Good day, ladies and gentlemen, and welcome to The Toro Company's Second Quarter Earnings Conference Call. My name is Jonathan, and I will be a coordinator facilitator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Julie Kerekes, Treasurer and Senior Managing Director of Investor Relations for The Toro Company. Please go ahead, Ms. Kerekes.

Thank you and good morning. 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. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our earnings release, as well as our SEC filings detailed some of the important risk factors that may cause our actual results to differ materially from those in our predictions. 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. We believe these measures may be useful in performing meaningful comparisons of past and present operating results, 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. With that, I will now turn the call over to Rick.

Thanks, Julie, and good morning. The Toro Company delivered very strong results for the second quarter of fiscal 2021, driven by robust broad-based demand across our Professional and Residential segments. Our team continued to execute well in this dynamic environment, managing the supply chain challenges affecting our industry and the global economy and working together with our channel partners to serve customers and fulfill retail demand. As a result, net sales for the second quarter were up 24% year-over-year. Professional segment net sales increased 25%, continuing the growth trend for this segment and setting a new record. The increase was primarily driven by a strong demand for golf, landscape contractor, irrigation, and rental and specialty construction products. Our lineup of innovative products combined with increasing business confidence in the economic recovery helped fuel exceptional demand. Residential segment net sales for the second quarter were up 20% year-over-year, setting another record. This growth was led by a strong demand for zero-turn riding mowers and our all-season Flex-Force 60-volt home solutions products. In addition, enhanced retail placement boosted sales of our snow equipment and late season snowstorms helped clear the channel. The introduction of innovative new residential products, coupled with the refresh marketing and expanded mass retail distribution, continue to strengthen our brand and drive growth for this segment. We also set records for earnings in both segments this quarter, as we drove productivity and operational synergies enterprise wide. Professional earnings were up 57% and Residential earnings grew 24%. Reflecting on the outstanding results this quarter, we note three prevailing themes. First, demand has been exceptionally strong. We see this continuing for the foreseeable future, albeit with year-over-year growth rate comparisons that will ultimately stabilize off a higher base. This demand is driven by improving consumer and business confidence, coupled with public…

Thank you, Rick, and good morning, everyone. Our record second quarter was driven by robust demand across our Professional and Residential segments, coupled with strong operating performance. We grew net sales by 23.6% to $1.15 billion. Reported EPS was $1.31 per diluted share, up from $0.91 last year. Adjusted EPS was $1.29 per diluted share, up from $0.92 in the prior year. Moving to our segment results for the quarter. Professional segment net sales were up 25.3% to $828.4 million. This increase was primarily due to strong demand for golf, landscape contractor, irrigation, and rental and specialty construction products, slightly offset by lower sales of underground construction equipment driven by supply chain disruptions that impacted product availability and continued softness in oil and gas markets. Professional segment earnings were up 57.3% to $167.1 million. And when expressed as a percent of net sales increased 410 basis points to 20.2%. This increase was primarily due to productivity improvements, including COVID-related manufacturing inefficiencies in the second quarter of last year that did not repeat net price realization and volume leverage partially offset by higher commodity costs. Residential segment net sales were up 20.2% to $315 million. This increase was primarily driven by strong retail demand for zero-turn riding mowers due to new and enhanced products, higher sales of Flex-Force battery electric products, mainly driven by successful new product introduction and higher shipments of snow equipment as a result of late season snowstorms and expanded retail placement. Residential segment earnings were up 23.9% to $46 million. And when expressed as a percent of net sales, up 40 basis points to 14.6%. The increase was primarily driven by productivity improvements, including COVID-related manufacturing inefficiencies in the second quarter of last year that did not repeat, net price realization and product mix, partially offset by…

