Lindsay Corporation (LNN) Earnings Call Transcript & Summary

[Presentation] Hello, everyone, and welcome to the Lindsay Corporation Virtual Investor Event. We're excited to have you with us today. My name is Brian Ketcham, and I am the Chief Financial Officer for Lindsay. Before we begin, I would like to let you know that today's presentation will include forward-looking statements. For these statements, we claim the protection of the safe harbor contained in the private Securities Litigation Reform Act. Our agenda for today is organized into 2 sections. In the first section, Tim Hassinger, our President and CEO, will provide a strategic overview; followed by Randy Wood, our Chief Operating Officer, who'll provide an update on our innovation strategy. We will then have a Q&A session following this first section. At any time during the presentations or immediately after, you may submit questions on the web platform. We have included a 5-minute break following Randy's presentation to assemble the question queue, and then we will proceed with the Q&A session. In the second session of presentations, Gustavo Oberto, the President of Irrigation; and Scott Marion, the President of Infrastructure, will provide an overview of their respective businesses, along with their growth strategies. I will wrap up the second session with a financial overview. We will then move on to a second Q&A session, following the same format as the first Q&A session. The times noted on the agenda are approximate times. We think the event will be completed within 2 to 2.5 hours, but we will allow as much time as necessary for questions. So now let's get started. And up first is Tim Hassinger.

Hello, and welcome. I appreciate you taking the time today to learn more about our company and the direction we're going. So what will we cover today? Well, you're going to hear a lot about our 2 business platforms, the transformation that our company has made, specifically the change that has occurred these past 3 years. And on innovation, you're going to actually see some of the new technologies that will be launched here in the near term. Now this is the agenda that I will follow. Here's a snapshot of our company. We have 9 manufacturing sites in 6 countries. We have a global presence. But another way of saying this is, all regions can source from a plant in the same region. Our revenue split is 72% in irrigation and 28% in infrastructure. So how would I describe these 2 businesses? Both have differentiated technology positions. You're going to see a lot about this in the upcoming presentations. We have a global footprint for manufacturing and demand-creation capabilities, and both businesses have attractive megatrends. Just look at the purpose statements for each of these businesses. On irrigation, produce more food with less water. Arguably, society's biggest challenge over the next 50 years. And on the infrastructure, making roadways safer. These are compelling purpose statements. Now a lot of change has occurred in the company since early 2018. And what are the key changes that have occurred during that time frame? Well, if you go back more than 50 years, that's when our irrigation business started. And our infrastructure business started through an acquisition in 2006. Both of these businesses have brand names that are well known and well recognized in their respective marketplaces. And I started in the company in October of 2017, and we had the opportunity to talk with many of you here that are on this call. And the feedback we received was that our irrigation business was too dependent on the price of corn. Our infrastructure business is too lumpy. We heard you. So the first action that we took was implementing foundation for growth in January of 2018. We focused on improving margin and organizational health, and we established and communicated an operating margin goal of 11% to 12% that would be achieved in FY '20. In essence, what we wanted to do was raise the floor, recognizing that commodity crop prices can and will vary over time. We needed to be able to deliver meaningful financial results even when commodity prices were at a lower level, and we increased our innovation capabilities. We made many personnel and structural changes that have helped improve our capabilities in this area. Now why focus on culture? And specifically, what financial impact do you expect from this focus? Well, the first thing we felt was important was recognizing that we were going to have success in improving margin. If you don't change the culture over time, your results will go back to where they were. So we established an organizational health baseline back in January of 2018. We used a major global consulting company, and in their database, they have roughly 2,000 companies to compare against. Our goal from that exercise was to, ultimately, achieve first quartile status. Here's why. The data in the consultant's database said very clearly, companies that are in the first quartile status compared to lower quartile status deliver a return on invested capital of 2x and, on average, have an 18% increase in EBITDA. Now we implemented 4 new behaviors across our entire company. This is even how we do our performance review process at this point on each individual. This has created a significant impact in our company, and we do an annual survey to check progress. Our last one was done this past July. And the result that came out is, we have moved from a third quartile status company to first quartile. And actually, most of our sites are now top decile. And we have already seen the benefits in employee attraction, retention and morale. These have now become strengths in our company. Now what caused the margin improvement? We had a slogan that we started off with, simplify then grow. So we went through an exercise of evaluating all of our businesses based on the connection to our corporate strategy and the margin profile. And if the results came out negative, then we evaluated whether we were the best owner. As a result of that analysis, we divested 4 businesses. They represented roughly 15% of the fiscal year '17 revenues. We also implemented many cost-reduction projects in the areas of centralized sourcing, consolidated and leveraged manufacturing, and we looked at ways that we could grow our business. And one of the key growth actions we took was implementing shift left in our Road Zipper business. As a result of doing all that, we achieved operating margin improvement of 360 basis points. Now has this change had an impact on the company strategy? Well, our strategy is driven by innovation. To have a clear strategy, though, I think you have to have a strong vision. And I know probably everybody on this call has had the experience of where a vision is just a collection of words and nobody looks at it after it's been completed. The Lindsay vision is next to my office on the wall. Actually, it is the wall. It's on the entire wall. I want to see it every day. I want everybody that comes to see me to see it also. Our vision says this, we expect to win through our innovation and commercial capabilities. All other functions, we expect them to be highly productive through our continuous improvement recipe. Over the past 3 years, our actions have reflected this direction. Now here is an overview of the changes. Customer focus, my first impression coming in the company, this was a strength. As a result, there's been no change made there. Sourcing, shared services and manufacturing, we focused on consolidation and standardization. These 2 areas are what drove a majority of our cost-reduction projects. And on innovation, the change that we have made is our behavior is we expect of ourselves to be the leader in the markets we serve. These are the key shifts that have occurred in our company. Now what about sustainability? It's an important question. We just released the second year of our sustainability report. It's now on our website, and it shows the progress that we've made in water conservation, community involvement and key metrics, such as diversity and inclusion. And later today, you're going to hear an excellent example of this from our irrigation business, where we've been able to generate water and energy savings through the technology that we're offering in the marketplace. Innovation and sustainability are key drivers to our strategy. So what are the 3 points of strategy for us? Well, continuous improvement, irrigation technology leadership and Road zipper growth. I'll address each of these points in more detail. Continuous improvement is the first one. The key driver for continuous improvement are our 6 key processes. For each of these processes, we have a process leader and a senior leader sponsor. KPIs are in place for all of them, and the results are tracked and reviewed on a monthly basis. Let's go through a few key ones. Integrated business planning. This is how we run our business. These are the processes that we have for managing demand, supply and portfolio management. Lindsay production system based on lean and is implemented in all 9 plants. Expected results are improvement in quality, cost and inventory. And our innovation process, our business leaders lead this process. They're responsible to ensure that we have the right innovation capabilities, they prioritize the projects and they manage the overall budget. Our second strategy is widen the irrigation technology position. Well, in the irrigation business, the first thing that's critical is to have a good and reliable machine to offer, and you need good dealer service. I'll call that the antis to play, but to win or more specifically to gain market share, I believe you have to be able to offer the antis to play and technology that a farmer values. And a good example for us is moving from FieldNET, which is our remote monitoring offering, to FieldNET Advisor, which offers irrigation scheduling. That transition is fully integrated, and it makes farmer use and upsell opportunities for us easier. Now the bullet points that are on this slide, this is how we view differentiation and specifically how it's created. Now the third strategy that I want to cover is on Road Zipper. The first word, when I saw Road Zipper, was wow. This is a unique and differentiated product. Now a key strategy change that we've made with Road Zipper is shift left. And what we're doing here is, Road Zipper, the business that has been established, has been based on solving an existing problem, a bridge with too much traffic, a road with too much traffic and especially if the traffic flow is heavy in one direction in the morning and then heavy coming back late afternoon or early evening in the rush hour time frame. Well, that has been and will continue to be a good opportunity for Road Zipper business. However, what we have done through shift left is move further back in the planning and design stage. Before that bridge is even built, having Road Zipper scoped in it or before that road is even built, having Road Zipper scoped into that plan and design. We now have a playbook in place to be able to ensure we have the capabilities internally to deliver on this strategy. That playbook has been implemented in the U.S. and Western Europe, and as we move forward, we'll continue to expand that on a global basis. By doing all of this, it opens a larger marketplace. Now what about acquisitions? Our focus, first, through foundation for growth was to simplify the organization. So we went back and integrated all of the prior acquisitions that Lindsay has made. And now that, that has been completed, and those companies are now into what we call a one-Lindsay approach, our emphasis is moving towards growth. And acquisitions can be a contributor to our strategy. The acquisition of Net Irrigate earlier this calendar year is a great example of that. This acquisition has contributed to our strategy of widening our irrigation technology position. Now Brian will cover the topic of acquisitions in more detail later on. So what can we expect from Lindsay going forward? Well, the one that I want to highlight here is operating margin. We established a floor that I mentioned earlier through our foundation for growth initiative. Through our continued efforts on innovation and continuous improvement, we expect to continue to raise our operating margin. The rest of today's meeting, we will address why we believe these financial goals will be achieved. Now you're going to hear more about these key themes. Our next speaker is Randy Wood who is currently our COO and soon to be our next CEO. Randy has been in Lindsay for 12 years. And prior to his current role, he was the Irrigation President. Randy is going to provide an innovation update. When Randy is done, I'll come back and join Randy in a Q&A session. So let me introduce our next speaker, Randy Wood.

