Q2 2021 Titan Machinery Inc Earnings Call
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Great. Thank you good morning, ladies and gentlemen, and welcome to the type machinery second quarter fiscal 2021 earnings conference call.
On the call today from the company or David Meyer, Chairman, and Chief Executive Officer, and Mark Kalvoda Chief Financial Officer.
By now everyone should have access to the earnings release for the fiscal second quarter ended July 31.
2020, which went out this morning at approximately 645 am eastern time.
Not received the release it is available on the Investor Relations page tightens website at <unk>, our dot Titan machinery Dot com.
This call is being webcast a replay will be available in 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 like going to tightness website at <unk> IR Dot Titan machinery Dot com.
Presentation is available directly below the webcast information in the middle of the page.
You'll see our flight to at a presentation are 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.
Statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
These forward looking statements are based on current expectation 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 the factors that could cause actual results to differ materially from those projected and 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 Warchol. Please note that during today's call will discuss non.
GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the tide and 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 and at the conclusion of our prepared remarks, we will open the call to take your questions now I'd like to introduce the company's chairman and CEO Mr., David Meyer go ahead David.
Thank you John Good morning, everyone welcome to our second quarter fiscal 2021 earnings conference call.
On today's call I will provide a summary of our results than an overview for each of our business segments.
Well then review financial results for the second quarter fiscal 2021, we're also providing a modeling assumptions for full year as visibility has improved.
If you turn to slide three you will see an overview of our second quarter financial results.
Our second quarter revenue was $303 million, which is an 11.5 million dollar decrease over the prior year period.
Adjusted pretax income decreased $100000 to $8.9 billion, resulting in an adjusted earnings per diluted share of 29 cents.
Pro forma segment overview I wanted to address a few high level comments, where there is a core was 19.
As I shared on our Q1 earnings calling me we took the early covert 19 guidance potential risk most important the safety of our employees and customers very seriously, we're very active unemployment of customer messaging education, and putting the C.D.C. recommended safety procedures in place.
Fortunately are poised stepped up stay healthy.
We were able to support our customers through the important to spring and summer season.
As a result, we were able to deliver another solid quarter, especially with our domestic AG equipment business.
We're on a critical and essentially industry as we support the farmers ranchers and contractors, who build and feed the world.
On slide four as an overview, our domestic agriculture segment.
Spring planting conditions, where ideal across most of our footprint.
With the exception Osama extremely what areas within our northern footprint, where farmers elected to provide a plan option in conjunction with their multi peril crop insurance.
Likewise, the crop development up all the summer was excellent with record or near record deal potential across tightens markets.
Well, there's a lot of optimism for an above average yield potential there are areas of our footprint there won't be additional rainfall to finish the crop.
What's the potential for high yields are resulting oversupply its or neural developing.
You asked you. That's August 12 wasn't report, reflecting crop conditions as of August 1st.
Watered see every season average price for both corn and soybeans.
Youre, probably aware or there was a record retro windstorm August 10th that's starting to use the Nebraska and Iowa hard it continued to Wisconsin, Illinois and Indiana.
Well, it's straight line wins of over 100 miles per hour.
That's somebody the over 8 million acres of Iowa corn.
Approximately 5.6 million acres of Iowa soybeans were impacted.
In addition, there was widespread damage the both farm and commercial grain storage facilities, which could be problematic. This calls to harvest.
You Sta will have updated pull storm I would data for corn and soybeans and at September 11th crop production report.
President Trump also recently signed a 4 billion dollar disaster decoration for Iowa.
Not only do we expect a difficult corn harvest of Iowa, what the mangled fields, but there was also substantial damage to equipment from the dreadful windstorm, there's one damage collapse washing machine shops fallen fees took its toll on equipment, which will require either parts and service repairs workover replaced.
Right.
Well application dates are still open for farmers and ranchers to submit applications for the 16 billion dollar U.S.D.A. Corona virus food assistance program CFA P, providing direct payments of farmers and ranchers for dropping prices of commodities the livestock do krona virus really apples.
<unk> received the final 20% CFA PMP event at current applicants, where we see 100% payments upon approval.
There are also a number of farmers and ranchers or to participate in the payroll protection program P.P.P. of the Cures Act.
Farmers the receive assistance from these federal support programs and our benefiting from today's low interest rate environment, along with reductions the input cost such as swaps phosphate nitrogen fertilizer propane and diesel fuel.