Thanks Renee. As we look ahead to the remainder of the year, we're watching a number of key drivers in our end markets. For residential and certain professional businesses, continuing consumer interest in home investments for landscape contractors, capital investments, including catch-up purchases of prior deferrals, driven by improved business confidence. For golf, continued strong momentum in general, the reopening of international courses and the return of resort golf. For grounds equipment, the prioritization of outdoor space maintenance and improvement by municipal and other tax supported entities. For underground, increased government support and funding for infrastructure spending, this includes broadband build-out, alternative energy investments and critical need infrastructure rehab and replacement. For rental and specialty construction, strong demand by both professional contractors and homeowners. For snow and ice management, channel demand, given lower end of season inventory levels. In short, these end market drivers should continue to support robust demand. Our biggest challenge for the remainder of the year will be our ability to produce at the desired rate, given the supply chain constraints we were facing. We believe the constraints will improve as key commodity availability normalizes, global vaccination rates improve, COVID restrictions ease and logistical capacity finds a balance. We anticipate demand will remain strong even after supply chain constraints ease. At that point, we expect to be in a position to rebuild field inventory levels across our channels. Our operations team remains committed to doing everything possible to meet the increased production demands. With our team's dedication, our innovative suite of products and our market leadership, as well as our consistently strong cash flow to support growth investments, we are well positioned to capitalize on this demand opportunity. We're also well-positioned to capitalize on electrification trends, given our expertise and leadership across our markets. We are committed…

Thank you. [Operator Instructions] Our first question comes from the line of Sam Darkatsh from Raymond James. Your question please.

Good morning, Rick; good morning, Renee. How are you?

Good morning, Sam. Very well.

Very well. Thank you.

Three questions, if I may. The first, you mentioned that your production constraints should ease in the coming months. I'm more interested in potential inflation in raw and components next year. I think you normally do your negotiations with your vendors in that kind of August, September area, which suggests that there might be further pressure for next year. Can you talk around that in terms of whether you see maybe even more inflation next year or has that already been the worst of that’s behind you?

Yes, as we look at inflation, as you know it is a global issue that we're dealing with. And in particular, Sam, we're seeing inflation that was higher than our initial expectations. And we have tried to factor that into our guidance for this year. But in particular, steel and resin are particular components that are raw materials that are – we're seeing more of that inflation, as well as some freight and wage inflation as well. As we look forward, we do expect for the second half for inflation to continue going into next year, I mean, part of it we'll have to see how the economy unfolds, I mean, there is differing points of view on inflation, some see it as more of a temporary blip, others see it as a longer-term. The thing that we will do is we'll continue to focus on the things we can do to mitigate to the best of our ability. And we feel very lucky that we had a strong pipeline of synergy and productivity efforts across the enterprise. We will always manage costs prudently, and we also will take market-based pricing actions and look at also promotions and other marketing programs as well. So we'll have to see how next year unfolds, what we also see is demand is remaining very strong and the business fundamentals look encouraging going forward as well

To that last point, could you help us with respect to what volume growth was versus price in the second quarter, and then perspectively within your 12% to 15% sales growth guidance for the year Renee?

Yes. As we look at, we did take market-based pricing actions within the year and we'll look at also if there are additional market-based pricing actions we have to take. The majority of the growth would have been volume-based with – certainly within the quarter, but what we're continuing to look at as inflation becomes clear to us, what type of actions we need to continue to take for the rest of the year. But again, we don't start with price, we'll start with what we can do internally to try to control to the best of our abilities. And again, demand looks to be remaining strong for the remainder of the year and can beyond as well.

So the incremental price – I'm sorry, the incremental sales growth guidance is mostly price or it's mostly volume, or I'm just trying to get a sense of when you decided to raise your expectations for sales for this year, presumably for the back half. How much of that was volume versus price?

Yes. We don't break it out specifically. But I mean, when we're looking at growth, that's double-digit, I mean, that's more volume-based than price-based.

Got you. And then my last question, I'll defer to others. Thanks. The residential business up 20% in the quarter which is terrific obviously, just trying to reconcile that though with the growth that was cited by Home Depot and Tractor, which are your obvious large channel partners that were well in excess of 20%. I think they were both talking about 30%-plus. First off, what was going on there, how to reconcile the difference there especially knowing that you talked about additional placements too?