Thank you, Tim, and good morning, everyone. It's a pleasure to be with you today talking about innovation and how it's becoming a catalyst for growth in our company. We're going to start with a short video that addresses why this is so important. [Presentation]

An exciting video and an inspiring message to kick things off. So let's get started. Turning to our agenda. We'll cover these 3 key areas of innovation focus during our discussion today, our historical performance, how we're delivering results today and how we'll leverage our innovation capabilities going forward. Looking more closely at the global megatrends that require innovative solutions, we are positioned broadly in a leadership position that allows us to address all of these trends in our business. And in the end, it's about applying innovation to reduce the impact of a growing population on our environment and growing more while consuming less. This slide really covers one of our key messages. As you can see, Lindsay has been at the forefront of innovation in the mechanized irrigation space for decades. We've been first to market with many technologies that make a difference in the lives of our customers. Technologies like [RMAC], the first cellular-based remote control option in 1994 that allowed growers to farm from their pickup truck. These firsts have put us in the leadership position, and we intend to stay there. Let's move into how innovation is delivering results. I'd like to address how we've evolved our focus on innovation over the past several years. We've really worked to transform our company. We've always been focused on our customers, but we're more collaborative in our processes today. This centralized approach increases speed and reduces development costs. We're also investing more, and we'll see the results of that investment later in the presentation. Turning to growth. There are still significant organic growth opportunities by increasing technology penetration. We view the telemetry market as being 35% penetrated across all brands. That means 65% of the center pivot installed base does not have a remote telemetry unit on it. This is the battleground. We need to be first on those remaining machines as part of our penetration and growth strategy. And once you have a grower on your digital platform, you have the opportunity to walk them up the technology ladder to higher levels of service. Many of these create new subscription-based recurring revenue streams. This is an important slide. It really illustrates the focus and resources we are putting behind our innovation strategy. R&D spending focused on innovation has tripled over the past 3 years. We're applying for and receiving more patents than ever before. That has expanded our portfolio of intellectual property that will become part of our growth engine going forward. We're often asked, how does innovation impact your customers? What's the business case that motivates them to invest? There is tangible value being created by technology adoption and mechanized irrigation. This case study demonstrates how our irrigation scheduling tool, FieldNET Advisor, helps growers save water and energy while increasing yield. Helping a grower determine when and how much to irrigate based on the agronomic needs of a crop, weather data, soil type, planting date, growth stage, can have a significant influence on financial return and environmental impact. And payback of less than one season is a very compelling argument. Turning now to growth in the technology installed base. We've seen growth rates here that exceed the industry average for the past 2 seasons. We now have more than 100,000 active subscriptions, and the number of new devices that we're adding to our installed base is more than doubling on a year-over-year basis. And with domestic renewal rates approaching 97%, we are both retaining and attracting customers to our FieldNET platform. The ability to attract competitive customers is a key element of our growth strategy, and it's working. Gustavo will share more on that topic with you later. Now we'll address how we plan on leveraging these technology capabilities across all business segments. This is what's next. We have established 3 key innovation priorities. Let's go through each of these in more detail. Looking at priority one, technology leverage. We take these foundational capabilities across the business as opposed to working in vertical silos. This improves scalability, speed and efficiency, while allowing us to increase competency and capabilities across our entire organization. Pivot Watch is a great example of how this leverage allowed us to get to market quicker. Pivot Watch was a hardware solution that was developed for the oil and gas segment. It's already been tested and validated in some of the harshest pipeline environments in the world. That gave us confidence that we could take that same platform into the mechanized irrigation space. We'll also continue to grow that platform into our infrastructure business as well. Transitioning to priority number two, innovation within infrastructure. Breakthrough innovations drive growth, and that is demonstrated here by a new product we're developing called Road Connect. How many times have you driven past a road safety device, an end treatment or guardrail as you exited a highway offering and wondered why has no one fixed this? It's likely because they don't know it's damaged, unless they get a call from a motorist or it's observed by employees driving around making routine inspections. Road Connect with impact alert changes that, and it puts all physical inventory on one easy-to-monitor portal. Here, we see a simple dashboard showing status of a number of devices that will be maintained by the Department of Transportation or municipality, simple red, yellow, green indicators. Is it online? Is it healthy? Is it functional? Or has it been impacted? They know what needs to be serviced and when in real time, which keeps everyone safe. We see this market opportunity exceeding $150 million over the next 5 years. Our third priority focuses on irrigation. Here, we're demonstrating the value of agronomic imagery to a grower's bottom line. A plug sprinkler robs a crop of valuable nutrients and water. Detecting a problem early allows a grower to avoid negative impact on yield and profit. In this picture, we start to see a slight variation in a radius pattern indicating potential crop stress. This isn't observable with the naked eye at this point, but it can be sensed by an agronomic image. If we fast forward to September, we have another image and can clearly see areas of crop stress that have not been addressed. Those sprinkles were clogged all season long. Lastly, this is a yield map, the money map. Areas that are green had high yield, areas that are red had low yield. In this instance, it cost this grower 87 bushels an acre on over 12 acres of crop. That equates to $3,800 in lost profit that could have been avoided with early detection. Agronomic imagery makes that possible and scalable. We've looked at innovation at the field level. Let's look at innovation on the center pivot itself. We're developing a disruptive platform that uses our expertise in the industrial Internet of Things, IoT, to monitor center pivot at the component level in real time. This is technology that already exists and is actually quite common on other equipment that our customers use. On the left, we see a health screen shot from a Chevrolet truck and another from a John Deere tractor. These are exception-based reports, so anything that is read indicates there's an issue. On the right, we see a sample pivot with issues at the fifth tower. Digging deeper into the health screen, we can see a potential critical alert related to tire pressure on that tower. Now we can address that issue before it causes a machine shutdown, lost watering time and lost yield or we can schedule maintenance when it's convenient. These capabilities are the result of our partnership with Microsoft, and they change the way growers monitor and maintain their equipment. What happens when we combine agronomic imagery with the power of an IoT-enabled machine health platform? We create a disruptive innovation and a new machine category we call the Smart Pivot. These 2 smart streams are enabled by 2 strategic partnerships that greatly enhance our speed and capabilities, Microsoft, which we've already discussed; and Taranis, the industry's leading provider of agronomic imagery expertise across a broad range of row crops. Taranis has 6 seasons of row crop imagery experience and soon will be validating images collected from pivot-mounted cameras as well. Their artificial intelligence models allow them to detect sources of stress down to the leaf level where it can be addressed before it impacts yield. These concepts are much easier to see in action, so let's move into a software demonstration of the new Smart Pivot platform. [Presentation]