As equipment fleet age, we see continued replacement demand for new in late model used equipment.
In addition increased agent hours of the current fleet continue to drive our aftermarket parts and service business.
Cores are excited about our new case AJ, a fast connect a new on P., all M. intelligence tractor models with the latest some precision data in connected technology in these high performance machines.
As you can see if there are multiple dynamics affecting agriculture crop yields commodity prices and our customers down markets.
It continues to provide the equipment technology and support the enables our customers to maximize yields.
Activity efficiencies and equipment costs due to the lifecycles of their fleets.
Turning to slide five you'll see an overview of our domestic construction segment.
Construction equipment segment continues to fuel the economic impact of covert 19, and depressed oil prices. However, due to the operational improvements that our team has been implementing over the last couple of years.
We were able to reduce expenses generate a slight improvement in second quarter free tax income despite the reduction in revenue.
Even though we are a central industry and our construction equipment customers are experiencing a lower interest rate environment.
There have been disruption from covert 19, do but to a business closings and stayed shut down.
We continue to experience some level of construction activity, let's stay focused on inventory management, the aftermarket parts and service business and 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 had an overview of the international segment, including our markets within the countries, All Bulgaria, Germany, Romania, Serbia and Ukraine.
Our international segment. There is also being impacted by the disruptions associated with the weather and covered 19.
There are pockets are very dry conditions in the Balkans, Ukraine, and black sea regions, where the gore's experiencing below where every week yields.
Summer rains would welcome but were ultimately too late to benefit the important wheat harvest.
Partially offsetting the impact a week the persist for book purposes precipitation has benefited development of late season roll crops and most of our markets.
As a business model of these developing countries continues to mature it continues on vesting of parts and service business to support our customers as we grow our park machine base.
Before I turn the call room work, well likely everyone always successfully integrated our new ERP dealer management system into our pilot store are on track for a full domestic implementation next fiscal year.
Thank you. Thank all our employees for their efforts and staying safe and supporting our customers. During this very challenging covert 19 crisis at the same time, producing some excellent financial results.
I would like to turn the call watermark to review our financial results in more detail.
Thanks, David.
Turning to slide seven.
We generated total revenue of $303.5 million for the fiscal 2021 second quarter, which was a decrease of 3.7 per cent compared to last year.
After a very slow start in may two our second quarter, we saw revenues pickup in June and July.
Improvements from me were noted in all segments and highlight the month to month volatility given current macroeconomic conditions.
Our parts and service business continued to grow in the second quarter, increasing 3.8%.
And 4.3%.
Respectively.
Slightly offsetting the contraction we experienced in our equipment category.
The increase in parts and service revenue came from our agriculture segment.
This area of our business continued to benefit from an aging customer fleet and recent acquisitions that were not in our prior year numbers.
Our equipment business decreased 5.5% versus prior year, which was largely driven by our international segment and to a lesser extent art construction equipment segment.
Equipment revenue within our agriculture segment continues to be supported by replacement demand regardless of an overall difficult business environment.
Rental and other revenue decreased 21.6% versus prior year due to a smaller rental fleet and lower utilization compared to the prior year.
This was driven by difficult construction industry can <unk> conditions, such as lower oil prices impacting our energy markets and an overall slow down in the economy due to the pandemic.
Dollar utilization of our construction segment rental fleet declined to 22.2% for the current quarter compared to 25.5% in the same period last year.
On slide eight our gross profit for the quarter decreased 2.1% to $62.7 million due to the lower equipment and rental sales.
However, we realized a 40 basis point increase in our gross profit margin due to revenue mix, which benefited from the growth in our higher margin parts and service business.
We reduced operating expenses by $1.8 million versus the prior year to $53.1 million for the second quarter fiscal 2021.
Which as a percentage of revenue was essentially flat versus the prior year at 17.5%.
Despite the additional operational costs associated with that recent acquisitions of Northwood enterprise and West which consists of four store locations.
Operating expenses were more than offset by managed expense reductions in our construction in international segments and various lower operating expenses caused by covert 19, such as traveling fuel costs.
Floorplan and other interest expense decreased 20.5% to $1.9 million in the second quarter fiscal Twoq 2021.
Compared to 2.4 million in the same quarter last year.
The decrease was due to a lower interest rate environment as well as a lower interest rates spread under our new five year amended and restated restated credit agreement that we finalized in April 2020.
