Lindsay Corporation

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation first quarter fiscal year 2020 earnings call. 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 expectation, outlook, could, may, should, or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would now like to turn the call over to Mr. Tim Hassinger, President and Chief Executive Officer, please go ahead.

Good morning, and thank you for joining our call. With me on today's call is Brian Ketchum, Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer. The objective of this call is to discuss our quarter one results. Before we go to that overview, I'll make a few introductory comments. For the domestic irrigation business in the first quarter, farmer sentiment continued to be impacted by the unresolved trade issues and lower commodity prices. On the positive side, the recent market facilitation payments administered through USDA have helped farmer income in this challenging environment. In addition, The expected U.S.-China phase one trade deal completion this month does provide potential for stronger commodity prices moving forward. Our innovate and collaborate strategic direction in irrigation continues to progress. Last fiscal year, we launched PivotWatch, and it is exciting to see the market interest continue to increase for this product. In addition to the farmer interest for this product, that is sold through the Lindsay Dealer Network, Farmer's Edge will be deploying PivotWatch to their irrigated customers to support their agronomic capabilities. This will allow as applied irrigation information to be fed to their farm command platform through FieldNet. By integrating these two digital platforms, the goal is to have this fully connected water management solution on 2 million acres by the end of 2021. Our collaboration partnerships continue to expand, and we see them as key enablers to further the current field net market leadership position. Our sales data shows a direct correlation of our field net penetration percent to the market share of our pivot business. For this reason, we see our technology leadership position as being an important part of our overall growth strategy. For the infrastructure business, we continue to see favorable signs that the road zipper business is moving in a positive direction. In our first quarter, we secured a multi-year lease in Germany. Also, Currently there are potential projects in our sales funnel across significantly more countries than we've had in prior years, which reflects our desire to expand our geographical footprint. We also continue to focus on our shift left strategy. A key U.S. Midwest partner state is planning to more than double the number of projects and miles of barrier for this upcoming summer construction season. These are great examples that we are successfully addressing the need to grow this business and increase the leasing business. As we have said before, by addressing these two objectives, we can help to reduce the lumpiness associated with this business. Our focus on these two objectives is moving this business forward at an accelerated rate. Our overall sales funnel, projects based on a 50% probability of success, is at the highest level it has ever been. Also, the number of machines being leased is at the highest level ever. As these projects progress to the signed agreement stage, we will announce them on future updates. Our innovate and collaborate strategy is also advancing in the infrastructure business. Our focus on innovating and making the road zipper system a more attractive option is rapidly moving forward. We will be launching a new machine design this fiscal year for Nexco East, a company engaged in the construction, management, and operation of expressways in the eastern part of Japan, which will allow the machine to be transported between work sites without having to secure and load the machine onto special trailers to handle this task. This ease of use improvement will make the road zipper system even more attractive in that market as well as other markets around the world. Lastly, regarding our foundation for growth initiative, we have previously stated that we expect to realize 13 to 18 million in margin improvement from the four work streams that have been highlighted. Since the beginning of this transformational journey, our goal was to have these margin improvement projects implemented by the beginning of our fiscal year 2020. While we recognize that market conditions will have an impact on our ability to achieve our goal of 11% to 12% operating income, I can confirm that these margin improvement projects have been implemented and are delivering as we expected. What is clear to us, our Foundation for Growth initiative has led to a transformational change for Lindsay. So now, let's move to our Q1 results. For that, I'll turn the call over to Brian.