Hopefully, that helps illustrate some of the Smart Pivot capabilities and how we expect it will change the way customers use their machines. We recently held a Virtual Innovation Day that was attended by growers from 36 countries around the world. You can see that event video and learn more by visiting lindsay.com/smartpivot. So how big is the Smart Pivot opportunity? We believe it can be a significant addition to the technology platform that drives continued adoption of FieldNET. Anything that reduces risk, simplifies operations and increases profitability will be adopted by this segment. It's also an easy add-on to an existing machine of any brand and a FieldNET subscription, so we start to climb the technology ladder. If we combine the potential for agronomic imagery and machine analytics on the mechanized irrigation installed base, this could become a $95 million market over the next 5 years. Now that I've covered the 3 innovation priorities, let's bring this all together to see how this drives vitality. As you can see, we're seeing and projecting significant innovation-driven revenue growth. We are now tracking a vitality index that tells us what percent of our total revenue comes from new product launches. These are tracked for the first 3 years they are in the market net of cannibalization. We are projecting to go from low single digits up to 15% of our total revenues by accelerating our focus and investments in innovation. We've already seen more than 3x improvement in this important metric over the past 3 years, and we are on track to exceed our 15% goal by fiscal year '23. Let's wrap up the session with a summary of our key points. Innovation is driving growth for Lindsay based on 3 important elements. We have a proven track record and leadership position in this area, we are extending leadership position by prioritizing investment in innovation, moving faster, going bigger and bringing disruptive technologies. We're seeing early signs of success, and we're confident that will continue. As we stated in the opening, the key is applying innovation to reduce the impact of a growing population in our environments. Be it in irrigation or road safety, we're applying innovation to make the world a better and safer place, and Gustavo and Scott will tell you more about how those strategies will drive growth in our next segment. We'll now take a 5-minute pause and setup for the Q&A. Thank you for your attention, and we'll see you after the break. [Break]

Welcome back. We're ready to start our first Q&A session. We have had a number of questions submitted. But before we get to the first question, I want to address a topic that I'm sure is on everyone's mind. Last week, we announced that Tim Hassinger, our CEO, would be retiring at the end of the calendar year. And I'd like to ask Tim to share his thoughts that led into your decision-making process.

No, thanks, Brian, and I'm glad to get a chance to address that. When I came to Lindsay back in October of 2017, I had 2 key objectives that I wanted to get accomplished. Number one was lead a successful transformation, and the second was develop a succession plan. And I'm happy to say both have been achieved. Along with that, my wife has an opportunity, a professional opportunity in Indianapolis. So when we put all of that together, we felt like the end of the calendar year was a good time for this change to occur. Now along with that, one other factor was really important to me. And that was, I had a successor ready to take the role. And I'm happy to say with Randy here that he is ready. Now having said that, what we have put in place just as a new CEO, he may have some questions along the way. So I have agreed to provide a consulting as part of a consulting agreement to just help address any questions Randy may have during this first year. So all said, Brian, that's the rationale for the announcement of last week.

All right. Thank you, Tim. Our first question, you make a compelling case for the big-picture growth story for Road Zipper as well as the opportunities created by the shift left strategy. With that said, customer budgets do matter. So how do you envision demand for Road Zipper faring if transportation budgets are under pressure in the years ahead due to the aftershocks of the COVID-19 recession?

I'd be happy to take that one, Brian. It's an important question. The shift left has been a key driver for growth. But obviously, your customers' budget matters. I'm going to make a few comments here, and I'm going to actually hold this answering it fully until we get to our second Q&A because, between now and then, you're going to see some real compelling data from Scott Marion, who's our Infrastructure President. I actually think the ultimate answer to this question is, and tight budget actually can help us because what you're going to see is when you can substitute Road Zipper and save adding another lane of highway or potentially, if it's at the planning and design stage, making that bridge maybe 1 or 2 lanes smaller because you are able to utilize the flexibility of Road Zipper, it's a compelling investment. So Brian, what I would say is, in the near term, budget uncertainty, whether it's related to COVID, is a challenge and has to be addressed. But I think, as time goes on and the longer term fundamentals, I actually think this is an opportunity for the Road Zipper system going forward.

Okay. The next question, are the secondary or tertiary irrigation players keeping up with the industry leaders with the technology advancements? In other words, is the market share of the smaller players at risk because of the new technologies?

Randy, would you like to take this one?

I'll take that, Brian? We know that technology matters to our customers. It makes them more efficient, it saves their time, it makes their life easier. So we see technology being a continued driver in the purchase decisions that a customer is going to make. So going forward, it's going to be important that we have a very strong, competitive, industry-leading and differentiated portfolio. And we do feel that, that will drive market share growth. Commenting specifically on some of the other companies, I think, is difficult for us, but if we focus on what we have available, what we take to market and how it supports our customers, I think, we'll like the end of that story.

Yes. Great. All right. Our next question. Regarding the 12% plus operating margin goal, will fiscal '21 likely represent a small step back or down in operating margin before progressing toward the 12% plus goal?

Just given the tough comp in infrastructure after a record Road Zipper year in fiscal '21, I'll take that question. I think as Tim indicated and how we feel about our operating margin target going forward, we do feel like we've established a new floor for operating margin with our foundation for growth, and I'll talk more about that in the financial overview. Obviously, coming off of a record year on the infrastructure side does present a bit of a headwind, but we'll hear more from Scott in his presentation, too, about the pipeline of Road Zipper projects that we have that gives us confidence that we will continue to grow in the Road Zipper area as well. So I'll hold a little bit back on that question as well as we get into the second session of presentations.

Next question. Relates to food security, irrigation-related question, but we'll go ahead and take it now. Food security has been much talked about topic with the arrival of the pandemic. Assuming we get an effective vaccine, will the pandemic continue to drive food security for a sustained period or will the concerns fade? Also, are the major international irrigation projects commercially funded or government/UN funded? So a couple of questions there, but Randy?

Sure. Yes, I can cover those, Brian. If you look big picture longer-term and you leave COVID to the side for just a moment, we know that we have to grow 70% more food for a growing population. Before COVID even arrived, the pandemic arrived, that was a reality for us. The short-term issues created by COVID really alerted countries that are net food importers on the significance of the issues that they face. If you were a net food importer and the pandemic closed your borders, you're stuck. And I don't know that those countries, those regions of the world want to be in that position again going forward for any reason. So I think if you take the macro driver of population growth and the need for more food, that's sustained. That hasn't changed at all because of COVID. I think COVID has probably accelerated focus in that area, and we don't expect that to change significantly in the near-term without a vaccine. When it comes to funding, it's really a mix. Traditionally, historically, more of those projects had been government funded, but we do see a lot of private investment now from individuals in those countries who want to have a successful business, but they also want to help support the growth of their people and the growth of their country. So it's a mix right now.

Okay. Good. It looks like another question for Randy here. How do you build to the $95 million plus revenue opportunity in machine analytics? And what is the margin on that revenue?

Yes. That market stack up is really a bottoms-up walk, taking a look at the number of irrigated acres that have a center pivot on it. So we start with machine installed base and then we tack on to that a percentage adoption rate. There's a hardware component and a software component. So that's really the buildup. And we've taken a growth trend that mirrors what we've seen in pivot telemetry. We do think that could accelerate at a point in time due to the immediate payback of some of these technologies. And the margin on those businesses are going to be, I would say, accretive to overall margins. Generally, when you look at Software-as-a-Service and some of the innovative products, we do a little better there performance-wise in terms of margins. So I do think it could be overall accretive to the business.

All right. Another question. Is there an opportunity to raise pricing for the FieldNET Advisor product? Given the rapid customer paybacks, it seems like the product is priced low. I think I'll give that one to Tim. We haven't talked about that before.

