Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Third Quarter 2017 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] And please note this event is being recorded. During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management’s current beliefs, 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. Please go ahead.

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 third quarter of fiscal 2017 were $151.5 million, increasing 7% over the third quarter last year. Revenues in both U.S. and international irrigation were modestly improved in the quarter, while infrastructure revenues were substantially higher than the same quarter last year. Net earnings for the quarter were $11 million or $1.02 per diluted share, increasing 14% over net earnings of $9.6 million or $0.90 per diluted share in the same quarter last year. Revenues for the irrigation segment in the third quarter were $120 million, reflecting an increase of 2% over the same quarter last year. The irrigation segment generated operating income of $16.5 million for the quarter with an operating margin of 13.8% of sales. In the U.S. irrigation market, third quarter revenues were $75.2 million, increasing 2% over the same quarter last year. U.S. irrigation revenue rose on higher average selling prices and higher irrigation equipment unit volume, including some recovery of the weather delayed sales through our company-owned store in the Northwest, discussed at the end of the second fiscal quarter. Partially offsetting those increases, revenue in other irrigation components such as filtration and pump systems were lower in the quarter. The increased average selling prices in the U.S. were primarily driven by the pass-through of higher raw material cost. We were encouraged to see U.S. irrigation equipment and volume levels improve during the third quarter after experiencing declines in the first two quarters of our fiscal year. In the international irrigation markets, revenues for the third quarter were $44.8 million, increasing 2% over the same quarter last year. This increase resulted from a…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Mike Shlisky of Seaport Global. Please go ahead.

Good morning. This is Jordan Bender on for Mike this morning. My first question is, sales were up in the quarter but selling costs were not. Can we get a little more color behind this?

Yes. Jordon, I think it’s really due to the mix of where those sales occurred and the largest increase being in our Road Zipper project business and the sales to an existing customer that did not go through an agent. So, sales commissions were lower relative to the sales increase.

Okay. And additionally, [ph] the G&A was up quite a bit over the prior year. Were there any onetime costs that might have gone into that?

Yes. And most of that would have been at the corporate level and then we refer to outside professional fees; it includes both legal fees as well as executive recruiting fees that we would consider to be non-recurring in nature?

Got it. And I have one more here. Do you feel better about irrigation here than three months ago, and are we looking at growth for the year considering domestic and international?

Yes. Jordon, this is Rick. I’ll answer that and say that I feel better about irrigation that I did in the past, say year, in many cases, because we’re seeing some stabilization in the domestic market. We’re seeing the infrastructure of the international I’d say development projects really starting to take hold, and we’ve seen some delay in those over the past. So, I’m feeling much better about what’s happening with the irrigation market today. However, commodity prices, as you know, are relatively low and we’re not seeing that change, probably not likely too rapidly. So, we’ll watch what happens with this season in terms of the growing season and yields and see what that does to engine stocks as we move forward. But in general, I’d say I’m much more optimistic about the irrigation market than I was, say a year ago.

Our next question comes from Brian Drab of William Blair. Please go ahead.

Hey, good morning. Thanks for taking my questions. First one, I don’t know if you mentioned on the call yet, but the breakdown, can you just give us the breakdown of your addition revenue in terms of dryland replacement and conversion?

I haven’t mentioned that Brian, but I’ll go through that. Looking at the quarter, the conversion was 26%, dryland 30% and replacement 43% in the quarter. I comment that replacement was a little higher than what I expected. And just looking at some of the digging that we did on this, it was kind of regional where there were some definite replacements that took place in a couple of regions. It appeared to be some storm damage type things, more than anything else. So, it wasn’t too surprising, it wasn’t a real significant amount of storm damage. However, on a regional basis, there was more replacement than expected.

Okay, thanks. And then, on the infrastructure side for a second. You had this issue earlier in the year in Tennessee. I’m wondering if you could maybe summarize what happened there, and if that is an issue that we should be thinking about. It looks like it didn’t really have any impact on your infrastructure segment in the quarter. Did it or didn’t it have an impact on the quarter and would you expect it to have any impact going forward?

