The Toro Company (TTC) Q1 2022 Earnings Report, Transcript and Summary

00:02 Good day, ladies and gentlemen, and welcome to The Toro Company’s First Quarter Earnings Conference Call. My name is Gigi, and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. 00:34 I would now like to turn the presentation over to your host for today’s conference, Julie Kerekes, Treasurer and Senior Managing Director of Global Tax and Investor Relations. Please proceed Ms. Kerekes.

00:47 Thank you and good morning everyone. Our earnings release was issued this morning and a copy can be found in the Investor Information section of our corporate website, thetorocompany.com. On our call today are Rick Olson, Chairman and Chief Executive Officer; and Renee Peterson, Vice President and Chief Financial Officer. We begin with our customary forward-looking statement policy. 01:10 During this call, we will make forward-looking statements regarding our business and future financial and operating results. You all are aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our earnings release, as well as our SEC filings, detail some of the important risk factors that may cause our actual results to differ materially from those in our predictions. 01:31 Please note that we do not have a duty to update our forward-looking statements. In addition, during this call, we will reference certain non-GAAP financial measures. Reconciliations of historical non-GAAP financial measures to reported GAAP financial measures can be found in our earnings release or on our website. 01:48 We believe these measures may be useful in performing meaningful comparisons of past and present operating results and cash flows to understand the performance of our ongoing operations and how management views the business. Non-GAAP financial measures should not be considered superior to or a substitute for the GAAP financial measures presented in our earnings release and this call. 02:09 With that, I will now turn the call over to Rick.

02:11 Thanks, Julie, and good morning everyone. We began fiscal 2022 by delivering solid first quarter results in what remains a very dynamic operating environment. We achieved 6.8% topline net sales growth for the quarter over a strong first quarter comparison last year. Our team’s intensely managed the supply chain and our manufacturing operations working to achieve the best possible outcomes. 02:38 We actively manage production in partnership with our suppliers and aligned our manufacturing schedules based on material availability. The supply chain challenges along with the surge of the Omicron variant impacted our volume and mix within the quarter. 02:55 However, as the quarter progressed, we did start to see some improvements in manufacturing efficiencies. We do expect the current supply chain dynamics to resolve over time and are beginning to see some signs of improvement. Obviously, we also acknowledge the recent geopolitical events and are closely monitoring those developments and any potential impacts. 03:18 On our last earnings call, we communicated profitability expectations for Q1 in reference to sequential improvements over Q4 of last year. As a reminder, in Q1 of last year, we experienced an acceleration of demand without the current magnitude of inflationary pressures and product availability constraints. 03:39 With that in mind, we performed in-line with our expectations by delivering sequential improvements in gross margin this quarter over Q4 of last year. Our team executed well operationally achieving productivity benefits and increased net price realization. Importantly, demand for our innovative products has remained robust across our businesses, and we have strengthened our market leadership by remaining steadfast in our commitment to serving our customers well. 04:11 I’d now like to highlight some key advances in two major areas of strategic priority. First, we continue to bring our technology advancements to market to accelerate profitable growth over the long-term. We introduced new products in each of our key technology areas of battery electric, smart connected, and autonomous solutions. 04:34 Starting with battery, we have a growing suite of electric products for both residential and professional customers. These products are carefully designed to meet the promise of our brands by offering superior performance and durability, supported by an extensive customer care network. 04:52 The latest addition is our new all-electric ultra-buggy for material handling in our specialty construction business, which was unveiled at the World of Concrete show in January. The ultra-buggy delivers eight hours of continuous run time by leveraging the same hyper cell battery system as our Revolution Series commercial grade mowers. 05:16 Along with our e-Dingo compact utility loader, the ultra-buggy also provides a zero emission solution for indoor construction and renovation applications. Speaking of the Revolution Series, initial reservations for these new battery powered commercial grade stand-on and zero-turn riding mowers have exceeded our expectations. 05:38 The revolution product line brings together the best of both worlds with the productivity, durability, and expenses support network the customers expect from us, along with the next generation benefits of zero emissions, noise reduction, and all day run time on a single charge. 05:57 Moving to smart solutions, we just launched our new workman UTX line of commercial grade utility vehicles. These all season vehicles have a broad range of applications across our markets and feature a proprietary ground speed governing system. This patented system allows for the perfect amount of power for any job, no matter the desired speed. This feature also enables lower fuel consumption and noise levels. 06:26 The UTX line was designed with versatility and durability in mind. It offers 2,000 pounds of towing capacity, 25% more cargo capacity than the competition, and leverages our broad product offerings with an integrated BOSS Snowplow mount. Another advancements in Smart Solutions that drives productivity and helps with skilled labor challenges is our new ProCore 648s Aerator. This machine is the gold standard for [green generation] [ph]. 07:00 It features an innovative electronic drive control, which can maintain more consistent hole spacing on sloping train and allows for increased speed on turnarounds. This machine can also minimize turf disruption reducing the need to make manual repairs. In the area of autonomous, we have showcased several prototypes over the past few years and have invested in technology accelerating acquisitions. 07:27 We intend to be a market leader in providing autonomous solutions as evidenced by our introduction of our first autonomous fairway mower at the recent GCSAA Golf Industry Show. This product addresses the issue of labor shortages for our golf course customers, while enabling increased productivity and more consistent results. 07:50 As technology evolves, we intend to leverage our battery, smart connected, and autonomous product offerings across our broad portfolio. We are excited about the positive reactions to our new and innovative applications as we further advance our technology leadership. 08:08 The second strategic area I’d like to highlight is our effective capital allocation. We continue to prudently deploy capital this quarter with the acquisition of the Intimidator Group in January. This acquisition positions us to be an even stronger player in the large and rapidly growing zero-turn more market, enhancing customer reach and geographic strength. 08:32 We are excited about the addition of the complementary line of Spartan Mowers, which are known for their exceptional performance, features, durability, and distinctive styling. The acquisition also provides us with a larger footprint to further leverage our technology investments, as well as procurement and manufacturing efficiencies. We are confident the combined efforts of our team will enhance our long-term growth by providing unparalleled products, technologies, and services to our customers. 09:04 In summary, we made great strides in advancing key strategic areas this quarter. Our entire organization continued to demonstrate creativity, perseverance and sound judgment as we navigated the challenges and opportunities in the current global environment. As a result, we continue to build our business for sustainable and profitable long-term growth and drove value for all stakeholders. 09:31 With that, I will turn the call over to Renee for a more detailed review of our financial results for the quarter.