Yes. I can't speak specifically to the Home Depot and Tractor supply, numbers that you're quoting. We had an exceptionally strong quarter from a residential perspective. In fact, the stay at home probably kicker that's on top of the work that we've done extended even further than we expected at this point. We expect that effect to wane at some point. But the fundamental things that we've done continue. So we're pleased with our growth at all the places that you're mentioning. So I can't speak specifically to the comparison that you're talking about. But the fundamental things that we've done with refreshing the product line, expanding placements and building the brand and the messaging have been very effective from our perspective.

Thank you both. Thank you.

Thank you.

Thank you. Our next question comes from the line of Tom Mahoney from Cleveland Research. Your question please.

Hi, good morning. I had two questions. First, is there a way to characterize the production speeds you guys are able to achieve now relative to pre-COVID levels?

I would say without a specific percentage, we're still largely in the COVID operation mode. So our manufacturing operations have actually improved efficiency and productivity relative to where we were, let's say nine months ago. But we're still in a position where we've got social distancing on our assembly lines, we've stretched those out, there is certain practices that we have to continue to follow from a safety standpoint that just result in, ultimately some inefficiencies. But we are seeing improvement both in optimizing that process plus as we get additional associates vaccinated that helps us with additional flexibility. So we saw a nice improvement of our own productivity and efficiency internally. And we expect that to continue as the pandemic situation improves. And we get more people vaccinated.

I would just add that, I think we have seen some impact from the supply chain disruption, that has been escalating as we went through the year. And we're also managing that very well. I mean, the team is really doing an excellent job of doing all that as possible, but that causes some additional disruption, maybe it's COVID related…

It's the stopping and the starting of assembly lines and so forth that just builds in additional inefficiencies.

And as that improves, we should also expect to see improved manufacturing, because of that as well.

Okay. And then just to follow-up on the residential lower point that you guys were just making. Is there any signs in the demand that you're seeing as spring has progressed all of interest in home spending waning, whether it's mix or if you look at volume on a sequential basis. And then along with that, any change in appetite from retailers or dealers to take inventory in that part of your business on the residential side?

We really have not seen that trend diminish at this point. So we continue to have very strong demand in our residential segment. We'll stay at almost certainly part of it, but the things that we've done over the last several years to reboot that business are fundamental drivers that will continue on beyond the pandemic situation. And remember the comparisons that we're looking at are off of a high base from last year at this time and really through the entire view of fiscal 2020. So we continue to build on top of what seemed like a very high base and the effects of the stay at home continues. Also field inventory is in – it's actually lower than we would like to see. And in terms of your question, like the willingness to take inventory is very high, the field is hungry for inventory fact at this point.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from the line of Tim Wojs from Baird. Your question please.

Hey good morning, everybody.

Hi, Tim.

Maybe just kind of dovetailing on the last question, Rick. I'm not sure if you can quantify it or not, or provide any numbers. But I guess, how would you kind of characterize broader inventory – broader field inventory levels versus kind of a normalized level? I’m just trying to understand, maybe what a rebuild opportunity is for you over the next 12 months.

As you would expect with very strong demand over the last several periods and with some of those supply constraints, our inventory – field inventory is lower than we would like to see it at this point. So that – and that's pretty much true across all of our businesses in both segments. So there is opportunity and very much willingness to refill the field inventory and that's another capacity or opportunity that's out there for us.

And just given the demand environment and some of the supply constraints, I mean, is that something that you think really falls more into fiscal 2022 than this year?

Realistically as we forecast forward, that's something that perhaps starts to happen at the end of fiscal 2021, but certainly into the first portion of 2022.

Okay, great. And then I guess on the supply chain, where are you seeing – from a component perspective, where are you seeing kind of the tightest constraints? And just kind of any color internally on how you're positioning yourselves, just to make sure that you're getting at least your fair share of components from your suppliers?

