Good day and welcome to the Titan Machinery, Inc. First Quarter 2019 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. John Mills with ICR. Please go ahead.

Great. Thank you, Clara. Good morning, ladies and gentlemen and welcome to the Titan Machinery first quarter fiscal 2019 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 first quarter ended April 30, 2018, 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 page of Titan’s Web site at ir.titanmachinery.com. This call is being webcast and a replay will be available on the Company’s Web site as well. In addition, we are providing a presentation to accompany today’s prepared remarks. You may access the presentation now by going to Titan's Web site at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You will see on Slide 2 of the presentation our Safe Harbor statement. 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. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risk and uncertainties, including those identified in the Risk Factors section of Titan’s most recently filed Annual Report on Form 10-K. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as required by applicable 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’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 in the Titan’s ongoing financial performance, particularly when comparing underlying results from period-to-period. We have included reconciliations of these non-GAAP financial measures in their most directly comparable GAAP financial measures in today’s release. Today’s call will last approximately 45 minutes, and at the conclusion of our prepared remarks, we will open the call to take your questions. Lastly, due to the number of participants on the call today, we ask you to keep your question period to two questions and then rejoin the queue. Now, I'd like to introduce the Company’s Chairman and CEO, Mr. David Meyer. Go ahead, David.

Thank you, John. Good morning, everyone. Welcome to our first quarter fiscal 2019 earnings conference call. On today’s call, I will provide a summary of our results and then an overview for each of our business segments. Mark will then review the financial results for the first quarter of fiscal 2019 and conclude with a review of our updated modeling assumptions for fiscal 2019. If you turn to Slide 3, you will see an overview of our first quarter financial results. Our first quarter revenue was $246 million with a pre-tax loss of $2.2 million and a loss per diluted share of $0.07. Overall, improving equipment margins and reduced expenses continue to move us closer to profitability despite a decline in revenues as compared to the first quarter of last year. This is a good indication that our structural changes are taking hold and are positioning us for success at varying levels of market demand. Particularly, late spring has contributed to a slow start in product support and equipment rentals, however, weather disruptions are business as usual for our farming and construction customers and for Titan. We are doing our best to help them catch up in the fields and job sites and we remain committed to a profitable year. I will now provide additional detail for our three operating segments, including our domestic agriculture and construction segments and our international segment. On Slide 4, is an overview of our Domestic Agriculture segment. Despite the late spring and some dry conditions, most of our customers are experiencing favorable planting conditions in May. It is also encouraging that corn, soybean, and wheat prices have experienced a modest rebound as of late, showing resilience amidst the continuing trade discussions. We benefited in the first quarter from better-than-expected margins and new and late…

Thanks, David. Turning to Slide 7, our total revenue for the fiscal 2019 first quarter was $246 million, a decrease of 7% compared to last year. Revenue was negatively impacted by a lower store count resulting from our fiscal 2018 restructuring plan and a late spring planting season that negatively affected our first quarter agriculture parts and service business. This decrease was partially offset by an increase in international equipment revenue. Similarly, our rental and other revenue decreased 8.9% in the first quarter, resulting from lower inventory rentals as well as lower dollar utilization of our designated rental fleet in our Construction segment, which came in at 18.3% for the current quarter compared to 19.3% in the same period last year. Both forms of rental were negatively impacted by the prolonged winter season in much of our footprint, which delayed construction activity and therefore the use of many of our product offerings. On Slide 8, our gross profit for the quarter decreased 2.8% versus the comparable period last year to $48 million on lower revenue. Our gross profit margin increased 90 basis points to 19.4% compared to the same quarter last year. Gross profit margin increase was due to higher equipment margins, which benefited from product mix in Ag, improved segment mix as a larger percentage of revenue was coming from our International segment as well as a better positioned inventory for our company and the industry. Our operating expenses decreased by $5.3 million to $47 million for the first quarter. As a percentage of revenue, operating expenses in the first quarter of fiscal 2019 were 19.1% compared to 19.6% for the same quarter last year. Despite the lower sales volumes, we were able to generate operating expense leverage in the quarter, largely the result of cost savings from our…

Thank you very much. [Operator Instructions] And our first question today comes from Steve Dyer from Craig-Hallum. Please go ahead.

Thanks. Good morning. Thank you for taking my questions. Just a quick one for me. Your Ag revenue growth modeling assumptions this year of 0% to 5% are a little bit light of Deere, for example and I know you often sort of point to them, but I think they have sort of talked about 10% North American Ag growth. Just wondering if that’s conservatism on your part, just kind of given the slow spring and the late spring or if you feel like there's something maybe different about your footprint vis-à-vis what some of the others are saying? Thanks.

Good morning, Steve. Well, it's not really comparing apples to apples. Deere includes Canada into their numbers, and that’s been tracking a little bit stronger than the United States. Then also Deere, you know they recognize their revenue on shipments to dealers from a wholesale standpoint where we recognize our revenue on deliveries of customers who are actually the check writers. So there are some differences, not apples-to-apples, but I think we are both guiding up, but there is a little bit difference because of Canada there.

