Lindsay Corporation (LNN) Q4 2016 Earnings Report, Transcript and Summary

Good morning. My name is Karen, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Fiscal Fourth Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [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, expectations, outlook, could, may, should or similar expressions. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would now like to turn the call over to Mr. Rick Parod, President and Chief Executive Officer.

Good morning and thank you for joining us today. With me on today's call is Brian Ketcham, Lindsay Corporation's Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer. Total revenues for the fourth quarter of fiscal 2016 were $132.9 million, an increase of 8% over the same quarter last year. Revenues in both irrigation and infrastructure increased in the quarter compared to the prior year. Net earnings for the quarter were $7.8 million or $0.73 per diluted share compared with a net loss of $3.2 million or $0.28 per diluted share in the prior year. Contributing to the loss in the prior year was a bad debt charge of $5 million for an account in China and $2.9 million reserve against foreign income tax assets. Total revenues for fiscal 2016 were $516.4 million, a decrease of 8% from the same period last year. Net earnings for the year were $20.3 million or $1.85 per diluted share compared to $26.3 million or $2.22 per diluted share in the prior year. Fiscal 2016 earnings included a $13 million increase in the environmental remediation reserve related to the Lindsay, Nebraska facility made earlier in the year. On an after-tax basis the environmental reserve increase reduced net earnings by $8.5 million or $0.78 per diluted share. For the irrigation segment in total sales in the fourth quarter were $99.9 million, a 3% increase over the same quarter last year. Irrigation operating margins increased to 8.9% of sales from 4.4% of sales in the same quarter last year. Last year's earnings of the quarter included the $5 million bad debt charge for an account in China. In the U.S. irrigation market revenues were $57.3 million in the fourth quarter, up 5% from the same period last year on higher unit volume and relatively unchanged pricing from the prior year. Revenues from other irrigation components including pump stations and technology products increased modestly compared to the prior year. Overall lower commodity prices and reduced farm income continue to affect farmer sentiment regarding capital goods purchases. In the U.S., estimated record production of corn and soybeans will continue to keep downward pressure on commodity prices. USDA is now projecting 2016 net farm income to be $71.5 billion dropping 11.5% from the prior year and declining 42% from the record high set in 2013. Going into fiscal 2017, we do not expect to see any meaningful improvement in the macro factors that drive farmer sentiment, regarding capital investment. Accordingly, we plan to continue our focus on managing our cost structure while investing in productivity improvements and selected growth initiatives. In the international irrigation markets, revenues in the fourth quarter were $42.6 million increasing 1% over the same quarter last year even with the inclusion of a 2% decline due to foreign currency exchange rate changes. Increased sales in international project oriented markets such as the Middle East and Africa were offset by declines in Brazil and other markets. The outlook for Brazil is improving now with steps towards resolution of the political crisis and showing signs of economic recovery. While lower commodity prices impact international markets, we expect to see agricultural development continuing through the cyclical trough. For the full year of fiscal 2016, total irrigation revenues decreased 7% with U.S. irrigation revenues declining 4% compared to fiscal 2015. The decrease resulted from lower machine unit volume and reduced market pricing reflecting passing through some of the lower steel costs earlier in the year. The revenue decline was partially offset by the incremental increases from Elecsys and SPF acquisitions in fiscal 2015. In the international markets irrigation revenues were $159.4 million, 10% lower than the prior year with approximately 7% of the decline attributable to the negative impact of currency translation. Total irrigation segment operating margins for fiscal 2016 increased to 11.7% from 11.5% in the prior year. Infrastructure segment revenues were $33 million in the quarter compared - increasing 24% from the same quarter last year. The increase resulted from higher Road Zipper System sales, as well as higher unit volume and road safety products offset to some extent by decline in rail and contract manufacturing sales. The infrastructure segment generated operating income of $9.3 million in operating margin of 28.1% in the quarter compared to operating income of $4 million and operating margin of 15% in the same period last year. The current quarter included a number of Road Zipper System sales ranging from 1 million to 3 million each in revenue which contributed to the improved profitability. For the full fiscal year of 2016, infrastructure revenues of $94.8 million were 13% lower than the record levels in fiscal 2015 primarily due to the completion of the large Golden Gate Bridge project in the prior year. Increased Road Zipper System lease revenue, road safety product sales in the current year were offset by declines in tubing, rail and contract manufacturing sales. Infrastructure operating margins for the fiscal year of 2016 grew to 19.6% compared to 18.6% in the prior year showing continued improvement. We believe that our infrastructure business is positioned for another solid year in fiscal 2017. Operating performance continues to improve and market activity reflects improving demand for our products. As individual states proceed to adopt the new testing standard for road safety products called MASH, we will incur increase cost for product development and testing in order to ensure that our products are compliant