Q4 2019 Earnings Call
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The conference over to John Mills, I see I think you may begin.
Great. Thank you good morning, ladies and gentlemen, welcome to the Titan machinery fourth quarter fiscal 2020 earnings conference call.
On the call today from a company or David Meyer, Chairman, CEO, and Mark Kalvoda Chief Financial Officer.
Everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2020, which will now this morning, and approximately 645 am eastern time.
If you have not received a really is available on the Investor Relations tab.
These website at <unk> or dot Titan machinery Dot com.
This call is being webcast 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, we suggest you access the presentation now going to tightens website at <unk> Dot Titan machinery Dot com.
The presentation is directly below the webcast information in the middle of the page.
Well, you'll see on slide two of the presentation, our safe Harbor statement you'd like to remind everyone that their 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.
These forward looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the risk factor section tightens. Most recently filed annual report on form 10-K.
These risk factors contained 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 tighten assumes no obligation to update any forward looking statements that may be made in today's release work. All we know that during today's call will discuss non-GAAP financial measure.
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We believe these adjusted financial measures can facilitate a more complete analysis in greater transparency into tightens ongoing financial performance, particularly when comparing underlying results from period to period. We have 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 and after the conclusion of our prepared remarks, well 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 for fourth quarter fiscal 2020 earnings Conference call as John mentioned to help you follow today's prepared remarks, we provided a slide presentation, which you can access on yeah. That's a relations tab well website at <unk> I, our dog Titan machinery Dot com.
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 fourth quarter for your fiscal 2020, I conclude with some commentary around or fiscal 2021, all what.
Turning to slide four.
You will see an overview of our fourth quarter and for your financial result.
Our fourth quarter revenue was down 2.4% to $351 million compared to the same period last year with adjusted pretax income improving to $1.3 million.
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Adjusted EPS was two cents.
Compared to a loss of four cents on the same pretty last year.
For the full year regenerated robbing all $1.31 billion, which was up 3.5% compared to fiscal 2019.
Our adjusted pretax income was $25.6 million versus $19.3 million for the prior year.
Adjusted EPS was 79 cents compared to 67 cents last year.
Fiscal 2020 was if it's successful Europe, what the revenue growth across all three of our operating segments.
North America agriculture.
North America construction and international.
The phase so some challenging industry dynamics, we're proud to be able to pull so solid profit number two our bottom line.
This is a testament to the strong commitment and performance of our team.
I'll now provide more detail around the three operating segments.
On slide five isn't already or North America Agriculture segment.
Calendar 2019 was a very difficult part of a year for our customers started with a wait and wet spring, causing delayed climbing.
All by cool and wet summer, culminating with an extremely late in a wet harvest.
In fact, Brazil substantial number of acres on on the harvest sort of corn left in Minnesota, North and South Dakota at beginning of this year.
Farmers are an all waiting for snow melt grown the from up to allow calling buyer.
These conditions for why does support to our equipment business spring demand for units with tracks world drives and vertical tillage equipment.
Over it was our parts and service business, what's realize the greatest benefit with double digit growth in both categories for fiscal 2023, the extent agent hours of equipment fleets and tough duty cycle from a late in the wet conditions.
Despite the adverse conditions you Sta forecast 29 teen net farm income to be up 11.7% buoyed by you Sta programs.
Good yields from the acres that didn't get harvested and stronger commodity prices really are enjoying in July.
Farmer sentiment remains balanced.
Current low commodity prices or concerns with the anonymous rhyming covert 19 or offset by continued improved yield trends.
We should the payment of the third and final tranche of the U.S.J. 2019, Workup facilitation program.
Starting a phase one of the U.S. trying to trade agreement.
Completed U.S.M.C.A. Bill I continued low interest rate environment.
Looking into this upcoming farming season, there will be a compressed spring planting sitting wendell due to the lack of diligent fuel preparation done last fall, which will put demands on our parts and service departments.
Further we expect the broader trends such as increasing the age of equipment fleets will continue to support growth our parts and service business.
Replacement demand in technology will remain a catalyst for new machinery purchases and we see continued stability and used equipment pricing in the near near term.
Well net farm income is forecast to be up 3.3% year over year. We believe that are prudent approach to the near term all worked as appropriate given the market uncertainty and potential implications from the coal was 19 crisis.
Broader trends such as replacement the man on the growing adoption of technology on the precision equipment what continues to support an equivalent revenues in fiscal your 2021.
However, as we've seen the prior cross of market cycles customers tend to extend the age of existing equipment.
Our dealer network is ideally positioned to take care with these customers and will support incremental parts and repair service the mail.
We believe the official an operation framework, we put in place with Titan machinery.
We will ensure that we manage through this extended cycle profitable profitably on that were optimum lead position full cycle returns more favorable.
[noise] as you may have seen we continued to be more active on the M&A front.
In addition to the North was North Dakota, Keysight fewer acquisition that we announced in the fourth quarter, we entered into an agreement to acquire the horizon West Threes for complex locations in Sydney, and Scottsbluff, Nebraska, and Torrington, Wyoming, what's expected the calls on May 4th.
These three key sites dealerships fit our profile perfectly and our continuous for existing north Platte at Imperial Nebraska dealerships.
