Good day everyone and welcome to the Titan Machinery Incorporated Fourth Quarter and Full Year Fiscal 2016 Conference Call. Today’s event is being recorded. I would like to turn the conference over to Mr. John Mills of ICR.

Thank you. Good morning, ladies and gentlemen. Welcome to the Titan Machinery fourth quarter fiscal 2016 earnings conference call. On the call today from the Company are David Meyer, Chairman and CEO; and Mark Kalvoda, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2016, which went out this morning at approximately 6:45 am Eastern Time. If you’ve not received the release, it is available on the Investor Relations tab of Titan’s website at titanmachinery.com. This call is being webcast and a replay will be available on the Company’s website as well. In addition, we are providing a presentation to accompany today’s prepared remarks. We suggest you access the presentation now by going to Titan’s website and clicking on the Investor Relations tab. The presentation is directly below the webcast information in the middle of the page. Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. These statements are based on current expectations of management, and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Titan’s most recently filed annual disclosure report. These risk factors contain more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Titan assumes no obligation to update any forward-looking statements that may be made in today’s release or call. Please note that during today’s call, we’ll discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan’s ongoing results of operation, particularly when comparing underlying results from period-to-period. We have included a reconciliation of these non-GAAP measures for today’s release. The call will last approximately 45 minutes. David Meyer will provide highlights of the Company’s fourth quarter results and a general update on the Company’s business, then Mark Kalvoda will discuss the Company’s financial results and the fiscal 2017 annual modeling assumptions. At the conclusion of our prepared remarks, we will open the call to take your questions. Now, I’d like to introduce the Company’s Chairman and CEO, Mr. David Meyer.

Thank you, John. Good morning, everyone. Welcome to our fourth quarter fiscal 2016 earnings conference call. As John mentioned, to help you follow today’s prepared remarks, we provided a slide presentation, which you can access on the Investor Relations tab at our website at titanmachinery.com. If you turn to slide three, you will see a quick overview of our fourth quarter and full year financial results, which came in as I expected from the preliminary results we announced with our pre-release a few weeks ago. Revenue was $335 million, primarily reflecting lower agricultural equipment sales in North America as this segment continues to face prolonged industry headwinds. The adjusted pre-tax loss was $45.4 million, which included the inventory impairment charge previously discussed in our pre-release. For the full year, we generated revenue of $1.4 billion. Our adjusted operating cash flow was $44.3 million and adjusted pre-tax loss was $43.7 million. For the fourth quarter and full year, our financial results were impacted by continued headwinds in the ag and energy industries. Throughout the year, in order to successfully navigate the challenging environment and have us well positioned as the industries recover, we’ve continued executing on our equipment inventory reduction plan and our corresponding floorplan payables. In addition, we expanded the inventory reduction plan in the fourth quarter to include the marketing of the certain aged equipment inventory through alternative channels rather than our normal retail channels. As a result, we recorded an inventory impairment charge of approximately $27 million or $0.77 per diluted share, related to the expanded equipment inventory reduction plan, which Mark will discuss later as well as provide additional color on our financial results. Slide four lists the discussion points for today’s call. First, we will discuss the headwinds we are facing in our agricultural segment as…

Thanks, David. Turning to slide eight, our total revenue for the fiscal 2016 fourth quarter was $335 million, a decrease of 31.6% compared to last year. Equipment sales decreased 37.4% quarter-over-quarter, which was impacted by the headwinds in the ag industry that David discussed. The decrease in equipment revenue was higher than the overall decrease in revenue as equipment revenues are more affected by the current market conditions compared to our more stable and higher margin parts and service business. Our parts sales decreased 5.4% in the quarter while service revenue decreased 6.2%. The softness in this quarter’s parts and service revenue was primarily attributed to a decreased amount of customer preventative maintenance and continued lower warranty and pre-delivery service work, as a result of lower net -- lower new equipment sales. Our rental and other revenue decreased 23.1% in the fourth quarter, primarily due to the lower utilization of our rental fleet. Our rental fleet dollar utilization was 22.5% for the current quarter compared to 24.5% in the same period last year. The decreased utilization was primarily due to the lower oil prices reducing rental demand in our oil producing markets, partially offset by increased rental demand in our non-energy markets. On slide nine, our gross profit for the quarter was $16 million and our gross profit margin was 4.8%, a decrease of 910 basis points compared to the same quarter last year. The decline was primarily due to the $27 million impairment charge related to our decision to market certain aged equipment inventory through alternative channels rather than our normal retail channels as part of our expanded equipment inventory reduction plan. I will be providing more information regarding this plan in a few moments. Exclusive of the inventory impairment charge, the decrease in gross profit is primarily due…

Thank you. [Operator Instructions] Our first question comes from Steve Dyer from Craig-Hallum.