with the new standards and we will be required to reapply for state certification with MASH compliant products. This reapplication process may cause some near-term variability in our road safety product revenues. For the total company gross profit in the fourth quarter was $39.9 million with a gross margin 30.1% of sales rising three percentage points above the same period last year. Irrigation gross margin remains comparable to the prior year as improved margins in the U.S. were offset by lower international margins. Infrastructure gross margins increased by more than 10 percentage points in the quarter resulting from an increase in higher margin Road Zipper System sales, as well as improved product mix and volume leverage and road safety products. For the full fiscal year of 2016 gross margin improved to 28.8% from 27.9% in fiscal 2017. Irrigation gross margin increased by slightly less than one percentage point due to higher margin sales mix from the full-year impact of Elecsys acquisition and from improvement in other irrigation component margins. Infrastructure gross margin improved almost three percentage point due to revenue growth and cost leverage and road safety products in both the U.S. and Europe. Operating expenses in the fourth quarter decreased to $28 million from $30.7 million in the same prior year period. Operating expenses in the prior year included a $5 million bad debt charge for account in China. The quarter included increased selling and engineering expenses with the engineering expenses primarily driven by development of MASH compliant road safety products. For the full fiscal year of 2016 operating expenses were $114.2 million versus $105.6 million of fiscal 2015. The increase in operating expenses includes $11.5 million of incremental environmental remediation expenses and $4.8 million of incremental expenses from the Elecsys and SPF acquisitions made in 2015. These expense increases are offset by the $5 million reduction of bad debt charges incurred in the prior year for the account in China and lower acquisition related expenses. The order backlog at August 31, 2016 was $50.7 million compared to $48 million August 31, 2015. The increase in backlog is primarily in the infrastructure segment with higher backlogs in both Road Zipper and road safety product lines. Our backlog typically represents some long-term irrigation and infrastructure projects, as well as short lead time orders and therefore is generally not a good indication of future quarter's revenues. Cash and cash equivalents were $101.2 million at the end of the quarter and were approximately 38% lower than the same quarter last year. We have continued the execution of our capital allocation plan including investing 48 million of share repurchases in fiscal 2016 and 186 million accumulative share repurchases since January of 2014. Since January 2014, we repurchased 2.4 million shares reducing our outstanding shares by 17%. As of the end of the quarter we have approximately $64 million of share repurchase authorization remaining and we plan to remain opportunistic in our repurchases. The strength of our balance sheet continues to position us for additional growth through acquisitions and other initiatives to drive improved returns for shareholders. We have now completed the third full year of the cyclical downturn in our irrigation business and we expect the challenging conditions in agricultural equipment demand will persist as we begin fiscal 2017. Irrigation equipment pricing remains competitive but rational in both domestic and international markets. We manage through a brief period of rapid steel cost increases in U.S. during our third fiscal quarter and while they remain at elevated levels we've seen steel cost moderate and decline somewhat during the fourth quarter. During this period we've been successful in maintaining gross margins and we expect to continue to do so through effective cost and price management. Although revenues were lower than the previous year, operating margins improved for both irrigation and infrastructure reflecting our management team's action and managing input costs, pricing discipline and selective investment and initiatives. We also continue to recognize benefits from our many water related acquisitions. From a financial standpoint these acquisitions have helped us to improve gross margins and have provided incremental revenues in markets outside of agriculture. From a strategic standpoint, these acquisitions in water engineering services, integrated pump systems, filtration, irrigation control systems and machine to machine control have positioned us as a leader in irrigation solutions providing a value add proposition to our customers beyond our market-leading center pivot product line. In the infrastructure segment, sales and profits have been stabilized and improved. In addition having a long-term Federal Highway Bill in place provides support for road safety product sales growth. Road Zipper lease business continues to grow. We're also encouraged by the continued market interest both domestically and internationally in our Road Zipper product line. Headwinds in the international irrigation markets appear to be subsiding, however Brazil and certain export markets remain challenged. The effects of foreign currency exchange rate fluctuations have lessened and coding of international projects has improved. While the agricultural markets are cyclical and the underlying drivers for our business remain intact, throughout the peaks and valleys of the cycles farmers remain acutely aware of the benefits of efficient irrigation and increasing yields and quality. We continue to view cyclical trough like this as opportunities for strengthening our market position, expanding our offering, improving our cost structure and implementing operational efficiencies. All of these will benefit the company now and long-term. We will continue to invest in those initiatives and are well prepared to take advantage of opportunities for growth as the cycle turns positive. I'd now like to open it up for your questions.

