Titan Machinery Inc. (TITN) Q1 2021 Earnings Report, Transcript and Summary

Greetings. Welcome to Titan Machinery's First Quarter Fiscal 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to John Mills with ICR. Thank you. You may begin.

Great. Thank you. Good morning, ladies and gentlemen and welcome to the Titan Machinery first quarter fiscal 2021 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 first quarter ended April 30th, 2020, which went out this morning at approximately 6:45 A.M. Eastern Time. If you have not received the release, it is available on the Investor Relations page of Titan's website at ir.titanmachinery.com. This call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks. You may access the presentation now by going to Titan's website at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on slide two 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 risks 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 may be 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've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release. The call will last approximately 45 minutes today. At the conclusion of the 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. Go ahead, David.

Thank you, John. Good morning everyone. Welcome to our first quarter fiscal 2021 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 financial results for the first quarter of fiscal 2021. If you turn to slide three, you will see an overview of our first quarter financial results. Our first quarter revenue was $310 million, which is a $32 million improvement over the prior year period. Adjusted pretax income increased $4.2 million to $4.9 million, resulting in adjusted earnings per diluted share of $0.15. Before my segment overview, I want to address a few high level comments related to COVID-19. As I shared on our Q4 earnings call in March, we took the early COVID-19 guidance, potential risks, and most important the safety of our employees and customers very seriously. And we're very active in employee and customer messaging, education, and putting the CDC recommended safety procedures in place. Fortunately, our employees stepped up, stayed healthy, and we were able to support our customers through the important busy spring planting and construction season. As a result, we're able to deliver on a solid quarter, especially with our domestic ag equipment business. We're in a critical and essential industry as we support our farmers, ranchers, and contractors who build and feed the world. With that said, we have kept our employees fully employed, closed on our new bank syndicate credit facility, and placed our company in an excellent liquidity and financial position. I will now provide additional detail for our three operating segments consisting of our domestic agriculture and construction segments, and our international segment. On slide four is an overview of our domestic agriculture segment. With the late 2019 harvest, standing corn going into winter and cautious farmer sentiment due to the uncertainties with unharvested crops and commodity prices, we believe some of the new unused Q4 equipment business would have taken place in a normal weather year moved into our fiscal 2021 first quarter. This also supported our parts and service business as not only was corn being combined in February and March, but much of the equipment face tough duty cycle through the late and wet harvest, requiring service and maintenance prior to this year's farming season. In addition, the fleets continue to age, requiring additional progressive service and repairs. Mark will get into more detail on the double-digit increase of our domestic ag, parts and service revenues as this fixed cost absorption not only provides insulation in these down cycles, but is key to our long-term strategy. As noted on the slide, crops in our southern ag footprint are in really good shape because of an ideal spring planting and growing conditions. On the northern end of our footprint, they're still somewhat -- last year's corn still is standing in North Dakota, along with wet fields causing delayed planting, or in some cases, farmers elect to receive a preventive plan payment as part of the multi parallel crop insurance program and situations in which land is too wet to farm this spring. The biggest concern weighing on our farmer sentiment is a depressed commodity prices. According to the May 12th USDA WASI report, both corn and soybean acres and yields are forecast to increase putting downward pressure on season average prices. WASI has forecasted a year-over-year decrease of $0.40 on corn, and $0.30 on soybeans. These are reductions from already low prices. Corn prices could be additionally challenged by the strong dollar and the impact from significantly lower ethanol production. Approximately 40% of the U.S. corn production goes into ethanol production. With the closing of schools and restaurants, the price of milk is down. Livestock producers have concerns with the lower prices due to the COVID-19 disruptions with slaughterhouses and meat demand channels. On a positive note, recently announced with a $16 billion USDA Coronavirus Food Assistance Program, CFAP, providing direct payments to farmers and ranchers for dropping prices of commodities to livestock due to the coronavirus. In addition, farmers are also experiencing and benefiting from lower fuel and propane costs, a low interest rate environment, and participation in the PPP program of the CARES Act. While the impact on commodity prices from Phase 1 of the U.S.-China trade agreement may not be realized until calendar year 2020 harvest, the signing of the USMCA Trade Agreement is viewed as a positive for our customers. Replacement demand and precision technology are creating demand for new and late model equipment as we see the continued trend of improved yields and data-driven solutions. We closed on the acquisition of the HorizonWest three-store CaseIH complex in the beginning of May, and we believe we will have additional domestic ag acquisition opportunities as the year progresses. Turning to slide five, you'll see an overview of our domestic construction segment. With a strong economy in February, the first month of our quarter, our construction equipment business has a solid start only to be tampered by the economic impact of COVID-19 and extreme decline in oil prices. Even though we are an essential industry and our contractor customers are experiencing a lower interest rate environment, there have been some disruptions from COVID-19 business closings and state shutdowns. We continue to experience some level of construction activity as we stayed focused on the aftermarket parts and service business along with rental. We believe that our recent operational improvements position us well to be profitable in the construction equipment business when the industry returns to normal. On slide six, we have an overview over an international segment, including our markets within the countries of Bulgaria, Germany, Romania, Serbia, and Ukraine. Similar to our experience with the CE segments, our international segments started the year very strong with some pullback as the countries we do business in reacted to the COVID-19 pandemic. While our stores in Europe were deemed essential, business has been impacted by border shutdowns, timing of equipment shipments, and in-country regulations. Farmers continue to plant their crops, create demand for parts and service. There are pockets of very dry conditions in the Balkans, Ukraine, and Black Sea regions. There are reports of winter wheat and rye crops being destroyed or bailed for feed in Romania due to excess heat and lack of moisture. We have the fundamentals in place to be successful and profitable in these developing countries. We will continue to focus on the parts and service business and manage our new and used equipment inventories as we support our end user customers through the challenges with dry weather and depressed commodity prices. Before I turn the call over to Mark, I want to thank all our employees for their efforts in staying safe and supporting our customers during this very challenging COVID-19 crisis and at the same time, producing some excellent financial results. I wish all our employees, customers, and suppliers, along with their families all the best as we come up the backside of the COVID-19 pandemic. Now, let's turn the call over to Mark to review our financial results in more detail.