Thanks. Good morning, guys. As it relates to the permanency of Section 179, do you anticipate that’s going to change the seasonality of the business at all, just given that it’s been waiting until the last minute the last few years?

No. Steve, I think it’s going to give the customers little bit of chance to plan their business. And some of the seasonality is reflected in presales and all that, and I think all that continues to be the same.

Okay. And then, as it relates to the inventory, I know you are going to parse it out over the next several quarters in terms of how you are going to get rid of it. Is the impairment on the income statement, is that -- do you anticipate that’s a one-time event?

Yes. So, what we did at the end of the year is all of this $74 million, we took that, we took that impairment charge all in our fourth quarter. So everything that we’ve identified, the flow through, those alternate channels, we’ve hit the P&L here in the fourth quarter. So, we brought it down to a level where that’s the requirement from GAAP is to bring it under a level where we can achieve some reasonable margins going forward.

We’ll go next to Mig Dobre of Baird.

Good morning, guys. Maybe we can talk a little bit about how you’re thinking about capital deployment, especially in light that you bought back some of your convertible bonds and I guess a few things here. We obviously are seeing the equity component of equipment inventory financing continue to go up. What do you view as the new normal here; how big of a drag is this going to be in fiscal ‘17, if you would, to cash? And then in terms of capital deployment, I understand that you’re looking to delever, but with the stock trading below book value, isn’t that sort of an attractive way to deploy capital as well?

I think, we’re looking at all alternatives. We looked at for capital and allocation decisions like that. I think especially since -- we obviously are indicating we haven’t seen the bottom of the ag as we’re indicating revenue is going to be down this year. We feel that it’s prudent to take down our debt, to continue take down our debt, especially with the convert where we can take it down at a discount and basically get a 17% discount for paying it back at this point in time. But certainly as we move further through the cycle, I think it does open up some other opportunities for capital allocation as well, and we’re looking at all of those alternatives.

Can you talk about the equity and equipment inventory?

Sure, yes. The equity and equipment inventory, so that did go up to 25% by the end of the year. Now, when we do, do things like the converts that actually will cause us to go to pull from that someone where that equity and equipment will come back down because we’re deploying that to pay off the convert. But we do anticipate over time baring any other capital allocation decisions that that will continue to creep up through the year, as we generate more cash from selling our inventory and paying down some of that floorplan.

But do you have a specific target? I’m sorry to keep pushing on, but do you have a specific target in mind when are you looking as to what the optimal amount of equity in inventory should be?

No, not particularly; it’s not like we’re shooting for a 35% or 40% or anything like that. We’re not really targeting a specific amount. I think we’re looking more at the timing and with the cycle and what’s our best alternative for the cash that we are generating at that point in time. So no, there is not a specific target that we’re looking to hit.

Okay, then two more from me. In light of the challenges that you’re outlining and the fact the revenues are going to be down again in ‘17, how should we think about the SG&A run rate; do you have any plans to continue to work this number down going forward?

As far as SG&A goes, we made a lot of -- we did a lot of work last year where we brought that down $53 million last year, year-over-year. We don’t have anything near the level that we talked about last year at this time with the realignment plan. I would say, it’s a combination of smaller initiatives to bring that down. We do expect SG&A to be lower than that of this past fiscal year but not a material change, like we had in the past. Other line items, certainly with inventory being reduced, our floorplan interest expense will continue to come down nicely. And as we pay off some of this convert, our other interest expense, so our financing costs become a good but less than what we had last year but SG&A is not going to move near to the level that it did last year.

Great, appreciate it. Thank you.

We’ll go next to Rick Nelson of Stephens.

Thanks. I’d like to ask about the bad covenants. I know you amended your credit agreement I believe in October. Were there additional amendments more recent and where you sit today versus the covenants?