We're looking through additional to do additional domestic egg acquisitions in the future because we've seen increased pipeline of motivated sellers.
Turning to slide six you will see an overview of our North American construction segment.
Similar to our position with agriculture or construction business is realizing improving profitability was this more efficient and nimble platform.
Macroeconomic backdrop remained fairly consistent through the fiscal fourth quarter for in the month of February.
Until now being they negatively impacted by the global covert 19 pandemic along with the steep drop in global oil prices.
Part of this we were enjoying a stable economy continued commercial or residential construction activity and the major metro markets, but central infrastructure spend that consistent demand for rental equipment across our footprint.
However, the oil production more taking place within OPEC countries, coupled with the decreases the oil demand to do the impact of covert 19, that's created a sharp decrease in oil prices, which we believe will negatively impact that construction equipment industry.
In addition, construction as far as in our rural areas are being negatively impacted by the lower commodity prices and farmer ranch or the man for construction equipment.
As a result, we are managing the business cautiously with a focus on driving improved profitability.
Late in the fiscal fourth quarter, we divested of our construction equipment store in Albuquerque, New Mexico.
Not only will this be advantageous dorsett you segment profitability, but also supports our strategy of operating on acquiring locations in core markets, where we can leverage logistics similar equipment specifications and customers synergies.
On slide seven.
We have an overview of our international segment, including stores within the European countries, All Bulgaria, Romania, Serbia, Ukraine in Germany.
Well, we were not happy with our European fiscal year 20 resolved.
These results were negatively impacted by <unk> undesirable weather and solve our key markets.
Lack of European Union Subvention funds, Brexit I don't know overall lackluster European like foundry.
However, recent spring range most of our European footprint put the winter cereal crops in good condition after a very warm and dry winter.
We were seen relative stability in our Ukrainian Marcus as land reform legislation is front and center and farmers in the Balkan countries are continued to invest in modern productive machines are embracing precision technology.
Looking ahead, we continued to see long term growth opportunities that are international markets.
While regional Subvention funds availability has become more limited in select markets, we're seeing global investment into the eastern European region, which is filling high demand for high horsepower products.
Consistent with his trend we continue to invest in the aftermarket parts and service business as we build out our footprint in Germany, So Balkan markets and the Ukraine.
Before I turn the call remark I would like to make a few comments on covert 19 dresses affect us on our employees customers and operations, including an update on our dealer management system migration.
We were taken cobot 19 outbreak very seriously and we believe that our organization has prepared.
Were proactive in our efforts, while adult adopting best practices from the CDC counseling large events counseling business air travel promoting social distancing, providing work from home options and limiting assets to our employees from vendors suppliers and customers.
Well, we temporarily closed off customer access to our facilities were fully staffed and using technology more servers fleets and alternative delivery solutions through by the equipment parts service and Russell to our customers. During this important spring season.
Our business is characterized by the U.S. department of Homeland security as critical at Us and on some central industry, which allows us to continue to operate in the support our customers.
Critics, while maintaining the global food supplies and national infrastructure.
We believe we are taking precautions to ensure the safety of our employees and customers alike.
Our former contractor customers for the most part independently operated large off road equipment with a minimum close quarters contact.
We believe we're well positioned to other this pandemic as we're able to utilize our technological capabilities to support our customers of all close personal interaction.
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Machineries reach all bets are generally located in rural and sparsely populated communities.
Our checks service techs Sop real field service vehicles and into service departments with large spaces and distances between employees during the size of equipment. They are working.
We are destination locations that have an active dialogue with our customers are sales process and engagement is highly plan dula sizing investment of equipment, but our customers are mikey.
Well, which allows for minimal customer for traffic on a variety of parts delivery systems that do not involve plus more contact.
Regardless of the supply chain, we feel good about our ability to complete on time deliveries to customers for sold and needed equipment.
With respect to parts, we are proactively increased our stock of critical high demand parched I'm sure that we're able to maintain our high levels of service throughout this challenging times.
Concerning or fiscal 21 outlook.
The uncertainty that covert 19, as creating within our industry a business.
We believe it is proving to temporarily withhold or fiscal 21 modeling assumptions that we usually introduced during our you around reporting.
Mark will provide additional color regarding fiscal 2001 in his remarks.
As part of our risk mitigation efforts. We're also delaying the role rollout of our new ERP dealer management system conversion within our North America footprint.
Our revised quite as more measured with the launch of a pilot location. This summer fall below full system implication implementation companywide into first half of fiscal 2022.
During this time of global uncertainty, we're proud to be an integral part of the central industries to support farmers, who are critical little food supply and construction equipment operators, who build and maintain infrastructure.
Well I turn the call where the mark to discuss the financials I'd like to thank our employees in United States and Europe for a great. Your and your continued commitment to our customers go ahead Mark.
Thanks, David.
Turning to slide eight.
Our total revenue for the fiscal 2024th quarter was $351 million, a decrease of 2.4% compared to last year.
Ongoing strength in our high margin parts and service business led to improved profitability during the quarter, but was not enough to completely offset topline softness any equipment sales that we experienced during the quarter.