Yes, we have. And the key thing here is what's our objective in the short term. And our key driver here is we want adoption, we want penetration. So recognizing that price plays a factor here. We have priced for adoption. So do we think to optimize margin, there is pricing potential there? Yes. But in at least in the near term, we do want to drive towards adoption.

Okay. One other question we've got here around innovation. So again, we'll give this one to Randy. You've covered a lot of information on innovation and why that's important to our growth strategy. What gives you the confidence that you can deliver the goals that you've laid out?

Yes. We're going to hear more from Gustavo this afternoon about how we view innovation and creating an ability to attract competitive customers. And it's really about the compelling nature of the technology and the innovation. If you have just monitoring, remote start, remote stop on the center pivot, we wouldn't describe that as compelling. It's really tough to differentiate with a technology solution that does simple operations like that, but does them remotely. When you start to stack on the integrated nature of our portal, the addition of the agronomic imagery, the addition of the machine analytics, we feel that starts to create this disruptive category that we've defined as the Smart Pivot. We view that as compelling enough that competitive customers will come to us for that technology. And once we have an ability to service them with that technology through our channel, then we believe we get a shot at the next pivot sale, the next machine sell after that. And Gus will go over that in more detail in his discussion in the second session. But that's how we link innovation to growth.

All right. And another question. Tim, can you talk about how you are managing through COVID? We're seeing restrictions being put back into place. And -- so how are your businesses faring?

Yes. Well, on COVID, let's kind of go through some of the facts. We're still classified as business essential. All of our plants are operational, and we continue to work from home. One of the things that we talked among ourselves, if you want to put it in the category of being fortunate, I really feel fortunate that we implemented foundation for growth before we had to deal with COVID. The 4 behaviors that I mentioned in my talk earlier have really helped us in this type of environment. And in addition to that, we've made a lot of process improvements, including automation. That has really helped us during this period. Now I have a chance to meet with several other CEOs around this topic, just to get a sense of comparison and benchmarking. What I see or would evaluate our performance so far in this area is, we seem to be in line or, in some cases, doing better. So my view on COVID right now, and we continue with our crisis management team meeting that occurs daily of our senior leadership team, is that our focus is we've got good protocols in place. We just need to make sure that we keep the discipline and focus on execution with a recognition that every day, we're evaluating our data, what's going on and willing and able to make changes if we need to.

All right. Well, that completes the questions in the queue for now. I think, hopefully, people are holding back and will provide their questions in the second session. Just a reminder, as you are watching the program, there is a tab for questions that you can provide questions at any time. And after the financial overview, we will pause for another Q&A session. So for now, we'll move on to the second session of presentations, and Gustavo will be first up.

Good morning. My name is Gustavo Oberto. I'm the President of Global Irrigation, and I'm excited to be with all of you here today. During my presentation, I'll be giving you an overview of the irrigation business and the megatrends that we're capitalizing on, and I'll close with the strategies that will deliver value and growth. Let's start with an overview of the business. This slide summarizes the performance of the irrigation business, which, in fiscal year '20, of $344 million, irrigation accounted for approximately 72% of total Lindsay revenues at an 11.7% operating margin. The irrigation business is global, and we ship products to over 90 countries from 6 manufacturing plants strategically located to serve the key international irrigation markets. Our go-to-market strategy is through an extensive and exclusive dealer network of more than 350 dealers. Now let me introduce you to our product portfolio. Lindsay offers a full range of mechanized irrigation solutions from in-field hardware instructors to advance IoT and telemetry. Most of these products are commercialized under the world-renowned brand name, Zimmatic. So why is it important that we offer the full range of mechanized irrigation solutions? That's because customers' needs are different. Whether based on field type, shape or topography, our full array of solutions allows farmers to maximize their farming operations. Now Lindsay has the industry's most complete line of mechanized irrigation solutions. What really differentiates our products is the fully integrated suite of intelligent irrigation tools we offer. When it comes to technology, there's no one size fits all, and Lindsay offers a full range of options, from entry level, do it yourself, monitor-only solutions, like our award-winning FieldNET Pivot Watch, to a range of solutions that add remote control capabilities for growers who decide to remotely manage their irrigation systems. Our most advanced solution, FieldNET Advisor, provides artificial intelligence that allows growers who desire the latest in remote sensing technology to providing with recommendations on exactly when, where and how much water to apply to optimize yield, maximize profit potential, while conserving water and energy. We have products that allow customer to start simply with our technology and grow with us as it needs change and mature, all the while developing trust and brand loyalty with us. And lastly, what's great about our technology is that it can be retrofitted on any brand or age of existing pivots in the field. Now let me turn to the key megatrends that drive our business. These are the 4 key megatrends that are the long-term drivers of our business. I will show you how we leverage our true competitive advantages to capitalize on these trends and deliver on our vision. So let's start with global food security. What this slide is telling us is that a growing population needs more food, and the farm production will have to increase dramatically upwards of 70% to support the growing population. In fact, this year, through the spread of the COVID-19 pandemic, the world cut a glimpse of just how important food security is. In one of the most efficient ways to increase farm production in ultimately food is by adding mechanized irrigation. This has driven several countries to increase their focus on the development of irrigated farmland. Let's turn to the second megatrend, and I'll show you how mechanized irrigation is an important driver of sustainability. So mechanized irrigation has been steadily increasing for over 20 years. As you can see here on the green section, how mechanized irrigation has grown from 35% of irrigated acres to almost 50%, all the while total irrigated acres in North America have remained relatively flat. This is exactly where we play, and this is a strong tailwind for us. That's because it provides clear advantages, such as improved yield, reduction in labor cost and conservation of water and energy over other forms of less-efficient irrigation. Now turning to our own sustainability goals. Helping growers conserve resources is so important to Lindsay that we've set our own sustainability goals to meet that challenge. So by 2022, Lindsay will help farmers save over 700 billion gallons of water and over 1 billion kilowatt hours of energy. What does this mean that our products and technologies and overall approach to the business will have a huge positive impact on the environment in our world. And I invite you to read more about our ESG commitment in our sustainability report published on our website. Let's now turn to the third megatrend and discuss some of the challenges that growers are facing with farm economics. Now more than ever, growers' income is uncertain, whether that's due to changes in demand driven by trade disputes, volatile commodity prices or changes in weather. Growers have never felt so much uncertainty about their income as they do today. So how can they mitigate some of this uncertainty? Well, here's one of my favorite slides. One of the best ways for growers to mitigate uncertainty is to invest in mechanized irrigation. Growers never know when Mother Nature will hit them with a drought, but a grower with a pivot system knows he can always count with the ability to make it rain. As you can see on the chart, the yield on irrigated corn fields is, on average, 44% higher than dryland. And what's most impressive is how that advantage increases to 225% in terms of drought, as it occurred back in 2012. So whether it's for yield consistency or yield enhancement, on average, an investment in mechanized irrigation always improves performance over dryland. But as illustrated on this chart, the investment really pays off in years when it doesn't rain enough to raise a good crop. Let's now turn to a case study that illustrates the value of investing in mechanized irrigation. Buying a pivot system not only has a compelling financial return, but it also offers a short payback for farmers. You can see the impressive 45% increase in yield in the payback of under 3 years. In fact, mechanized irrigation is the most cost-effective way to address yield uncertainty. Now let me turn to the fourth and final key megatrend that is transforming our industry. The ag-tech landscape is changing, making it harder for growers to make decisions on which technology to use. However, when something hits the mark and that's clear value, it is rapidly adopted by growers. To illustrate this point, you can see on the chart that rapid and widespread adoption to GPS and autoguidance technology has had on major crop machinery. The green line shows how GPS autoguidance has grown from 5% to 65% in 15 years, overtaking manual controls in tractors, combines and sprayers. Therefore, technology offers a large and attractive market opportunity for us. Let's see how we know that our technology strategy is working. Through data analysis, we have identified that where we have a high penetration of our technology, we also have a high overall market share. It shows that for every 1% increase in technology penetration, it boosts our Zimmatic equipment sales by 0.68%. This means technology helps us drive pivot sales. You heard from Randy that our renewal rates are approaching 97%. This is huge. And it validates that once customers experience the benefits of our technologies, it becomes very sticky and they stay with us. But don't take it from me. Let's go ahead and hear what some of our customers have to say about it. [Presentation]