I am assuming that what you’re referring to Brian is the issue regarding X-LITE and the accident in Tennessee, which if you’ve watched is seen in some of the recent news coverage over the last 24 hours. There has been coverage regarding litigation involving X-LITE, our internal product. But to kind of put this into perspective for you, sales of End Terminal products in 2016 for us represented slightly over 2% of total Company revenue; and sales to states that have removed X-LITE from QPL, the qualified [ph] list, represent less than about 0.5% of total company sales. In addition, we anticipate that X-LITE will replaced in our product by MAS compliant products by the end of the calendar year as states transition from the NCHRP 350 standard to MASH. I think the other part of it that’s important is to Lindsay Transportation Solutions top priority is to provide products that save lives, X-LITE has successfully passed crash and safety test in accordance with federal standards and criteria remains eligible for federal transportation funding. You may know when drivers fail to stay on the road, there are variety of factors that contribute to the severity of the impact and the equipments and ability to singly prevent every tragedy doesn’t indicate a flaw or defect. And we stand behind X-LITE and we’ll vigorously defend these claims. And what I would also add though, we won’t be commenting further on this at this time due to the pending litigation.

Okay. Well, thanks for that. That is helpful and gives some perspective on what’s happening there. I just have one more question on irrigation. You had some weather delayed sales and wondering how much of an impact do you think that that had on the third quarter, if that helped or not. And then, it seems like between the weather delayed sales and the storm damage that did give somewhat of -- the segment a boost somewhat in the quarter. Is that fair to conclude?

Well, I wouldn’t conclude that specifically. I’d say that what we saw in terms of storm damage activity in general, I would really describe more as pretty typically for third quarter, nothing really significant. We’ve seen probably a little more storm damage as the quarter ended in some regions, but I wouldn’t call it anything out of the ordinary in terms of storm damage in the quarter. So, I don’t really see anything exceptional there.

In terms of the weather delayed sales…

In the weather delay, I’d say, we picked up a little bit from our -- as we saw from our company store, but when we look at a specific region, I think there were more delayed projects that probably push out of the season than they were really let’s say catching up during the quarter. So, we didn’t see a significant increase in those regions. We saw them probably better than they were the previous quarter, but nothing significant in terms of a lot of catch-up. I think it impacted our store some but even that wasn’t a material amount, but it did impact our store because they were dealing directly with growers in that region.

Okay, thanks. I might have a couple of more, but I’ll get back in line. Thanks.

Okay.

Our next question comes from Tyler Etten of Piper Jaffray. Please go ahead.

I was wondering if we could talk about the international markets a bit. We’ve seen Brazil pick up in the equipment market, based on more stable politics but more recently it seems to be reversing. From what you’re seeing on the ground right now, do you see a slowdown in purchases or intentions to buy based on the new allegations for the current president?

We don’t. We have not heard that right now. And I think just looking at the last couple of weeks, I don’t see anything that has really changed. What we were seeing previously with the corruption allegations and things that were going on was basically funding getting tied up and money wasn’t flowing. We have not seen that happen at this stage. And I think the programs that have been put in place are favorable to development in Brazil. I suspect that if the corruption issues or this drags on for a long time or becomes a bigger issue, we could see that affect funding at some point but we haven’t seen that happen.

Got it. And yes, of course, the new equipment rates will certainly be a tailwind for irrigation products. Maybe on the other international markets, can you just talk about, if you’re seeing any material changes in any certain regions or just any color there would be great?

I think what’s been interesting was what we’ve seen over the last couple of quarters is continued growth in developing markets with projects. So, we’ve seen growth opportunities certainly in the CIS region, Africa; we’ve seen some improved situation to some degree in China, South America, as we’ve talked about. So, in general, there is more optimism and more progressing of these projects that we’ve in the past described as food security related. And I think that we saw this slowdown go on hold a little bit. Some of that had to do with oil prices in the past, some of it had to with commodity prices. But definitely, we’re seeing this coming back now in more comfortable level.

And then just one more for me. With the U.S. market stabilizing, granted at a lower level of grain prices, do you see the technology side of your business in U.S. irrigation, helping support margins for the foreseeable future, while regular or new projects are relatively muted, just I guess any thoughts around that?