Thanks David. Turning to slide seven, we generated total revenue of $310.2 million for the fiscal 2021 first quarter, which was an increase of 11.5% compared to last year. Our parts and service business continued to generate solid results in the first quarter, increasing 9% and 12.1% respectively. Agriculture segment led the way with another quarter of double-digit growth compared to the prior year quarter. Our focus in this area continues to be complemented by an aging customer fleet and the addition of the Northwood locations also added to the year-over-year results. International parts and service also performed well, but was offset by the softness we are seeing in our construction segment as a result of the pandemic. However, the upside for the quarter was largely driven by our equipment business, which increased 12.7% versus prior year. Equipment growth was driven by our agriculture segment where we believed delayed fourth quarter sales were realized in the first quarter as farmers were late harvesting last year's crop. In addition, we aggressively moved some used agricultural equipment during the quarter. Rental and other revenue was essentially flat versus prior year. The dollar utilization of our construction segment rental fleet decline 160 basis points to 18.9% for the current quarter compared to 20.5% in the same period last year. The lower utilization was the result of the weaker end market conditions in oil and construction that David spoke to earlier. On slide eight, our gross profit for the quarter increased 8.4% to $58.4 million due to the increased sales. The decrease in gross profit margin was partially due to revenue mix in two ways. First, equipment revenues made up a larger portion of overall revenues relative to the higher margin parts and service business. And second, our total equipment sales mix was more weighted to agriculture, which generally experiences lower equipment margins than equipment sold in our construction and international segments. Finally, our ag used equipment margins also decreased over the prior year as we accelerated efforts to sell this inventory. Our operating expenses were nearly flat versus prior year, increasing by $500,000 to $53.1 million for the first quarter of fiscal 2021. Our operating expenses as a percentage of revenue decreased from 18.9% in the first quarter of last year to 17.1% in the first quarter of fiscal 2021. Despite the additional year-over-year costs associated with our new Northwood store, expense growth was limited due to specific expense control efforts, such as overall salary and overtime reductions, as well as COVID impacted expense areas, such as fuel and travel expenses. This expense control combined with higher revenues resulted in much improved operating expense leverage. Floorplan and other interest expense decreased 15.9% to $2.1 million in the first quarter of fiscal 2021 compared to $2.5 million in the same quarter last year. The decrease was due to lower interest expense resulting from the May 2019 retirement of the remaining balance of the company's convertible notes. In the first quarter of fiscal 2021, we realized a $2.9 million increase in our adjusted net income to $3.4 million. This adjusted figure for first quarter fiscal 2021 excludes $1.1 million of adjustments, net of taxes related to ERP transition costs, impairment charges, and Ukraine re-measurement costs resulting from the recent devaluation of this currency to the U.S. dollar. This compares to the prior year where we excluded $900,000 of similar adjustments net of taxes. Our adjusted earnings per diluted share for the quarter was $0.15 compared to $0.02 in the first quarter of last year. For the first quarter of fiscal 2021, adjusted EBITDA increased 76.1% to $11.1 million compared to $6.3 million in the first quarter of last year. You can find a reconciliation of adjusted net income, adjusted income per diluted share, and adjusted EBITDA to their most comparable GAAP amounts in the appendix to the slide presentation. On slide nine, you will see an overview of our segment results for the first quarter of fiscal year 2021. Our agriculture segment drove solid overall top and bottom-line results in the first quarter. We do not feel the effects of the pandemic are fully reflected in these results. More on this and future expectations in a few minutes. Our agriculture segment had a strong quarter with total sales increasing 25.9% to $193.6 million, driven by strength in equipment sales and supported by ongoing momentum in parts and service revenue. The significant sales growth coupled with moderate increases in operating expenses created significant operating leverage