In the second quarter of fiscal 2021, our adjusted net income decreased by $300000 to $6.6 million.
The adjusted figure.
For a second quarter fiscal 2021 excludes $200000 of adjustments net of taxes.
Related to ERP transition costs, and Ukraine, Remeasurement gains, resulting from exchange rate changes in Ukraine's currency compared to the U.S. dollar.
This compares to the prior year, where we excluded $1.4 million a similar adjustments net of taxes.
Our adjusted earnings per diluted share for the quarter was 29 cents compared to 31 cents in the second quarter of last year.
The second quarter fiscal 2021 adjusted EBITDA.
Increased 2.6% to $15.8 million compared to $15.4 million in the second 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 second quarter fiscal year 2021.
Our agriculture segment revenue increased 2% to $169.1 million driven by ongoing momentum in parts and service as well as the addition of the for acquisition stores I previously mentioned.
The higher level of parts and service combined with the relatively flat operating expenses increased our pretax income to $6.8 million compared to $6.2 million in the prior year three month period.
Turning to our construction segment.
Revenue decreased 7.5% to $77.7 million compared to the prior year period.
The decrease in revenue was primarily the result of lower equipment and rental demand due to the macro macroeconomic challenges and then certainty David and I spoke to earlier.
Manage expense reductions, including including lower interest costs combined with lower Kobin related expenses allowed a slight improvement in segment adjusted pre tax income of $1.4 million compared to $1.3 million in the second quarter of the prior year. Despite the disk.
The decrease in revenue.
In the second quarter fiscal 2021.
Our international segment revenue decreased 13.1% to $56.7 million.
We began seeing the softness in this business late in our first quarter and it persisted throughout the second quarter.
Equipment results drove the overall decrease in this segment, while parts and service, where more stable, but still down slightly.
The lower sales are the result of difficult end market conditions, including the pandemic and lower crop yields in areas of our footprint.
Adjusted pre tax loss declined to a loss of $600000 in the second quarter versus income of $400000 in the prior year period, despite operating and interest expense reductions.
Turning to slide 10, you see our first six months results.
Total revenue increased 3.4% compared to the same period last year.
Year to date equipment sales increased 3.1%.
Parts increased 6.2% service revenue increased 7.9% and rental and other revenue decreased 13.4%.
A strong first quarter and our AG segment drove the increases in the equipment parts and service categories of revenue while decreased rental revenue in our construction segment generated the lower results in rental and other.
Turning to slide 11, our gross profit for the first six months of was $121.1 million, a 2.7% increase compared to the same period last year.
Our gross profit margin decreased by 20 basis points year over year to 19.7% for the first six months of fiscal 2021.
Which is primarily due to lower equipment margins versus prior year.
The lower equipment margins occurred in the first quarter of fiscal 2021 and were driven by increased efforts to move used agriculture equipment.
Our operating expenses decreased by $1.3 million or 1.2% for the first six months fiscal 2000 $21 million to $106.1 million.
As a percentage of revenue these expenses were 17.3% of revenue compared to 18.1% in the prior year, reflecting the leveraging of slightly lower expenses over increased revenues.
Floorplan and other interest expense decreased $900000 or 18.1% to $4 million in the first six months due to the interest expense savings resolved, resulting from our retirement of the remaining balance of the company's convertible notes as well as.
Overall lower interest rates on our Floorplan payable.
[noise] adjusted diluted earnings per share was 44 cents for the first six months of fiscal 2021 compared to 33 cents in the prior year period.
On slide 12, we provide our segment overview for the six month period.
Overall, our adjusted pretax income was $13.8 million for the first six months of fiscal 2021 compared to $9.6 million in the same period last year.
This improvement was the result of a strong performance in our agriculture segment somewhat offset by lower performance in construction and international as market conditions drove down revenues in those two segments.
On slide 13, we provide an overview of our balance sheet highlights at the end of the second quarter fiscal 2021.
Net cash of $44.5 million as of July 31, 2020.
Our equipment inventory at the end of the second quarter was $483 million.
A decrease of $33 million from January 31, 2020, reflecting a 24 million dollar decrease and new equipment and a 9 million dollar decrease in used equipment.
Equipment inventory turns were 1.6 versus 1.7 in the prior year period.
I'll provide a little more color on our inventory on the next slide.