Yes. I mean, our apps team is doing just a miraculous job, working really off of a base of the way that we do business with our suppliers to look at long-term relationships, it’s all happened that we had been through as part of our synergy efforts with Charles Machine Works and integration efforts. We had just gone through some contracts – re-upping contracts and focusing on some key suppliers as key partners, so that's a great base to go from. And what you can look at is really from a first of all the basic commodities of steel is our number one commodity, and I think relative to last year at this time, it's – the market index was up about 300%. We don't see that much because of the contracts that I've mentioned earlier, but those are major drivers of some of the costs or inflationary factors. Resin is another one that's up probably 100% from last year, the base last year at this time, that's been affected by some externalities like the weather situation in Texas that knocked out a good portion of the supply chain resources there, the facilities that make the resin. So that's something that is being fixed, but it's just taken a while to get everything back online and then catch up with the shortage. So we – those raw materials always find their supply demand balance, but that's taking longer than it would normally based on a number of factors. And then the other factors with suppliers are just the same challenges that we're working through, getting your workforce back, operating in a COVID safe environment and responding to demand that's come back very quickly.

Okay, great. Good luck on the rest of the year guys. Thanks for the questions.

Thank you.

Thank you.

Thank you. Our next question comes from the line of David MacGregor from Longbow Research. Your question, please.

Yes. Good morning, everyone.

Good morning.

My first question is on supply channel and – yes, good morning, Rick. First question is on the supply channel. And just what's your best estimate of the total quarterly expenses we incurred right now, as a result of the supply channel and labor disruptions? Just try and get a sense of, once the world normalizes, you get back to a steady state, how much of this goes away?

Yes. I don't think we can give you that number exactly, what we do see is the – probably the strongest effects in the second half. We're going to see the full effects in the third quarter, particular the net effects – some of the mitigation actions that we're taking will not be seen completely until the fourth quarter. So we'll probably see the peak effects of the inflationary factors in the third quarter by themselves. I mean, but the good news is the fundamental demand continues to be there and we believe that that's going to be there long after we worked through the supply chain issues.

And I would just add, when we look at the total year, we do expect our operating margins to be up slightly for the year. And we also expect pro margins to be up in residential, to be similar or down. So we're encouraged when you look at the total year and we also expect as our guidance reflects that EPS will be up year-over-year as well.

Okay. And I guess sort of for drilling you with model questions here, but I guess similarly on SG&A, you noted the reinstatement of certain costs whether it had been reduced in 2020. How much more of those 2020 reductions will be returning in the second half of this year? Can you quantify that for us?

We don't have an exact number. I mean, part of what we're seeing as well is there are certainly a return, we had some salary reductions that took place and some other costs certainly T&E was one of them that will still be at a lower level. As well as, we look at the second half of the year, the incentives are also David, a big change year-over-year in part because for fiscal 2020, we were adjusting down our incentives based on performance and expectations and for 2021, would we be adjusting those up? So you see some of that impact in Q2 and you'll see some of that for the rest of the year. And volume also impacts, I mean, part of the SG&A is more variable based on volume, so with volume being up. And it's all included in our guidance, but I know that it's difficult to break that out.

Right. I guess, I want to ask you a question, you called out the increase in CapEx. And I guess I just want to tie that back to market share question here. And I guess, thinking about your operating scale benefit that you have, just competitively speaking, I think you would have a fulfillment advantage in this environment over smaller players whose problems are probably even greater than yours, frankly. Do you have the capacity to take share right now? Are you taking share? And if so, could you talk about where in the business?

We do, – excuse me, we do have capacity to take share and we are taking share in a number of places, I think some of it goes all the way back to some of the things we talked about with our supply chain and the advanced work that was done with our supply chain to be able to support the demand that we did see coming even back in the winter prior to the spring season. And we continued to be excited about the future and it's not only the ability to supply product, but it's really driven by the innovations, the changes that we've made with our products that really have people excited that we've mentioned the 60 volt Flex-Force, but that's becoming that lithium-ion powered portion of our business is becoming appreciable. If you look at the opportunities with our underground business before we started the pandemic, there was a huge opportunity with 5G, the recognition in the pandemic that there is a broadband gap that needs to be closed. And then all of the infrastructure investment that's coming for underground utilities, for telecommunications and repair and rejuvenations are strong. And then, we didn't really talk a whole lot about golf, but golf has seen a tremendous surge through the pandemic. And there's good evidence that that's going to be sustained at a higher level. I think the year-to-date numbers for golf are something like 44%, I know that's against a pandemic base. But even if you look back to like the 2017 through 2019 period, it's up about 20% year-to-date. So those drivers of the game itself have our golf courses in very good financial shape. And the investment that they want to make is to make sure the golf course is in good shape. That means equipment and irrigation systems.