at the segment level. For the quarter, adjusted pretax income increased to $6.2 million compared to $1.9 million in the prior year period. Turning to our construction segment, revenue decreased 15% to $60.1 million compared to the prior year period. The decrease in revenue was primarily the result of lower equipment demand due to macroeconomic challenges and uncertainty, which also impacted parts, service, and rental to a lesser extent. The segment's adjusted pretax loss widened by $600,000 to $2.7 million in the first quarter, despite reductions in operating expenses. In the first quarter of fiscal 2021, our international segment revenue increased 5% to $56.5 million. However, strong early first quarter results have been largely offset by late quarter weakness, which we are seeing continue into our second quarter. Nonetheless, equipment, parts, and services revenues were all up compared to the prior year first quarter and drove a $300,000 increase in adjusted pretax income. On slide 10, we provide an overview of our balance sheet highlights at the end of the first quarter of fiscal 2021. We had cash of $50.8 million as of April 30, 2020. Our equipment inventory at the end of the first quarter was $501 million, a decrease of $15 million from January 31, 2020, reflecting a $12 million decrease in new equipment and a $3 million decrease in used equipment. Equipment inventory turns were 1.6 versus 1.8 in the prior year period. I will provide a little more color on our inventory on the next slide. Our rental fleet assets at the end of the first quarter increased slightly to $104.9 million compared to $104.1 million at the end of fiscal 2020. We still anticipate our fleet size will decrease to about $100 million by the end of fiscal 2021. As of April 30, 2020, we had $378.3 million of outstanding floor plan payables on $762 million of total floor plan lines of credit. On April 3rd, 2020, the company entered into a new five-year amended and restated credit agreement maturing in April 2025, replacing the previous credit facility scheduled to expire in October 2020. The new the new facility provides for an aggregate $250 million financing commitment by the lenders consisting of floor plan capacity of $185 million and working capital financing capacity of $65 million. Floorplan facility features improved flexibility with higher advanced rates on new and used inventory and the working capital facility provides for a greater breadth of assets that can be utilized in the borrowing basis, such as vehicles and real estate in addition to higher advanced rates compared to the prior facility. The amended and restated credit agreement does not obligate the company to maintain financial covenants, except in certain circumstances with terms that are similar to those in the previous credit facility. The interest rate for borrowings under the credit facility will be equal to LIBOR plus an applicable margin based on the company's liquidity position. Overall, our borrowing costs under this facility should decrease by at least 50 basis points compared to the prior facility, Our total liabilities to tangible net worth ratio is a healthy 1.9 compared to 2.1 in the prior year period. As of the first quarter, we are now back to an apples-to-apples comparison, given the effects on the ratio from the adoption of the new lease accounting standard that went into effect on February 1, 2019. Importantly, the ratio is well below 3.5, which is the leverage covenant required for our most restrictive bank facilities. Turning to slide 11, the amount of new and used equipment inventories are reflected in the size of the red and blue bars on this slide. We are pleased to finish the first quarter with a $15 million reduction in inventory versus fiscal year end levels, which demonstrates early progress in our plan to drive inventory turns higher in fiscal 2021 through prudent inventory management. Historically, we have increased our new equipment inventory levels in the first quarter, which can be seen in the prior year. Solid equipment sales and lower procurement levels of new equipment allowed us to decrease our inventories and slightly increase our turns to 1.6 from 1.5 for the rolling four quarters ended April 30, 2020 and January 31, 2020. The overall quality of our inventory remains healthy with 40.3% of our inventory under non-interest bearing terms, which can be seen by the gray bar on the slide. This is a good percentage, but it's below the prior year comparable quarter percentage of 47.4% as we had a lot of new inventory stocking in that quarter, which carried new non-interest bearing terms. Slide 12 provides an overview of our cash flows