Our rental fleet assets at the end of the second quarter decreased to $101.9 million compared to $104.1 million at the end of fiscal 2020.
We anticipate further reducing our fleet to around $100 million by the end of fiscal 2021.
As of July 31, 2020, we had $352.2 million of outstanding Floorplan payables on $763 million of total floorplan lines of credit.
Our adjusted debt to tangible net worth ratio is a healthy 1.2 compared to 1.3 in the prior year period and is well below 3.5, which is the leverage covenant requirement of our two largest fourth floor plan facilities outside our bank Syndicate credit agreement.
Turning to slide 14.
The amount of new and used equipment inventories are reflected in the size of the red and blue bars on this slide.
We made additional progress on managing our inventory is down in the second quarter with a 33 million dollar reduction versus the beginning of the fiscal year.
We're pleased with this reduction since historically, we have increased our inventory levels in the first half of the year.
We are sitting in a good position to end the year with decreased inventory levels compared to the end of fiscal 2020, Despite our may acquisition and pressure on revenues.
The overall quality of our inventory remains healthy.
Currently 38.3% of our inventory is under non interest bearing terms, which can be seen by the grey bar on the slide.
We are satisfied with this level given the current lower levels of equipment stocking.
Once procurement levels increase we should see this non interest bearing percentage rise as well.
Slide 15 provides an overview of our cash flows from operating activities for the first six months of fiscal 2021.
The GAAP reported cash flow provided by operating activities for the period was $13 million compared to cash used for operating activities of $6.3 million in the fiscal 2020 year to date period.
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 $16.1 million for this for the six month period ended July 31, 2020 compared to cash used for operating activities of $49.3 million for the same period last year.
The material change versus the prior year is due to the de stocking of equipment inventory in the current fiscal year compared to the stocking of this inventory in the first half of the prior year.
Slide 16 summarizes our modeling assumptions that we are initiating for fiscal 2021, following a temporary suspension of guidance. During the first half of this fiscal year due to uncertainty around the co vid 19 pandemic.
We believe our modeling assumptions will continue to be impacted by the challenging global economy due to covert 19, creating a higher degree of uncertainty to these assumptions compared to a normal environment.
We are providing revenue growth expectations for full year fiscal 2021 as follows.
Agriculture segment revenue growth of flat to up 5%.
This assumes a deceleration from the first half of fiscal 2021.
As our first quarter results were unusually strong up 26% due to delayed customer purchases from the prior year.
Additionally, please remember to account for a full year contribution from our recently acquired Northwood North Dakota location, which closed in October 2019, as well as the horizon West acquisition that closed in May 2020.
Both of these businesses had revenues of approximately $25 million and their most recently completed full fiscal year.
For the construction segment, we are assuming revenues.
Decreased 5% to 10% for the full year.
We expect segment revenue to remain challenged through the third quarter, primarily due to pandemic induced macroeconomic weakness.
And to improve in our fourth quarter.
As you saw in the second quarter, we will continue to mitigate some of our some of the pressure from lower revenues through expense reduction efforts.
Additionally, I reminded to consider the January 2020 divestiture of our Albuquerque, New Mexico store, which generated approximately $8.5 million of revenue in fiscal 2020.
The International segment, we're looking for revenues to decrease 10% to 15%.
Similar to construction, we continue to expect to third quarter to be more impacted by macroeconomic conditions with some easing occurring in the fourth quarter.
Expense controls are expected to help mitigate pressured revenues to a degree but this segment has a lower proportion of variable expenses that can be reduced compared to our domestic operations.
From an earnings per share perspective, we are expecting adjusted diluted earnings per share to be in the range of 65 to 85 cents.
For fiscal 2021.
This excludes approximately 10 cents of anticipated ERP related expenses that is underway with an expected completion date in the first half of fiscal 2022.
We believe that our earnings guidance reflects the realities of the present operating environment, where we expect to see some headwinds on the topline that are being offset by expense reductions.
It is important distressed that these modeling assumptions contain more risks and uncertainties than past outlook estimates due to the pandemic.
We noticed a higher amount of variability in our revenues on a month to month basis than we have historically realized due to the uncertainties and changing business outlook of our customers. During this unprecedented global global event.
This concludes our prepared remarks.
Operator, we're now ready for the question and answer session of our call.