09:38 Thank you, Rick, and good morning everyone. As Rick said, we delivered solid results in the first quarter and drove sequential gross margin improvement over Q4 of last year in what continues to be an extremely dynamic operating environment. We grew overall consolidated net sales to $932.7 million, an increase of 6.8%, compared to the first quarter of last year. 10:08 Reported and adjusted EPS were both $0.66 per diluted share, down from $1.02 and $0.85 respectively, in the first quarter a year ago. Professional segment net sales for the quarter were up 3.5% to $672.9 million. This increase was driven by net price realization, partially offset by lower volume in certain key product categories, due to product availability constraints. 10:41 Professional segment earnings for the first quarter were $93.3 million and when expressed as a percent of net sales, 13.9%. This was down from 18% in the first quarter last year. The year-over-year decrease was primarily due to higher material, freight, and manufacturing costs, partially offset by net price realization. 11:07 Residential segment net sales for the first quarter were $255.4 million, up 17.3% over last year. The growth was primarily driven by increased net price realization and higher shipments of our zero turn riding and walk power mowers. 11:27 Residential segment earnings for the quarter were $31.8 million, and when expressed as a percent of net sales, 12.4%. This was down from 14.7% in the first quarter last year. The year-over-year decrease was primarily driven by higher material and freight costs, partially offset by increased net price realization and productivity improvements. 11:55 Turning to our operating results. We reported gross margin of 32.2% for the quarter, compared to 36.1% in the same period last year. The year-over-year decrease was primarily due to higher material and freight costs, partially offset by increased net price realization. As expected, we did see sequential improvement, compared to the fourth quarter of fiscal 2021. 12:23 We intend to restore and improve margins over the long-term and continue to adjust pricing to market conditions and drive productivity and synergy benefits. SG&A expense as a percent of net sales for the quarter was 22.4%, compared to 19.9% in the same period last year. This increase was primarily driven by the favorable impact of a one-time legal settlement in the prior year, that did not reoccur, as well as increased investments in research, engineering, and marketing. 13:01 Operating earnings as a percent of net sales for the first quarter were 9.8%, compared to 16.2% in the same period last year. Adjusted operating earnings as a percent of net sales for the quarter were 9.9%, compared to 14.2% in the same period a year ago. Interest expense for the quarter was $7 million, down slightly from the same period last year. This was due to lower average debt levels and decreased interest rates. 13:37 The reported and adjusted effective tax rates for the first quarter were 20.2% and 20.9% respectively, compared to 18.1% and 21.5% in the same period a year ago. 13:56 Turning to our balance sheet and cash flows. Accounts receivable were $366 million, up 19% from a year ago, primarily driven by higher sales and customer mix. Inventory was $832 million, up 23% compared to last year. This increase was due to higher work in process and parts. 14:22 Accounts payable increased 30% from last year to $474 million. This was primarily driven by higher purchase activity and inflation. Free cash flow in the quarter was $102 million use of cash. This was driven by additional working capital needs to support higher material and service parts levels, given the current supply chain environment. 14:49 We continue to follow a disciplined approach to capital allocation demonstrated by our actions in the quarter and fueled by our strong balance sheet. Our priorities remain the same and include making strategic investments in our business to support long-term growth, both organically and through acquisitions, returning cash to shareholders through dividends and share repurchases and maintaining our leverage goals to support financial flexibility. 15:21 These priorities are highlighted by our actions, including our plan to deploy $150 million to $175 million in capital expenditures this year to find capacity, productivity, and new product investments; our acquisition of Intimidator Group in January; our return of $106 million to shareholders this quarter, with $75 million in share repurchases and $31 million in regular dividends. 15:52 Our gross leverage to EBITDA target remains the same in the range of 1x to 2x. We are benefiting from strong demand momentum across our diverse portfolio of businesses. In the current global operating environment, our biggest challenge remains meeting this heightened demand. 16:13 Based on our current visibility, the progress we are making on margin recovery and the recent acquisition of the Intimidator Group, we are updating our full year fiscal 2022 guidance. This guidance also considers the current geopolitical events, which continue to develop. We will monitor the situation very closely and take appropriate actions. 16:39 We now expect net sales growth in the range of 12% to 14%, which reflects the partial year addition of the Intimidator Group, [pro rata] [ph] over the remaining three quarters, along with the continued expectation for 8% to 10% growth for the remainder of our business. The acquired business is reported under the Professional segment, and as a result, we expect professional net sales growth at the upper end of the 12% to 14% range for the full-year. 17:15 For the second quarter, we anticipate total company, as well as professional and residential segment net sales growth to be moderately below our full-year expectations. We continue to expect our quarterly sales cadence to be driven more by our ability to produce then historical demand patterns. This is expected to result in less seasonal variation and typical between the quarters this year. 17:44 Looking at profitability, for the full-year, we now expect similar overall adjusted operating earnings as a percent of net sales, compared to fiscal 2021 for The Toro Company, and in the professional and residential segments. This reflects the operational improvements we are realizing, as well as our acquisition. 18:08 With the addition of Intimidator at a lower initial gross margin relative to our company average, we now expect gross margin in Q2 to be similar to Q1, but improve in the second half of the year, compared to the first half of the year. For the full-year, we expect gross margin to be similar to slightly below fiscal 2021, driven by the acquisitions. 18:36 In light of the recent geopolitical events, we are holding our full-year adjusted diluted EPS guidance in the range of $3.90 to $4.10. Our adjusted diluted EPS guidance excludes the benefit of the excess tax deduction for stock compensation, as well as one-time acquisition-related costs. For the second quarter, we expect our adjusted diluted EPS to approach the record results we achieved in Q2 of fiscal 2021. 19:13 Additionally, for the full-year, with the acquisition included, we now expect interest expense to be about $35 million, depreciation and amortization to be about $120 million, and free cash flow conversion in the range of 80% to 90% of reported net earnings. We continue to estimate an adjusted effective tax rate of about 21%. 19:41 We remain well positioned to capitalize on this period of profitable growth as we continue to execute on our long-term strategic priorities. 19:51 With that, I’ll now turn the call back to Rick.