This is a great video, and these are real customers experiencing the true benefits of our technology. Not only does it translate into profits and conservation of resources, but also some improvement in their quality of life. So why is our solution unique? FieldNET Advisor is the industry's first fully integrated, cloud-based irrigation scheduling tool. This means that FieldNET Advisor uses advanced algorithms in data from multiple sources to make recommendations on where and how much the grower should irrigate to optimize the crop. And here's how we simplify for the grower, and this is really important. Everything we offer, the machine, the controls and the agronomic science, all resides inside the same user interface, which is FieldNET. Let's now turn to how we will leverage Lindsay's unique and differentiated advantages to drive growth. There are 3 key focus areas we are confident will drive Lindsay to outperform the cycle. So let's start with innovation and partnerships. Randy touched on our approach to customer-first innovation and how important it has been for our transformation and how vital it is for our future. Additionally, strategic partnerships create value for our customers. They generate 1 plus 1 equals 3 synergies and expand our market share. It is important to highlight that our partners, which you can see on the screen, are also leaders in their space and have strong market positions. This strategy is working as evidenced by our extremely high renewal rates and our impressive year-over-year technology growth rates. But it's not only partnerships, but also the innovative technologies that will drive growth. In addition to our existing range of award-winning technologies and solutions, Lindsay has a solid pipeline of new innovations that will truly revolutionize and change forever the world of mechanized irrigation, such as the Smart Pivot presented by Randy earlier on, which was just launched last week through a very successful industry-first global virtual event. We are laser-focused on expanding the circle of innovation through technology, and we are successfully retaining customers while also attracting new ones. We are confident they will continue to migrate to Lindsay because the benefits of our technology are compelling. And once they are with us and had a chance to experience the benefits of our capabilities, they will stay with us. Our second growth priority is on achieving growth in this large global market. We estimate the global mechanized irrigation market is approximately $1.2 billion. The market is currently heavily weighted toward North America, but we expect long-term growth will be driven in the international markets due to both conversion of flood irrigated acres as well as dryland acres, adding irrigation for yield enhancement. And with the food security concerns I mentioned earlier, we are seeing attractive opportunities in Eastern Europe, the Middle East and Africa. We are 1 of 2 companies in our space with a global footprint, so we are in an ideal position to capitalize on this growth. Now turning to our third and last growth priority. The market we serve is large and has ample opportunity for growth and expansion, driven not only by technology penetration, but also through the conversion from dryland or other forms of less-efficient irrigation to make a nice irrigation. What you see here on the left is that there is a very large installed base in North America of more than 285,000 machines that provides a sound and ongoing business opportunity for replacement pivots, spare parts and for service revenue. On the right-hand side, you can see the significant global conversion opportunity that exists from converting other forms of less-efficient irrigation to mechanized irrigation. In fact, we expect the international irrigation market will eventually overtake the North American market due to the sheer amount of dryland acres that can be converted to irrigation. Now that we have covered our growth priorities, let's look at what this all means in terms of our growth outlook in numbers. The 3 focus areas of our strategy that I just covered position us well for sustained growth over the next 5 years. And as you can see by our CAGR, we plan to grow at a CAGR of 7% plus, which is attractive compared to the estimated industry growth rate of 5%. As I end my presentation, I'll leave you with the following: we are an industry leader with a unique and differentiated value proposition, addressing real-world problems that can't be ignored; our leadership position in technology will drive growth and market share; and we see significant growth opportunities in the conversion and replacement market. Thank you very much for your attention, and I'll now turn it over to Scott.

Hello. I'm Scott Marion, President of our infrastructure business. Now let's jump into the great opportunities within infrastructure. As we look at the agenda, we will cover these 3 areas of our business, a snapshot of our business today, what megatrends exist that make this an exciting market opportunity, and what are our key strategies for success. We are a global provider of road safety solutions comprised of a diverse set of offerings aimed at making global roadways safer. For us, FY '20 was a record year for the infrastructure division in sales, operating income and operating margins with strong performances in our products, which are the Road Zipper system, road safety products and road marking tapes. We also have an expansive global footprint of dealers and partners that enable us to execute our strategy globally. Let's take a moment to highlight the key product solution, Road Zipper system. How does the system work? Simply put, the Road Zipper system enables the efficient use of roadways by reconfiguring lanes on demand, allowing maximum utilization of the roadway. This increases road capacity, lowering total cost versus constructing new lanes, and improves the quality of our life and has a positive impact on the environment. Let's look at just how the Road Zipper system compares to these other construction costs. Here, you can see the Road Zipper system is an innovative and cost-effective solution. Building tunnels, bridges and freeways is a massive expense for our customers. Total costs are approximately $188 million per lane mile, freeways are approximately $11 million per lane mile, while the Road Zipper system is about $1.7 million per lane mile. In many cases, road capacity is not the problem, rather the fixed roadway does not allow the motorist to use the capacity when it is needed. The Road Zipper system is the most innovative and cost-effective solution to allow maximum use of existing roadways. Now let's take a look at the market trends, which are creating a significant market opportunity for Lindsay. Here, you can see the key market trends, which play to our strengths as an innovative infrastructure leader. Let's look at the first trend, congestion growth. Traffic congestion, driven primarily by population growth, has a measurable impact on our society. Population is expected to grow by 70 million people by 2045. And today, delay and fuel costs are approximately $160 billion. Each of us also lose over 40 hours. That's 1 work week per year. The DOT report recommends policy solutions that would increase road capacity by allowing the effective utilization of existing road infrastructure. Our Road Zipper solution is winning because it simply makes good financial sense. The second megatrend is our aging infrastructure. Our roads are old and in disrepair. The American Society of Civil Engineers' study based on current spending levels predicts we will underinvest in infrastructure by approximately $2 trillion. Regardless of the size of the next infrastructure spending package, it will not be enough. Maximizing our current roadway capacity will be necessary consideration. And as we've seen, Road Zipper system is the best option to solve this problem. There's a big need and there are few dollars, and this creates a great opportunity for Lindsay's product solutions. Now moving on to the third trend, increase in safety standards. Roadway fatalities are approaching 1.4 million globally. The World Health Organization reports road traffic deaths are the #1 cause of deaths for children and young adults age 5 to 29 years old. And a sobering reminder of this global problem can be found on their real-time tracker of deaths, which shows that a road user is killed every 20 seconds. Reducing serious injuries and fatalities is a priority for our customers, and it's the top priority for Lindsay. One example of just how effective we are at this is the Road Zipper system on the Golden Gate Bridge. A CNBC article reported that from 1970 to 2015, there were more than 100 serious or fatal accidents on the bridge. Since installing the Road Zipper system, there have been 0 serious or fatal accidents, that's 0. This is a great proof point that Lindsay infrastructure products are proving effective at reducing serious injuries and death. And finally, the fourth key trend is the technology explosion. Now chances are everyone here has some sort of technology on their vehicle today that is designed to keep you on the road. We live in a digital age and with the rapid growth of autonomous vehicles and the cars we drive. The technology ecosystem evolves around the vehicle communicating with other vehicles, networks, pedestrians and the roadway infrastructure. As you recall from Randy's update, Lindsay is entering this ecosystem with the introduction of our new Road Connect solution. Road Connect will enable space agencies to improve the maintenance of roadway assets and will evolve into an effective gateway between the infrastructure and vehicles. Road Connect begins our journey in this emerging market. Turning now to our growth initiatives. We have 3 clear priorities, which you can see here. Our first growth priority is increasing Road Zipper market penetration. Shift left is a disciplined selling process, whose goal is to have our offering specified as the solution. In the past, we too often entered the project time line at the bid stage. And what this means is that a design had already been selected and the Road Zipper system was only considered as a technical alternative. This created a major challenge for being awarded the project. Our shift left strategy has us working with our clients early in the design phases, which allows our customers to evaluate all the benefits of using the Road Zipper system to meet the project's needs. A notable success resulting from this strategy is we are seeing an increase in our lease business. This gives us a more predictable revenue year after year, helping bridge the lumpiness in our performance. Now let's hear from one of our customers who represents a shift left success. [Presentation]