Equipment revenue decreased 7.5% during the current three month period, which is predominantly driven by lower equipment sales in our agriculture segment.
And to a lesser degree within our construction in international businesses.
As David noted our equipment business within our AG agriculture, and international segments continues to be impacted by ongoing macroeconomic challenges.
Our recent trend parts of strong parts and service growth continued in the fourth quarter, increasing 19.2% and 16.6% respectively.
The growth in these revenue categories reflects our increased focus on customer care across all segments and was supported by the difficult harvest environment as well as an aging customer fleet within our AG business.
Our rental and other revenue increased 7.3% in the fourth quarter due to an increase in rental fleet and and inventory rentals in our construction segment.
We experienced a 130 basis point improvement over prior year quarter, and our rental fleet dollar utilization from 23.7% in the fourth quarter last year to 25% in the current quarter.
This improvement is the result of our focus in this area as well as Rightsizing, our rental fleet assets to improve our utilization rates.
On slide nine.
Our gross profit for the quarter increased by 10% to $61.1 million.
Our gross profit margin improved by 190 basis points year over year, 17.4%.
These improvements were driven by increased equipment margins and a greater proportion of higher margin parts and service revenue as compared to the prior year quarter.
Our operating expenses increased by $6.3 million to $60.1 million for the fourth quarter of fiscal 2020.
Current quarter expenses were impacted by ERP transition costs and expenses associated with our newly acquired Northwood location.
Both of which were not in the prior year quarter.
This expense increase combined with lower revenue caused our operating expenses as a percentage of revenue to increase the 17.1% from 15% in the prior year quarter.
Impairment costs were $3.6 million for the fourth quarter of fiscal 2020 compared to $1.7 million in the prior year.
The majority of the current quarter costs were related to the impairment of right to you right right of use assets, which were identified after the initial adoption of the lease accounting rules earlier this year.
Floorplan and other interest expense decreased $300000 to $2.5 million compared to the same period last year.
This reduction was due to the lower interest expense, resulting from the May one 2019 retirement of the remaining balance of our convertible notes, partially offset by a higher level of interest bearing inventory.
In the fourth quarter of fiscal 2020, we realized that realized adjusted net income of $500000.
Compared to an adjusted net loss of $800000 for the prior year quarter.
The adjusted figure excludes a gain of $4.6 million related to a release of our domestic income tax valuation allowance as well as the impairment and ERP transition costs that I just mentioned.
Our adjusted earnings per diluted share was two cents for the fourth quarter of fiscal 2020.
Compared to an adjusted loss per diluted share a four cents in the fourth quarter last year.
For the fourth quarter of fiscal 2020, adjusted EBITDA was $8.1 million compared to $6.7 million in the prior year.
You can find a reconciliation of adjusted net income adjusted income bird per diluted share and adjusted EBITDA to the to the most comparable GAAP amounts in the appendix slide presentation.
On Slide 10, you will see an overview of our segment results for the fourth quarter.
Agriculture segment sales were down 3.5% to $215.5 million, but we were able to increase adjusted pre tax income to $2.5 million in the fourth quarter compared to adjusted pretax income last year up $1.7 million.
We were able to achieve this through improved equipment margins and continued strength in our parts and service business in this segment.
Turning to our construction segment.
Revenue increased 0.9% to $87.2 million compared to the prior year period.
The segment's adjusted pre tax loss improved $500000 to $1 million compared to 1.5 million and the same period last year.
Similar to our AG segment, the bottom line improvement was driven by increased equipment margins and strong parts and service growth over the prior year.
This segment also benefited from the improved rental results that I spoke to earlier.
In the fourth quarter fiscal 2020, our international segment revenue was $48.2 million.
The decline of 3.4% compared to the prior year.
Was the result of lower equipment revenue caused by the industry conditions, David discussed earlier.
The lower equipment revenues combined with higher operating expenses resulted in a loss of $2.3 million compared to a loss of $1.1 million in the prior year fourth quarter.
Turning to slide 11, you will see an overview of our full year revenue results.
Fiscal 2020 total revenue increased 3.5% compared to last year, driven by strong crop contributions from our parts and service businesses, which were both up double digits for the year.
Equipment realized a slight increase and rents rental was essentially flat for the year with increased dollar utilization offsetting a smaller fleet.
On slide 12, our full year gross profit was $250.8 million.
And the 8.3% increase compared to the prior year.
And our gross profit margin increased 80 basis points to 19.2%.
Both of these metrics were primarily driven by growth in our higher margin parts and service businesses in fiscal 2020 compared to the prior year.
Operating expenses increased by $24.2 million or 12%.
For the full year of fiscal 2020 compared to the prior year period.
In addition to the fourth quarter expense explanation I provided earlier the higher full year expenses reflect the full 12 months of expenses that were incurred for our operations in Germany as compared to a partial year in fiscal 2019.
Restructuring restructuring and impairment costs increased 1.6 million to $3.8 million and the current full year period. As a result are of the fourth quarter impairments mentioned earlier.
Floorplan and other interest expense decreased $4.1 million or 29.3%, primarily due to the interest expense savings, resulting from the repayment of our senior convertible notes earlier in the year.
