the dividend annually and have an outstanding share repurchase authorization. The board's outstanding authorization reflects confidence in our long-term outlook and enables us to opportunistically purchase shares to further drive value for shareholders. In summary, we have achieved record results for the first 9 months of fiscal 2013, driven by positive farmer sentiment toward capital investments and concern over the past and potential drought conditions. In the irrigation segment, we anticipate gross margin headwinds in the fourth quarter, due to lower margin international irrigation project backlog and due to planned manufacturing maintenance projects. Irrigation equipment demand for 2014 and beyond is unclear today and will be driven by farmer sentiment, influenced by weather conditions, crop prices, stock-to-use ratios and their perspective on overall farm income potential at that time. We remain very confident that the key drivers to our business are favorable and that over the long term, increase in agricultural yields to boost food supply, improving water use efficiency, biofuel production and improving transportation infrastructure will remain global priorities. I would now like to open it up for your questions.

[Operator Instructions] And your first question will come from the line of Brett Wong, Piper Jaffray.

I'm wondering if you could provide us with an update on the Golden Gate project timing and how we should think about the flow-through in the model?

Well, I really don't have an update of any significance on the Golden Gate project. The last I had heard was that we were anticipating an order late in the summer. However, we weren't expecting any of that to ship during this fiscal year. And I know that as in -- with all big projects, there are often some delays and I wouldn't be surprised if there were some, but that's the last that I've heard on this, is that it's a late summer expectation in terms of an order. And this would be something that would take place, then, in the next fiscal year. I will be able to give a better update certainly after we receive an order or see that one comes through, and then we can talk more about the timing of the revenue recognition on a project of that type.

Okay. And then you mentioned that with the wet spring, some of the driving factors behind increased demand this year because of the last year's drought may be fading, perhaps? Can you maybe talk to how you see demand next year, in 2014?

Well, it's difficult to predict the demand for next year. I would describe the situation as what we saw during the primary selling season this year was pretty aggressive demand but largely fueled by the drought that we experienced last year and -- last spring and summer. And I would say that carried over somewhat into this season. And what we saw in probably the last half of the quarter was a little more of a typical slowdown, which was not unexpected, because that's when most of the machines are out in the field and the farmers will not want to be putting machines in after planting. Now what we've seen since then is, obviously, some changes in the weather where there's been more rain and more disruption to the planting process and more concern over what the crop will look like and what yields will look like this year. And that remains pretty uncertain at this point. So as I stated in the opening comments, I think that this will really be determined by what farmer sentiment looks like, say, in the spring, when they have a better view of not only the harvest results, but what the forward-looking crop prices and farm income opportunity look like. But all that said, I think the other point of interest in this is that our drivers are often slightly different than other ag equipment, in that it's also driven by weather, it's driven by water availability and it's often a very significant yield enhancement opportunity to put in irrigation in dry land. And what we've seen is significant increases in putting pivots into dry land in the recent quarters. And -- where in the past number of years ago we were seeing about 1/3 of the machines we ship go into dry land. This past quarter, it was roughly about 46% of the machines. And we've seen that, year-to-date, it's about 47%, so a pretty high percentage are going into dry land, recognizing the yield enhancement opportunity. So in terms of the looking forward, I think there's a number of variables that will determine the farmer sentiment at that time.

Your next question comes from the line of Nathan Jones, Stifel. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Just following up to that last statement you made on the number or the percentage of machines going into dry land being elevated at 46%, 47%. Do you think that's a trend that can continue as farmers in dry land are chasing yield? Or do you think it's more likely to mean revert?

Again, I think it comes down to a number of factors. I think one of those will certainly be weather. And I do believe that the recent drought we had over the last year certainly caused a great deal of concern and opened the eyes of a number of farmers in terms of the impact it had on their operations without having irrigation. So I think the importance of the -- of efficient irrigation in farming operations is widely recognized. And I would expect that we'll continue to see increases in the amount of irrigated land over time. But at what rate? It's very difficult to say at this stage. And I think it will largely be determined on what the conditions look like in the next season. I'll also say that I think that we've seen a great deal of volatility in weather in the last few years, from extreme drought to flooding to heavy rains in the spring. So quite a few, maybe somewhat exaggerated conditions, but I do think this creates -- causes a lot of concern for farmers in terms of how to achieve some consistency in their farm income. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I just wanted to get some more color on the driving factors behind the margin expansion. So in irrigation, 110 basis points of margin expansion. Over the whole company, 110 basis points of margin expansion from SG&A. So obviously, very good leverage there. Can you talk about the other impacts? You had a pretty significant negative mix shift on the international revenue, which is, looks like, largely offset by operational improvements, fixed cost leverage and price. Can you just give us some more color on how each of those factors impacted margins in the quarter?