19:54 Thanks, Renee. Our entire team remains sharply focused on serving our customers as we are committed to building our business for long-term sustainability and profitability. The foundation for our future success is our world-class innovation capabilities and enterprise wide operational excellence. The combination of which we believe will drive sales momentum and margin expansion going forward and create value for all stakeholders. 20:22 As we head into the remainder of fiscal 2022, demand remains strong across the markets we serve. The ongoing replacement cycles for our products provide a steady foundation and we are keeping an eye on the following areas; consumer and business confidence, together with inflation, geopolitical developments and COVID-19 variants; customer prioritization of investments to maintain and improve outdoor environments; regulations on reduced emissions and customer preference for sustainable products; the continuation of strong momentum in golf markets and government support and funding of infrastructure projects, including the $1 trillion US infrastructure legislation. 21:07 Our innovative products and best-in-class distribution networks, position us well to capitalize on current and future demand trends in the growing markets we serve. 21:18 I would now like to share a few comments on our golf market. We continue to see courses in their healthiest financial positions in years. Around the world, golf participation engagement remains on the rise. In the U.S., golf rounds played were up 5.5% in 2021 on top of a 13.9% increase in 2020. 21:42 We’re also seeing an improvement in supply and demand balance and even saw an increase in the number of municipal and private courses in the U.S. during 2021. As the market leader in turf and irrigation solutions and the only provider of both, we have distinct competitive advantages in this space. This was evident last month at the GCSAA Golf Industry Show in San Diego. 22:08 The traffic in our booth reflected strong interest in our array of innovative new products. It was a great experience to be at the show again after the pandemic driven hiatus and spend time with so many of our customers. Not far from the Gulf Show was Super Bowl 56, at SoFi Stadium in Inglewood California. 22:30 Our teams and equipment have a long and storage history of helping Super Bowl grounds keepers maintain pristine fueled conditions and this year was no exception. Before and after the game, our workman GTX and UTX vehicles were used to help the sulfide grounds crew move field preparation materials. In addition, our GTX vehicles and real master products were instrumental in preparing The Bengals’ UCLA practice fields. 23:00 Our commitment to innovation have served us well. Our strength in this area, combined with our deep customer relationships, effective capital deployment, and superior distribution and customer care networks, has driven consistent financial performance. We believe these strengths will continue to generate tremendous value and position us to deliver compelling growth and shareholder returns for the long-term. 23:27 As always, our extended team is the key to The Toro Company’s long-term success. On that note, I would like to thank our employees for their dedication and resilience and welcome the Intimidator Group to the company. I would also like to extend my gratitude to our channel partners, customers, and shareholders for their continued support. 23:49 With that, Renee and I will take your questions.