Thank you, Tim, and good morning, everyone. My comments regarding first quarter comparisons will refer to adjusted results for the prior year, which omit the impact of Foundation for Growth costs. Adjusted results from the for the prior year are detailed in the Regulation G disclosure at the end of the press release. No adjustments were made to current period results. Total revenues for the first quarter of fiscal 2020 were $109.4 million, compared to $112 million in the same quarter last year. Net earnings for the quarter were $8.3 million, or 77 cents per diluted share, compared to net earnings of $4.1 million or 38 cents per diluted share in the same quarter last year. Prior year revenues included $3.3 million associated with a company-owned irrigation dealership that was divested in the first quarter of fiscal 2019, while the net earnings impact of this divestiture was insignificant. Irrigation segment revenues for the first quarter of fiscal 2020 were $82.4 million compared to $87.6 million in the same quarter last year. North America irrigation revenues of $52.6 million were relatively flat compared to the prior year after excluding the impact of the divestiture. Higher irrigation system unit volume was offset by the impact of lower average selling prices and lower sales of replacement parts. Higher irrigation system unit volume came from regions supported by potato and dairy markets and was partially offset by lower volume in regions supported by grain and cotton markets. Average selling prices were lower than the first quarter last year as a result of the pass-through of lower steel costs. Domestic steel prices were approaching peak levels during the first quarter last year before starting to decline and moderate. Lower sales of replacement parts were the result of a timing difference in deliveries under our fall restocking program compared to the prior year. In the international irrigation markets, revenues of $29.7 million compared to $31.7 million in the same quarter last year, with approximately $1.1 million of the decrease resulting from differences in foreign currency translation rate. Increased sales in Brazil and certain other markets were offset by lower sales in developing markets. Although we continue to see a healthy amount of project opportunities in developing markets, delays in start dates have continued during the first quarter, pushing these projects to later in the fiscal year and creating risk to their eventual start date. Total irrigation segment operating income for the first quarter of $9.8 million was $1.9 million higher than the prior year. And operating margin improved to 11.8% compared to 9% in the prior year. Improved operating margin performance was driven by the execution of various margin improvement initiatives. The impact of these improvements was partially offset by the negative mix impact from lower sales of replacement parts. Infrastructure segment revenues for the first quarter of fiscal 2020 were $27 million, an increase of $2.7 million, or 15%, compared to the same quarter last year. The increase resulted from higher sales of road safety products and an increase in road zipper system lease revenue. A higher than expected portion of the Japan road zipper order was delivered during the quarter, with the remainder expected to be delivered in the second quarter. The prior year quarter included the majority of the revenue associated with the San Rafael Bridge project. Infrastructure segment operating income for the first quarter of $8.8 million increased $4.5 million compared to the prior year. Operating margin for the quarter was 32.4% of sales compared to 17.6% of sales in the prior year. Improved operating margin resulted from a more favorable mix of higher margin revenue and from improved cost and pricing performance. Cash and cash equivalents were $120.9 million at the end of the quarter compared to $127.2 million at the end of the prior fiscal year. Cash was utilized in the quarter to fund working capital increases in support of sales growth, as well as capital expenditures and dividend payments. No share repurchases were made during the quarter. However, a total of $63.7 million remains available under our share repurchase authorization. At this time, I'd like to turn the call over to the operator to take your questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Nathan Jones of FIFO. Please go ahead.

Morning, guys. Morning, Nathan. You guys had set a few years ago when you started this journey an 11% to 12% margin target for fiscal 2020. And I think certainly consensus in our expectation was that you weren't going to make that in 2020 due to the reduction in volume in the irrigation business. You guys did 11.2% operating margin in the first quarter. That is typically one of your lower margin quarters seasonally. Maybe you can give us an update on whether or not you think you can achieve that 11% to 12% with all of the work that you've done and maybe a better environment in irrigation that we're looking at this year. Just any update you could give us on whether you think you can actually reach that 11% to 12% target even despite the lower irrigation volumes.

Yeah, Nathan, this is Brian. Our view right now is that we will need help from the North America irrigation market to get to the 11 to 12% operating margin target. We feel good about the incremental 10 to 12 million of value to be delivered through our margin improvement initiatives that we've indicated in the past. We do expect our infrastructure business to get back to the 2017 and even 2018 tight performance levels. But to get to the 11 to 12, we still would expect to have market improvement from North America irrigation.