[Operator Instructions] And your first question comes from the line of Brian Drab of William Blair.

Good morning, Brian. First just on the infrastructure segment. You talked about the MASH standard and how that could number one, maybe drive some variability in revenue. And number two, it's coming with some extra expenses in terms for R&D. Can you just flash that out a little bit further and talk about the timing and potential magnitude of variability on the top line and on can you give us any dollar amount in terms of what that expenses so we can understand how that could weight on margins.

This is Rick, there's not too much Brian that I can split out on this completely but let me give you a little bit of background or color on this. When we look at the MASH implementation there's a based on what we see approximately six states that have now implanted MASH or are in the process of implementing it as of now. And the impact of those six in terms of revenue impact to us is probably in that $1 million range on an annual basis. So I wouldn't call that very significant in terms of what impact it could have to us in our road safety products business. There's another 10 states that we've identified that have implementation dates upcoming which could be anywhere from June 2017 - actually January probably through November - January through - June '17, would probably be the time period. So those are ones that are kind of up-and-coming that could have an impact that's maybe similar to a little bit less than that. So we’re not seeing anything that’s in the near future that’s going to be extremely impactful in terms of the implementation of MASH. We’re also in process of getting products certified to the MASH standards. So I’m not sure we’ll miss sales other than, let’s say, the current states where we really don’t have a product to supply to those.

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

Well, there's certainly a seasonal impact going into the winter months where we’ll see less in terms of some of the road constructions, so it’ll be less in terms of some of the road safety products, possibly a little less in the leasing as well during that time period. However, our leasing base, in general, on the Road Zipper part of it remains pretty strong. In addition, what we saw in this past quarter were a number of smaller, as I said, $1 million to $2.5 million to $3 million range kind of projects, in Road Zipper, which we see more of those as well. So we continue to see that backlog and that pipeline of potential projects still pretty good. But we could, we definitely expect to see some seasonal impact to the road safety products.

Okay. And that backlog of the $1 million to $3 million movable barrier projects going into next year is that kind of comparable to the backlog that you saw going into the fourth quarter of '16?

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

I guess, I meant to say pipeline. So - as you looked at the fourth quarter of '16 and you saw this pipeline of $1 million to $3 million movable barrier projects, is that pipeline as healthy now at the end of the quarter as it was at the beginning?

Yes.

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

And your next question comes from the line of Mike Shlisky of Seaport Global.

Good morning. So I want to touch first on irrigation. I guess, I’m curious if we’ve entered a more stable phase here. Is your business pretty much, at this point, mainly parts and replacement, especially in the U.S.? And if we were to see farmer income step down again in '17, given that it’s mainly replacement parts and service, would it be a major impact to your business at this point or are there additional new system sales that might not happen in ‘17 if farmer incomes don’t improve from here?