24:00 [Operator Instructions] Our first question comes from the line of Eric Bosshard from Cleveland Research. Your line is now open.

24:20 Thank you. Curious if you could give us a little bit of perspective on how the supply chain is progressing? It seemed like in the release you talked about supply chain limiting shipments on the Pro side, I’m just curious, is there progress being made? When do you think that it gets back to normal and having less of a limiting factor on your ability to serve customers?

24:44 Yeah. Thanks for the question. We are seeing improvement in our supply chain. The good news is demand remains exceptionally strong across our businesses. So, it really is about being able to produce product at this point to meet that demand. And we’re marching consistent with our plan for the year. And at this point, we’ve seen both improvements in our internal operational productivity and effectiveness, and also some improvement from our supply chain. 25:18 Obviously, within the last week, we’ve gone through analysis of the impact of what’s happening in Ukraine. And that has offset some of the benefits that we’ve seen, per our projection. I do want to take the opportunity, there was some bad information out just within the last day about our exposure to Russia and Ukraine, it’s really insignificant. We have no operations there and the impact on revenue is insignificant directly. 25:52 So, we’re really talking about the indirect impact on commodities, those types of things, but from our perspective, putting that aside, we had seen improvement, just getting past some of the COVID restrictions have helped us significantly with absenteeism, so that’s been a boost, and our suppliers are seeing that as well. 26:14 That will turn into a secondary positive effect for them over the next several months as they can consistently produce components for us. So, we do see improvements on that side. Commodities, we have the additional variable of the Ukraine war, but had started to see some improvements.