Sure, Nathan. This is Jim Raabe. As we noted, irrigation as a whole, gross margins were slightly up and -- but in domestic, the margins were better. It has continued to be a pretty strong pricing environment, which has been the most significant factor. But as you've seen in the overall volume, we've also continued to get productivity and leverage in our manufacturing operations. The input costs have been relatively flat, maybe a little bit favorable on the steel side, but we have seen some offsets in some other components. And as we also noted, the irrigation was -- or the international irrigation sales, from a mix standpoint, was an offset to those improvements that we saw in the U.S. manufacturing operations, both from just the standpoint of the overall magnitude of international sales and the fact that those international sales do typically have a little bit lower margins. But then, in addition to that, this Middle East contract is also somewhat lower margins as well because there's a fair amount of that contract that is purchased ancillary parts, not just manufactured by us. So that's kind of the overview. Nathan Jones - Stifel, Nicolaus & Co., Inc., Research Division: Okay, and one last question for me on capital allocation. The balance sheet is, obviously, far from optimal. And we've been waiting for a fair while now for something to happen either in terms of M&A, repurchase, dividend increases, a special dividend or something. I know you have a repurchase authorization, which hasn't really been used. Your dividend yield and payout ratio are pretty low. When do you think it's the right time to start thinking about returning that cash to shareholders?

Well, that's something that's one of the, let's say, top priorities from our view in terms of the utilization of the capital on the balance sheet that we are often talking about. We look at it in terms of acquisition candidates and acquisition process that we have ongoing. And we do have candidates always in process. But we also look at it -- and as I commented earlier, our view that we will be able to opportunistically purchase -- repurchase stock. So we have all of those vehicles at our disposal. And you're right, we have not done that in the past. And I think that as opportunities will come up, we will be certainly looking for those opportunities. When I say we haven't done it in the past, not in the recent past in terms of the repurchases. But it's certainly a very high priority for us in terms of the utilization of the capital.

The next question comes from the line of Schon Williams, BB&T Capital Markets. Christopher Schon Williams - BB&T Capital Markets, Research Division: Wonder if we could just talk a little bit about the weather impact this quarter? Was there any effect to your domestic operations from the late start to some of the plantings?

Well, I can say that we saw a significant impact from weather on our business in the sense that most of our equipment would -- certainly, they want it in the field before planting. And I think that what we saw was a fairly typical season from that standpoint and then the weather delays really have affected many of the farmers. Now we did, I'm sure, have situations where they couldn't get the machines in the field due to wet fields and the weather conditions, but I don't believe that was a significant factor. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. And then so if I look at domestic revenues in the quarter, they looked a lot like Q2 revenues, $118 million versus $117 million. Are we essentially at full utilization for your U.S. production? Is this -- are you going to have to make additional, I don't know, additional investment to kind of get beyond this type of level?

Well, I wouldn't describe it as a -- as full utilization. I would say that we're pretty near a practical capacity. And as I've described in the past, there are a number of ways that we can expand that capacity. Some of them are not very capital-intensive in terms of adding some more manual-type processes. And some of them, if they were more -- would be more capital-intensive if we're looking at a longer-term capital or longer-term additions to capacity. We're also looking at more capacity expansion in our international operations, which would alleviate some of the pressure on the domestic operations as well. And we think that is a good, long-term solution, in that we need more capacity in a number of the international markets. So that's where when we looked at the CapEx that we talked about in that $14 million to $17 million range this year would be the start of some of the capital expansion in the international businesses, the international factories. Christopher Schon Williams - BB&T Capital Markets, Research Division: And remind me, how much of the domestic production would get -- would eventually make its way overseas? I mean, is that -- that's a small piece -- a fairly small piece of the mix?