Okay, I think that's fair. Could you maybe talk about some of the things that got you to the over 11% margin in this quarter that maybe don't repeat as we go forward, that have the rest of the year a little bit below that 11% level?

Yeah, this is Brian again. I think that the one key thing is the Japan order that we've called out in the past. We had about 12 million left to deliver in our first and second quarters. We delivered a little over 7 million of that in the first quarter. And that's a unique order in that it is the kits that go into the barrier. It's not the barrier itself, and it doesn't include a machine. So it's higher than average margins. So we'll see some of that continue into the second quarter, but not as much as first quarter. Another thing that impacted first quarter on the infrastructure side is our road safety products. Sales being up, but also margins improving over what they have been. We'll see seasonally that reduction take place in the second quarter. The other thing would be our leasing business, which was up in the first quarter. in the U.S. on a seasonal basis, because it's tied to the construction season, we'd see that tail off a bit in second quarter as well. So sequentially, we would expect our second quarter to be lower as a result of those items.

That's really helpful. And just one more. I noticed your selling expense year over year was down about a million and a half, which in percentage terms is really quite a lot on pretty similar revenue. Can you talk about You know, if that's more unusual this year, more unusual last year, and if that's the kind of selling expense level you think you can maintain.

Yep. So a portion of the decrease is related to the divestiture, roughly $400,000 to $500,000. We also had lower sales commissions due to the project delays in the international irrigation business. And I would say the other thing is impacting the first quarter is just the mix of activity and how that affects sales commissions in infrastructure. For the full year, we expect selling expenses to be slightly higher than last year.

Okay, that's helpful. I'll pass it on. Thanks very much, guys.

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

Hi, this is Joe Aiken on for Brian this morning. Thanks for taking my question. My first question, I just wanted to ask on the Japan order, you said a little over $7 million was delivered in the first quarter. How much revenue related to that project is remaining to be delivered, and is that all expected to come in the second quarter?

Yeah, Joe, this is Brian. It would be a little less than $5 million that we expect to finish delivering in the second quarter. and that will complete that order.

Got it. Thanks. And then I know on the previous earnings call you guys discussed the impact of regulation being removed as related to the use of federal funds on patented products. Are you able to better frame at this point the potential opportunity that could create for the business?

Joe, this is Tim. Difficult to give you a number rather than just describe. It takes away what has historically been a barrier for some projects. So as we're continuing to increase our funnel, think of it as this is one less barrier that we have to overcome to get additional sales. So we see it as a positive lift, but difficult to quantify for you right now.

Okay, thanks. And then just one last housekeeping item. What was the breakdown for the dryland replacement conversion percent in the first quarter?

So for the quarter, it broke down as dryland at 24%, conversion at 39%, and replacement at 37%.

Okay, great. Thanks for taking my questions. Thanks, Joe.

Our next question comes from Ryan Connors of Benning and Scattergood. Please go ahead.

Great. Thank you. Congratulations on the great results, especially as it relates to infrastructure. And I wondered if you could help us think about infrastructure just from a bigger picture standpoint. You've done very well. And just from a competitive standpoint, if we look at it from kind of a SWOT analysis, I mean, When you're doing this well and the profitability is this good, I mean, what's the IP situation there as it relates to patents? Are there other competitors starting to sniff around the business with sort of knockoffs and things like that? I mean, any updates you can give us on kind of the competitive dynamics and the IP dynamics as it relates to road zipper?