26:38 Okay. And then a follow-up if I could, the commentary on the full-year guidance. I just wanted to understand what was behind it, which I think what you communicated was that in light of the geopolitical uncertainty that you’re holding guidance, within that, it seems to imply, but I wanted to hear directly, excluding the geopolitical uncertainty, is the business performing different than what the original guidance is suggested?

27:07 Yes. Thank you, Eric. No, I think our guidance would reflect a continuation of the progress that we were making overall. As a company, there is more uncertainty, as Rick pointed out, given the geopolitical situations, we tried to, to the best of our ability, incorporate that into our guidance. That and I would say that the Intimidator acquisition as well. That is the driver for the increased sales growth. 27:36 We remain seeing the bulk of our business continuing to grow, but in-line with our prior expectations from that standpoint. So, we’ll continue to monitor the situation and should the outlook change. And as always, we’ll take the actions that are necessary to be able to address that, but we’ll continue to focus on what we can control and remain nimble and take action as we need to, as the situation evolves.

28:07 Okay, that’s helpful. Thank you.

28:09 Thank you.

28:10 Thanks.

28:12 Thank you. Our next question comes from the line of Tim Wojs from Baird. Your line is now open.

28:18 Hi, good morning, everybody.

28:20 Good morning, Tim.

28:22 Maybe just to start on price and inflation, is there any way to kind of frame when you would expect price on a dollar basis to exceed in inflation, and maybe when that might flip positive on a margin basis at this point?

28:38 Yes, I’ll start and maybe, Rick, if you want to add your comments. As always, Tim, we continue to price to market. And the situation that we’re seeing from a cost standpoint is not at all unique to The Toro Company. It’s something certainly we’re seeing across our industry and much broader than that. 28:58 We did expect and we saw sequential gross margin improvement from Q4 to Q1. And we’re seeing increased price realization in this environment. We’re also taking new actions as needed, given the current situation. 29:17 Overall, we’re committed to restoring our margins and to improving them over time and we always focus on price – on productivity and synergies as well, as we look forward to make sure that we’re doing everything that we can from an overall standpoint. 29:37 For the total year, we indicated that we expect our margins to be similar year-over-year. And part of that also includes the impact of intimidator, which has a lower initial gross margin, but we do expect to see that gross margin improve in part because we’re bringing them into a bigger organization with greater scale and we’ve learned quite a bit over the last number of years with acquisitions and we feel confident in our playbook as well to really drive the synergies that we need, as well as the sales growth, as well. 30:14 So it’s a business we know very well. We continue to be very excited about bringing the – in particular the Spartan brand.

30:22 Yes, no, exactly. Okay. So, I guess margins being flattish would imply that the course up slightly against the Intimidator dilution?

30:33 Yes, that would be the case.

30:34 Okay, got you. And then just on the order side, I know demand remains pretty strong across the business. I mean any – have you seen any order deferrals or just cancellations, just based on extended lead times or pricing where customers might just say, we’re going to come back, or do people keep, has as the order pace, I guess, continued to be pretty, pretty similar over the last 3 months to 6 months?

31:01 The order pace has continued with the strength that you’re describing. We have not seen a lot of drop off. I think just adding a little bit of commentary, as we went into the season where spring products are ordered from our channel. We even saw a significantly larger than normal order percentage as a basis of – based on the prior year. And you could say some of that is, well, a shortage sort of reaction where people are ordering more, but what it really responds to is the fact that the field inventory is very low. 31:37 So, it also provides a buffer to us with any kind of pause or a disruption of end supply that we’ve got a channel both that needs to be filled from a inventory standpoint, and we would like to have higher inventories of finished goods off-setting some of our current work in process in components inventory internally.

32:05 Yes, I would agree. And just building upon that, our customers remain financially very strong. And keep in mind, also, they’ve been wanting to buy more inventory. And our end-customers, that inventory, I mean that product is actually getting used for their business. So, there is a replacement cycle piece. And at this point in time, they haven’t been able to get as much of that equipment as they would like. So, we do think that on-demand is linked to that as well.