Thank you would not be conducting your question answer session, if you'd like to place and the question Q. Please press star one or telephone keypad, a confirmation Tony will indicate your line is in the question Q you May press star to if you'd like true question probably Q.
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And maybe necessary to pick up your handset before pressing star one.
One moment, please what we pull for questions.
Our first question today is coming from Steve Dyer from Craig Hallum. Your line is alive.
Thanks, Good morning, guys.
Good morning, Steve.
I guess, we'll started the AG segment margins there equipment margins were exceptionally strong in the quarter.
So that's something that you see a sustainable as you sort of drawing down inventory throughout the rest of the year was there anything sort of unusual there I guess, what I'm trying to figure out what's what's a good modeling assumption for equipment inventory the rest of the year.
Yes, good morning, Steve Mark here, you know as far as the quarter goes it was a little bit stronger than we had anticipated.
As we indicated on the last call last call. It was lower because we did kind of.
Push on some of the used equipment on on the agriculture side.
But as far as our going forward typically I think.
Recall in the fourth quarter, we have softer equipment margins because of some of the bigger deals that happened at the end of the year end on more on the new side and in AG, where we tend to have a little bit smaller.
Equipment margin.
Yes, I think overall for the year last year, we ended up around that.
Evan.
We're probably just a little bit south of that for the full years, what we're looking at so kind of that mid pen.
Got it.
And then the parts and service business seems to have a little bit assisting kind of momentum constraints. Here then anything structurally. The you guys are doing to drive that is there I mean or is that just sort of age of the fleet or timing or maybe help me understand that's that's something we should expect to continue.
Yeah, Steve It definitely that you're obviously, we get this aged fleet no I think as you recall two we've had some pretty challenging fall seasons harvest season Zillion all into the December even into the first quarter were they all come online in corn, the snow on the London I used to.
I think that's helped drive that business, but I think as an overall, it's gradual company I think from.
All the how we can improve the customer care, where there are customers also drive that high margin parts and service business I think as an overall strategy and.
So we've got a lot of internal initiatives going on that continue to drive that that business.
Okay.
And then just last for me as you can look forward. How do you sort of think about M&A I guess, particularly within AG are you feeling like the disruptions, causing more opportunities are or what sort of your approach there right now thanks.
Well I think there's a little bit of a pause out there Steve you know I know a lot of might I'll do my dealer principal friends and stuff I said I think they all applied for we see that you don't want out of the payroll for Textron plan. The PPP you know I think working through some of that the in on just the some of the.
Less travel less social distance is some of that so I think definitely out there you got to AIDS dealer principal group, although sophistication on equipment.
Many of these.
Groups are looking for succession solution. So yes, we're definitely gaze, we're talking to a number of people, but like I would say I think they have kind of work through some of this PPP stuff and get through that and get through this year and we're in we're definitely players engaged with with a number of potential sellers out there.
Okay got it that's it for me thanks, guys.
Thank you next question today, it's coming from Rick Nelson from Stephens. Your line is that a lot.
All right.
Good morning cares so you won't recur.
I've heard guide.
What.
Clark.
Looking at current quarter and for the quarter It [noise].
I'm, sorry, it's relatively flat with last year.
Alright.
ER speak to the Eric.
Any.
Seasonal factors or we should be punching above its we look at third quarter fourth quarter.
Yes, I think to kind of break it out you know looking at the seasonality of the business. Obviously Q3 is a seasonally better better period.
So we would expect.
Hi, much better results in our third compared to our fourth.
However, when you compare to last year, we do expect I think as we indicated more pressure from some of this macroeconomic.
On stressed that's out there in the third quarter, particularly in our in our construction in international business. So when you look at it relative to last year, I think you're going to see more pressure in the third quarter.
Relative to last year, but obviously still being <unk> third quarter coming in stronger than than for the.
As you kind of look at call. It mid point of our guidance, you're looking at probably closer to breakeven in that fourth quarter and died third quarter kind of being the balance.
Okay got it okay.
Okay, great Yeah. He <unk>.
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Through a pilot or X hubs for it.
Correct.
It's kind of share plants.
Her continued rollout kind of first child.
Your next year and expect paired completion, but what's going to ramp.
Sure we're expecting store numbers come October your appear.
Well the pilot store was the don't fully integrated in early July it all very successfully here in a lot of really good positive comments on them some of the efficiencies in the functionality of the system. So so in all the next steps are you all have to go across in all of those are full of footprint and analyze the data transfer.