Yeah, so Ryan, we just even brought it out a little bit further. There's two areas that we are putting a lot of focus on. One that we've talked about and I mentioned in my opening comments, Rose Zipper. We put in high emphasis on the shift left strategy. We're seeing an increased interest on a global basis with this product. In terms of IP, we do have some IP, whether machines are on the barriers. At this point, we haven't seen a direct competitor, but I'm not going to say that won't ever happen. But at this point in time, to answer your question, we don't. But in terms of the demand that we're creating, as I mentioned, we're right now in our sales funnel. We've got more machines being leased than we've ever seen before. We've got more potential projects in more countries than we've ever had before. And we can claim that confidently that our overall sales funnel is the best it's ever been. Now, if you move to the road safety products, the key driver or key factor there has been the implementation to MASH. And so where are we related to our road safety portfolio in the U.S.? And we have made the submissions for our new products to FHWA. Absorb M is one product that we highlighted recently. This is a very important product for us going forward. It's a crash cushion. That has been granted eligibility status from FHWA, and many of the key states that we'll be selling into have now approved it. So for fiscal year 20, we would say, describe it as we have a full portfolio in place. Now, what's exciting for us is this new portfolio is primarily crash cushions versus prior year when in terminals were a larger percent of the total sales for this business. So we see the potential of this new portfolio as being better than prior years potential of the portfolio that we had. So as we are bringing innovation, obviously that's opening the opportunity for IP. And back on road zipper, the new product that we are gonna be selling into Japan That's a good example of bringing new innovation that opens the door for IP.

Okay, great. Wow, that's a comprehensive lowdown. I appreciate that. Now, earlier you talked about the selling expense more as it relates to irrigation. What about infrastructure? And given the comments you just laid out, I mean – Do you feel like there's going to be a need to invest in the sales organization on the infrastructure side, or do you feel like you're already where you need to be?

Yeah, Ryan, this is Brian. No, we are making investments in the commercial organization for infrastructure as well as project management resources. Our overall SG&A for the year, if you compare to last year's adjusted number, We're probably expecting to be up around 5%. That also includes continued investment in R&D in both irrigation and infrastructure.

Okay. Okay. And then my only question on irrigation was a little surprised to see replacement parts down. I guess the thesis would be that, you know, if there's some problems, pressure on the overall market that maybe older machines are being fixed up a little more than they otherwise would, and that would help replacement parts. So any color around why replacement parts were kind of down in the quarter?

Yeah, I think two things. I mentioned typically we have a fall restocking program that we have post-harvest, and due to late harvest, the timing of those deliveries as We'll probably see some of that picked up in our second quarter. And that's also the late harvest has also impacted just what would be your typical repair and replacement after the season. So those are the key things. But the restocking program is the thing that impacted the part sales more than anything.

Got it. Very clear. Thanks for your time this morning.

Thanks, Ryan.

Our next question comes from Joseph Mondillo of Siderianco. Please go ahead.

Hi, guys. Good morning.

Good morning, Joe.

I first wanted to ask just regarding the volumes that you saw in irrigation. Are you at all surprised that you saw volumes up considering the late harvest and the uncertainties with the trade deal? And could you also address when your farming customers received the government subsidies, and did that at all play a factor?

Yeah, so, Joe, this is Tim. I wouldn't say we were surprised, but we were definitely encouraged seeing volumes up. As Brian said, there was later harvest, and especially through the Midwest, but obviously we sell across a broader range than the Midwest. So that was very positive. The market facilitation payments, which is what you're referring to, a majority of those payments have been made. So farmers were able to see at the end of the year a good or comprehensive look of where they were at from a tax standpoint. So that obviously helps there. But we are seeing farmer sentiment increase. encouraged is the way I would describe. We've called it a wait and see attitude. We think it's still a wait and see attitude, but with the level of uncertainty that has existed in this market on what is the final yields from 2019 going to be and the key trade deals, whether it's USMCA, Japan, and the biggest one being China, Where we're at right now is January has the potential of addressing a lot of that uncertainty. You've got the next USDA supply demand report coming out tomorrow, and with expectation that these three trade deals will have conclusion or finalization this month. It has definitely brought an interest in farmers, still in a wait and see attitude, but I would say the attention to it is higher than what we saw a year ago.

All right. And then I wanted to just sort of follow up with a question on the Foundation for Growth. So, you know, excluding the divestiture and excluding currency, your irrigation sales were sort of roughly flattish. The operating income was up about $2 million. I assume that was mostly if not all related to what you're doing with procurement and the other initiatives that you're doing with Foundation for Growth. At this point in time, I understood it as if most of the legwork or the heavy lifting or structural changes were pretty much done by the end of fiscal 19. And so do we see incremental changes? improvements beyond what we saw in the first quarter going forward? Or, you know, just help me understand, you know, the savings that we get, you know, what we saw in the first quarter and then going forward.