For the full year fiscal 2020, our adjusted net income was $17.7 million compared to $14.7 million for the full year of fiscal 2019.
Our adjusted earnings per diluted share was 79 cents for fiscal 2020, representing a 17.9% increase compared to 67 cents in the prior year.
For fiscal 2020, adjusted EBITDA was $53.1 million compared to $49.8 million in fiscal 2019.
As a reminder, our adjusted numbers exclude ERP transition costs impairment and in and restructuring expenses as well as gains from the release of our domestic income tax valuation allowance.
All of these adjustments can be found in the appendix to this slide presentation.
Turning to slide 13.
We provide our segment results for the full year fiscal 2020.
Overall, we achieved growth across all three of our segments and our adjusted pre tax income increased 32.3% to $25.6 million for the full fiscal year 2020, compared to $19.3 million last year.
This improvement is primarily the results of higher parts and service revenues across all three segments and lower overall floor plan and other interest expenses.
These results were partially offset by higher overall operating expenses as well as a result reduced contribution from our international segment.
Turning to slide 14.
Yes, we provide an overview of our balance sheet highlights at the end of the year.
We had cash at $43.7 million as of January 31, 2020.
Our equipment inventory at the end of fiscal 2020 was hot $515.9 million, an increase of $98.8 million from January 31 2019.
Due to higher levels of new equipment inventory versus the prior year.
Equipment inventory turns it declined to 1.5 in fiscal 2020 from 1.8 in the prior year.
I will provide a little more color on our inventory on the next slide.
Our rental fleet assets at the end of the fourth quarter decreased to $104.1 million compared to 111.2 million at the end of fiscal 2019.
We anticipate our fleet size will decrease slightly by the end of fiscal 2020.
As of January 31, 2020.
We had $371.8 million of outstanding floor plan payables on $717 million Floorplan lines of credit.
We continue to have ample capacity in our credit lines to handle our equipment financing needs.
Our current 200 million dollar Wells Fargo credit facility, which consists of $140 million of floor plan line and 60 million working capital line matures in October 2020.
We have been working on a new credit facility and anticipate successfully replacing the current facility within the coming weeks.
To share more information with you when the new agreement is finalized.
Our total liabilities to tangible net worth ratio is a healthy 1.9.
As a reminder, this ratio was impacted by the adoption of the new lease accounting standard which went into place in the first first quarter of fiscal 2020 and will normalize on a comparable basis beginning in the first quarter fiscal 2021.
Importantly, our ratio is well below 3.5, which is the leverage covenant requirement of our larger bank facilities.
Turning to slide 15.
The amount of new and used equipment inventories are reflected in the size of the red and blue bars on this slide.
While our current level of inventory is down sequentially it ended notably higher than the prior year and over our plan.
We are committed to driving inventory turns higher in fiscal 2021.
Importantly, the quality of our inventory remains healthy as evidenced by solid equipment margins and an improved noninterest bearing inventory percentage over the prior year end prior end of year percentages, which are reflected by the purple bars on the graph.
Fiscal year, 2024th quarter percentage decrease sequentially due to seasonality.
We would expect this to increase again as we operate through the first half of fiscal year 2021.
Slide 16 provides an overview of our operating cash flows for fiscal years 2020 and 2019.
The GAAP reported cash provided by operating activities for fiscal 2020 was $1 million compared to 46.6 million last year.
As part of our adjusted cash flow provided by operating activities. We include all our equipment inventory financing, including non manufacturer floorplan activity and adjust our cash flow to reflect the constant equity and our equipment inventory.
Allowing us to evaluate operating cash flows exclusive of changes any equipment inventory financing decisions.
After applying these adjustments are adjusted cash provided by operating activities was $17.8 million for the for fiscal year 2020, compared to $47.4 million in the prior year.
We generated over $50 million and adjusted cash from operating activities in the fourth quarter as working capital levels came down.
However, full year cash generation was below the prior year due to the higher year over year inventory levels that I discussed a few minutes ago.
Turning to slide 17.
As David mentioned earlier due to the uncertainty in our business as a result of the covert 19 breakout.
We're not providing our fiscal 2021 modeling assumptions at this time.
However, I would like to provide some color on how we view our business and these uncertain times as well as point out other noteworthy items for you to consider as you look at our business for fiscal year 2021.
And our agriculture segment, we currently expect a more limited overall impact from the covert 19 crisis.
As our farmer customers are operating our operating in sparsely populated rural areas and are essential to maintaining a stable global food supply.
Therefore, we anticipate that they will continue to plant and harm that harvest normal levels of acres.
Which in turn should help continue to drive growth in our AG parts and service businesses.
However, it is critical our employees remain healthy and parts supply chains remain intact.
That said, we do expect our equipment business in this segment to be negative negatively impacted as a result of this crisis, which we believe is having an impact on customer sentiment and may enter into their equipment purse purchasing decisions.
When considering any assumptions for the egg segment in fiscal 2021 remember to account for a full year contribution from our recently acquired Northwood location, which closed on October one 2019, and our anticipated closing of the horizon West acquisition.
Got it to close in May of 2020.
Both of these businesses had revenues of approximately $25 million in their most recently completed full fiscal year.