For several reasons Highways England cannot add capacity and a fixed solution would cause hours of delays for motorists. The Road Zipper solution allowed them to create the needed flexibility that would minimize the impact on the motorists. This is a perfect example of how Lindsay's innovative solutions are solving global problems. And as a result of our shift left strategy, we have created a robust sales funnel, a strong pipeline of projects is key to our future success. Here, we are sharing with you today, for the first time, our sales funnel, which will give you more context and more confidence in our future performance. We're actively engaged in over 100 projects around the world. The stages on the right-hand side of the funnel shows over $160 million with close-rate probabilities of 25% or greater. And these stages are important because they represent projects that have been reviewed and confirmed by our team as a viable Road Zipper opportunity. The result of our shift left strategy has produced the strongest pipeline of projects in our history. And worth mentioning, again, in this sales funnel, there is an increase in lease activity. And since these types of projects occur every year, it gives us a predictable base of business. Finally, global adoption is a strategic priority for us. And with over 20 countries represented in our funnel, we are confident that we can win in all regions of the world. Now turning to our second growth priority, accelerating innovation. In a changing world with new and challenging problems, innovative solutions are setting us apart. Critical to our shift left strategy and growing our funnel of opportunities is continued innovation across all product lines. Within the Road Zipper solution, the barrier provides the life-saving protection, but the machine is the unique ability to move the barrier for on-demand flexibility. The picture shown here on the left is of our standard design for our construction application, which has been around for a number of years. As part of a customer-first innovation initiative, we engaged in a machine redesign, going from rendering, shown here in the second picture, to road in just 18 months. Also in the coming months, we'll be launching the next generation of our permanent class machine, and we're not stopping there. All designs will be equipped for the future by being equipped with and connected to Lindsay's Road Connect. In continuing our innovation story, regulatory changes have sparked new innovations in our road safety products. As global safety standards increase, the need for new innovations increases as well. As we saw in the market trends, increased safety standards are occurring globally. In the U.S., we had a new standard that we turned into a customer-first opportunity. Here are 2 examples of new crash cushions that incorporated customers' input, which led to features that help keep motorists and workers safer. With the transition and adoption by each state, we are seeing strong growth in our new line of road safety products. And finally, our third growth priority, international expansion. We have a large addressable market with significant global expansion potential. Many people just do not realize how large the addressable market is for our product solutions. As we replicate our shift left strategy and introduce innovations globally, we fully expect to expand our market share. We have a large market, we're experiencing strong growth, and we're confident that we can continue to see global growth for all infrastructure products. Just what does this mean for the future of the business? We are positioned well for ongoing growth over the next 5 years. We anticipate growing faster than the infrastructure GDP market global rate. This will be fueled by our shift left strategy, innovations that solve our customers' real-world problems and global expansion. In summary, we have a strategy in place to continue our growth, our funnel is the most robust it's ever been, innovation is fueling our momentum, and we're just beginning. And with a strong global market need for our solutions, we are positioned to win. Thank you. Now next up, Brian will provide a financial overview.

Thank you, Scott. Now that we've heard from both Scott and Gustavo, we will now look at how we've improved our financial performance without help from the market, our capital allocation priorities, and how we will measure our long-term success. Our performance improvement in fiscal 2020 was driven by the successful execution of our Foundation for Growth initiative, and we compare 2020 to our performance in 2017, which was the baseline we used when we developed our Foundation for Growth objectives. I would like to point out that revenue for both 2017 and 2018 include approximately $80 million from businesses that were divested by the end of 2018. If you exclude the revenue from the divestitures, revenue for our core irrigation and infrastructure businesses was relatively flat over this period, except for the infrastructure growth that we had in 2020. 2018 and 2019 were transition years as we went through our Foundation for Growth transformation, with most of the heavy lifting being done in 2019. Our objective was to have the Foundation for Growth projects implemented by the end of fiscal 2019, so that we would enter 2020 at our new run rate, and we did that. So the key takeaway from this slide is that without significant revenue growth, we lifted our operating margin performance in 2020 to 11.4%, which is an improvement of 360 basis points over 2017, and we increased our earnings per share over this period by 64%. So how did we achieve our operating margin improvement, especially when the ag market conditions became even more challenging because of the U.S.-China trade dispute, followed by the coronavirus pandemic? You can see from this waterfall chart how Foundation for Growth drove this improvement. Our margin improvement projects in the sourcing, manufacturing and commercial work streams delivered as planned. Our shift left strategy for Road Zipper proved to be even more successful than we had anticipated, and this enabled us to overcome additional market headwinds in irrigation that had not been anticipated when we developed our 2020 goal. We now feel that we have established a new floor for operating margin going forward, and we aren't stopping there. The coronavirus pandemic was certainly a challenge we faced in 2020 that could not have been anticipated. This created some additional market headwinds due to its impact on commodity prices and supply chains, and it also impacted how we do our work. Our highest priority during this time was keeping our employees safe, while keeping our plants running in order to continue serving our customers. Our people adapted very well to this environment. We focused on playing offense, playing to win and continuing to execute on our strategic priorities. A great example of this was how we approached the Highways England project. Although we were faced with logistical challenges and travel restrictions, our team was able to adapt and complete our deliveries ahead of schedule. Turning now to the balance sheet and capital allocation. We emerged from fiscal 2020 with a very strong balance sheet and with solid liquidity to fund growth. Our cash position and existing credit facility provide $171 million in available liquidity, and we have the capacity within our existing debt covenants for an additional $120 million in borrowings. So how do we think about capital allocation? Well, our priorities have not changed. First, we want to support the growth and profitability improvement of our current businesses through capital expenditures and working capital investment. Second, we are looking for acquisitions that would align with our strategic growth priorities and leverage or add to our existing capabilities. The Alexis acquisition in 2015 is a good example of how we were able to take the capabilities that Alexis had in remote monitoring for oil and gas applications and leverage those capabilities into irrigation and the further development of our FieldNET platform. Pivot Watch is a new product that came directly from an existing oil and gas capability. The Net Irrigate acquisition that we completed earlier this year provided additional market penetration and market share growth in remote monitoring for irrigation. And thirdly, we intend to continue returning capital to shareholders through both dividends and share repurchase. In looking at capital expenditures, you can see that we have elevated the level of capital expenditures over the last 2 years. You can also see that most of that increase in capital expenditures has been focused on growth. Examples include adding to our Road Zipper lease fleet, continuing to build out our FieldNET platform and investing in a new poly line pipe production facility in Lindsay, Nebraska. When it comes to returning capital to our shareholders, our history shows an increasing level of dividends as well as share repurchase. Since we raised our dividend level in 2014, our payout ratio has averaged about 50% of net earnings. In 2020, the payout ratio was 35%, and we would expect to be in the range of 25% to 35% going forward, while continuing to increase the dividend. Over the last 6 years, we have made share repurchases totaling $186 million. We paused over the last few years during our Foundation for Growth transformation, but we expect to resume share repurchase at some point going forward. So how will we measure success going forward? In terms of our long-term financial goals, we expect to average greater than 5% annual organic revenue growth, supported by innovation and market growth. Any acquisitions would be over and above that level. As mentioned previously, through Foundation for Growth, we believe we've established a new floor for operating margin and would expect to average above 12% through continuous improvement and supported by revenue growth. This leads to a goal of average annual earnings per share growth of greater than 10%. These financial goals are not all that different from what we've had in the past. What's different is that we are now better positioned to deliver these types of results more consistently. So the message I'd like to leave you with is this, through the successful execution of Foundation for Growth, we've established a new floor for operating margin, and we are well positioned for growth. We will now take a 5-minute break to assemble the question queue for the final Q&A session. [Break]

Welcome back. We're ready to get started with the second Q&A session. Before we do that, I have a couple of things to mention. Gustavo will not be able to join us for the Q&A session. He had a personal matter that he needed to attend to. So Randy will be taking any irrigation questions that we have. Secondly, there is a Resource tab on the web platform that we would appreciate, at some point, that you complete a short survey to give us feedback on how the investor presentation was, if it met your expectations? So we'd appreciate you completing that survey. And then at the end of our Q&A session, I will turn it back over to Tim for some closing remarks. So with that, we'll get into the first question. The case for smart irrigation is clear, but presumably, overall market penetration and market share are heavily influenced by the dealer. So how do you manage your dealer network to ensure that you have the best representation on the ground? Can you share some insight on how you manage your channels that is educating dealers, supporting them, holding them accountable, et cetera?