Yes. Hey Rick, Mark here. As far as the different covenants that we have, I think I’ll just walk through them real quick. Wells Fargo, our bank syndicate has based on an excess availability, so there is no direct financial covenant. We’re sitting fine. There are no issues; no at all any kind of question as far as amendment. As far as the other two major lines that we have there with CNH and DLL, we just got clarification from them, either through amendments or through clarification letters that we’ll be adding back or they will be adding back this $27 million impairment. So that creates no issue there and also both of them we now have kind of in line for fiscal 2017 that the tangible net worth ratio -- I’m sorry, the debt service coverage ratio is greater than 1.1 that used to be out 1.25; now it just needs to be greater than 1.1. So, we don’t foresee any problems with that. A couple of these amendments, the DLL and CNH that will be part of the 10-K that’s filed later today.

Thanks for that. Your guidance assumes a narrowing in the loss for the full year. How are you thinking about the quarter? Is it going to be more back-end loaded; is the inventory and some of the floorplan starts to come down, or you think each quarter you can show year-over-year improvement?

No. We do expect it to progressively get better. There’s of course seasonality that’s involved with our third quarter. Our third quarter, we anticipate to kind of be our best quarter given the harvest that’s going on in the higher level of equipment purchases at that time than maybe what happens in the plant time of the year. And then, I think just looking back at some of the same-store comps that we had in previous years, the back half of the year, so last two years have been really beaten up, meaning very negative same-store sales in the back half of the year, where the front half has hung in better. So, I think this first half will definitely be more difficult than the back half of the year. And also I think also with that as we move further through this inventory, some of this aged inventory, there is less of that pressure I think in the back half of the year than what we’ll see in the front half.

I know you’ve done some store closings and have had sales here over the past year or so, are you contemplating more of that?

Well, we continue to look at our footprint optimization, Rick, and that’s an ongoing effort that we -- from both our board and management continue to look at the opportunities there.

Great. Thanks a lot. And good luck.

We’ll go next to Neil Frohnapple of Longbow Research.

Hi, good morning. Starting with the construction segment, you mentioned improved operating profitability this year. So, excluding the $16 million of equipment inventory charges, I think pre-tax losses was around $7 million for FY16. So, on flat sales, would you expect the losses to narrow or do you expect the segment to return to profitability in FY17?

I think with some of the efforts that we made and we did see a big kind of downturn in the rental, which we’re starting to see signs of that picking up. But what’s really kind of cleaning out the inventory through this impairment charge or this initiative on the aged, we do feel good about construction even with flat sales. So, we are confident that -- we are very optimistic that it will return to profitability in fiscal ‘17.

Alright. And then follow-up Mark, on the rental business, I mean, could you just talk about your expectations for dollar utilization this year and whether you would expect rental rates to increase or decrease?

I think this year we ended up around that 25%, 26%, something like that. I would just indicate that we expect something north of that, call it a percent or two would be some nice improvement. As you know, for every dollar that you get over that depreciation, 85% or 80% goes right to the bottom-line. So, any percent improvement is a big help to the bottom line.

Okay. And then, are you able to quantify how much of your used equipment sales were sold at auction in Q4? And just really trying to get a sense of how these initiatives compare to your historical mix of auction versus retail?

Neil, we really haven’t broken out anything for like fourth quarter. What we determined to do is we’ve identified this 74 and we’re going to provide good kind of reporting to you guys on how that progresses. But yes, it wasn’t close to the $74 million obviously in the fourth quarter, but we’ll give you good updates going forward on the progress on this $74 million throughout fiscal ‘17.

Great. Thank you. I will pass it on.

[Operator Instructions] We’ll go next to Joe Mondillo of Sidoti & Company.

Good morning, guys. I was surprised to hear about a third of the written down equipment was new equipment. Could you just provide a little more information on why that risk was involved in some of the new equipment? I think it’s about 6% of your 3Q book value on new equipment.

Yes. What it was is like we indicated was a lot of non-core short line product that’s been seating around for a period of time or has been really negatively impacted by the oil conditions, the oil industry, particularly in the in the Bakken here. So, I would say that there are a lot of kind of specific non-core items that we, I think cleaned up pretty well here now, and I think there’s limited exposure to that going forward in the new equipment that’s remaining on our books.

Okay. And then the used equipment, how confident are you that we’re not going to see anymore deterioration in the book value, at least compared to the write down that you saw in the fourth quarter? And then also if you could talk about pricing on what you’re seeing on the used equipment side of things.