I think the technology projects have been very beneficial to expanding our margins and I guess the support of our margins long-term. And I would expect, we’ll be able to continue to improve the overall structure longer term, because we’re also differentiating and strengthening our product line as we ago. We’d like to see more in terms of these project sales with the turnkey solutions and integrated pieces in those projects, and that’s also beneficial to our margins long term. But definitely, the technology project -- products in general have beneficial to our margins.

Our next question comes from Joseph Mondillo of Sidoti & Company. Please go ahead.

Question on your backlog and inventory. It looks like the backlog -- I know the backlog is very short-term sided, but I guess, it does give you sort of a view into the next couple of weeks or few weeks. So, just wondering, the backlog at the end of this third quarter is essentially one of the strongest quarter in backlogs for the third quarter, even if you go back to the peak of the cycle, it’s very close to where it was back then. So, wondering, what your thoughts are on that. Are we expecting pretty good fourth quarter? And it seems like in your early remarks, you mentioned that it was because the irrigation offsetting slightly lower infrastructure? And then in addition to that question, your inventory spend, it looks like in the third quarter was one of the strongest inventory spends that you’ve made over the last seven-eight years. So, I don’t know if those are related but if you could comment on those questions.

Yes. Joe, this is Brian. I’ll provide a little bit more color on the backlog. The total backlog increase is coming from irrigation with infrastructure down slightly compared to last year. And the irrigation backlog, it’s up slightly in the domestic market, but the majority of that increase is coming from the international business. And again, some of that is project-oriented. So, the likelihood of that all flowing through in the fourth quarter, it’s unknown; it’s probably unlikely that that would all flow through the fourth quarter. On the infrastructure side, last year’s fourth quarter was particularly strong with two or three mid-sized projects, and that accounts for some of the change there but we still continue to have a pretty healthy backlog in infrastructure. Regarding your question on inventory, the overall inventory is up compared to last year and that’s really in those international markets where we’ve had the increase in sales. Domestic inventory levels have been brought down slightly but where we’re seeing increase in inventory is going to be in Brazil, our Turkey facility and other areas where we’re experiencing sales growth.

Okay, thanks. So, in terms of the international projects that you have, what is the sort of timeline of these projects that you have in the backlog right now? Is it over the next couple of quarters or is it over the next couple of years?

I would say, it’s typically going to be within a six months timeframe. And again, not necessarily looking at quarter-over-quarter but depending on the size of the projects, they can be anywhere from two to six months.

Okay. And then, just lastly, I wanted to ask you about the QMB business because that helped you in this quarter and I believe going into the fourth quarter, we’re going up against somewhat of a tough comp. Just wondering what your outlook going forward is on QMB in the fourth quarter and beyond?

I agree, the fourth quarter and going into the fourth quarter is a tough comp on QMB. I think one of the other factors that comes into play with QMB is we saw increases in sales and leasing of QMB in the third quarter as we refer to. We’re getting at the end of the lease season to some extent, we’ll have less of the lease revenue. What really has happened in the last couple of years, which has been nice is that our overall utilization of our lease fleet of barrier trucks has really expanded again. So, we’re seeing that at good levels and would hope that that would continue, but we’ll probably see more of that in the next year rather than in the next quarter.

And then, on the sales front, anything significant on the downside or upside related to this?

There is definitely some good projects that are pending and that we’re working on in terms of sizeable ones. So, we’ve talked about in the past, we’ve got a good project base of active projects, better than what we’ve seen in terms of previous years. However, predicting the timing on that is very difficult, especially from a quarter-to-quarter standpoint because projects do get delayed and it becomes very difficult, if it isn’t in backlog, that’s a pretty tough one to predict for the next quarter, whether it would fall in or not. We do however from time-to-time get some very rapid sales that can come through for small amounts of barrier that can be beneficial, but that’s like I said, otherwise on the projects, they are generally in backlog for a while when they materialize in terms of revenue.

Our next question comes from Jose Garza of Gabelli & Company. Please go ahead.