Yep. Joe, I'll try to frame this a bit. We realized a little over $3 million in our first quarter with the majority of that coming from sourcing and operations with some also coming from commercial work streams. That split was about 2 million in irrigation and about a million in infrastructure. Going forward, some of this is going to be volume dependent, so we'll see some variation, but we feel like we're on track for what we had indicated as that incremental 10 to 12. We expect the operating margin performance that we saw in irrigation in our first quarter to be sustainable going forward. There was some negative impact with the lower parts volume compared to a year ago, but we would expect to be able to sustain those levels of operating margins.

Okay, perfect. Thanks for that. And then on the international irrigation side, I would have almost anticipated that you have some easy comps and I think the Brazilian farmers have been doing quite well with a lot of the China volume going from the US to Brazil. I'm not sure what's happening elsewhere in the world, but I would have thought you would have started to see a little bit of growth international on an organic basis. So could you update us on what you're seeing internationally? And then just maybe related to this, the backlog was up 25%, quarter over quarter. Was that related to international projects?

Yeah, so let me – Joe, I'll take your question on international, and then Brian can give you some color related to the backlog. Brazil, as you said, there are strong market fundamentals there, and we're seeing it, and definitely – the market is benefiting from that. Another thing I'll throw out in Brazil that we're seeing is seeing the growth of a third corn crop that follows the traditional safrinha crop, so that can even lead to better grower profitability that's going to support more irrigation growth. The other factor in Brazil that's favorable is the Central Bank of Brazil voted in December to trim their key rate to 4.5%, which is a record low. So very encouraging there. If you now move over, though, to Africa, Middle East, we are seeing an economic slowdown in South Africa that is impacting the ag segment. Land reform is definitely a negative factor there. And for the large Middle East project that I had mentioned in the prior call, We have retained a significant down payment for this purchase, but this project has been delayed, waiting for site approvals. We do expect this project to start shipping in the near term, and for us that means this current or the following quarter for us. And then Australia and New Zealand, as we've seen in the news, sales continue to be below historical levels there. The region, due to The prolonged drought and now the real significant fires that are going on, a lot of that is happening in the core irrigation market. Overall, we're encouraged by the Brazil potential. The project opportunities in the Middle East, Africa region that are being realized, but there is some uncertainty on the timing of these projects. When you have that, it brings more risk to those projects. And then lastly, it's just the market recovery in the Australia and New Zealand region has not yet occurred. And on the backlog, Brian, you want to address that, please?

Yeah, Joe. On the backlog, irrigation, I would characterize the irrigation backlog as being up slightly compared to last year. And with the majority of the backlog increase year over year coming from the infrastructure side of the businesses.

Okay. I have a couple other questions, but I'll hop back and cue. Thanks.

Our next question comes from John Bratz of Kansas City Capital. Please go ahead.

Good morning, Tim and Brian. Tim, you started off talking about the partnership with Farmer's Edge and the digital platform. Can you talk a little bit about what the financial opportunities that may lay ahead with this partnership for Lindsey. I know it's going to take a while to get going, but what might be the upside? Can you talk a little bit about the ramifications on the financial side of this partnership?