Within our construction segment, we expect a more significant impact on our business given that a prolonged outbreak could very well delay or cancel or prevent customer projects as a result of a slowdown in overall economic activity.
Additionally, lower oil prices negatively impact activity in the energy markets we serve.
Also consider the January 2020 divestiture of our Albuquerque, New Mexico store that David mentioned.
The sale of this single store location will negatively impact year over year revenue comparisons as this construction store generated approximately 8.5 million of revenue in fiscal 2020, but will help in our overall efforts to achieve profitability in this segment.
Our international segment faces additional challenges and perhaps more uncertainty than our domestic AG business.
For example, our international teams are already dealing with logistical challenges at the borders.
There are higher risk associated with pharma liquidity in our eastern European footprint as access to credit is more limited, particularly in Ukraine.
Also there is uncertainty regarding the ability and willingness of these developing countries to financially support their farmers if the need should arise given the overall economic stress put on these economies due to the coal that 19 outbreak.
Some additional considerations for models include the implementation expenses associated with our ERP project.
Which is now expected to be fully implemented in the first half of fiscal 2022.
We currently expect about 12 cents of ERP related expenses for fiscal 2021.
These will be excluded from our adjusted EPS calculation for fiscal 2021.
Regarding tax.
We anticipate an effective tax rate for fiscal 2021 at approximately 27%.
Which represents a more normalized long term rate as we have now released all domestic valuation allowances.
We still expect this rate will vary quarter to quarter as profit and loss mix fluctuate due to seasonality within our various international tax jurisdictions.
Where corporate tax rates vary and some valuation allowances exist.
We will update you on our income tax expectations as we progress through the year.
Finally, a comment on the higher level of equipment inventories that I mentioned earlier.
While we aren't seeing any disruption in.
The equipment deliveries today are higher inventory position will help mitigate any future supply chain disruptions in equipment sourcing should they arise.
In addition, we have already begun sourcing a safety stock of critical in high volume parts to ensure uptime for our customers.
We are convinced that restricting customer access to our stores. During this outbreak is the right course of action.
It protects our employees, but still enables them to work on our customers machinery and provides them the necessary parts and equipment they need to continue to be successful.
We're cognizant that limiting our customers access to our stores may have some short term revenue implications on our business.
But are encouraged by initial customer responses to our safety measures.
This concludes our prepared remarks, operator, we're now ready for the question and answer session of our call.
Thank you.
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Our first question is from Steve Dyer from Craig Hallum. Please proceed.
Thanks, Good morning, guys very detailed prepared remarks, I don't have much but curious as to how your capital allocation changes or how do you think about that in this environment are you are you bunker done on for a bit on one hand, you could buy your own stock for half of tangible book value are you still.
Looking opportunistically.
Acquisitions. Thanks.
All right good morning, yes.
We are we are looking at different alternatives for capital allocation.
The.
Horizon West deal that we announced this morning has been in place for a while we actually struck that deal some time ago.
So we do look and we share with talk with the board about different capital allocation opportunities some which includes.
And the price of our stock and potential share repurchase.
But in these times, we think theres a lot of value as well just maintaining a high level of liquidity during these uncertain times.
So I think we'll continue to going to be conservative in that regard until we gain more understanding of the situation that's before us today around this.
This cold that 19 outbreak.
Got it and then the only other one for me I guess, Mark you touched a little bit on parts supply.
So much manufacturing shut down what sort of your confidence level, either on the equipment or the parts side of having a study slow thanks.
Yes, so far this is Dave.
Steve So far so good though.
We're getting things are coming in China, China is actually coming back online I guess, which is pretty helpful.
As we southern remarks, you are we we looked at our critical hydro ma'am parts and all upped our stock inventories on those and restart and all of your with really good whole goods inventory and from our visibility to our orders are these coming around black our pre sold equipment is coming on plan and some of the.
Products that we were getting short on Reordered up bomb looks like there are come on plants. All four we can see at least for the first half of the year looks looks pretty good and I can say, we were started off the year with with ample inventory Russell. So we really feel really good probably for pretty much the whole year with with our current level inventories in the parts situations were season.
Got it great. Good luck guys.
Our next question is from make celebrate with Baird. Please proceed.
Thank you good morning, guys.
I guess my.
I guess my first question.
Yeah.
This corona buyers.
A very.
Recent occurrence and I understand that most of most of the data point out there still fail to properly taken into account.
So I'm wondering can you give us some color on how your equipment sales have trended in the past week or two weeks.
To sort of gauge what the impact of.
This crisis might be and I'm also wondering.
Have you seen any of the equipment, that's been preordered be in being canceled or farmers trying to essentially say hey look you know.
I want to take delivery later than originally planned.
Given the uncertainty.
Yes, well sole other taking a were fully staffed right and also.
All our parts and service departments are busy getting all all equipment out there for first for spring work. So so so that's a good thing so when you all parts and service revenues should begin and like we said in our our comments you'd only.
You'll obviously that everything kind of turned upside down here, a little bit but the.
Farmers settlement it all I think it's probably a natural instinct, just say that let's see how we come out of this thing a little bit so.
But.
Well, there's pre sold equipment, that's being settled out that was the old bought Boston all customers put their names out and we're delivering that I think to date, we've only seen one.