from operating activities for the first three months of fiscal 2021. The GAAP reported cash flow use for finance for operating activities for the period was $5.4 million compared to cash provided by operating activities of $2.9 million in the first quarter last year. As part of our adjusted cash flow provided by operating activities, we include all our equipment inventory financing, including non-manufacturer floor plan activity and adjust our cash flow to reflect a constant equity in our equipment inventory, allowing us to evaluate cash flows exclusive of changes in equipment inventory financing decisions. After applying these adjustments, our adjusted cash use for operating activities was $3.6 million for the three-month period ended April 30, 2020 compared to $37.4 million for the same period last year. The much lower use of cash in the first quarter versus prior year was due to the substantially lower equipment stocking I referred to on the previous slide combined with the stronger bottom-line results. Consistent with our practice thus far in fiscal 2021, we are not providing modeling assumptions due to the continued uncertainty in our business as a result of the COVID-19 outbreak. That said, I'll provide some updated color on a few noteworthy items for you to consider as you look at our business for the balance of fiscal year 2021. As you may recall, in mid-March, we began restricting customer access to our stores amid COVID-19 concerns. As of a couple of weeks ago, we began allowing customers back in our facilities with safety protocols in place. We felt very good about the uninterrupted service levels provided to our customers during that time. Regarding our agriculture segment for the remainder of fiscal 2021, we do not believe our solid first quarter results are a good proxy for the rest of the year. As I mentioned earlier, we believe our first quarter equipment results were lifted by some delayed customer purchases and some aggressiveness and on our part in selling used equipment. Our first quarter results far exceeded total U.S. industry retail sales, which is down year-to-date through April. Overall, COVID-19 has created industry challenges and uncertainties in areas such as ethanol, livestock, and international trade which we believe will put pressure on equipment sales and push them lower than the prior year. It is difficult to know the extent however, given all the variables and uncertainties, we still feel good about the potential parts and service opportunities for the year, but will likely not be able to sustain the growth we achieved in our first quarter. May results are already showing parts and service while off the pace realized in the first quarter. Additionally, please remember to account for a full year contribution from our recently acquired Northwood, North Dakota location, which closed on October 1, 2019 as well as HorizonWest acquisition that closed on May 4, 2020. Both of these acquisitions -- both of these businesses had revenues of approximately $25 million in their most recently completed full fiscal year. Within our construction segment, we expect continued headwinds to persist, but the magnitude and duration are difficult to predict, given the overlap we have with the energy markets. All revenue categories were impacted in this segment and we expect this to continue while macro-economic stress and uncertainties persist. Keep in mind the first quarter was only partially impacted as COVID-related shutdown started occurring in mid-March. We expect to continue to achieve some offset to the lower revenues through reduced expenses. Additionally, as we referenced during our fourth quarter call, please consider the January 2020 divestiture of our Albuquerque, New Mexico store, which generated approximately $8.5 million of revenue in fiscal 2020. With regards to our international segment, we witnessed a good start in the first two months of our first quarter and then experienced deterioration in April results. April revenues were 20% to 25% below the prior year. We're also seeing parts and service being impacted in these markets in current months. As David mentioned earlier, in addition to the COVID-19 challenges and uncertainties, our European customers are currently facing difficult growing conditions. We believe these factors will weigh on future quarters. Expense controls will help mitigate pressured revenues, but this segment has lessen the way of variable expenses, such as our domestic equipment commissions and overtime, which are not as prevalent in Europe. This concludes our prepared comments. Operator, we are now ready for the question-and-answer session for our call.