Well, there’s multiple pieces to that question but let me try and characterize it one way, which is, first, we look at our sales out the door in terms of how much of what we sell in the quarter is for conversion or dryland or replacement. And this past quarter, roughly 48% of the machines that went out were for replacement; 34% for conversion, converting primarily from gravity irrigation; and 18% into dryland. Now that's not a very surprising mix, considering that the fourth quarter, for us, is the end of the season. Basically, it’s more harvest time. What we saw, when I look back to the previous year, the replacement percentage was very close to the same. In fact, I think it might have been 50% replacement the previous year at the same time. So I don’t think we’re seeing any, let’s say, major change in terms of replacement business versus dryland or conversion that would be unusual considering where we’re at in the cycle. Now I think the other part of it that I would describe is that, from the overall sales standpoint and what we’re hearing from dealers in the U.S. market, let’s say, the current demand at the end of the quarter was fairly tepid from a standpoint of farmers are still hesitant and reluctant to spend a lot and buy a lot of equipment. However, they do still view efficient irrigation as a good investment to improving their yields and improving the quality of the product that they produce. So we still see the demand. The fourth quarter's a tough one to use as a base because, as I said, it’s primarily the end of the selling season in the U.S. And what we saw is fairly typical, where we’re seeing the higher replacement percentage, but we’re also seeing a little more volatility where U.S. sales were down some and international sales were little better. So it’s a little different mix when we are looking at it from that order rates towards the end of the quarter in terms of what’s happening. But it’s not unusual to see this at the end of the selling season.

Okay, got it. And that brings up a two part follow-up question. I guess, one, are you seeing any, at this point pent-up demand, if we were to see an improvement in farmer incomes? Have you been hearing about farmers just delaying replacement, trying to just patch together for a couple more years in this soft patch? So I guess, could there be a big snapback of orders if we do see an improvement in farmer incomes? And then, secondly, can you give us a sense as to, this year, I guess, what do you think is the peak ordering season coming up for next spring delivery? And there's some kind of concern about what the prices of corn and soybeans might be during those exact times.

Well, generally, in terms of the peak, we're going to start to see our order activity picking up probably in around the January, February time period. We’ll begin to get a glimpse of what this next season will look like. And then probably beginning, I would say, by the end of May, it’s starting to ramp down pretty quick because the farmers want to get these machines in prior to planting and that’s important to get that done at that stage. So that’s generally what we would see at the season. We would expect the same thing this next year. So we’ll get an indication of what’s coming at that point. The first part of the question, could you repeat that?

Sure. I was curious to see if there’s any pent-up demand, if we see any kind of farmer increase, are there guys holding off for an extra year or two trying to patch together until you hear about that incomes?

There's definitely some pent-up demand in the sense of their people who will be doing more, let’s say, repairs on machines and holding off on some of the replacement. We do see that now. There's also the normal trend of when we see farm income improve, and we see then the resulting farmer sentiment improve, farmers then step up to start adding in irrigation equipment at a faster pace. And generally, that’s a regular ongoing process. So as the income improves, they will be turning their land that isn’t irrigated into more efficient productive farmland by adding irrigation as a general rule.

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

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

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

Your next question comes from the line of Nathan Jones of Stifel.

Hi, good morning. This is Adam Farley on for Nathan. Can you guys talk a little bit about - good morning, could you just talk a little bit about how the Highway Bill is impacting the infrastructure segment?

Yes. In talking to our sales people, I think it’s more anecdotal at this stage where they’re definitely seeing a higher level of activity in terms of our dealers quoting equipment, seeing more projects that are being talked about around the table to get started. I would say that it really hasn’t resulted into increased revenue to us at this point. But the activity level is definitely picking up. And there’s just a lot of interest now. So I think from the standpoint of giving more visibility and stability to the funding aspect of it, we will see that impact revenue overall. May not be a sharp hockey stick type increase which is – I wouldn’t expect that. But I would expect to see little more solid revenue stream and increasing project rate.