One cancellation, so far which is good.
I think typically and we see all the.
The farmers are getting the fields in the contract is getting their job site. It's it's a good let's get the crop planted this gets going is it and then they look at their equipment needs to get the job done.
So we anticipate that tool is still to continue our salespeople to stay in fully engaged.
You don't I think things were up until you off we look at the industry you saw you've probably seen that all the industry numbers. They really haven't backed off in January and February so the trends were looking good and.
I can say the net farm income year over year as good source pretty good carryovers aisle. So I guess, we're cautiously optimistic that you know as we come off the other side of this is going to be pretty good but.
The main thing is it we keep our people are healthy and we keep this parts and service business going.
No I understand that I mean January and February. This is all very much lagging which is why I'm asking where equipment specifically in the last couple of weeks.
Sorry, depressing on this but I think really at this point, it's it's pretty important if you can provide that perspective.
You know, we typically mic don't disclose that another two is just all a lotta yet as you've probably been aware of that in these industries to there's a lot of the negotiations with customers in the Oems in the pricing really goes on in the result lose a lot of business gets done in the last two three days a little more.
Okay and work as well can continue to look out so we don't really all do like.
Every day, what what's ringing the cash register on the whole good deals a lot of stuff kind of.
Backend loaded.
Thats typical of the industry. So we really really don't have these but we were still sell equipment everyday. We're so we're getting daily sales sheets and.
The guys are all to alter getting the job done or salespeople are out in the farmers in the coming into the construction sites and and we're seeing.
Reported sales everyday soul.
We're going to continue with that but but I don't we don't track tools exact numbers is very difficult every every day on that because like is it pretty back loaded in the month those those numbers.
Okay.
Then maybe a question for you Mark can you can you give us a little more color on what you're doing to preserve and enhance liquidity at the company at this point.
Maybe can comment on your covenants as well.
Are there any action that your.
Looking to take down the line you're too to further bolster the company's liquidity position.
I think what are the things that we talked about our inventory turns were certainly managing our working capital there's a lot of discussions.
Internally with our domestic in our international business too.
Pull down working capital levels overall managed to higher returns, particularly on area under inventories.
I mentioned as far as our credit facility, we are looking to finalize that in a couple of weeks in a couple within a couple of weeks.
And that should allow us a greater level of liquidity some higher advance rates.
Should be part of that.
Part of that deal as well.
And I think Theres theres always some level of.
Just the expense management and disciplined and.
None higher than where we're at today given the situation. So I think those are three of the items that were really focused on with working capital probably being the biggest one.
To ensure that.
That we maximize their liquidity.
Yes, I'm curious on on on working capital and inventory specifically.
You said that you exited the year, maybe little more inventory than.
Then you want it.
As you're thinking about 2020.
Where do you see yourself.
Exiting.
Exiting this year and.
Have you changed your order patterns to OEM.
This point in order to reflect.
This clear need for de stocking.
We have so that has been we are in the process of adjusting that some of the orders have have been adjusted here and the plans for that through throughout the year.
On.
Yes, I think it's.
It's a big focus for us if we mentioned the parts on the part side, we are bringing in more so there will be more.
Parts on that just to make sure that we.
Don't run into any type of our supply chain challenge there.
But on the equipment side, we are managing that more of.
Just in time.
Inventory on here as as we move throughout the year as far as ending the year I think thats a little bit.
It's a little bit.
Whatever it'd be very tough I think to give that at this point given all the uncertainty that's out there what I would say is with the us ending at 1.5 with our inventory turns.
Matt.
We're planning to pull that up so we certainly do expect that to improve.
This year, so even on a flat level of sales.
We should be able to maintain or pull down that inventory overall, a little bit from the current year.
Okay, and I'm, sorry, I don't think you mentioned the covenant, maybe you can help us berenbaum Don Thanks.
Yes, sorry covenants that we have with our banks.
3.5 is that total liabilities the tangible net worth we're sitting at 1.9 right now.
So thats one of the bigger covenants that we have with our banks.
And the other one is just kind of around the excess availability that we havent is kind of liquidity measure and we're in.
Very good shape, we're not close to.
Testing that at this time and and with a new agreement out there we should have even.
More of cushion there more room, there if you will as as we expect that higher advance rates and the new facility.
Great. Thank you.
Thanks, Rick.
Our next question is from Rick Nelson with Stephens. Please proceed.
Hi, Thanks.
Good morning.
No.
Hello.
In terms of customer.
Hey.
Got you are saying.
Co with 19 really our record embargo.
No.
Another car dealers hard cover they're seeing big declines new and used.
Sales.
Yes.
At this Florida strike.
Hi equipment sales down 50% to 70%.
Our since March six.
If you could comment overall behavior, what you're saying.
Well, let you also collateral because you know that utilize business to consumer were I'd say, we're more b to b or business the business. So.
Probably not good comparison.
And like we started our comments you know we don't get a lot of customer floor traffic in all these are planned purchases hide high ticket items as usual.
A lot of times article our salespeople are all to the far more to the construction site. So I think it's just a whole different business model out there.
