Good day everyone and welcome to the Titan Machinery’s Fiscal Second Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I’d like to turn the conference over to Mr. John Mills of ICR. Please go ahead sir.

Thank you. Good morning ladies and gentlemen. Welcome to the Titan Machinery second quarter fiscal 2017 earnings conference call. On the call today from the company are David Meyer, Chairman and Chief Executive Officer; and Mark Kalvoda, Chief Financial Officer. By now everyone should have access to the earnings release for the fiscal second quarter ended July 31, 2016, which went out this morning at approximately 6:45 AM eastern time. If you have not received the release it is available on the investor relations portion of Titan's website at 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 on them. These statements are based on current expectations of management and involve inherent risks and uncertainty, including those identified in the risk factor section of Titan’s most recently filed annual report on Form 10-K. 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. Except as may be required by law 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 will 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 in the Titans ongoing results of operation, particularly, when comparing underlying results from period to period. We've included a reconciliation of these non-GAAP financial measures in today's release and have provided information regarding the adjustments that are added back or excluded in these non-GAAP financial measures. Lastly, due to the number of participants on the call today, we ask that you keep your question period to two questions and then rejoin the queue. The call will last about 45 minutes. David Meyer will provide highlights the company second quarter results and a general update on the company's business and then Mark Kalvoda will discuss the company's financial results and the fiscal 2017 annual modeling assumptions. At the conclusion of our paired remarks, we will open up the call to take your questions. Now, I would like to introduce the company's Chairman and CEO, Mr. David Meyer. Go ahead David.

Thank you, John. Good morning everyone. Welcome to our second quarter fiscal 2017 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 portion of our website at titanmachinery.com. If you turn to slide 3, you will see an overview of our second quarter financial results. Revenue was $278 million, primarily reflecting the continued industry headwinds in the agriculture segment. Adjusted pretax loss was $4.5 million and our adjusted loss per diluted share was $0.12. The second quarter was impacted by the challenging agricultural market conditions that we have discussed on prior calls. In addition, recently projected record corn and soybean yields are driving commodity prices lower, which is resulting on our customers’ continued cautious spending patterns, particularly in equipment. We remain focused on managing the controllable aspects of our business, including reducing our inventory, improving our balance sheet, achieving positive operating cash flow for fiscal 2017, and managing our expenses. On today's call, I'll provide an industry overview for each of our business segments. Mark will review financial results on the second quarter for fiscal 2017, and update you on the status of our expanded inventory reduction plan. We will then conclude with the review of our revised modeling assumptions for fiscal 2017. Now I'd like to provide color for you on the agriculture and construction industries in the international markets in which we operate. On slide 4 is an overview of the agriculture industry. Regarding current market production conditions, fall row crop progress is on schedule and the majority of our customers are experiencing favorable growing conditions in our foot print with above average yields anticipated. Although, earlier weather predictions this year indicated the possibility of El Niño weather pattern negatively impacting…

Thanks David. Turning to slide 7, our total revenue for the fiscal 2017 second quarter was $278 million, a decrease of 16.7% compared to last year, primarily driven by a decrease in agriculture equipment revenue. We have said before, our higher margin parts and service revenue are more stable than our equipment revenue during a challenging environment. Equipment sales declined 21.6%, compared to the same period last year. Equipment sales reflect the impact of continued industry headwinds that David discussed. Our parts revenue decreased 6% in the quarter and service revenue decreased 4.7%. The decline in this quarter's parts and service revenue were primarily attributable to a decreased amount of customer preventative maintenance and continued lower warranty and pre-delivery service work as a result of lower new equipment sales. Our rental and other revenue decreased 15.6% in the second quarter, primarily due to lower demand in the oil production areas in a reduction in inventory equipment rentals. Our rental fleet dollar utilization decreased slightly to 25.3% for the current quarter, compared to 26% in the same period last year. On slide 8, our gross profit for the quarter was $53 million, compared to $62 million in the same quarter last year, primarily reflecting the lower revenue I just discussed. Our gross profit margin was 19%, an increase of 40 basis points compared to the same quarter last year. The improvement in gross margin was due to a change in gross profit mix through our higher margin parts and service business, partially offset by a decrease in equipment margins of 90 basis points. We remain focused on reducing our used inventory despite difficult market conditions and believe this disciplined approach to the used inventory reduction although pressuring our equipment margins will create positive cash flow in fiscal 2017 and better positions…

Thank you. [Operator instructions] We will go to Steve Dyer of Craig Hallum.

Good morning. Thanks for taking my question.

Good morning, Steve.

Question on gross margin parts and services. I noticed it was down quarter over quarter, is that just based on a lower revenue base or is that a trend that for whatever reason you’d expect to see going through the rest of the year?