32:35 For the most part, we don’t have really discretionary type of products. Those are products that are needed as part of a business context. And if you think about a good portion of our current backlog or back order position is coming from the underground business, sort of the construction business, a lot of that is anticipating business that our customers have that’s going to require this equipment, driven by things like the infrastructure bill. 33:01 So, there is a very solid base of demand. Golf courses demand, from their customers is extraordinarily high. They paused on some of their purchases in 2020, they are trying to make up for that, plus keep up with the demand that continues to be there at an exceptional level on an end-user standpoint.

33:21 Okay. Okay. I appreciate all the color, guys. Thanks so much.

33:24 Thank you.

33:27 Thank you. Our next question comes from the line of Ross Gilardi from Bank of America. Your line is now open.

33:34 Hey, guys.

33:35 Hi, Ross.

33:36 Hi, Ross.

33:38 I just want to ask about the Pro. I mean the segment missed our revenue number quite a bit, did it really live up to your expectations? I mean, you seem to be saying that supply chain is getting a little bit better, but where is the shortfall on Pro? I realize it’s a production issue, but where are the production issue most acute?

34:02 I think that, and Renee can comment specifically, but I think the first thing is, as you’re looking, if you’re looking year-over-year, we had inventory at that time. So, we had a lot of product that we’re shipping out of warehouse versus end-of-the-line directly to customer. That’s more of the states that we’re in today. 34:21 We are seeing some improvements, but the challenges with supply chain, are most pronounced in those heavier duty professional product categories right now, largely because a lot of those components are shared across many different markets, including ag, construction, other specialty equipment category. 34:42 So, those suppliers are ultra-stressed right now. They’re getting better, but it’s not going to be a light switch, turn it back on, type of thing, at this point. So, it’s a 100% supply base. The demand remains exceptionally strong.

35:00 Yes, I don’t know that I have a lot to add to that. I think you summarized it really well. It’s entirely related to supply chain constraints. And again, I think we feel that demand is solid, and we need to just continue to produce and to execute to that.

35:16 Okay, great. One of your competitors is just talking about Home Depot dropping gas-powered outdoor equipment from 50 stores completely this year, have heard that? And is that baked into your guidance at all?

35:31 We’re fully aware of what our customers, our key customers are doing. And the really exciting thing for us is just to see the growth of our 60-volt Flex-Force category, because it is a smaller, excuse me, a smaller category overall for the company. If we didn’t, we wouldn’t call it out, but we just have exceptional growth rates in those categories. 35:57 So, even as we continue to expand our position within traditional gas, we have – that category continues to be very strong for us. So, we’re very much a part of all of those discussions and we’re excited about the possibilities that that creates for our customers.

36:17 Yeah. And I would just comment, I mean, just looking in the quarter that we just ended. I mean, residential sales were up 17% on top of 31% growth a year ago. And I think it speaks to the broad channel that we have, and we continue, as Rick said, although a smaller piece, the battery demand has been significant.

36:39 So, in stores that are pulling gas, like would you expect to make up for – if they do that, would you just sell more of your Cordless offering in those same stores, and net-net, the impact is basically zero?

36:54 That would be a general statement. We would have a store-by-store plan for each of those, so that would be for – we’re happy to sell electric products through our channel partners and to our customers, just as much as we are gas product.

37:11 Keep in mind, with the 60-volt, we’ve really expanded our product line. So, we’re in some other adjacent categories that we weren’t in before. So, it’s certainly beyond the mowers and snow blowers, which we do have strong product offerings in, but we have a lot of other products that we sell as well too.

37:31 I think the really astonishing thing is just where we circle back and where we are offering battery solutions, for example, in the snow categories, we just double or triple down on our reputation and brand and the features that we have that are independent of the power source. 37:49 So, where we start to offer incredibly viable products that work exceptionally well that are battery, all a sudden, the customers get the benefit of our expansive network, both mass and dealer oriented. So the access to us from a servicing standpoint, and just the reputation in snow – the reputation that’s really earned by the features, the benefits, the innovations, and the customer experience that you’re going to get with the Toro products.