Yeah, well, we'll tag team this one here, John, just like we did on the last one. And let me just frame... what we're doing with Farmer's Edge and some of the why. And then Brian can help put a little more color to it, to your question. But this partnership was announced back in June of 2018. So what we've done here is we've taken steps to integrate the digital platforms. And of course, what that's going to do is allow us to bring up a fully connected water solution on the irrigated acres. And We stated in the press release and also in my opening comments that we expect to have this joint offering on 2 million acres by the end of 2021. Now, this arrangement provides the field net customers access to high daily resolution of satellite imagery from Farmer's Edge and then Farmer's Edge will be offering and promoting PivotWatch to their customers. So that's the real strategic opportunity here. And of course, on the other side, these Farmer Edge agronomic tools are offered and sold by the Lindsay Global Dealer Network. And then they're supported by the Farmer's Edge agronomy team. And as you've heard us talk about, as we've moved towards irrigation scheduling, the need to have more agronomic capabilities is extremely important. So strategically, this fits that need extremely well. Now, to your question, what's the financial impact, I'll let Brian frame that a little bit more in detail for you.

Yeah, John. So initially, this is obviously an increased penetration of our pivot watch product, getting that out on more fields, more irrigated acres. of that two million some of those already have pivot watch on so it's a bringing in the farmer's edge capabilities to that but there there will be um you know pretty significant increase in the penetration of pivot watch so that means you know there's a hardware component the pivot watch itself and then there would be an ongoing subscription on top of that ultimately what we think this will lead to is then the field net advisor adoption and additional subscriptions. So at this point, you know, we're obviously not disclosing what we think this will be from a total financial impact standpoint, but what we will do on future calls is give an update on where we're at.

Okay, Brian, thank you very much.

Our next question comes from Nathan Jones of Stiefel. Please go ahead.

Morning again, guys. A couple of extra questions. You talked about these government payments having gone out late in 2019. Trade deal gets signed hopefully here in the next week. I'm wondering in terms of timing and farmers' capital budgeting for the 2020 year, Do these things come in time to have much of an impact on farmer spending on domestic irrigation here in 2020? Or are these things kind of something that will be more of a seed for 2021, removing the uncertainty as we go forward there, just based on when farmers are typically doing their capital budgeting for the following year?

Yeah. So, Nathan, this is Tim. I would describe it as today what we've said is this wait-and-see attitude that all these things happen, let's assume for a moment, farmers are going to be looking to see what impact that has on commodity prices and is that sustainable. And they'll be making their decision to that and that will drive the answer to what your question is. So we think if that uncertainty goes away in the January timeframe, it is positive for the business. The level of impact to be determined, but it's clearly positive direction for the business.

And you think it'll be positive in 20 rather than in 21?

Well, I definitely would agree with you that it'd have a larger impact in 21, but we do believe it would have a positive impact on 20 also.

Fair enough. And then I had a follow-up on the infrastructure business, on the road zipper business. You're talking about pretty good growth here in the leasing side of the business. Is there much of a requirement for CapEx that could maybe depress cash flow a little bit here in the near term in order to build more machines, build more barrier that's going out into the leasing market, understanding full well that that's very high return kind of CapEx?

Yeah, Nathan. We are planning to increase our lease fleet for both machines and barrier, which would show up in CapEx. And that's You know, we've currently put out we expect CapEx for the year to be 15 to 20. That could vary. It could be higher depending on, you know, how the leasing opportunities develop. But leasing would show up in CapEx. Some of the other sales-related projects would generally, those increases would show up in inventory until those are delivered.

Well, he's hoping that CapEx is a little bit higher than 15 to 20 then. Okay, thanks very much for the help.

Our next question comes from Chris Shaw of Monash Crespi. Please go ahead.

I guess maybe just following up on what Nathan just asked about the leasing and all and the impact on the cash flow. But there's a new, it looks like on your balance sheet on the assets, there's a new operating lease rate of use assets line. Is that related to the infrastructure leasing?

No, Chris, that's really related to the adoption of the new leasing standard. So that required is for operating leases basically to be put onto the balance sheet. So that increased, you've got that asset on the books, and then you've also got the long-term liability related to the lease commitments.

Got it. And then I had another question along the lines of steel prices and irrigation. I know they've come down. They're higher last year. I know the dollar margin really isn't impacted because you've been passing it through, but was there a material impact, and will we see any sort of impact this year on the percent margin for the irrigation business, or was that not that meaningful?