As is the training and all that and now we're starting to work on that down we're sensitive as some of our really busy month, you don't like all the fourth quarter I know, there's all with a lot of equipment business. Some of it stops. So so really targeting all in that that first quarter timeframe will go over next fiscal year, you don't want things a little bit quieter in a Z.
Off season and draw out and between now and then like I say, it's going to be the data transfer the training.
Down so we can have a really really nice successful rollout.
In that.
Yeah.
Early in that.
Fiscal 2022, then.
Okay current her about <unk>.
Hi, where like parents grew about terrorism part.
Okay.
It's growing hooker given that turn back quite repairs.
During part of the driver.
Gross.
So to speak to same store.
What you're saying it was heard from park.
All right.
Great.
Our [laughter] push forward.
Yeah, I don't have the numbers right in front of me on that Rick, but overall, so our parts was up 3.8% for the quarter service up 4.3.
And we did benefit in those numbers from all four of those locations.
As north would wasn't in last year and.
And.
Our horizon West wasn't in.
Last years, why it was pretty much in for the for the full quarter I would estimate that it's pretty close to that full amount that came from those acquisitions of <unk> relatively flat overall.
With from a same store standpoint on parts and service.
With still up in on in the AG segment on same store and died down a little bit in both international and construction.
Hi, Thanks, a lot and good luck.
Thanks, Rick.
Thank you. My next question today is coming from me Bilbray from Baird. Your line is not a lot.
Thank you good morning, guys, and Oh, well done the more and better.
Good morning.
So I guess my first question I wanted to talk a little bit about construction and maybe get a little more of a flavor for from you in terms of what's happening from a demand standpoint.
And really I mean look your your revenue was down 7%, we all know kind of what's going on out there in terms of the heavy hit that does vertical is taken from coal bed and you obviously have a lot of energy exposure through your customers in the Bakken I guess, where I'm going with that.
My expectation would have been or sharper decline than what you've seen them when you've experienced in the quarter. So.
Can you give a sense here for a kind of whats been helping your business is there any onetime items that we need to be aware or I don't know anything else that you think is relevant.
Sure Meg.
I think first of all I think it did surprise us a bit as well, especially as we sat here, but three months ago and saw how our may was coming in both on a across the board in all segments, but construction included.
Some of the things that we heard from the field as far as that rebound in June because it did come back pretty strong in June for us is that.
Yes, there was just a lot of uncertainty and kind of on a holding back on purchases and things opened up then and there was a bit of pent up demand that ended up happening in June and they executed on some some purchases and sales at at the time I think when you look at us coming.
Paired to maybe some of the Oems that are talking about bigger down numbers on I think we are a little bit more insulated if you will in the interior of the country.
All right some of the cobot, obviously, it's here as well, but in the smaller community community things aren't probably locked down as much and then I also think it's kind of where we're coming from as well I don't think we were as high as maybe some of those coastal areas. That's driving that drove on some of the positives in recent.
Years for like the Oems that maybe we didnt see.
But I think those are a couple of the big drivers also AG is part of our construction store sales as well and that's been relatively depressed.
As well as we're at kind of the bottom of the cycle there.
So going down much further from there isn't a.
And there isn't as much as stress there as well. So I think those are some of the things that how we think about it what what we've seen in the quarter and no no no unusual items no big deal.
Deals to speak of or anything like that.
Got it.
When you when you're kind of looking at your construction footprint sort of geographically.
Have you noticed in any variances for instance between.
Your exposure in some of the larger city.
Versus like you said that the purely rural community and the demand coming out there.
Yeah, I think there I think there is some of that I think we did see in certain pockets on certain larger cities in the interior that we that we serve as that there those worst stressed more certainly the Bakken as you mentioned before was.
It was affected more particularly with the goal for us.
But yes, I think you get into the smaller communities, where we have some of our construction stores, we didnt see as much pullback.
Okay and in terms of your outlook.
Down 5% to 10%.
Yes, I'm wondering what im forms your view for the second half and again. This is construction when importance of you for the second half a year, how you sort of came up with this outlook.
Well first of all that it was difficult right and that's I'm sure it's not.
100% accurate in these times, but as we did look at it or we did expect to see some on and probably additional pressure.
In the third quarter.