Thank you. [Operator Instructions] Our first question is from Steve Dyer with Craig-Hallum. Please proceed.

Thanks. Good morning, guys. Hope you're well. Just, as it relates to the first quarter it sounds like within ag there was some, I guess, some things moving around, it's maybe not indicative of the rest of the year. How much of the strength you feel like was just sort of a crop still standing and a push from Q4 versus maybe government programs or some of these other things just trying to get some sense as to what drove how much strength in the quarter?

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Got it. Okay. And then, since you've reopened some of the stores and things like that, have you noticed any change in sort of in behavior? I mean, it sounds like on the whole, it's softer than the first quarter but the first quarter only really had probably half a quarter of COVID impact. But what have you seen since some of the stores have reopened to customers?

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Got it. And then I guess just given the challenges that you guys are seeing, while most people are seeing here, going forward, does that change your thinking on M&A strategy? Does that make some of these dealers more apt to sell and sort of what's your view on how aggressive you want to be there? That's it for me. Thanks.

Yes, I'd say even before the COVID-19, Steve, you can see we were starting to be pretty active with the Northwood, the HorizonWest happened before the COVID-19. So, there's already some motivated sellers. And so I see that going to continue and this this might even accelerate at some point.

So, this from your perspective, you remain very interested in active buyers kind of through this -- that remains the same?

Yes, definitely, especially, I think we like Upper Midwest, Case IH, good quality, successful accretive type acquisitions and there's a number of potential candidates out there.

Primarily on the ag side?

Yes, primarily on the ag side, the CaseIH, right.

Yes. Okay. Thank you.

Our next question is from Mig Dobre with Baird. Please proceed.

Yes. Good morning. Thank you. So, I guess my question, I'm trying to understand how you're thinking about the business, your core ag business in North America on a go forward basis. I recognize that you're not providing guidance, but at the same time, you're quite clear about Q1 trends not being sustainable for the rest of the year. Can you maybe give us a little bit of context in terms of how demand trended in April, maybe similar to what you talked about in your international segment? And I'm curious as to what you're seeing in the month of May that informs or frames your view for the rest of the year?

So Mig, if you look at April industry numbers, combines down 10%, forward drive is down 7%. So from an industry standpoint, April continues down and I think, as you're aware there's a direct relation between commodity prices and industry retail levels, so these commodities stay on these depressed levels and if what the USDA WASI report is true, if we're going to drop another $0.30, $0.40, that average selling price as a year progresses, it's going to be difficult for these customers really to pull the plug on these $500,000, $600,000, $700,000, high horsepower equipment purchases. So, we are a little bit tentative and I think, we really need to it's going to be a function of the commodity prices and in our end market farmer customers' ability to cash flow their operations and still acquire this equipment. Now, the offset to that is a replacement demand and when they start looking at, they could be making payments within this low interest rate environment on a new tractor combine rather than that $50,000 ,$60,000, $70,000 repair bill, that could motivate them and their bankers to make those equipment purchases. So I think you're going to see industry levels down at these lower comps at the lower end of the spectrum, but there will be some amount of business but it's going to be -- unless commodity prices get a little bit better, it's going to be a little bit difficult. And if you remember a year ago, or if we're going to look year-over-year industry comps there was a good spike in commodity prices towards the end of June and early July where corn at the elevator got up over $4 and soybeans up over that $9 mark. A lot of the growers sold their carryover stocks, the contracted 2019 crop. I know even some guys contracted some of this year's crop during that time period. We may not see that this year. So when you look year-over-year, yes, I think that's why we're just a little cautious in what think those industry numbers are going to be going ahead.

Well, I appreciate that. All the macro relationships that you discussed. I mean, I think we all understand that. What I'm trying to understand is what you're actually seeing in your business today, right, through throughout the month of May? Is there a way to frame that? Maybe put differently, are your forward expectations simply based on your view of commodity prices in future behavior or have you actually started to see some softness in May that leads to this more cautious outlook?