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

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

Okay, great. Thank you for taking my questions.

And your next question comes from the line of Tyler Etten of Piper Jaffray.

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

Yes Tyler, I can't hear you well but I did hear - I believe you're asking about what was driving the Road Zipper System sales and I'd say that this has been an ongoing process of making people aware of the product and its benefits because it is very unique and there's nothing else really like it from a comparison or competitive standpoint. So the key has been to work with municipalities and states and governments in other countries to understand the benefit from a traffic mitigation, congestion management standpoint and how this product can really be used, also in road construction. And as we've done that, we've seen that the interest has increased. Often it's been funding issues that have got in the way and I will say there is generally pretty long gestation period on some of these projects but we are seeing the benefits of the work that's been done over the years in terms of increasing the awareness and potentially the demand for this product. Some of the projects often start as fairly small where we could see a $1 million project or up say 3 million dollars project in a country or a city or state and as they get experience and become comfortable with it and see the benefits of it, we may see more add-on project. And I think typically we've seen where we do have projects we will see more projects in that same state or that same region or in more bridges in the same area. So generally once it really get that awareness, we start to see a pick up and that's what we’re seeing now also supported by little bit better funding. One difficulty is it can often be lumpy in the sense of it can be larger projects at a time or like Golden Gate Bridge which we worked on for many years or can be through the small ones like this but then you can have another month or couple months where you really don't have those projects. So it can be a little lumpy but it's a very beneficial and can be a very profitable. So the demand is definitely improving from that standpoint.

Is that funding state level or federal level?

I’m sorry, I didn’t hear that part.

Is the funding state level or federal level?

It's both, it can be any of those, yes, and it is also international. So we're seeing some of our projects are also international, some of the interest we have now and have had in terms of our pipeline has been international.

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

Yes Tyler, this is Brian. We did take a pause in repurchase activity during the fourth quarter to reassess market conditions, our cash position and an alternative uses for our cash. As we begin fiscal 2017, we continue to plan on opportunistic share repurchase as we have in the past.

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

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

I will take the CapEx portion of the question. The 15 million to 20 million is what we're expecting in fiscal '17. In addition to a portion of that being maintenance or replacement. I think that what we’re targeting is some cost reduction type investments, productivity improvements perhaps some vertical integration in some of our international businesses, as well as capacity expansion in certain geographical markets as we assess the market conditions.

In terms of the pricing question I would say that the pricing as we've seen it through this trough has generally been pretty rationale and we’ve seen at times some increased price competition, this is irrigation we’re talking about. We do see that in projects today where it seems a little more competitive than probably where it was maybe three years, that's not too surprising in a trough situation with big projects coming up. I would say in general its still pretty rationale as our margins have shown we've managed though that well. I don’t really see a change in that. From time to time we hear from our dealers or we’ll see in specific situations a little bit more pricing let’s say competitiveness or something that will come up and as I’ve said in the past it’s difficult to tell whether it’s coming from a specific dealer in a region or whether the company is behind it or what’s causing it. Some of the increased price competition we’re seeing today in the international projects is also from competitors outside the United States. But in general I would still describe it as nothing really out of the norm and pretty rationale and I expect it to stay basically as same as that.

Okay. Thanks for taking my question.

And your next question comes from the line of Jose Garza of Gabelli & Company.

Good morning. Hi, how are you Rick? I wanted to talk about I guess the - in the irrigation segment just thinking about the businesses that you've acquired I guess notably Elecsys and LAKOS. Just where do they kind of standout at year end in terms of just ballpark numbers and our expectations going into 2017?