I don't have that number off the top, but I wouldn't describe it as a small piece because we have a fair amount of export business to markets like Mexico and Australia and New Zealand and some others. So there's a fair amount of export in our international that would be outside of our business units in those -- in the international markets. We may be able to get that percentage for you. I just don't know that off the top. Christopher Schon Williams - BB&T Capital Markets, Research Division: No, no, that's fine. That's helpful. And maybe one last follow-up. It just -- it looks like the CapEx spending is going to be kind of fully loaded into this -- into fiscal Q4. Should I expect some of these projects to carry over into next fiscal year? Or do we get a big slug here in the next quarter and then that's kind of it for a while? I'm just kind of looking at your full-year number versus the pace we've been at. It just seems like we've got an awful lot, kind of hitting all at once. I'm just wondering if that continues into the next fiscal year.

So we have a project or 2 that is planned for this fiscal year that will hit in the fourth quarter, and those are probably fairly sizable. And then going into next year, I would expect that our CapEx -- and we really haven't got into that plan part of it yet completely, but I would expect it's going to be back in the $20 million range due to some sizable projects that we have planned, not necessarily front-loaded in the first quarter, but certainly, we'll have some sizable projects next year, which would be the capacity expansion in international markets.

Your next question comes from the line of Brian Drab, William Blair. Brian Drab - William Blair & Company L.L.C., Research Division: First question on the international business. So can you talk a little bit more about international irrigation? First of all, you're up almost $40 million sequentially in the international business, and presumably around $16 million of that was related to the big project in Iraq. Can you just rank order other geographies and/or projects internationally by their impact on the sequential growth in the quarter?

Well, I think the way that I would think about it in terms of -- for the quarter, if I were to rank order some of the markets, I would say that the -- certainly, the Middle East was a big piece in our quarter sales for international market. Next would probably be Brazil and after that Europe, which has remained pretty strong, and that's Europe in general. And then after that, of course, there's China and other markets, but those would probably be the top 3. And generally, what we would see in our international markets is we'll see the top 3 or 4 will be typically Brazil, Mexico, Europe, China, Russia and Ukraine. We may see some of these trade off, but we'll see a trade-off between those specific regions. Brian Drab - William Blair & Company L.L.C., Research Division: And Mexico in the quarter was, I guess, wasn't as strong as some previous quarters?

It wouldn't have been in the top 3, but it was still a pretty strong -- still had some good, strong performance in Mexico as well. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. And then also regarding international irrigation, your -- the level of sales in the quarter was just about double what you've done in any previous quarter, almost double. And I'm just wondering if this is sort of a peak level for international irrigation. Or should we infer from your comments regarding expanding capacity in international markets that this is maybe the new norm there, and we'll see these levels going forward.

Well, Brian, I certainly think that the international project in the Middle East was a significant piece of this, obviously, in the quarter. But also, we've seen strong increases in Brazil and some other -- in Russia and Ukraine and other markets in the international markets. And some of those are, in my view, in early days where they're really just getting started. Recognizing that from quarter-to-quarter, we'll see the switch-off in terms of level of importance and they will also switch off in terms of the size of the projects because they are still more project-based. But what we are seeing on a more macro global basis is the increased importance of these international markets and their recognition of the importance of mechanized irrigation. Brian Drab - William Blair & Company L.L.C., Research Division: So is it safe to say that your project pipeline for relatively larger international irrigation projects is increasing, improving?

Yes, I think that's a fair statement. I would say that pipeline is increasing. That's not necessarily referring to -- in backlog, but certainly, the pipeline in terms of what we're going after or what projects we're working, that would be a fair statement. Brian Drab - William Blair & Company L.L.C., Research Division: Okay. Then last, are you a little surprised that third quarter domestic irrigation revenue wasn't up more sequentially? And do you feel at this point that some demand was pulled forward from the third quarter? You indicated you were not necessarily capacity constrained in the quarter, so I'm just -- I was a little surprised that we didn't see more of an uptick in the domestic business.

No, I can't say that I was really surprised. It had been so strong in terms of the impact of the drought. And as I've talked about in the past, we always felt that there was some pull-forward, not knowing how much. And I also think that we hit that point of a more normal season at least in the second half of the quarter. So we did see that change, but it was not completely unexpected.