I’ll answer that first part of the question as far how confident we are. First of all there is, in our used, that’s where we have the risk as market changes that those used values do fluctuate. So, we will always have some level of lower cost to market adjustments, as you know from the past. But to have it at that level where we’ve identified a certain percentage of our inventory, rather sizeable percentage of our inventory to go to auction, we don’t foresee that happening anytime soon barring any type of large macro event that may occur or something like that. So again, we do always have those lower costs to market adjustments in our used. And I would say you know we have some of that budgeted into our margin assumption. As you know, our margin assumption prior to this cyclical downturn has been up around close to like 11-11.5%, probably averaging closer to 10 and we’re still guiding toward more of an 8% margin for the first year. So that definitely has some of that lower of cost to market write down in it.

Just to answer your question on pricing, we’re seeing I think some stabilization right now and there’s been some -- actually some positive moves and some of the lower horsepower tractors. I’d say the biggest challenge that you’re going to see is the high horsepower combine tractors as our planters, self propelled sprayers, specific to the corn and bean areas but still relatively stable compared to what we probably see the downward trends that we experienced in the fourth quarter.

Okay. And then also, I guess just lastly, I just was wondering last couple of years the weather has been extremely favorable for growing conditions. At this point in time in the year, I know it’s still early, but what is your sort of thoughts on how weather has been trending in terms of implications for later this year and how things play out?

Well, you’re seeing some drought trends out there but over the week and now there is some pretty good rains in some of your wheat growing areas, as a result I think some of the wheat prices took a hit because of that. So, as we said in our comments, I think we’re going to need seasonal rains throughout the year, the yields, I think one thing right now a lot of the land’s going to be farmed, lot of the slews or -- there’s not overabundance of moisture out there, so most of the land, farmers are being able to get into. With that said, you hear a lot about the rain coming in later and later in the year and depending on -- if it comes in earlier June, July, August or it’s later in the year, could have some potential impact. So, we’ll just have to wait and see, but there will be needed some timely rains I think to get us through this whole crop this year.

Timely rains meaning that will provide a good crop or not so much? I mean it seems like timely rains would provide a really good crop, which would put more pressure on crop prices. So, isn’t that not what you would want?

In our markets that’s the way we like but if we want to see higher commodity prices worldwide, it’s going to take a fairly big weather event in some of your larger growing areas of the world, that’s going to make prices drive. Without that, yes, it’s going to be a challenge on the supply side, which depresses the commodity prices.

We’ll go next to Larry De Maria of William Blair.

Larry, are you there?

And apparently he stepped away. We’ll go next to Tyler Etten of Piper Jaffray.

Good morning, guys. Thanks for taking my question today. I was wondering if you guys could talk a little bit about -- you said there’s stabilization in the market pricing. Does that mean that auction activity has slowed down? And do you expect that -- if so, do you expect that to pick up in pressure prices later in the year?

I think there is some, there is quite a bit of auction activity towards the end of December. I would see you’re seeing a higher frequency; you’re starting to see some retirement sales, which we haven’t seen in a long time, some of probably not as many large consignment sales as you maybe saw here a couple of months ago. But I think you’re going to see sales, both consignment sales and online auctions, and onsite auctions, retirement sales, you’ll probably see those throughout the year, but I think they’re sensitive to the best timing of when they have those sales and when you’re going to get the biggest return for your equipment, which time of the year that’s going to be. But you’re not going to see them go away this year.

Okay. So, the reduction will continue to pressure margins. Where do you bridge the gap if your guys’ margin guidance is the same as it was last year?

Well as far as, I mean what we do for all of our retail inventory is we bring it to a retail value each year. So, we market from a retail basis every year. So, it’s more -- so even though that it continues to go down this year, the overall market conditions, it’s just kind of relative to where we left off from last year, if that makes sense. So, it’s not like it’s been down for two years, so it’s going to be a bigger hit in the current year. It’s just a year-over-year kind of progression. And we constantly bring in used equipment at current market conditions. So, when we’re bringing in that used, we’re valuing appropriately given the market conditions. So, the fact that it’s going down and we still have lower than average equipment margins is kind of in line with what we would be expecting. If it would level off, and we wouldn’t have like further erosion and going down like that, we would have equipment margins that would start going back up to more historical levels which would be at what I indicated earlier, closer to that 10%.

Got it, that makes sense. And then for a follow-up, what is your guys’ expectation per acreage following the USDA crop report, which was much more bullish on corn acres than many were expecting?