We don't split out the specifics in terms of financials on the numbers Jose, but I would say that some of the - I’ll put into perspective of Elecsys first. It’s really met our expectations. As you know we merged one of our businesses former acquisitions into that business. It has performed very well and we see a lot of potential with Elecsys in terms of their M2M technology and it’s also strengthened our capabilities and position with FieldNET. So Elecsys is doing exactly as we expected. LAKOS is the filtration business out in Fresno. It’s had a little bit of a struggle over the last couple of years with relatively flat sales so little behind what we expected. We still see some very good opportunities in terms of growth for that business and they are investing in new products as we speak and other ways to expand that business. So, still optimistic in terms of where that can go and how that fits into our overall offering for solutions in the irrigation market.

Okay. And then on the infrastructure piece, some notable positives in '17. How do we think about the margin in that business Rick, considering kind of all the puts and takes?

Well I think '17 - well you’ve seen now for the last two years really that there has been a margin improvement in the infrastructure business and it’s been a combination of cost and expense management, some restructuring in that business, focus on increasing revenues in a couple of key areas, our focus on pricing discipline and growth in many ways. So I think some of those activities we would expect to continue to progress and continue to show benefits in the next year. As I mentioned some of the difficulties that we face and I wouldn’t call them headwinds, I would just say the ongoing difficulty of this business is one, the Road Zipper side of it can be project based and a little lumpy which makes it tough for you guys with your models and the infrastructure, the road safety part of it is going through a little bit of a transition now with this MASH standard that will require that we do some things in terms of some potential modification - testing and modification of some products but I still am very optimistic about where this is going as well. So I don’t see those as major impacts in a negative way on the business. I think it’s made tremendous improvements and success in the last couple of years.

Okay. And I guess how would you characterize just kind of the demand in Road Zipper. Are municipalities more shifting, more thinking about a lease versus a purchase on those?

No, I wouldn’t characterize it that way. I would say that we do see demand for both. From time to time we've had projects that were pretty large that were in our pipeline that we've expected would be sales and would typically be sales that customers have talked to us about leasing that usually doesn't go that way. Where we do see the leasing is more in road construction projects where they'll want to lease it and use it for anywhere from six months to potentially two or three years in a road construction project. That's usually where we’re seeing the leasing. We’re still very open to however leasing on larger projects also particularly since as I said before, we found that once we get the Road Zipper into a market whether it’s a U.S. market or international market we often see follow on projects for Road Zipper after that.

Okay. Thanks very much guys.

And your next question comes from the line of Ryan Connors of Boenning & Scattergood.

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

I think from an upside standpoint in terms of dollars that was probably pretty close to the equal between the two. So it’s not a huge difference in terms of the dollars of let’s say from a competitive standpoint to the same quarter last year and if we were looking at the - what’s the overall composition and the infrastructure part of it. We’re often seeing that the Road Zipper part of it can be anywhere from very small percentages up to 30%, 40%, 50% depending on the size of project. So it’s a very difficult one to guesstimate in terms of a percentage of the infrastructure revenues and does fluctuate from quarters. But in terms of the dollars of additional revenue, this quarter over and above the previous quarter they are pretty equal in terms of their contribution.

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

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

Got it, okay. And now can you remind us of the IP situation with Road Zipper, I mean obviously when you are doing this well potentially attract attention and are there any patents rolling off at any point that could maybe bring in knockoffs or anything like that or can you give us an update there?

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

Okay. But nothing major eminent that would compromise what you are doing I guess is…

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

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

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

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

[Operator Instructions] You have a follow-up question from Brian Drab of William Blair.

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

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

Yes, roughly. I know you don’t typically, but I mean, not even roughly?

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

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

I wouldn’t describe the current situation for us as resulting in share gain right now. I’d say that we’ve gained share over the last couple of years and have been able to hold a pretty good position. I think that it’s a little trickier as Trinity does have a MASH compliant N-terminal. So we do, as I understand, so we do see that. I wouldn’t say that we’re losing share, but it is important for us to have our MASH compliant N-terminal for those markets that we want to hold onto. So, that’s why that’s an important aspect for us and why we are having the product development activity involved in that. So right now, I think we’re in pretty good position. And we really don’t want to give back anything that we picked up.