We don't think we're through things here at all but overall I think additional pressure in Q3 and that easing in Q4.
And I think it's just okay.
Yes go ahead.
No I I was going to say so.
In theory at least we could be in the fourth quarter or close to flat year over year revenue wise.
Yes, I think we still have a down a little bit, but yes coasts getting getting close to flat year over year.
I see and then if I may one last question, though on construction.
I'm I'm looking at your margin.
1.8, right and you talked about cost management in the quarter. So.
I'd love to hear a little bit more about about about what you've been doing there and how sustainable that might be on a on a go forward basis also related to that.
I'm wondering how.
Yeah pricing.
In this vertical is looking for both new equipment and used equipment and what will that might have played in the margin in the quarter. Thank you.
Yes, maybe the first the last part first as far as.
Overall on the on the construction side our margins have been.
I would say good averaged to good except maybe on the rental side, where we're seeing some that rental fleet utilization go down so that's creating some some pressure otherwise the margins are just fine.
On a new unused or on the AG side and a strengthened some from the first quarter.
Because of.
Being less aggressive on some of that some of that used that we did in in the first quarter.
And international still kind of remains challenged year over year, both first and second quarter because of the conditions over there and everybody trying to kind of move inventory it's down some.
As far as expenses goes on on the construction sites. So some of the areas that we're really looking at managing down in.
What's.
Some level of lower revenues here head count really looking at head count looking at overtime.
Promotional activity.
With some of those on.
Kind of a lower level of of sales out there and just being a diligent on those and then there are those nine kind of what I would call coded related items that are coming down kind of naturally with the lower fuel prices out there.
And then of course travel and entertainment with more of a lock down on some of our travel practices here in.
You know in Titan.
As far as some of those could be maintained for a period of time at revenues come up.
All of these are kind of variable I would say over and over time.
But I would say, there's a little bit of level of structural expense reductions when it comes to.
Some of that head count it at certain locations.
With that Mark just to be clear here in terms of the the actual equipment pricing right I mean, because if pricing deteriorate that would have a negative impact on your margin here I would present.
Did that make that equipment pricing in construction.
Would that be sort of in line is it better is that worse than what you envision earlier in the year because the margin itself. I mean, this is probably the best construction margin that you posted and like what almost four years right. So I'm trying to understand how much of that is what you have done to take out costs.
As to what what's happening with equipment prices in the mid and the market that that's why I'm getting there.
Yeah, and I would say most of that is coming through so the inline as far as the equipment pricing is going what we're seeing thus far is inline pricing. So we're getting like no enhancement, there and where we're saving in the bottom line is on operational expenses like I talked about and also.
On the on like for plans or with the lower rates out there with our new credit facility.
You know the lower rates on that and quite frankly, our inventory getting.
Were in line on the on a construction side as well all of that is helping on the on the bottom line.
Great. Thank you.
Thank you. Our final question today is coming from Larry de Maria from William Blair. Your line is not a lot.
Hi, good morning, everybody.
A couple of questions.
First if I heard you guys right you mentioned that direct show as <unk>. That's a positive or you viewing is now is a net positive.
For demand of New news and are you seeing already and you have anything in the model for that juniors parts through what kind of impact you you would expect speaking that personal thank you.
Well, we're we're you Larry good morning, how we're still kind of getting through I mean, the insurance adjusters Theyre, just starting enough insurance adjusters only go wrong. So all I know, it's all of our shops in Iowa, they've already bringing in you know tractors and combines the replace was replaced cabs and.
So so we're definitely going to see no. We haven't we haven't factored any of this into our guidance because typically you know our shops are forward, we're doing uptime inspections, and we're working on equipment anyways, but I do think there's going to be.
A big demand not only to get the equipment ready for harvest that has been damage. But then there's some of the software gets passed up whatever and then as we get into the fourth quarter in first quarter and I think it's coming to continue because there is the result, a lot of damage done out there, but you.
But it's really early to tell right and all because we're the people are just getting through you know all this stuff in the trying to get the insurance Trust result, there's what they've got but but I know we've we've moved so there's a pretty good amount going on right now on our shops that really busy and we will actually moved some technicians are on the to handle the workload and stuff. So.
It's definitely a out there and it's going to continue for awhile.
Okay.
Thats good thank you and then.
Obviously, you're doing a lot of this in the middle that pandemic in terms of parts and service and.
GAAP spot I assumed for parts and things like this.