So I just want to make sure, I'm clear on this. Are you saying that you're gaining share in the golf business?

The golf business in general has been a low single digit type of growth business over time. So we have steadily taking share, and that trend continues, but it's not the dramatic kind of moves that would be a fast – faster growing market.

Great. Okay. And then last for me, it's just on the underground construction. You reported sales declines in the second quarter, I guess that was a little bit of a surprise, but can you talk about what you're seeing in that business and how that's reflected in your guidance? Is this just a timing issue around 2Q and you expect to see stronger underground in the second half as cost supporting that growth in revenue?

Sure. Just in summary is absolutely incredible demand for the underground business. And we've talked the last several quarters a little bit about the downside of oil and gas, but it's really all about the supply side. So it's really about producing the products to meet the demand. And had we been able to do that in totality over this last quarter. You would not have seen the effect that you just talked about. So very, very strong long term. I mean, and long-term significantly stronger demand in most of the drivers for that business.

And that really be to the point that you raised about CapEx, we're making an increase in our CapEx really focused on capacity and technology. In some cases, we can enhance our production capacity to be more productive, with some capital to put into place. And we have a really strong balance sheet and it offers us that opportunity to continue to invest our top priority is always going to be profitable growth both organic and M&A. And we feel it's a good investment for us to make for the future because we think that the demand is going to remain strong for some period of time.

All right. Okay. Well, thanks very much, Rick. Thanks, Renee. Good luck for this quarter.

Thank you.

Thank you. Our next question comes from the line of Ross Gilardi with Bank of America. Your question, please.

Good morning guys.

Good morning.

Good morning, Ross.

Hey Rick. Can you talk a little bit about within that 20% growth in Residential, that how the growth in gas powered equipment compares to electrified product and just what is your general split of gas powered versus electric on an LTM basis, or however you would choose to break it out?

We call that I think three categories, Z’s was the first one. The 60-volt lithium-ion portion was a big portion, was a significant portion of the growth. And that's really picking up significant momentum. If you think we don't break it down specifically, but we can tell you that it's becoming a more significant driver of growth. And it's really, our focus what's appealing to the customers is our commitment that it's a no compromise choice of gas to battery and that that message has been very well received. So battery electric still a relatively small portion of their overall business and even in this quarter, but one of the fastest growing areas, but particularly the Z category was very strong.

Well, just what I'm getting at, I mean, you also said, snow contributed positively towards the end of the quarter, which is more of a weather impact. And as one of the questions earlier touched on the retailers seem to grow faster, some of your competitors seem to have grown a lot faster, at least in the first quarter, the comp is a little bit different and the product makes it different though specifically within outdoor. And I'm just wondering if some of the lagging, relative to some of those things I just cited is tied to just gas powered equipment losing share of the overall pie?

Yes, I would say absolutely not. And if I left out snow was one of the drivers, actually, that was my mistake. But that was very important part of our business in the quarter and actually through the entire snow season. We've taken market share in most categories within snow and have seen particular great demands on our battery powered products for snow. We are just going to be introducing a two-stage battery power snow products. I'm slated to have one at my house and I can't wait because I have a chance to demo it here, fantastic piece of equipment. And it's got all of the Toro characteristics as well, which is the support and the brand that's going to be behind it as well. So we feel very positive about snow. We've added placements with our key partners over those last season. And we feel very excited about it going forward. And we know that we're taking share.

Within snow, but just overall, I'm talking more broadly within the overall category is just outdoor power equipment. I mean, it's hard to see how gas powered equipment is taking share from electric equipment right now. Would you agree with that or no?