Yes, I think in a lot of our markets, we’re seeing corn acres, the intentions are consistent what the USDA is saying but I think depending on the weather and what happens to soybean prices, there could be a few farmers switch from corn to beans as given the planting timeframe here.

Great, thanks guys.

We’ll go next to Larry De Maria of William Blair.

Hi, sorry about that before. Curious as for the remarketing of used, we’re over two thirds of the way through the first quarter I guess. So, can you just give us an update on how the auctions have gone, according to plan, worse, better et cetera? And does it contemplate a decrease in the used prices as we go out through the year? Just trying to obviously gauge the risk and get a sense of what’s going in real time. Thanks.

Yes. As far as the first part of the question, I’d say that our -- we’ve been progressing on our plan. At this point, I would say that it’s on plan. I don’t think there’s anything materially different, one way or the other. So, we are progressing. And as we’ve indicated that’s the largest percent of targeted inventories in that first quarter. So, I’d say that’s a good sign.

And throughout the year, do you have decreases in the value of the used implied or is that, in other words, we expect the run rate to stay the same on the average pricing?

It’s earlier, Larry, and I think we’re seeing some stabilization in there. In old machinery, Pete, he’s getting to be the voice of used machinery values. And he’s showing this overall index rating at what 6.6 now and he’s seeing that slightly improving and there again I think the biggest challenge is going to be in your high horsepower equipment which you might see down slightly in Q2 over Q1.

Okay. And then, as far as prevent plant acres in your territory, maybe remind us how much were there and if we’re going to see those come on line, which would imply possibly an increase in acreage in your area, specifically just your color on the prevent plant acres in your territory.

I think we’re going through some fairly major wet cycles in some of those lands; farmers weren’t able to get into some of those acres. I think there’s a much of improvement there. So, I see less of that and I see a lot of the land being able to be farmed.

Okay, and would that be reflected in the USDA or could that be a change?

No, I think it’s probably reflected.

Okay. And then if I could just ask one more question. You talked about obviously construction, weakness in energy but improvements in transportation and residential, I think you called out. Can you just talk a little bit about your exposure to the various areas of construction now with that kind of resetting in energy and magnitude of changes to think about in the various categories? And then specifically what we’re seeing as a result of the highway bill; is there a big response to that already?

We’re now in some fairly major metro markets now, there’s the Phoenix market; the Denver market; the Minneapolis; St. Paul market. We’re seeing some upticks in Omaha, De Moines, those metro markets, Larry. So, yes, I think that there’s going to be some positives from the highway bill. We’re starting to see some increased activity from the infrastructure, the increased housing starts in some of these markets. So, overall, we’re bullish on larger metro markets and the investment in the infrastructure.

We’ll take one more question from Mig Dobre of Baird.

Yeas, thanks for taking my follow-up, very quickly on the rental fleet. It’s really not been worked down a whole lot and my understanding from your comments is that you’re expecting it to remain flattish in fiscal ‘17. So, what I’m wondering here is have you in any way, shape or form redeployed this fleet from say the Bakken into other areas where demand is improving; where are you in the process of doing that? And if the answer is sort of no that you’re not redeploying the fleet, why shouldn’t you be actually reducing your rental fleet in fiscal ‘17?

Well, we’ve been redeploying, then we’ve also de-fleeted units that what we deemed as poor utilization, replaced those with what products were going to get industry higher utilization of. So, both deployment de-fleet and replace the de-fleet units with higher unit with higher utilization.

I see, but again I’m trying to understand really at what point is this business right sized and we can actually starts seeing a turn in a business because obviously construction activity ha0s been pretty good. And when you sort of looking even at the weather, you had nice weather tailwinds through the quarter and yet turns are still soft, so that’s kind of where I’m going at this one. At what point do you expect this business to bottom out, if you would?

Yes. We’re comfortable at this level for our market; we’re comfort at this size of fleet, Mig. And like you said, we do feel as bottom out as Mark said, and we’re looking for some gain in the utilization rate this year. So, I think we’ve done a lot of improvement in our rental business and we’re positioned for this fiscal year to do better.

And I’ll turn the conference back to Mr. Mills for the additional remarks.

Okay. Well, that completes our call. Thank you everyone for your interest in Titan. And we look forward to updating you on our progress on our next call. Have a good day.