Your next question comes from the line of Joe Mondillo, Sidoti & Company. Joseph Mondillo - Sidoti & Company, LLC: Just one question. Just was wondering if you could give us an update on your QMB opportunities around the world?

Well, I would describe it as, in reviewing the project list, as still a very good aggressive project list, with a lot of opportunities in the range that we've seen in the past. And let's say that there's many that are probably getting closer than where we were, say, 3 to 6 months ago to where there's much more activity. I would be surprised if we didn't have some QMB revenue in the next quarter. But it's hard to determine exactly what that will be, but I will say that I'm very optimistic in terms of the projects that I see on the list and what's getting work today. Joseph Mondillo - Sidoti & Company, LLC: Do you think we're going to see any new orders within, say, the next 12 months?

Yes, I do. I won't go out to say exactly when or what or what size, but yes, I do. I think that there's enough projects that are at that stage, where I would expect that we will see those. Joseph Mondillo - Sidoti & Company, LLC: Okay. And then just a follow-up question. In terms of the gross margin in the irrigation, do you have any concern with sort of the, I guess, somewhat maybe slowing domestic market that these inflated gross margins compared to your historicals may see any pressure?

Well, I think we know from historical perspective that if the market slows, we may see more competitive -- more aggressive competitiveness in terms of -- more aggressiveness in pricing. So that could put some pressure on margins. I would be more concerned about that than I would, say, manufacturing efficiency per se. So I think that we could see some of that happen, and I wouldn't be surprised if that did. At the same time, I would say that we will do what we need to do to defend our market position, where we believe we're in an excellent competitive position and we also have a differentiated product offering, which helps us from a pricing standpoint. Joseph Mondillo - Sidoti & Company, LLC: And then just lastly, it seems like your gross margin has been improving year-over-year at the irrigation. However, you mentioned in the fourth quarter that, that you could see some pressure on the gross margin. Does that -- are you essentially saying that you could see a year-over-year contraction due to the just the international mix there?

Well, I wouldn't look at it from a comparative contraction basis because we really don't know what the rest of the fourth quarter mix will be. I would just say that we do know that the international mix will be heavier in the fourth quarter than is typical. What we would expect, anyway, heavier than typical because of this project that's already in our backlog. In addition, we also know we have some planned maintenance projects in the factory, which will add some expense. But I wouldn't be giving -- I wouldn't be guiding to saying it will be more or less than previous periods.

Your next question comes from the line of Chris Shaw, Monness, Crespi. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: I think you hinted at the last answer or last set of questions, but with steel prices still fairly low and weak, are you guys being able -- I guess, is the industry maintaining pricing at this point? Are you able to keep the pricing up?

What we've seen recently is that the industry has been maintaining pricing and as you comment, steel has been relatively flat. We haven't seen much movement there. So it's been a pretty good position from that standpoint. But yes, pricing has been pretty stable. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: So you haven't seen any sort of competitive pricing and trying to take advantage of lower steel just yet?

I'm sorry, I didn't catch the first part of that. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: You haven't seen anybody trying to be more competitive on pricing and take advantage of the low steel?

We always do see some of that on a regional basis. I would say nothing abnormal or nothing that caused me great concern at this point. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: On the infrastructure, in the release, you sound modestly, slightly optimistic, I guess, going forward. And then you talked about, I think, just before about being slightly optimistic on QMB, but how is the other piece of that business? Are you seeing some pickup there at all on the safety products?

Yes, I'm optimistic in all of the pieces. I think there's -- we're seeing more improvement in the safety product side and also in the rail piece of the business. In addition, we've cut some expenses in the past 6 months that, from an operating standpoint, will put us in better position coming to this next year. So I'm optimistic about the performance of this business for the next year. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: Okay. And then one last one, if you look at the drought maps, it's in -- key markets for you guys like Kansas and Nebraska and Texas, there's still a decent amount of drought there. How big are those markets overall for you in terms of sort of the typical dry land areas?

Well, those are very big markets. Texas has been a big market. Obviously, Kansas is a big market. So they're all good markets for us, and I am surprised, given the rain that we see here in Omaha almost daily, that those drought conditions still exist at that level. However, that is fact. There is still drought there in many of those markets. Those are good markets for us. Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division: You don't have any idea, percentage-wise or "bigger than a breadbasket" kind of wise, how big those 3 markets are overall?