There are getting too it's not a lot of spawn pay the supply spontaneous type decision that I can say is more plan. So I. Just here you know before we just recently you all caught access soft or to our customers at our facilities, but you know the restaurants coffee shops were close all of sudden you all the farmers will come on Ed just coming back from flow.
Sure I'll come back from Hawaii coming back from Arizona talking about where they've been it's one of the reasons. We you all and like business unit from getting ready to go in the fields getting their equipment ready to go I'm talking about they're going to need the all talking about the commodity prices all that kind of sold it there there are acting pretty normal seasonal.
You know if you look at.
Like the number of.
Covert 19 cases in some of our footprint.
You know there there's a down there there is some pretty well numbers and some of these that I'll give you some examples.
So where we got a lot of our head there our store count.
South Dakota 30 cases, this was all new in Yesterdays, 30 cases, and Salt Godel, Wyoming 30 that North Dakota, 37, Montana 48, Nebraska 53, Iowa 124, you know sold so those states, where we really all compared to some of the tougher stays like Colorado, where we have three stores like 90.
One it also there's some really some big variances out there.
But the but where our core AG markets are.
I think due to the probably the sparse populations and I'll just first everybody our euro we're not see Thats all I would say from the farmers you always business as usual I think the contractors there that business a little bit goals with the economy's annual I think there's enough jobs that were bit all last year, all fall last winter the all been funded there.
Still finish on what plus some project there is there some infrastructure stop there is no diversions or something like that I anticipate that looks like there's going to be some all still pretty good risk for some plugs it floods in certain areas and that drives some of that business.
You know, but like I say were that we're business a business plan purchases on customer wanted to get their equipment that they need for their operations fixed so omelets as more of a necessity. So that's what we're seeing out there right now and I think this is a distraction in all its a distraction and we want to make sure as customers stay healthy and our people stay healthy but.
It all I think we're prepared right as we get through this.
That's correct.
I'm sorry, some parts side now.
Yeah.
All right to those stores.
How do how do you think that are products that segment of your business well not that much because you all right now there has been quite a bit of.
People call on the foreign aid you have this set at all consulting we have dropped dropbox is scattered all throughout our footprint. So well many times our customers. Some there they are hired people in the pickup the parts or some is driving by it. So you always in order to say it and set up.
Hang on all it in our dealerships not knowing it all what kind of exposure might have to say hey call a soft first on it all pull up the front of the dealership. Some let us know what you need and we will take them also backdoor foil will come roll up your pick up so that's what we're kind of doing so really it's not much different than what happened before and it's just.
Where there were just trying to minimize the exposure it because because the other day was really reimported, we have to keep our employees safe and healthy through the spring season, right and we don't want to take the risk of one known people solve our customers' snowfall we know something we don't know.
Vendors, if they come in and they happen to expose our one of our stores you. Although that's not good. So we're trying to stay away from that but but really the what do they do business and probably half our parts are installed on the equipment by our service techs at all and their or their mobile service trucks that theyre going out to their farms under construction sites or are they are working on that equipment. The big shop, So a lot of SK.
One out that way too so really we don't see a lot of interruptions, it's not like as a spontaneous type business. It is what they need to get their equipment to get their jobs Doug.
Correct.
They use.
Correct.
And the.
Change to secure sitting out late.
In terms of price.
No we're still seeing that good man and even people wanting all because there's little pretty low new machinery industry numbers for last two three years right. So that means less creates coming back in.
We're not seeing the the level of lease returns coming back again, right and all and and the ones that are it seems like the residuals are priced about right. So.
I can say, there's good demand right now for good good late model good used equipment and we're seeing that so for the near term, we don't see a lot of things change because I can say the the new industry numbers are still will stand pretty low is it so the amount of.
Good use coming back into the pipeline is limited.
Correct.
Thanks, Good luck.
Okay. Thanks, Rick.
Our next question is from Larry de Maria with William Blair. Please proceed.
Thanks, Good morning.
Larry.
Hey.
Okay.
I guess just.
Finish up enough.
Conversation and have it just curious.
Okay.
Yes.
Your conversations but.
Look at it differently, how has the customer conversations changed from a month ago to now are there.
Extending a much more cautious or customers looking.
Short term disruption that thought to figure out how to get through so curious how the tone to the conversation to have changed and if so how materially.
Well I think the told you I I think there's a certain level of probably a distraction frustrated.
Most of our customers are there or whether it be farmers are contractors are in the goal mode. They want to goal. You know this is kind of takes away from that but I think that's probably waiting on the farmers more anything is this continued level of a depressed commodity prices.
So it all so that you all the China at phase on that of the China trade.
Deal getting that done is a good thing the U.S. MC a bill is good.
It all.
But at the same time, you know we've got to get that we've got to get this corn up closer to $4, we need to get soybeans up closer to $10, but I think thats, probably weighed on our growers more than more than anything Larry right now so.
I'd say that probably trumps all I think we uptick you don't put a good eye on what's going on with ethanol right now with these roll off with with the low oil prices you all that definitely impacting it all the.
The profitability of ethanol plants, and there's a lot of corn that goes into the ethanol plants. So so I'd say that probably is waiting on the on the growers more than the milk the coal that 19, because they're not really see in much of the cold in 18 and their farming operation on their markets.