Randy?

Perfect. Yes. Thank you, Brian. The management of the channel is one of those fundamental business processes that's critically important to our business. And whether it's smart pivot, the irrigation equipment itself or FieldNET, our customers really rely on our channels to help them learn how to use the equipment, get the most out of it and make sure it operates efficiently. We do have a program here that we call Circles of Excellence that is really our certification program to make sure our channel is trained by our technicians to support that equipment, to sell that equipment, to make sure it's going into the right application. We've also got here, in our office, our technology support center that supports our dealers and customers around the world. We've got a group behind the wall here, actually, that's got the headsets, the computers and all of the hardware available to them. So we do have a 2-tiered system. We prepare our dealers and make sure they're capable of supporting technology. And then we've got the back-up here in our office to make sure that our dealers are supported as well.

All right. Another irrigation question. Grain prices are up again today. We've not seen these levels since 2014. It may still be early, but what might you be hearing from the North America dealers about the upcoming selling season?

Yes. I would say it's not even the upcoming selling season at this point. We're in the selling season, and our dealer feedback, right now, is robust demand. And I think customers, when they're profitable, when they make money, they look at ways to invest that capital to make significant returns to their operation. And we know that irrigation certainly does that, based on Gus' presentation, we know that the continued adoption of technology is something that they're interested in investing in. So I would say sentiment is high, dealers are busy, and we do see a good, strong demand trend going into the end of the calendar year.

Great. Similar question, but a little different slant on it. Which market's growth profile, U.S. or international, do you believe is more exposed if the multiyear downturn we've endured continues going forward?

Yes. I'll maybe split that just a little differently. Instead of domestic and international, maybe look at mature versus developing. And it's those mature markets that are more driven and connected to commodity prices, net farm income and government subsidies. Those developing markets, more project oriented, longer-term capital investments, maybe more connected to global food security. So we see those ones being a little more sheltered when it comes to short-term trends in commodity prices. So we would look at those mature markets being more heavily impacted if the grain price downturn continues. And so far here, the last several months, that's not the case. But those international markets, less connected to grain prices, probably be a little more resilient in the long term.

Okay. There's a focus on sustainability and irrigation and, thus, water savings. But what's the company's broader view on water availability for its customers? Factoring in aquifer depletion, et cetera, and future potential regulations on water use? Tim, you want to take this one?

Sure. Well, the first thing is, the key factors that you just said, Brian, in the question, we see that continuing. So the general public's interest in recognizing what the water supply is and where the water is being used, the potential of charging for water, we've seen that continue to increase on a global basis. So to us, these trends is what leads us to believe that the type of technologies that you've seen already this morning are only going to increase in importance. And what we've been able to demonstrate with a technology, like FieldNET Advisor, is, on average, you've been able to get equal or better yields with 17% less water. One of the new benefits we'll be able to offer in Smart Pivot is actually back engineer. How much water do you have and then it will tell you how much and when you should irrigate associated with that. So we see that trend continuing, and we want to make sure our technology is aligned to those trends.

All right. Along the lines of irrigation technology, can you talk more about technology revenue within irrigation? And how fast that is growing, FieldNET, et cetera? And including the $95 million analytics opportunity, how big could technology sales be in 5 years?

I'll take the first part of that question, and then, Randy, I'll turn it over to you. But we have not, up to this point, broken out our technology revenue. What we have said is, obviously, we've reported on the growth in subscriptions. It is becoming a more meaningful number. But it's also -- we've commented that has been supportive of margins. So at some point in the future, we probably will be breaking out technology revenue. But at this point, we have not, for competitive reasons. But Randy, along the lines of that $95 million analytics opportunity, how big do you see that becoming in 5 years?

We've really built that number, as I mentioned earlier, from the bottom up. We've looked at how many acres are there in mechanized irrigation, what percentage of those customers do we feel in that 5-year window are going to buy into and invest in that technology, and that's really how we got to the 5-year number. That's an assumed price on an assumed number of acres connected to the installed base of center pivots here in the U.S. and around the world. I think growth, after that 5-year window, is really going to be contingent on continued payback. And this isn't technology that only benefits big fields, it isn't technology that only benefits big growers. This is something that a 2- or 3-pivot customer can leverage and take advantage of to improve their profitability. So adoption here, we feel, could be significant in the long run because it does everything that a customer wants to validate their investments with it. It makes their life easier, it improves their profits, it improves their efficiency and it manages their risk more appropriately. So we do see a lot of upside potential in this particular market segment. And that number, to be clear, was a combination of the imagery on center pivots and the Smart Pivot machine health monitoring on center pivots.

Follow-on question. What is the sales model for FieldNET and analytics? Is it subscription based? And how is it priced?

Yes. That's the beauty of some of these -- I mentioned in my presentation, the technology ladder. A lot of what we can bring to customers in terms of value and product enhancements is in the portal. It's in the software. It's Software-as-a-Service. So that model will be, in addition to a FieldNET subscription, for the partnership with Taranis, and that will be paid for on a per acre basis. The machine health, analytics and monitoring will be a separate subscription attached to that machine. The caveat is there'll be sensors attached to that as well. So as we start to monitor gearboxes and center drives and tower structure, we'll have some of those sensors on the machine as well. So that revenue model is a combination of hardware and software, very similar to what we see with FieldNET today.

All right. We're going to change things up and go with an infrastructure question here. For the $160 million plus revenue opportunity associated with qualified firm and expected Road Zipper projects, over what period could that revenue be recognized? What is the farthest out one of those projects might be recognized? How many years?

So on the -- something to note and the funnel is it does represent the backlog. So that's going to be on top of what we show in the funnel. And so in the 160 -- and generally speaking, you're 1 to 5 years over that time line. And then also -- you need to pay attention also to left of the center, the larger number. There's an opportunity for a project or 2 or many projects to move up into the funnel over that 1- to 5-year window as well.

All right. And another question on infrastructure. What kind of cost does the shift left strategy entail? It would seem that staying ahead of so many upstream opportunities is labor-intensive. Also, how does the lack of an in-person Department of Transportation meetings and industry conferences, et cetera, impact business development?

Well, we have made investments in our commercial team around the globe, whether it be the upfront commercial sales or the field support, which is important. What's also important to note is it's scalable. So as we grow, we have a strategy and a process that's able to be replicated around the world. As far as how we've been operating in the environment that we're in, in some ways, we have found that, through technology, our meetings are more impactful, in fact. There -- one person who is on a plane traveling to many locations, historically is able to cover a larger territory from their home and working with the engineers specifically. So we've been able to leverage technology to keep ahead of what we're dealing with in the pandemic.

All right. Thanks, Scott. This deals with market growth expectations for irrigation. So over the last decade, the market growth expectations for the irrigation business have declined from double digits to now 5% over the next 5 years. Why has the market growth expectation declined? The irrigation market has seen no growth over the last few years. What underpins the assumptions that the market returns to growth over the next 5 years?