The actual margin percentage was pretty much in line with historical – little bit softer, but for the most part, the decreased amount in gross profit from those areas is from the lower revenue. And I would say what happened in the second quarter was very similar to what happened as far as the revenue amount being off, very similar to what happened in the first quarter and is probably representative for the full-year.

Okay. And then I noticed in the release you talked about 19 – or you listed 19 European dealerships, and I think previously it was always sort of 17. Is that – did that read that right and is that an area in which you are investing or sort of what's your thought on strategy there?

Yeah, what we did – in some stronger markets we had – for Ukraine, we opened up a facility in the Zhytomyr region. See originally we were assigned four Oblast, we had Vinnytsa and Kyiv Oblast, and then because of some of those geopolitical situations, we didn’t put brick-and-mortar in the Zhitomyr region and we did that also in Romania in a pretty strong agriculture area in the southwest part of the country in Craiova [ph] just a couple of plan – clearly, not real material that I think to add value to our customers from a location standpoint.

Okay. Got it. And then Mark, I noticed floorplan was up a little bit quarter-over-quarter despite inventory being down, is that just based on the mix of equity or would you expect it to continue ticking down throughout the year or is this kind of a good level?

We would expect it to come down. It really didn't come down in the second quarter because we did use some of our cash and we went into our floorplan lines a little bit because of the convertible debt that we repurchased during the quarter. So for that 25 million that we used, for that we did go into our lines a little bit, but we would expect that to come down as we progress through the back half of the year where we will have the majority of our inventory reduction for the year.

Got it. Okay. Thanks I will hop back in queue.

We will go next to Rick Nelson with Stephens. Please go ahead.

Thanks. Good morning. What are the signposts that we should be looking for the demand environment here to bottom out, and is there a commodities pricing level with corn or soybeans that you think farmers would come back into the stores?

So, I guess the prices we should be looking at, I think, it’s probably similar to what we saw probably in late May and early June where we saw some spikes for some of the weather threshold of El Niño. At those levels, we started to see a resurgence of activity, but I’d say at the elevated standpoint, you’re probably around that – $4 on a futures price, but it’s elevated price around that $4 in corn and somewhere about $12, little north of $12 in soybean range seems to be – sparks increased interest.

Thanks for that color. Also, the inventory reduction, you made some progress this quarter down to 7 million, I know it's a back half inventory reduction plan, but as we look to third quarter, what sort of inventory levels do you think you'll have?

Well, the trend would be down, and we should be able to continue to move down particularly in the used inventory, but of that full target of $100 million, the majority of it will come in the fourth quarter, but definitely you'll see some inventory reduction in our third-quarter.

Similar magnitude as what we found in 2Q or --?

I would say if you look back to the trending that we had last year where Q2 went down than Q3, it would be similar to that, maybe even a little bit better than that in the current year.

Thanks and good luck.

We'll go next to Joe Mondillo with Sidoti & Company.

Hi, good morning, guys.

Hi, Joe.

In terms of the adjustments made to the gross margins, I’m just wondering how much of that is related to the pricing on the aged inventory reduction plan? If you take that out, where would your sort of I guess maybe more normalized type gross margins be?

The units that were in the identified aged equipment group, it continues to be in line with what our expectations were. So that isn't materially impacting our equipment margins for the quarter or any reason for us changing the overall guidance that we are providing an modeling assumption on equipment margins. The big change both for the quarter and for the year is really particularly in the ag segment as we remain diligent in moving our used in the face of more difficult environment out there with commodity prices coming down. So it's more driven by the ag retail units than it is on those remarketing items – those remarketing – that bucket of inventory.

Okay. And regarding the aged inventory plan, you are ahead of schedule in terms of the plan and you put in your slide 15 what the plan was for the third, fourth, and first quarter of next year. Are we expecting $74 million still or if you use what you’ve already done and then add those next three quarters in terms of your plan, you'd be above that closer to $90 million?

Right. So the plan would be that we would still hit that $74 million. I mean we always have some level of where we might take some items to an alternative marketing channel, but as far as this initiative, the $74 million is what it is. So essentially in Q3 and Q4, we expect to have something lower than what we're showing out there for the plan because we are ahead of schedule. But in the end, we will still plan on going through Q1 of next year because there is some seasonal items in there and we anticipate showing that full $74 million in this plan by the end of Q1 next year.

Okay. And then just lastly, in terms of your cost structure, particularly, SG&A line, I noticed that it declined sequentially, but that's occurred in the last couple of years. I don't know if there's a seasonality aspect of that or could you just talk about what you're doing with cost and how you're thinking about that regarding where we are in the cycle and the challenges that you're seeing?