Well, that's sort of trying to get to also.
We obviously kind of guidance.
Which I think with more due to colder anything else but.
Three sub 350, corn sub $9 means that would.
Takeover.
Everything that would imply a fairly challenging year ahead.
I mean, you guys are talking cautiously optimistic, but just the commodity prices ended up themselves would probably be more barrels negatively.
Technology, placing upgrade right trying to understand how negatively balance that would be.
I guess that there is a direct relation mcqueen industry, all high horsepower equipment in corn price right. So, yes, I think that definitely within there at all.
Like we talked I talked or my comments here until it was a really late harvest are still come farmers ultra combine incorporating all but there's a lot of fuel worked at least get done even before they can begin thinking about planning right on it I think thats front than mine, though a lot of these guys you get that you get the corn combining to get the.
Ill give you don't get their residue off and get those fields and shaped as you all together get the planning done, but did but definitely the commodity prices for our growers and our ability to buy regional new farm equipment.
But there what that said is all that just extend delay from that parts and service business that we can do.
But if you look back a year ago, Larry if today compared to your gold prices are pretty similar and I'll what happened last year, we had that nice nice pop in late June early July it all and that's all.
Thats still little bit unforeseen, but.
Well if I.
I know exports to China, starting to pick up a little bit they're starting to get some orders. So so basically if we see the impact from the trade will phase one of the trade deal the U_s_m_c A's some of the benefits from that.
Let's see what happens here.
Okay.
Understood and just to clarify you talked about.
Cancellation and you have for visibility on the preorders right how much visibility do you think you have I mean, obviously.
Petters pre sell a lot of equipment.
Okay Presales less in general.
So how much visibility do you think you have at this point.
We've got good visibility to all our Presales are pre sales are up year over year. This year. So we think that's that's a good trend going forward. So I'd say, we've got we've got good visibility.
[music].
Ill.
We were getting I think there on the orders I'm pretty good visibility I suppose we get out into that August September timeframe for sure and now keep in mind to where we're starting to your with almost $100 million of inventory on hand that we didnt have a year ago also thats going to add to what we've got so I think we're really in good good shape, all what's coming in and what we.
Yeah on hand to to meet the needs of our growers.
Okay, and then maybe you could talk about.
Senate Bill and the impact on AG. This couple of things in there.
And maybe some more payments.
And if I'm not sure but can you talk about how you think the Senate Bill placement for AG.
Well I guess.
They just cited in the Middle a night last night.
I think it's got to get through the whole share right. Larry So I guess I'm not really in a position a comment I know last year. If you look at that all that 11% deal that forecast a lot. It all those off that that MFS deep payment helped a lot. There is what in the regular farm Bill. So good safety nets. In addition to that too so yeah I think.
Supported their businesses last year, the farmers and any help this year I'm sure they're going to appreciate.
Okay.
Morning here.
And that's it.
The average farmer as we're going to planting season.
They had the tools the working capital loans parts. It sounds like you guys get park.
Technicians to get out there and the supply chain in general.
I think there.
Locked and loaded to be able to plant a big crop.
As we said their intentions are.
You see from any stress in the system working capital load credit.
Yes.
Parts and other things and supply chain, how you're thinking about that.
No I think there and I think they're really good shape.
The stock onto a grower this morning, and these buying some huge propane storage tanks right now because this for this price or Propanes at rock bottom I think again to see good for you all diesel fuel and gas prices is going to help them out fertilizers already come down because a little bit a lack of demand sole so some of the crop.
Inputs are coming down.
I think probably the.
If you look at that yields you know a lot of times or they don't get that volatility is done and you're doing a lot of that in the spring Indeed, a big restaurateur field, sometimes the yields than that ground isn't as good as if they get normal tillage. So that's probably a little bit of our risk on the yield side on those.
But they are.
But I, but I think the corn starting to come off in the last three weeks. There is some of this quarter that hadn't January 140% or the corn was still in the fields in North Dakota, So they've been banging away at that and getting some of that off so thats been helpful. But.
So, but overall I'd say from from all they've got good strong balance sheet jet they had a fairly decent here that this year like I say net farm income was up I think for the most part the relationships with their banks are in good shape and as you know as far as equipment. We sell we've got good through CNH industrial capital we've got good financing.
You don't plans for the new and used equipment. So you combine that will combine all that up I think it's business as usual.
And.
We want to keep our.
Poise safely at all.
They have to say that as of this morning in both Europe and North America, we've yet to have one employee test positive for.
Cobot 19, so estriol plus I can say I think thats really important because the farmers don't have a lot of hired people right now to family members. They want to Iron man a lot of for at least got to make sure we keep everybody healthy and.
With that it's business as usual in that but it is something we just have to be aware of and more so on the construction side and.
And just get through this on the back end.
Healthy and Gary Baby back worker.
Okay, great. Thanks that was good to hear best of luck to share.
Okay. Thanks, Larry.
We have no more questions at this time I would like to turn the call back over to David Meyer for closing comments.
Okay, well, you'll thank you everyone for your time today and your time recall and we look for updated you on our progress ahead and everybody's stay healthy.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day.