Got it. Thank you.

Our next question today comes from Larry De Maria from William Blair. Please go ahead.

Hi, thanks. Good morning, everybody. First question, just curious on pricing, specifically what you’re seeing in terms of order of magnitude, increases or not from your OEM partner? And what are you able to pass on for the new equipment in both Ag and construction? Thank you.

So typically, there's a lot of talk about steel surcharges, but we haven't seen anything yet, a little bit from the short line companies. I would say they are probably a little quicker to implement some things like that. And Larry, we do pass that on, we always have on -- typically even with annual model changes and pricing. So I would say if we’re going to see any increases as surcharges, it's going to be announced in conjunction with new model year production. It will depend on the models, probably some -- happen sometime in September to October time frame. And again we just -- we do pass that on.

Okay. So that’s interesting. So are you actually -- is there a simple number you could point to towards 1% or 2% or just year-over-year price increases you guys are able to pass through on kind of a net basis on your equipment in Ag and construction or – and is one easier than the other?

No, I think they’re pretty consistent and really go back Larry and look at the price of a 300 horsepower tractor, 15 years ago compared to today, and significant changes, and through that whole time period, that’s been passed on and we just work on the smaller spread in the middle. So, yes, we typically always pass that on. And then, like the OEMs, all want to be competitive with each other out there, and depending what marketing programs and things to be competitive, we tend to be in the middle of it and just work on a consistent spread in the middle.

Okay, got you. I know how much you used [indiscernible] too. So second question, I guess, the publicly traded dealer to the north of you guys, it's looking to expand into the U.S. I’m curious if you expect to be in competition with them, any kind of conflict or if it is going to be complementary to what you guys do or just what are your overall thoughts about that strategic development?

Well, we really can't control what happens there. You know we've done a lot of acquisitions over the years, and I think in many case there's a lot of competition on the acquisitions from neighboring dealers, other consolidators in the Ag industry. So we feel really good about our relationship with Case IH and our relationship, really important to other U.S Case IH dealers. And I think if you looked at our acquisition strategy, we’ve demonstrated our ability to be really disciplined in our acquisition pricing and we continue to be the same. And so there is a lot of consolidations going to happen and I believe we are probably on the front end of another wave of consolidation out there, and I guess we don’t look at this as really any direct competition.

Okay. So do you think that in light of this, the next wave is going to come in the North America or are you guys more focused in Europe? And I will leave it there. Thank you.

I think right now we're interested in North America. There is an aging group of dealer principals. We think there's going to be opportunities in U.S Ag, and we like U.S Ag and as dealers look to Titan Machinery for succession solutions.

Okay. Thanks. Good luck.

Thank you. [Operator Instructions] And our next question comes from Mig Dobre from Baird. Please go ahead.

Good morning, everyone. Maybe a quick clarification on guidance. So, Mark, you essentially are reiterating all your core assumptions if you would at segment level from -- for revenues. You're adding this AGRAM acquisition to the top line, you’re saying it's going to be accretive in fiscal '19. You're raising your equipment margin, gross margin 40 basis points, yet your earnings range is unchanged. So kind of what gives your -- how do we think about the moving pieces?

Yes. So I think one of the things that we saw in the quarter here was specifically in parts and service. It was below our expectations. It came in lower, and I think some of that due to the late start to the plan. We will move into Q2, but there will be some lower level of parts and service that we are expecting here that’s going to offset some of that improvement in the equipment margins. Another area that will provide some level of offset to that equipment margin is just overall, even though it's going to staying within the range, lower level of rental associated, it came in below our expectations in Q1. Our rental activity did. And just overall equipment revenues as well came in a little bit lower. So I think some of those adjustments, and I think the other thing with the -- with international and AGRAM, yes, it will be accretive. We believe it to be accretive in the current year, but with only a half year of operations and startup and that type of things, it's not going to be a significant provider to the bottom line in the current 6-month period. So I think with all of that, it’s offsetting some of that positive that we're seeing on the modeling assumption improvement on equipment margins.

Okay. So you know if we look at SG&A in Q1 at least, that was kind of a big positive variance versus what we're thinking. How do we think about the full-year? Was there anything unusual that happen in Q1 with that line item?

No, nothing unusual. It really came into where we had expected it. Maybe a little bit less on commissions because of some the lower level of equipment revenue that happened. But for the most part SG&A came in as expected and I think we -- as we indicated on prior calls, if we take out the AGRAM acquisition, we are still kind of a little bit below that $200 million mark for the year. With AGRAM in there, we are talking pretty close to $200 million. So everything is really on plan for us in the first quarter in regards to our SG&A.

Right. I mean, the way you’re talking about it and the way I remember it from prior calls, we’re talking roughly $50 million or so per quarter, and I don’t want to press this too much, but you came in at below 47 in Q1. Is this primarily a factor of commissions? Is that what it is here?