Yeah, I think, so last year what caused the sequential decrease was the large initiative that we had that we announced at the beginning of the year that really took place toward the end of Q1 that you saw as a sequential improvement in Q2 last year. This year I would say it's just more of – kind of – I think, I started the year talking about smaller initiatives not big hitter type initiatives out there, but a number of smaller ones that continue to bring down operating expense to a smaller degree. So last year was the large initiative that took place that helped out Q2 over Q1, this year it's just smaller initiatives, and somewhat with lower – we’ve got some variable costs and then particularly with commissions that also came down in Q2 with some lower revenue.

Okay. Great thanks a lot.

We will go next to Tyler Etten with Piper Jaffray.

Hey guys thanks for taking my questions I appreciate it. With continued overhang in used inventory and new inventory in your guys this case has there been any pressure from CNH to take on new equipment like the 2017 models?

What we do as we operate within a long-term plan based on what we anticipate kind of a joint agreement where we see the industry doing, what type of level of inventory is going take – we remain a certain level of share within the forecasted industry, so we continue to work hand and hand with them and review that ongoing basis and match incoming shipments with forecasted sales on a very planned method.

All right thanks for that. And I guess some dealers and even some of the other OEMs have talked about used pricing kind of bottoming through the summer with the outlook of the crop being above-average yields and potentially grading prices, moving lower staying lower for another your, do believe that used pricing is still at risk going forward over the next 12 months?

There has been good discipline on the new pricing, so some of this is steer step down. There is decreased demand for the used equipment out there, and there is an oversupply, it's overhang out there which is starting to come down and getting line with that, so I believe as long as we continue to see the discipline on the new side of the business, we see these good yields that we are going to see. We've got, I think most people are pretty smart about their inventories. My belief is we are going to see some stabilization of that, but we have to realize all of that that there is going to be some leisure trends going back in the other marketplace. There is an overhang now but I believe as an industry everybody's focused on moving those levels down to get to a more stable market, which we're going to see somewhere in the near future. I think a lot of the heavy lifting has been done and we're getting close to where we are going to get to that stabilization point.

Okay great. That's helpful and just one more if I may and then I will jump back in queue, switching gears to the construction. With oil improving from - or bouncing up a little and hanging between $40 to $50 band has there been an improvement in customer demand or just in customer sediment given that somewhat rebound or I guess any sort of color around what your thinking is great. Thanks.

There is some activity, but it's just basically fairly stable you're not seeing big improvements. A lot of the oil services companies they’ve got equipment, the own equipment, they're now are starting to utilize what they have, but it's nothing really triggers some big demand and we're seeing decreased demand for rental in those markets and we're continuing to move - rental inventory out of those markets in the other markets.

Got it. Thank you.

[Operator Instructions] We'll go next to Mig Dobre with Robert W. Baird.

Good morning everyone, it's Joe Grabowski on today for MIg. I wanted to ask about the quality of the new and used inventory that you currently have that wasn't part of the write-down probably in the fourth quarter and when you kind of look at the quality of that inventory are you still confident that you won't need to take an inventory write-down in the fourth quarter this year?

Right, so yeah, I would say it continues to get better. We're focused on moving the edge piece of that what we have for that retail inventory. We don't expect another write-down such as the one that we did in the fourth quarter. Of course in our regular margin and the margin assumption that we provided there is always some level of lower cost to market, especially in an environment where revenues are decreasing, so there is some pricing pressure, particularly on the used, but no, we wouldn't expect unless there's anything drastic some other drastic thing that we've not seeing right now, we wouldn't expect another large right down to occur.

Okay great thanks. And then can you give us any update on some of the initial reads on the early order programs, how they are progressing?

Right now we're - from a seasonal standpoint pre-harvest right there, I'd say we are very early in the game and I think the biggest focus is the retail, existing inventory in on hand at this point in time.

Okay. And then last question, you gave guidance for second-half EPS being better than first half, but the last couple of years Q3 has been pretty solidly profitable, so I was wondering if you could give any guidance on progression of EPS Q3 versus Q4.

Q3, especially in recent years, Q3 benefits by the harvest that goes on and more construction activity, also for international it's higher activity quarter than what you have at the end of the year. But what used to happen, you go back to be very strong retail years of equipment that really buoyed the fourth quarter, obviously we don't have that as much anymore. So all that being said, we would definitely expect third quarter to be more profitable, so because of that mix difference where you've got the parts service and rental that’s stronger in that third quarter, so we would anticipate third quarter being better than that fourth-quarter.

Okay. Great, thanks for taking my questions.

That does conclude our question-and-answer session. At this time, I’ll turn the call back over to David Meyer, CEO of Titan Machinery for any additional or closing remarks.

I want to thank everyone for your interest in Titan. I look forward to updating you on our progress on our next call. Have a good day.

And that does conclude today's conference. Thank you for your participation.