Yes. I'll take that one, Brian. When you look at some of the megatrends and the long-term market drivers that Gustavo addressed in his presentation, those don't change and don't go away, and we might see short-term puts or takes on the market size, based on short-term commodity prices, based on short-term government incentives. But when you look at the long-term nature of this business, it's -- the growth trends are there because we're going to have to produce more with less. And we've been bouncing along a trough here coming out of the 2012, 2013 period. That's made it very difficult, I think, to predict where these markets are going to go. What we are seeing now is some pent-up demand from customers that have been waiting to replace machines now that they're seeing 2 rounds of coronavirus with assistance program money, now that they're seeing good signs on the demand side of the ledger, to take commodity prices up and farm income up, sentiment improving, we are seeing some of that growth right now. And that 5% is a long-term number. It won't be 5% year over year over year. We could see some increases and decreases. But over the long term, we do think the fundamentals of this business are strong, and we believe in, in the growth trends that we're projecting.

All right. This next question. I'm going to give it to Tim related to acquisitions. But Tim alluded to the 2006 Barrier Systems acquisition, which was met with some skepticism at the time for being outside the core, but has since been validated as an attractive addition to the portfolio. If the opportunity arose, would the company consider adding a third platform that at first blush may not seem to be a natural fit?

Yes. So our thinking on this is we're open to adjacent space but having linkage and the ability to leverage. And you can hear from today's presentations, we're very focused on a core center capability around IoT. So Brian, I could see an opportunity of going into a space, if there was an opportunity to leverage and link our IoT capabilities. But just, if you want to say, off on its own with no linkage, today, that's not where our direction is.

Okay. I've got a couple of questions related to operating margins. I'll combine. Brian noted that a new floor has been set for margins. What does Lindsay think that floor on margins is? The other question is we've delivered the 11% to 12% for 2020 but benefited from a strong mix of infrastructure business. Our margins sustainable above 11% in 2021 without some large Road Zipper project wins. So to answer the first question, we do believe that we have established a new floor for operating margin with our Foundation for Growth initiative, and we would say that, that floor is the 11% to 12%, 11.4% in 2020. Going forward, we see -- continue to see through continuous improvement additional opportunities for margin improvement projects. We also see -- in 2020, we saw that the ag market had been further depressed from where we had anticipated it would be. So we see some recovery starting to occur in the irrigation business. We -- Scott talked about the pipeline on Road Zipper. So we feel going forward that we're well positioned. We would expect again that we've established that floor, and we believe, longer term, to be above that 12% operating margin would be our target. Question, is the firmware for FieldNET Advisor complete with Net Irrigate acquisition? Are more small deals or larger, higher risk M&A? So...

I'll maybe take the Net Irrigate question and give it to Tim for the M&A discussion. The Net Irrigate integration into our business was really designed to be post season. We didn't have the runway that we needed to take all those customers and convert all the devices and all the firmware into the FieldNET platform. So that work is ongoing today. And our plan is to have that completed for next season.

Yes, and I'll take the second part of that. Let's link back to the 3 points of strategy, focused on continuous improvement, and then the second and the third are the ones that I want to highlight here, widen our irrigation technology leadership position; and then the third one, increasing our Road Zipper penetration. The point number two and point number three are the areas that we would be most interested today where an acquisition can contribute to our growth. And Net Irrigate is a good example of that, where it contributed to growth.

Okay. Two more questions that are similar. So I'm going to combine those. One is around R&D expense going forward to maintain innovation in both irrigation and infrastructure. And going back to the vitality figures, any major changes to how you allocate time or capital to R&D and M&A to achieve the 15% target?

I'll take the question, and if someone wants to add to it, they can. I think what we've seen is total R&D expense isn't necessarily increasing. We've averaged, the last couple of years, about 3% of sales. What is changing is how we allocate that R&D expense. As you recall, we've gone through a transition period on the infrastructure side with our road safety products going to MASH. That had taken a fair amount of R&D. So we're able to now reallocate R&D to -- more of our R&D expense to innovation. So we don't see necessarily total expense going up. And to get to that 15% vitality index, we view that all as organic new product opportunities. We don't anticipate needing M&A in order to get there.

Brian, can I jump in? I think one of the things that I'll sort of highlight here is this has been a benefit of foundation for growth because what we've been able to do is find productivity in groups like engineering as an example and then be able to reallocate some of that productivity towards innovation. So that's been a real benefit that we've derived from Foundation for Growth that we haven't talked a lot about publicly.

Okay. Next question is, how important is the Lindsay international dealer network compared to your larger competitor for competing for large international projects?

Yes. It really depends on the market. And again, if I take international, you've got international markets like Brazil, like Australia and New Zealand that we consider more mature. And that channel partner in those regions is critically important in getting access to the customer and growing market share. In some of the project-oriented markets, more of the focus is on the long-term capabilities for service and support, less so on the upfront selling. As an OEM, we get a lot more involved in some of those government projects and large investor projects. So the channel role in those transactions is really about having that long-term service and support model in place. And in some cases, we participate as an OEM in those relationships as well. So we really adapt the model to the customer needs and like the competitive position that we're in.

All right. A couple of more questions. We've talked about the growth rate in subscriptions over the last year or 2 years. What do you think the growth rate -- a reasonable growth rate over the next 2 to 3 years in FieldNET?

Yes. We're at -- you have to look at it in a couple of different ways. So that 20% CAGR that we talked about earlier, we think that's going to continue because we're just now entering that mass market, where we're about 35% penetrated. So we're just getting into the real meat and the largest portion of that market to win there. You've got to have a product mix and a solution mix that is attractive to those customers. And that's where something like Pivot Watch is so important for us. We're now getting into that DIY segment where a customer could buy that device on Amazon, have it shipped to their home and strap it on to their center pivot. That's going to drive penetration of this now mass market that we've got. So we're going to see growth there. The other thing coming behind all of these devices, and we mentioned this earlier, is the technology ladder. And once you've got somebody with a Pivot Watch doing monitor-only, they might think, it would be really convenient if I could start and stop that machine as well. So now you migrate them up the ladder to a FieldNET full telemetry device, and now you've got a higher cost and higher value, higher feature set subscription to start and stop. And then the customer might think, "Boy, really be convenient this thing would tell me how much and when I need to water," and you add FieldNET Advisor and you can add VRI, you can machine -- add machine analytics, you can add agronomic imagery on top of that. So we have to look at the subscription model a little differently going forward because there's going to be a number of tails. As telemetry takes off, we're going to have VRI, machine analytics coming in behind that. So I think that 20% CAGR, going forward, is certainly attainable, but it's not going to be just pure device growth as we define devices today.

Very good. And our last question, I save this one for last. Lindsay has now passed a key market cap milestone as a $1 billion company. Has there been any thought given to issuing annual EPS guidance? The answer is, yes, there's been thought given, but no decisions made as of yet. It's obviously something that we would consider along with our Board. So that completes the question-and-answer. I would like to turn it over to Tim at this point for a few closing remarks. Thank you for your attendance today. And also, please remember to click on the Resource tab and fill out the feedback survey. We would appreciate that.

Well, thank you for the questions that you asked and all the participation. I hope you see the same thing I see. Leaders that want to win, believe they can win and have plans in place to win. So how does Lindsay win? Well, it takes robust talent, strong and healthy culture, leading innovation and a clear business strategy. Today's goal was to provide you more information on these points and help you better understand Lindsay and the direction it's going. The last thing I believe it takes to win is confidence. We demonstrated confidence 3 years ago when we committed to 11% to 12% operating margin. I can tell you the confidence across the Lindsay organization is at an all-time high. Also, I want to personally say thank you. I've had the opportunity to talk with many of you during these past 3 years. And I will be leaving the CEO role at the end of this calendar year. I can tell you it will be in good hands. I have invested in Randy's development in the past 3 years, and Randy taking the CEO role was my recommendation. And that's why I have the confidence to say what I just said. So in closing for today, we appreciate your time and interest in hearing more about Lindsay. Thank you, and be safe.