Yes, Mig. Mark here. So, and you kind of asked about April and how April trended? April still looked good from ag; April is a very critical month for our ag business, where February and March is not as high of an expectation months. April came through and looked good. Some of our cautious tone is what we're seeing in May, there was a definite difference in the amount of like parts and service coming through in May, some of that were still like sorting out, there's a definite difference in the timing of the planting that's going on in our footprints and between the North and the South and sorting through some of that. So, we'll see how that goes. But definitely there is a difference in the trend on the parts and service in ag. And then equipment sales, it's difficult to say at this point. I think up to this point, it's -- there hasn't been as much activity as certainly what we saw last month. But there are a few days left in the month and as you know, in this business, the last week of the month tends to grab the largest percentage of the equipment revenue for the month. So there is a definite noticing of a difference that we're seeing here between the months of April and May.

Okay. You also talked about used equipment having been more aggressive in maybe getting rid of some of this equipment through the quarter. Can you maybe help us understand how the magnitude of what you've done in the quarter was maybe different than the normal or maybe what you've done last year? And I'm also curious in terms of how used equipment prices are holding up, especially as you're trying to move more of that inventory?

Yes, I think as we moved so -- and this was later in the quarter as well, but I think just given the environment and maybe some of the risks out there for the year, we just thought it prudent to get ahead of the game a little bit on some of that use. So we did push more out there. And it's hard to, I think overall, I think we were up like 25% I think our used was up similar amount, maybe even a little higher than that for the quarter to help give you the magnitude of that. As far as pricing goes, I think, outside of some of the aggressiveness that we had, I think pricing remains similar to where it had been. So we did take a little bit margin compression here to move additional amounts of volume through it. But outside of that, I think overall pricing seems to be hanging in there on the on the used side for ag.

That's great. Last question, on international. First, I guess, when I'm looking at this the segment, you're up 5% revenue wise in spite of a very weak April. So I'm sort of surprised as to the variability month-to-month I mean, that would basically imply your first couple of months being extremely strong in international. So I'm kind of curious as to what maybe drove that that outsize strength if you have any color on that early on? And then my, the second part of my question is really on margins here. If let's assume that down 25% is a trend that kind of sticks through next quarter. How should we think about your breakeven levels or segment margins within that kind of volume decline context? And that's it for me. Thank you.

Yes, I can talk Mig a little bit about what was going on in Europe and then I'll let Mark answer the second part of your question here. But it's all these individual countries, if in Europe, we have border closings and we actually had shipments we couldn't get across the borders because of the boarding. So that delayed some of the things. At the same time, a lot of regulations within countries, there's curfews, there's times you could be on the street or couldn't be on the street. Our employees getting to work and getting out to the customers, you had to be back before sunset, some things like or before 6 o'clock. I mean, so all these things took quite a bit of a toll or just a way to do business. Like I say, developing countries, developing markets, probably not quite the level of maturity, we see domestic United States business. So, that impacted the business in Europe.

Yes. As far as how International may play out and what that level of reduction that I mentioned in April, what that would have, we wouldn't see, I don't think we would see that for the whole rest of the year. At least, we would hope it wouldn't stay that negative as we get further along and things open up more over there. But I think with those type of numbers for the next quarter, maybe quarter and a half, something like that. And some adjustments to expenses, I think I mentioned on the call as far as us being able to adjust those expenses naturally just through variable expenses coming down, it's not as easy to do that over there as natural over there as it is over here with some of the different expenses that are in our model over there, a business model. But overall, I think with this level of decrease for the next quarter, quarter and a half, you're probably looking at around a breakeven similar to last year, maybe just a little bit lower if things continue for that long.

It means to, you really need to watch those weather situations over there. You're seeing pictures of big cracks in the ground in Ukraine, some of the rivers are down to the lowest levels in decades, some of them are even drying up. I saw pictures Romania, where they're bailing up the wheat crop for feed because -- so definitely there's a huge pocket in the Black Sea region, the Balkans, some in the Ukraine, even touching in Germany a little bit. Some really, really dry conditions. So we need to track that to actually

Right. But just to confirm, Mark you think you're able to remain above breakeven with those kinds of volume declines because looking at Q1, you were the barely positive from an income standpoint on what really was kind of a nice quarter.