I don't have that off the top, no.

[Operator Instructions] Your next question is a follow-up question from the line of Schon Williams, BB&T Capital Markets. Christopher Schon Williams - BB&T Capital Markets, Research Division: I just wanted to follow up on the international irrigation. You mentioned in your opening remarks that you're seeing some nice growth in Russia and Ukraine. I wonder if you could just talk about -- I mean, we've seen a lot of investment, at least in the headlines, in terms of French [ph] government talking about investment in water infrastructure. And I'm just wondering, are you seeing some of that investment finally turn into orders for you guys? Or do you think it's more about Lindsay penetrating those markets and just doing a better job of getting, making contacts and kind of pounding the pavement in those areas?

Well, I think it's a number of things, Schon. One is that what we're seeing is that some of the investors in that market are agri holding-type companies that are financial investors that are going in and buying or leasing land and farming that land. We are also seeing some of the government subsidies start to play out and actually get paid out in some of the markets. And that's a significant help in those areas. And yet, I think with the agri holding companies, we can show in the financial models that we put together that their return on investment and their payback is pretty substantial with or without those government subsidies because of the yield consistency that they get when you look at the historical droughts and other things that have taken place. And that land in Russia and Ukraine is incredible in terms of the agricultural potential from that farmland. It's vast and open, relatively flat with water available, and yet very low yields on a comparative basis, compared to the United States, in many of the crops. So from a potential standpoint, it's very significant. And we're dealing with customers that can be everything from the agri holding companies to the major growers that are in Russia and Ukraine to the smaller farmers in the region. And we're really able to deal with all of them, but we're probably seeing the most significant impact right now with agri holding and the large growers. Christopher Schon Williams - BB&T Capital Markets, Research Division: And what's -- I mean, just kind of off the top of your head, ballpark, I mean, agri holding, is that -- that's 1/4 of the farmland in that territory, 10%? Do you have a sense?

I can't make a percentage on that. I would say that it's a relatively small percent at this point, but has the potential to be a sizable percentage in those markets because of the vast pieces of farmland that they're putting together. So in many cases, it'll be 40,000, 50,000 to 100,000 hectares and more. So they're looking at putting big pieces of land together in these agri holding companies. So I think it's a relatively small percentage today. I really don't have a number, but I would say that it's a very big growth opportunity. Christopher Schon Williams - BB&T Capital Markets, Research Division: And are you seeing product go into dry land? Or it's more replacement of kind of dilapidated product that's been there for several decades?

Well, I think the primary emphasis today is the dry land, but I'd say that there has been a significant irrigation presence in the past in terms of mechanical irrigation in Russia and Ukraine. However, most of it is gone. And when the Soviet Union broke up, most of those machines were sold for scrap value. So a percentage of machines on that land today is probably 1/10 of what it had been at one time, which created significant opportunity for restructuring or basically resurrecting that land and putting irrigation back on it, in addition to the land that hasn't been irrigated in the past. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. And then one last question here. The allowance for bad debt did go up by about $1 million in the quarter. You mentioned that it's kind of contributing to some of the year-over-year expense increases. Could you just highlight, is that concern over one specific customer? And maybe can you highlight, is it irrigation or infrastructure?

Yes, this is Jim. And I would say with the growth in international, international is a little bit more difficult market to do business in from a receivables and collection and credit assessment standpoint. So it is on the irrigation side. It is on the international side. And I think there's also been some in the news about China. China is a difficult place in particular from that standpoint. So international irrigation is where we're seeing it. I think we're managing it well. We're certainly taking the steps we need to do, make sure we're making the right choices there. But it is a growth area that we're getting into some new areas. So...

And at this time, there are no further questions. I'll turn the call back over to Mr. 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 safer, more efficient transportation solutions remain positive. Lindsay is committed to achieving long-term earnings growth and to creating value for shareholders through multiple vehicles, including continual investment in our core businesses, acquisitions, dividends and share repurchases. We thank you, all, for your questions and participation in this call today. Thank you.

Thank you for your participation on today's conference call. You may now disconnect.