38:21 Okay, great, guys. And then the last one is just on Intimidator Group. I mean, you’ve got it in the guide now, you’re taking the revenue guide up, but the EPS didn’t go anywhere. I mean, are the margins in this business is really low right now? I mean, are they experiencing some of the most severe supply chain issues in that business? And since it’s new to the company, do you feel like you have your arms around all the issues that they will face because it would seem, given that you – it’s a pretty big revenue contribution, just given that you’ve got it up for most of the year that you’d think there’ll be some accretion there – in there. Are you actually implying that the – have you actually trimmed your underlying guide somewhat, given that you’re holding the EPS outlook despite having Intimidator in there?

39:10 Yeah, I’ll start again, and please, Rick, add your comments. When we announced the acquisition, we did talk about it being modestly accretive. It is important that is not a full year, but the issues that they are dealing with are very familiar to us, and it’s a business, the zero-turn mower, that’s very familiar to us as well. It’s a very complementary line we. We did comment that initially the margins are lower for Intimidator Group and it’s truly driven in part by their scale. 39:40 I mean they are although a good sized company, they’re still much smaller than our overall zero turn business. So, we feel really confident that we know what we need to do and we’ll work with them to ensure that we get the benefits of them being part of The Toro Company from a productivity and a synergy standpoint, and work through some of the supply chain challenges that we have, as well as support their growth. I mean we see their growth as something that’s very attractive from that standpoint. 40:11 So, we also recognize, and we commented on, that there are some different dynamics related to the geopolitical situation that we tried to consider. This is very dynamic and relatively new information, but we also tried to incorporate that into our guidance to the best of our ability going forward. So, I would just offer, we’re adding Intimidator, there is also the geopolitical situation that we tried to incorporate to the best of our ability. 40:41 Rick, do you have anything to comment on?

40:43 I’m not sure if I have the opportunity to just comment on these strategic rationale, but when we looked at how we could add to our market position within a very attractive category of [indiscernible], the Intimidator Group was absolutely at the top of the list. There is no question, just in terms of the brand and growth momentum that they have, the incredible passion and of both their teams, and their customers for those products. The geographic strength that’s a perfect complement to our strength throughout North America and some international. 41:22 And then, fundamentally, there is very little dealer overlap, so, we see tremendous capabilities. And then it goes back to what Renee said, our ability to leverage our investments, which are substantial today, and will need to continue to be at higher rates as we go through technology transitions. This provides additional base for us to leverage those expenses and bring things to the market that will just be incredible innovations in the categories that we’ve talked about that a broader group of customers will be able to benefit from.

42:03 Got it. Thank you.

42:06 Thank you.

42:07 Thank you.

42:09 Thank you. Our next question comes from the line of David MacGregor from Longbow Research. Your line is now open.

42:16 Hi, this is Joe Nolan on for David MacGregor.

42:19 Hi, Joe.

42:21 Hi. So, just on Professional margins, I was wondering if you could give a little more detail on the breakdown between golf versus LCE versus specialty construction?

42:36 Yes. We don’t normally break down into sub categories, but I mean just in general, when we look at the Professional business, we did see growth within the business. As we talked about earlier, we do continue to see supply chain constraints, being probably the biggest challenge. And I would just say that, overall, we saw those, a little more pronounced within the Professional business for the reasons that Rick had mentioned earlier, just the broader use of the products. 43:08 That being said, our professional customers remain in great financial position and their demand is very strong. Our field inventory is also low across the board in both residential and professional. So, we see it more as a timing issue than a demand issue. The situations that we are seeing, none of the supply chain constraints are unique to Toro, we’re seeing the same issues across the supply chain. 43:36 So, I think it’s not a situation where there is – they could go elsewhere and get that equipment, but we are definitely working this as urgently as we can, and we recognize that we need to support our customers. In the interim, we are seeing more service parts as a way for them to continue to operate that equipment as they look forward to getting those whole goods replaced over time.

44:05 Yes. Okay. Thank you for that. And then also, can you talk about how snow contributed to growth in margins in the quarter?