Well, yes, so a couple of things there. First of all, seasonally Q1 is more difficult. Q2 and Q3 is typically where we make the money in international, I think, just to qualify what Dave is talking about too, if it continues, if the weather continues to stay this bad over there as well it would be -- it will definitely be difficult to be at a breakeven. I think, things could trend down from there, but I'm just saying I think, yes, we could stay about breakeven, right around breakeven, if we just had call at the next quarter of three, four months of some lower levels of revenues and then it picks back-up later in the year.

Okay. Thank you.

[Operator Instructions] Our next question is from Larry De Maria with William Blair. Please proceed.

Hi. Good morning, everybody.

Good morning, Larry.

Hi, guys. Question, had there been any cancellations? And what is availability look like for your large ag products, in terms of all -- against the COVID disruptions, so the supply that coming to you, but also just based on your orders and when you can accept delivery. I'm just kind of kind of seeing how far out you have visibility and also the level of cancellation said may or may not have occurred?

On the ag side of the business, you'll have very minimal and the cancellation side that was all working great. We did a little bit; this is probably more had to do with that decrease in oil prices that we did see a little bit on the construction side of the business earlier due to the oil piece. Now as you are aware, we started off the year pretty strong on high horsepower equipment from an inventory standpoint. So, we think we're in good shape and all the factories that are all up and going all and we think that right now we've got the lead time stuff in order to meet our customer demand with our current inventory. Let's come around the plants we think we're in good shape.

And the availability of equipment and you're kind of your own internal order boards and dealer wants and also customer wants. Does that put you out few months from now or somebody walks in or do you have that inventory have sufficient continue to satisfy?

Yes I'd say we've definitely have equipment to take us into the third quarter and then right now our inventories; we've got some open slots available in the Q4. So I think we're in good shape.

Okay. That's good to hear. Can you discuss take rates on precision ag products, what would be the main ones and how maybe they're trending year-over-year?

Well, it seems like there's a real interest in the customers for equipment that's this technology -- technically advanced equipment, whether it's planters or it's tractors, that's what the customers are looking for right now. So all the products then are aftermarket, like, say for precision planning equipment on our aftermarket. Last year that business was double, so that that continues, like I say, in all whether it's tractors or combines, planters, sprayers that technically advanced equipment definitely what the growers are looking for right now.

And they're paying up for maybe the software, premium software packages and things like that?

Yes, it doesn't seem like the prices, if you've got what they want and you've got all of the stuff that works and the price does not seem to be quite the object is with all the value added.

Okay. Two more quick ones. First, what would - the comparable tractor would be to the 8R that Deere has because that seems to be pretty well adopted or starting to be well adopted new product for the industry? Is that a near-term risk or how do you combat that new products by them with your own teenage product?

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Okay. You wouldn't expect a material shift, I suppose. And then if I could ask one last question. Obviously, I'm curious about the digital tools you're using to employ service if those are working out, if what you're doing differently to get the service given us some of the -- obviously growers are in the fields, stores have been closed for internal traffic etcetera . And what's going on out, does that make you rethink your footprint at all in terms of maybe less square footage, less servers, more distributed servers? Or is it probably most likely business usual as things return towards normal?

No. I think, definitely our customers are using technology, e-commerce. We had Dropbox, curbside pickup where some of our salespeople were delivering parts. So that's going to continue. A lot of our growers have really nice shops and we have a lot of big field service trucks and that's going to continue. But again, I think, with the size of the equipment and some of the things we do, need to do in our service locations that are going to exist. But three years ago we made some major footprint changes and stuff, so now we're servicing bigger markets and bigger territories and I think we're continue to I think the industry is going to be some level of consolidation that all that is going to happen. But I think we learned a lot from this and it's really nice that we could produce this type of aftermarket support for the parts and service support with Kohl's front doors and be able to use technology and really smart about how we did business. It's really good to see it, we could deliver these type of results under the whole COVID-19.

Okay. Thank you guys and good luck.

This does conclude our question-and-answer session. I would like to turn the conference back over to David Meyer, CEO for closing remarks.

Okay. Thanks everybody for your time this morning and your interest in Titan Machinery. I look forward to updating you on progresses on our next call.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.