Well, you have to keep in mind that gas is still by far the dominant power source for power equipment beyond trimmers and handhold products. By far gas was still the largest component. So as we expand our channel, as we expand our product offerings, we can continue to take share within gas, at the same time, we build out our electric offerings.

Okay. And then maybe this one is more for Renee, just Renee on the – your ability to control costs. I mean, certainly, Toro has got a great record on managing the cost structure and so forth. But just the spirit of what some of the other questions we are asking too, you've got this raw material inflation, you're saying that you can continue to manage your cost very carefully. You've kind of already been doing that for the last year. I mean, don't you have to have a natural level of SG&A inflation over the next six to 12 months while you're getting hit with this raw material inflation, just as the economy continues to reopen. You add capacity presumably, you've taken out that some personnel and so forth, start traveling again, going to trade shows, just all the things that you would normally be doing. Just can you really hold back SG&A, like in this type of economic acceleration right now to offset some of the costs inflation?

Yes. I don't know that we will necessarily offset all of the cost inflation with SG&A. So just to clarify that point. I think we will make sure first and foremost within SG&A that we invest in technology and innovation. I mean, that doesn't change regardless of the economic environment. We will make good choices about other SG&A, but we are seeing, if you look at the SG&A rate, we're seeing a slight benefit from SG&A, but I mean, all of the things that you're saying are happening. We need to – we do have some volume related SG&A that will happen as volume increases. We'll leverage our fixed cost structure, but probably more of the larger offsets for the inflation will be the continued focus on productivity. We do have some benefit from product mix as well. And then we'll make market-based pricing decisions as well, but all of those would help us to offset not just the SG&A piece.

Okay. And then just lastly, on this underground construction business, just it's clearly, it's a supply side issue, the demand is there, but is this just, you don't have enough capacity. Like, I'm just trying to understand how much of this is under your control in terms of ramping back up or you probably depending on some component suppliers, or you just need to get additional capacity up. And then you mentioned, oil and gas as a source of weakness. Can you remind us what portion of the business is tied to oil and gas, is that pipeline construction that is just remaining very weak. That is kind of dragging the business down, am I understanding that correctly?

Yes. So for the first part of your question, it's really the forces that are affecting the entire industry. So it's the key components that now are in, the suppliers are not fully up to speed yet. So in some cases we're on allocation, but that would be through across the industry as well. Lots of common components from engine hydraulics, even fasteners those types of things that are the roots of the constraints at this point. And in terms of the significance of oil and gas, it's a small portion of our underground business, low single digits in total to the Toro Company.

Okay. Thank you very much.

And you asked about pipelines, that's obviously part of it, but as the oil price continues to stay higher, that's bringing on some oil capacity that uses our equipment beyond pipelines as well.

Got you. Thank you very much.

Thank you. Our next question comes from the line of Mike Shlisky with Colliers Securities. Your question, please.

Hey, good morning guys. And congrats on what I think is your first $1 billion sales quarter.

Thank you, Mike.

I guess I want to follow up on questions that were asked earlier maybe in a different way, can you maybe share in either of business, were there any pull forwards of orders and deliveries to some of your customers anticipating higher prices or some shortages later on in the end of the year?

No. No, Mike. In fact it would probably be just the opposite, in the cases where we're not able to completely fulfill orders. Those are still there for us to get the facts what happens in these circumstances is there can be a little bit of a piling on of orders. So even if you sort that out, which we do, we have a strong demand into the future and there's no pull forward element.

Okay. Got it. I also want to ask about Rick your inventory levels. Some of the commentary I just wanted to clarify Renee from your prepared comments. You had an all time record quarter over $1 billion in sales, and you've got a great outlook. But the inventories are kind of flat year-over-year pretty much. And I'm sorry, it was actually flat from two years ago from the pre-pandemic second quarter. So I'm kind of, could you give me tell us, did you, if you could, would you have had higher inventories at the end of the quarter? And how much more of the capital would you have wanted to invest if you could have, if you didn't have any shortages.