44:16 If you – we look at the entire snow season. We had an exceptionally strong snow season this year which would really extend back into the fourth quarter of last year. Great conditions obviously for snow winter conditions that produces a lot of demand. The BOSS business was very strong in the first quarter, driven by the Professional demand for those products. 44:46 And especially, the Snow Aerator, which was part of an acquisition from a few years ago, that really had something like a 5 times labor reduction tool for clearing snow sidewalks, exceptional demand for that product. Similarly, on our Ventrac side, Ventrac has been performing beyond our expectations, acquisition from 2020. And they have a dedicated snow product line that demand was at record levels. 45:18 On the residential side, we also had a very strong year, I’ve mentioned the strength of the new battery offerings. And also we worked – we did constrain and our customers and our channel partners would have wanted more residential snow this year with a couple of specific supplier issues on individual components. 45:44 So, residential, we know we could have shipped more, our channel partners wanted more. On the professional side, it was an outstanding year, outstanding quarter for snow.

45:56 Okay, very helpful. Thanks.

45:58 Thank you.

45:59 Thank you.

46:01 Thank you. Our next question comes from the line of Tom Hayes from Northcoast Research. Your line is now open.

46:08 Thank you. Good morning. Thanks for taking my questions. I guess, I don’t want to pound on the professional side, but I guess, there is one clarification, you commented in the release today on challenge in getting some of those products out to the customers, how should we think about those? Are those deferred sales, they’ll catch up once you get the product to ship out or is the seasonal item, you have to wait to kind of catch-up till next year?

46:35 They’ll take the product when – on the professional side, they will take the product when they can get it and we’re working closely to allocate products to the most critical situations with trying to meet as much customer demand as we possibly can. We know that many, if not most of our professional customers, would like more product right now as reflected in our back order position, but they are continuing to work with us. 47:03 We’re working to help them out even with – we’ve had an exceptional service parts business and we’re going to continue to focus on that to make sure that we can keep their current equipment operational while they’re waiting for equipment from us, but in the professional business, they’re going to take the equipment when they can get it, not so much seasonally driven at this point, especially with the current field inventory.

47:28 Yes, and I would just say in addition to the service parts, just our network of service providers, also is really helpful. Certainly a golf course may repair that equipment themselves, but like a landscape contractor may take that somewhere for the repair. So, I think the benefit comes from the service network as well.

47:46 Excellent point.

47:48 Okay. I guess just lastly, I don’t think we touched on it in this call, but how is the, equipment and rental market shaping up for the year?

47:57 Well, we’ve got so many other things to talk about, we haven’t talked about rental for a while, but it also is booming at the moment. The end demand throughout the pandemic, the more local rental locations, maybe one or two stores, that part of the business was strong with even do-it-yourself projects at home. 48:19 The landscape contractors kicked in after that putting increased demand, which has continued. And then as 2021 progressed, construction projects, which really hit the major national rental companies, started to grow. And currently, we’re seeing a lot of strength across all those different channels. 48:46 So, rental is very strong and it’s really the complement to our direct sales to landscape contractors and construction contractors. So, it’s really good across both of the brands. The site works systems brands from The Toro Company, the Dingo trade name specifically, and Ditch Witch would be the other area that’s really seen the demand.

49:09 Great. Let me just ask one more if I could. It sounds like demand across the spectrum is very strong, I was just wondering if we didn’t have these supply chain constraints, could you meet demand with your current capacity or would you be looking to add capacity?

49:27 We would meet our demand, but it’s also – there’s probably a two-part answer. We’re also expanding capacity as we do continuously. We continuously are looking at rolling demand and making adjustments in capacity. Some of that’s reflected in the capital investments that you would see.

49:45 Yes, exactly, I was going to add a comment on that. Our CapEx estimate, which is unchanged is $150 million to $175 million for this year. And that’s really focused on some capacity expansions, as well as looking at automation within our plants driving productivity. 50:04 So, we’re spending at that rate because we see the demand, not just in the short-term, but we see the demand for a period of time, especially like with the infrastructure and some of the market implications of that and we feel it’s the right time to invest. And we get our highest returns from those internal investments.

50:27 Okay. I appreciate the color. Thank you.

50:29 Thank you.

50:31 Thank you. At this time, I’m showing no further questions. I would like to turn the call back over to Julie Kerekes for closing remarks.

50:40 Thank you, Gigi, and thank you all for your questions and interest in The Toro Company. We look forward to talking with everyone again in June to discuss our second quarter fiscal 2022 results.

50:53 This concludes today's conference call. Thank you for participating. You may now disconnect.