Yes, yes. The other quarters, especially when you get out into Q3 and Q4, you’re going to have higher level of operating expenses due to commissions, the higher level of equipment revenue that’s going to happen in those quarters.

Okay. Okay, good. I got it. And then, when we're looking at your Ag guidance, right, you’re talking about 0% to 5% for the full-year in terms of growth, but we're starting the year down 12%, almost down 13%. So, I guess, how do you think about the cadence -- I don't know exactly what happened in Q1, but to my thinking this is an old just parts and service. Is there something else that’s been causing the slowness that reverses as the year progress?

I think -- no, it was more than parts and service. Our equipment was off our expectations in the first quarter. I think, some of it I think we did have a very strong fourth quarter in our Ag segment, in particular, with equipment revenue. I think there is maybe just a little bit of a hangover from that. I think maybe some of the uncertainty around some of the tariff talk and that type of thing may have dampened some of the demand there as well. But we do expect to still be within that range, maybe more towards the bottom end of that range now with the little bit lower results in Q1. But we do expect to still be within that 0% to 5% increase for the year in Ag.

So as you're thinking about this business, maybe sequentially is it that you're expecting a pretty significant lift in second half, the fourth quarter in particular, I mean back to this cadence point. Can you help us at all what you’re thinking?

Yes. Yes, I think a little bit on the cadence, I think once we end the Q2 and Q3, we will see some year-over-year improvement in Q4 -- just with the strong Q4 that we had. I think it will be difficult to get back to that level in the fourth quarter. So it's going to get us to positive territory for the full-year. It's going to be more so on Q2 and Q3 time period.

Okay. And then maybe also a little bit on parts and service. I understand the late plan, but obviously that's behind us at this point. What are you seeing in this business from farmers thus far through the quarter? Can we actually start to see a quick parts and -- parts and service return to growth say in Q2 and going forward?

Yes, so early indications for the quarter look good. It does and that’s why we’re comfortable saying that there was some level of the late plan affecting our numbers. So the early part of Q2 does look promising here in May. So it's -- I think for the full-year it will be difficult for us to get into positive territory given where we started for the year. But Q2, I would anticipate growth and then for the balance of the year, in the second half of the year kind of getting us back to more of a flattish number for the full-year.

That's really helpful. And then, finally just a clarification. You talked about steel surcharges, you're doing some free buying ahead of that, but at the same time you’re saying that for Ag equipment. You're not really expecting higher prices or you’re not seeing higher prices until model year '19. So I'm looking to clarify that statement and I’m trying to understand what exactly is it that you’re pre-buying now?

Well, so basically some of our core products right now we're ahead of the model year changes. And we typically do that and as the lead time start getting a little bit longer and these slots are starting to fill up towards calendar Q3 and the beginning of calendar Q4, we are getting equipment ahead of that. And there's some pretty strong indications that we are probably going to see some pricing effects going into the new model production, so just to get up -- get ahead of that. And -- so that’s I think good business.

Yes, I’m sorry, but sorry to press you on this, I still don't understand it. Are you saying that you’re buying more 2018 equipment to stock up maybe into 2019, and still sell this model year equipment to sort of get around price increases for '19. Is that what you’re saying or am I misinterpreting?

So, we’re looking at -- once our customers are getting better visibility of their crop, obviously, there's little bit more -- where the commodity price are going to end up, a lot of these major purchase decisions happened in starting August, September, October and November, right. So to have the equipment are going to be ahead of that. So we have seen some indications, the OEMs that they’re going to protect the shipments, they are going to happen now or up until new model year without any steel surcharges. And they say there are going to be steel surcharges that’s going to happen with the new model equipment. But we want to make sure that we have sort of our price competitive that we've got equipment on hand going into the -- all the busy harvest season in the fall [indiscernible] season with equipment in place to do that. And right now some of the order slots are filled up in the September, October, so if we want our equipment we need to get it now, we won't get it and that’s when we plan for that. Let's have a normal planning process on our inventory. So we are not here to see in huge movements on that, but I mean enough so that we feel are comfortable, and we plan on retailing that equipment in this fiscal year. Then, in addition, as we see the new model, that typically certain customers want the new models and the new model years then we will start working on those and it will get shipped in September, October, November and December as we looked at some retail benefits from that group of equipment also. But that may have some -- not only new model price increases, but potentially if there are going to be surcharges, it will be on that group of equipment also.

Perfectly understood. Thank you for the color.

Okay.

[Operator Instructions] As we’ve no further questions, I'd like to pass the conference back to Mr. David Meyer for any closing remarks. Thank you.

Okay. Well, thank you everyone for your interest in Titan Machinery and we look forward to updating you on our progress on our next call. So, have a good day everybody.

Ladies and gentlemen, that will conclude today’s conference call. Thank you for your participation today. You may now disconnect.