Yeah, I think on the market changes in steel, those generally, because of the timing of pass-through, there's times when we can gain some margin advantage there, but I would say for the full year, we do expect margin expansion, but it's going to be coming from our sourcing and operations initiatives. We have seen steel prices start to increase this quarter. It remains to be seen what happens with the post-China trade deal, but our view for the year is steel will probably be more or less moderated to up slightly. But our margin improvement is really being driven by separate from market changes, our sourcing initiatives and operations cost reductions.

Since you just mentioned the trade deal, this reminded me, you haven't seen the uncertainty that was in the U.S. irrigation market because of the trade war. Is that uncertainty not going to shift to Brazil, do you think, given that they're now sort of maybe a loser in this trade deal? Have you had any sense of that?

I wouldn't say uncertainty. Definitely Brazil has benefited from the U.S. trade war conflicts, especially the China one. But there's enough other factors going on in Brazil favorable that I wouldn't say it goes to a negative. But it could moderate some of the enthusiasm that exists today.

Got it. Thanks so much.

Again, if you would like to ask a question, please press star, then 1. And our next question is a follow-up from Joseph Mondillo of Sidoti & Co. Please go ahead.

Hi, guys. Just one follow-up question related to the infrastructure segment and the road zipper business. Just regarding the leases, I understand, you know, you just stated that you won this – pretty sizable multi-year lease in Germany and I think, correct me if I'm wrong, the lease business has been increasing. Just wondering how sticky is the leasing revenue from a quarter to quarter or year over year basis? And as a percent of the segment sales as a total, how has that been trending?

Yeah, Joe, this is Brian. I would say there's a couple of different aspects to the leasing. Tim had mentioned the Germany lease, which will start in our second quarter. That's, I believe, a two-year lease, so that will be pretty steady. I would say that the Midwest partner that we've gained some additional leasing with, that would tend to be a little more seasonal with the construction season. So we saw some good leasing activity in our first quarter. That will tail off a bit in the second quarter and pick back up in third. But as we get more and more lease business and in different geographies that maybe aren't impacted by weather as much, we'll see that just the size alone and to take some of that seasonality away. But as a percent of sales, I would say it's still a fairly low percentage of the overall infrastructure revenues, but we expect that to grow. That's where we're putting a lot of emphasis.

And Joe, the emphasis with shift left, can't stress enough, that's critical part of our overall strategy because what we're seeing when we're successful with that, getting to the planning design stage as opposed to waiting until after the fact to solve a problem, we have found that to be quite sticky. So if what has evolved for us over the last 12 to 14 months is internal confirmation that the shift left strategy is the direction that we want to go.

All right. Just to follow up, I guess one of the things that I'm trying to understand and try to absorb when I'm trying to sort of model out the segment is and maybe I can ask it a different way. How, how much has sort of road safety, I think that's, you know, much more of a stable business. How has that been trending as a whole, you know, over the last couple of years on an annual basis?

I would say over the last couple of years, road safety has been trending down and there's a couple of reasons for that. One is the portfolio shift that we've been talking about. And, uh, Some of it was the moving of some of the products to MASH. We've also de-emphasized the end terminal part of the business and are focused more on the crash cushion part of the business. So we now have the full portfolio of MASH-approved road safety products that we want to go forward with in our portfolio. So we saw year-over-year improvement in our first quarter from road safety, and I would You know, we expect for the full year that road safety will be up over last year.

Okay. I guess what I was more sort of asking for was sort of the absolute dollar value and how that's been trending. I'm not sure if you want to divulge that because obviously that, you know, you can extrapolate what the, you know, road zipper business has been jumping around to.

Yeah, and Joe, you're right. At this point, we have not broken out the sales dollars between the two.

Okay. All right. Thanks for taking my questions. Appreciate it. Have a good day.

Thanks.

At this time, there appear to be no more questions. Mr. Hassinger, I'll turn the call back to you for closing remarks.

Well, this concludes our first quarter earnings call. Thank you for your interest and participation. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.