And it sounds like you guys did a good job obviously by the revenue and I'd like on parts and service did you guys do things very differently in digital conductivity, helping and in other words I'm trying to understand if the way you guys had done business historically it that's on the cost the change.
Using the digital tools et cetera, because it's what's going on or it's going to go back towards inexcusable, what's your expectation.
Well there are you all your there's definitely that traditional piece that that the some of the play, but <unk>, but definitely the digital world in the E Commerce, and we're investing into that and.
Parts dropped boxes, and and then some virtual things we're doing you when we're doing somebody's even before the pandemic, but yeah I think really seals increased trends, we're doing that we're investing in that then I think you're going to see kind of a balance so some.
Continuing traditional type people were the farmer comes in or the contractors, who are our stores. It picks of apart as but then also.
Through the whole.
That working or the ecommerce in the all the digital space is definitely.
That's not going away and we continue to invest to that.
Which could be a net positive for margins you think or is it neutral.
Though I'd say, it's going to be pretty neutral were I. You know, we're we've cut some you know.
The lean and mean parts departments right now I don't see you won't be able to displace a lot of people adapted like us or you're still going to have a certain amount of traditional and you still have to receive the partisanship the parts and.
Inventory the parts in old.
Inventory management, all those type of thing still go with that.
Okay, and then the Thanksgiving last thing I wanted to ask about with precision AG take rates, how would you take rates trending what are they taking and I wanted to kind of you upped chargers that you're seeing versus base. So if he could you parse that out little bit more.
Well if you if you look at the new machinery, it's it's become and all pretty much mainstream it was pretty soon here is gonna be like air conditioning right I was just going to still be standard equipment. So.
You know.
Yeah take rates are you know I think the growers all seeing the return on investment Dom and also.
The take rates are definitely up.
Then the then in the aftermarket you all over you know the retrofitting planners with precision enough and all that some of the the tools out there. It all that we're seeing on some of the you know the the application equipment with the with the.
Insecticides and herbicides in the Salt proposed sprayers and some of the things were getting with the monitors in the let's see decided that aims command.
With some you know we've got a good partner with not only the equipment getting from from Keysight Your new homes, but also raven from that area.
Harvest command with our comp mines or would you have a big uptake on that equipment to what the Adam automation that goes the vessel yeah, you're going to see the across the board whether it's you know the precision on the planners. It's it's a connected tractors with the NFS connecting the.
PLM intelligent tractors from new Holland huge take rates on all that technology and.
And then it really that's in addition to replacement demand. It's a technology is driving all these equipment purchases no. So I will come out on our tillage equipment is another one that.
Big pay grade on so yeah, we're definitely seeing increases on that and that's driving a lot of equipment purchases and like I say I picked up some of the stuff is going to start to be standard equipment Larry.
Yes that makes sense it get screened going with this is.
Yes.
I wish it becoming scanned over time, but obviously, it's becoming more expensive incremental value you capturing any that where that goes more towards the OE and you have to captured your extra margin and dollar squid parts and service sort of these higher pizza.
Definitely then I think we're definitely we're definitely capturing it on on the our aftermarket and the retrofit sizes and.
And I think as we get you know the expertise with our precision people out there and relationships and how are you all the growers out there are really leading us to help them through some of this I think and as you build these relationships and we will want to.
Maintain increase your margins I based on this this level of sophistication that I think there's going to continue to drive that because.
Like I said, if you can provide that type of.
Relationship and how he can they really add to the bottom line customers out there or was it and the benefit with this equipment than in partnership with the Oems and stuff I think I think it's going to be a real positive for margins going ahead.
But more likely in the aftermarket side than on the new side right.
That's an immediate do you know that's increased revenues and then some of these are all that's big dollars out there you know if you're going to read retrofit on a plant or with precision you're seeing 30 40 $50000. A plant are easily out there in and that tends to be higher margin business.
Gotcha, Hi, Thank you Dave Mark Good luck.
Yeah. Thanks, Larry.
We appreciate about question answer session.
Sort of a floor back over pretty further for closing comments.
Okay, again, and we want to which all our employees our customers and suppliers along with their families. All the best as we work through the challenges of this call. The 19 pandemic and you know I want to thank everybody for your interest and Titan machinery and look forward to updating you on progress on our next call have a good day everyone.
Thank you. It does concludes today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.