Yes. We would have built inventory up. I mean, given the volume demand that we're seeing, if we could have, and I guess within the inventory, just an additional clarifying comment. What we're seeing is maybe it's the same level as two years ago, but our finished goods is down quite significantly and what this up. And it really goes to the supply chain challenges that Rick commented on is, we are trying to do our best and what we will invest in what to help to mitigate some of that to the extent that we can. But right now our supply chain is just struggling to meet the higher demand. And so we will, as we look over time, we would rebuild that inventory, to a more normal level and then a more normal mix within that. I think that's also going to take some time to be able to do that, given the demand strengths that we're seeing, not just for this year, but even going into next year.

Okay. Got it. And then just one golf question for you. Rick, I'm not sure if you can parse this out. But I'm starting to see some really different trends between munis and private courses. I mean, we've seen the munis have just massive budgets to buy whatever they can. And the private courses are seemingly having a little more trouble with their cash flow because they still can do at least not until recently weddings or larger events or major food and beverage, given some of the COVID restrictions. Can you tell us, if your golf business has seen any bifurcation in the trends from muni to a private recently?

We have not and I just reviewed the feedback from our sales team recently. And I would say there's no differentiation. In fact, there was probably more emphasis on the private course interest in investing in their golf course itself. And keep in mind, we talked about this a lot, but if the golf course is open, that means that the golf course has to be maintained. So our equipment gets used, whether there's a recession or a pandemic in the same way. So if you don't make those purchases on the routine that you're on in, then you need to make up for those investments at that point – at some point, because the equipment is ultimately consumed over time. And that's what we saw coming out of the great recession in 2010 and 2011 was a lot of makeup purchases that happened to get people back on their capital replacement track. That's really, it's so great to see the munis come back strong, like you said, they're healthier than ever because they're more of based dependent on fees. And the biggest thing is just the great interest in using the golf courses, but it's continuing, and we see that in parks as well, that even where municipal budgets are constrained. The general public is prioritizing green spaces and parks because of what it has meant to them are those last year.

Okay. That's a great color, Rick. Thanks so much. I'll pass it along.

Thank you.

Thank you.

Thank you. And our final question today is a follow up from the line of David MacGregor from Longbow Research. Your question, please.

Yes. Thanks for taking the follow-up question. I guess just a quick question on capital allocation and share repurchases specifically, and a big spend in the second quarter. How are you thinking about the cadence of that program over the balance of the year? Ultimately, do you think we're going back to kind of those 2017, 2018 levels of total spending or could you repurchases actually exceed those levels this year?

Yes. Our capital allocation priorities really remain the same. As I mentioned earlier in the discussion around CapEx, our top priority will continue to be to focus on long-term profitable growth. And we'll look at that both organically that's probably our highest return as well as any M&A opportunities. So we continue to focus on our pipeline. We'll grow our dividend as our earnings grow. And then we kind of look at the latter priority being share repurchases, but we want to make sure we're offsetting dilution, that we remain disciplined around that. And as the pandemic continues to recover, we'll feel more comfortable having a little less cash balance as well. So I would say, you would expect us to act in that manner. And part of it depends on if we see great growth opportunities that yield a higher return that we would invest there first but if not, then, we'll invest in share repurchases as well.

I'm just wondering how you're thinking about M&A in that context then, because on the one hand you're acquiring a business, that's probably also experiencing fulfillment. You're just buying somebody else's problems. On the other hand, taking a longer-term view, you're acquiring a platform for growth. So how are you thinking about M&A right now as a priority within capital allocation, just based on what you're seeing in the funnel and what people are showing up at your door with?

Just, yes, just in general, we would always look at long term. So capacity might be a factor given the short-term constraints that we're in, but ultimately we're looking at for long-term value that could be added to the company when acquisition always.

Okay. All right. Thank you very much.

Thank you.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Julie Kerekes for any further remarks.

Thank you for your questions and interest in The Toro Company. We look forward to talking with you again in September to discuss our results for the third quarter of fiscal 2021.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.