Just had a question about the international side on the irrigation. You talked about the backlog there having some of that. How do we think about kind of that margin headwind you have from that; how we think about that going forward, do you expect that to continue?

It’s difficult one to answer from the standpoint of it is sometimes project related or region related and depends on competitive environment at times. I think that when we’re dealing with projects, we do see depending on the region, some increased competitive intensity that will be a factor, but I’d say that in general, I don’t really see anything in this that was specifically negative. I think it’s just, the project mix at time. So, from time-to-time, I think we’ll see it have more of an impact than others, but nothing real specific in there.

Okay. And then on the capital investment, you talked about next year being higher potentially. Can you just kind of give us maybe the incremental change there that you foresee next year, maybe some projects you guys are thinking about?

I think the range we’re looking at for the next fiscal year in CapEx is probably going to be in that 12 to 15 range. And I would expect and hope it’s going to be in that $15 million CapEx range. Now, at the same time, what we have talked about in the past that we’ve delayed some expansion projects and we haven’t gone into too much detail. But there are some countries where we’re participating today that we know are talking about requiring more local content, so that would potentially require some CapEx in some different region. But in addition to that there may be some CapEx in our existing facilities that will also expand capacity or reduce costs, but it’s somewhat market related in terms of meeting that additional market growth to support that expansion of that capacity. So, those are the kinds of things that we’re looking at, but the range we’re considering for this next fiscal year is in that $15 million range.

Okay. And then I guess in terms of M&A Rick, if you want to just kind of comment on just how the general state of multiples and kind of what you’re seeing out there?

Well, in terms of opportunities and state of multiples, we’re not really seeing anything significantly different. We still have good water related acquisitions that we find; we still have good acquisition candidates. I would add that we -- it is a little bit more of a challenging time given the announcement of the CEO succession and the transition period that we’re going through from an acquisition standpoint. But that’s -- there are definitely good candidates out there and we continue to have discussions.

Okay. And then I guess just about the CEO transition, any kind of updates there?

I guess I walked right into that question, but yes, nothing really to update other than I think the process in terms of as it was described as a search process and consideration of internal, external candidates is progressing well, and it’s progressing as expected. We knew it would take some time and there is fair consideration our Board has given in terms of going through this process. So, I think it’s basically on track and I’m not at all concerned about that. So, it’s progressing very well.

Our next question is a follow-up from Brian Drab of William Blair. Please go ahead.

Hi. Thanks. You talked a couple of callers ago about the infrastructure forecast for the fourth quarter and I think I heard that there would be somewhat less leasing revenue in the quarter. Can you put a finer point on that in terms of directionally up or down in terms of revenue in the fourth quarter? I know you said, it’s a tough comp but does tough comp mean that we could expect revenue to be down slightly year-over-year or any color on that?

Yes. This is Brian. I guess the color I would add is again back to the fourth quarter last year being a pretty strong quarter, because of really three medium-sized projects that we had. I would, at this point expect it will probably be slightly lower than that but again still a good base of business. I think the reduction wouldn’t be coming from the lease side of the business; it’d be more just a level of projects that actually get completed and delivered during the quarter.

Okay. And then, can you add any -- maybe give us an update at all on the breakdown of the infrastructure segment, however, you would like to present it, but in terms of -- I’m thinking about in terms of the three components of barrier systems, highway safety products and then the steel tubing business. Is that sort of a -- I know, it’s not a third, a third, a third; this is kind of half barrier system, 30% or 40% highway cushion, and 10% steel tubing or something like that?

Well for competitive reasons, we don’t split that out specifically and I really have to stay with that at this point.

And there appears to be no other question. Mr. Parod, I will turn the call back to you for closing remarks.

Thank you. The global long-term drivers of our water conservation and population growth, importance of biofuels and the need for safer, more-efficient transportation solutions remain positive. We are 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 controlled technology, engineered, integrated pumping systems and filtration solutions as well as providing energy absorbing road safety solutions and solutions for expanding the capacity of existing roads and bridges. We are committed to creating shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions and share repurchases congruent with our capital allocation plans. We thank you for your questions and participation in this call. Thank you.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.