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

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

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

Well, for Dave’s sake, I’d say absolutely, yes. I think that the sales team has been pretty driven over the last 1.5 year or so and they’re doing a great job. Dave’s doing a great job. I think that they’re focused on the right things. Dave’s certainly is contributing in terms of the leadership there on other aspects in terms of helping with driving the MASH implementation part of it. And let’s say, getting the products for MASH implementation and other aspects of that business as well as helping with Elecsys and other things.

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

Not really. No.

Okay, all right, thanks for all the detail.

And your next question comes from the line of Chris Shaw of Monness Crespi.

Can you give us some sort of positive comments or optimistic comments around irrigation in Brazil? Can you give me a little bit more color around that, but with the specifics would have to the irrigation or was it sort of more broadly viewed as the economy that seems like to have some potential pickup in the future or was it specific to irrigation?

The comment was really regarding positive things that we're seeing in Brazil from a standpoint of - we’ve seen improvements in customer sentiment and some stabilization in the market there. We believe that the funding that, let's say, the modern info program and others have some attractive interest rates still there. But it will be a little bit driven by how quickly they approve applications for that funding and how fast those funds are released. But we’re seeing some real, let’s say, improved sentiment in general to investing and moving forward in agriculture in Brazil. There are some also the growth markets up in the Northeast, that Mapitoba region, has been severely impacted by drought this year. So we’ve seen some market decline there, where we really haven’t had the water to put into irrigation at this stage. But in general, I think the sentiment is definitely getting a little better.

Okay. And then if I could flip to infrastructure as well. This is more just - I guess I'm trying to figure out, you said the project this quarter, the Road Zipper average at $1 million to $3 million or something. And there was one, I guess, that was a sale of machine and the barriers. Can you just tell me why was the Golden Gate Bridge project so big? I think it was at $13# million in revenue, was it multiple machines? Or is it the length of the barriers? I thought the sale of the machine would be, I don’t know more than I guess a $3 million project, I guess I’m just trying to figure out what gets sold in this project?

Yes, in some cases, it could be one truck for moving the barrier basically, barrier transfer machine and some length of barrier, which becomes probably $2.5 million to $3 million type project. And we've had a couple of those. Other cases like Golden Gate Bridge may be multiple trucks and a lot of barrier because of the size of the bridge. So really depends on the size of the project. Often what we see with the smaller projects where it might be $1 million project, let's say, that will be their additional barrier to add to something they have or there may be a smaller one that could be $1.5 million or something for an additional truck. We also see that once they get this first project in for a couple of million dollars or $2.5 million to $3 million, they’ll be looking at the next project. But they want the experience of seeing what that Barrier Transfer Machines and the removable Road Zipper system does for them.

Okay, great. That helps a lot. Thanks.

And you now have a follow-up question with Mike Shlisky of Seaport Global.

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

Well, Brazil, I'd say that it was directionally down from where we were at the same quarter last year. But some of this is, let’s say, somewhat project driven by what’s happening in at a particular time. So we’re not considering that a major issue. However, I’d say that it still hasn’t recovered. We haven't seen a recovery in terms of revenues in Brazil. We are seeing improved farmer sentiment and some recovery indications. But it hasn’t really, we haven’t realized that yet. In terms of Argentina, that’s not a big market for us. We do sell into Argentina, but it’s a relatively small market in general. And we will see upside potentially there over time.

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

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

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

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

Okay, got it. Well thank you very much.

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

The global long-term drivers of water conservation, population growth, importance of biofuels and the need for safer, more efficient transportation solutions remain positive. We’re uniquely positioned for developing and delivering turnkey solutions. Our offerings include a broad line of market-leading irrigation solutions for agriculture, providing the best irrigation management and control technology, engineered pump stations, filtration solutions, as well as providing energy-absorbing road safety solutions and solutions for expanding the capacity of our existing roads and bridges. We're committed to creating shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions and share repurchases congruent with our capital allocation plan. I'd like to thank you for your questions and participation in this call.

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