Q3 2021 Titan Machinery Inc Earnings Call
Greetings and welcome to the Titan Machinery, Inc. Third quarter 2021 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I.
I would now like to turn the conference over to your host Mr. John Mills with RCR. Thank you you may begin.
Thank you good morning, ladies and gentlemen, and welcome to the Titan machinery third quarter fiscal 2021 earnings conference call.
On the call today from the company are David Meyer, Chairman and Chief Executive Officer, Mark Kalvoda, Chief Financial Officer, and Brian coming from Chief operating Officer.
By now everyone should have access to the earnings release, the fiscal third quarter ended October 31, 2020, which went out this morning at approximately 645 am eastern time.
If you have not received the release it is available on the Investor Relations page of Titans website at <unk> or <unk> Dot Titan machinery Dot com.
This call is being webcast and a replay will be available on the company's website as well in.
In addition, we are providing a presentation to accompany today's prepared remarks, you may access the presentation now by going to Titan is website at IR Dot Titan machinery Dot com.
The presentation is available directly below the webcast information in the middle of the page.
You'll see on slide two other presentation on our Safe Harbor statement, we would like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions. These.
These statements do not guarantee future performance and therefore undue reliance should not be placed on them.
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 of Titan. Most recently filed annual report on form 10-K.
As updated in subsequent to filing quarterly reports on form 10-Q.
These risks 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 Titan assumes no obligation to update any forward looking statements that may be made in todays release or call.
Please note that during today's call, we'll discuss non-GAAP financial measures, including results on an adjusted basis we.
We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan is ongoing financial performance, particularly when comparing underlying results from period to period.
We've included a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures in todays release.
The call will last approximately 45 minutes and that 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 third quarter fiscal 2020 on earnings Conference call.
Today's call.
I will provide a summary of our results on then Brian can news on our Chief operating officer will give an overview for each of our business segments.
Local border our CFO will then review financial results for the third quarter of fiscal <unk> 21.
And provide an update to our full year modeling assumptions.
If you turn to slide three you will see an overview of our third quarter financial results.
We generated third quarter revenue of $361 million, which exceeded our expectations due to the strong parts and service performance and our agriculture segment and better than anticipated equipment sales on our construction and international segments.
The stronger revenue combined with our continued success on controlling operating expenses and driving it on interest expense resulted in on 24% an improvement to our adjusted pre tax income of $17.5 million.
And 21% growth on our adjusted earnings per diluted share on 58 cents.
Before I turn the call over to Brian I want to thank all our customers that employees on the face of a pandemic and weather challenges and demonstrated the resilient nature, which is fundamental to other industries, we operate them.
Well now turn are collared why and we view that our three segments in more detail.
Thank you David and good morning, everyone.
Excited to cover our three business segments. This morning, and will be available for Q and a after our formal presentation.
On slide four is an overview of our domestic agriculture segment fall harvest conditions, where ideal across most of our footprint, we experienced wide variability in crop yields both within individual farming operations and across our entire footprint. However, overall yields were generally average to above average most.
On the variability was weather related however, in some cases yield suffered due to lack of the previous years, Paul tillage, which resulted in less than ideal planting conditions. Nonetheless.
Nonetheless, the excellent weather in September and October provided for an extremely efficient harvest this year and allow for the necessary time to complete proper fall tillage skip most fields and good tax on condition for next year's planting season.
We believe these optimize conditions, coupled with increased commodity prices and U.S.D. support programs have led to a substantial improvement in farmer sentiment.
Our business is well positioned to support the aging fleet of equipment with our focused parts and service strategy.
We continue to pursue consistent growth in parts and service revenue, which is supporting strong gross profit margins and driving pretax income.
In addition to its critical parts and service contribution we continue to see replacement demand precision technology and connected machines, it's ongoing catalyst for new equipment purchases.
As we look to the fourth quarter, we expect the momentum within our AG segment to continue.
We believe that the combination of replacement and technology demand favorable yields high commodity prices and the current section 179 tax incentives should drive demand and make for a strong finish to our fiscal year.
Turning to slide five you will see an overview of our domestic construction segment.
Although our construction equipment segment continued to feel the economic impact of COVID-19, and depressed oil prices.
We are seeing improving industry trends due to low interest rates economic Stabilisation net farm income growth and continued optimism for future infrastructure investment.
The operational improvements that our team has implemented over the past couple of years produced improved third quarter pre tax profit and we have confidence in achieving our fiscal 2021 modeling assumptions.
On slide six we have an overview of our international segment, which represents our business within the country, The Bulgaria, Germany, Romania, Serbia and Ukraine in.
In addition to covert related disruptions, our international segment being impacted by extremely dry weather in Romania, <unk> parts of Bulgaria, and Ukraine, which negatively affected summer and fall crop yield well.
Well European farmers are experiencing some support from improving commodity prices, we remain cautious and are monitoring weather patterns and the condition of the winter cereal grain crops.
We continue to focus on the parts and service areas of our international business as customers. In these developing markets are looking for a higher level the product support as equipment becomes more sophisticated and technologically technologically advanced.
Before I turn the call over to Mark I would like to thank all of our employees for their fortitude and managing through this challenging environment.
Their commitment to our customers has never been more important and the results are demonstrated in our strong year to date financial performance with that I will turn the call over to Mark to review our financial results in more detail.
Thanks, Brian.
Turning to slide seven total revenue was flat with last year at $360.9 million for fiscal 2021 third quarter.
Our parts and service business continued its strong momentum in the third quarter, increasing 8.5% and 11.4% respectively.
Growth was primarily driven by our agriculture segment as we were all well positioned to ensure our customers capitalize on an excellent harvest season. This year.
Additionally, we continue to benefit from an aging customer fleet and recent acquisitions that were not in our prior year numbers.
Our equipment business decreased 2.1% versus prior year, which was driven by our international segment.
Rental and other revenue decreased 24.8%.
Versus prior year due to a smaller rental fleet and lower utilization compared to the prior year.
This was driven by difficult construction industry conditions, Brian discussed earlier, such as lower oil prices impacting our energy markets.
On an overall slowdown in the economy due to the pandemic.
The dollar utilization of our construction segment rental fleet declined to 25.7% for the current quarter compared to 30.4% in the same period last year.
On slide eight.
Our gross profit for the quarter increased 1.1% to $72.6 million and our gross profit margin increased by 20 basis points.
The gross profit margin improvement was primarily driven by an increased mix of higher margin parts and service business.
As compared to the third quarter of last year.
We reduced operating expenses by $4.1 million versus the prior year and $54.1 million for the third quarter of fiscal 2021.
Which drove a solid improvement of 110 basis points to 15% as a percentage of revenue.
We achieved this operating expense leverage despite revenues that were flat with the prior year and the additional operational costs associated with our acquisitions of north with enterprise and Wes.
We continue to have success in managing down our operating costs in the construction and international segments.
And are benefiting from lower operating expense expenses caused by the pandemic.
On the current quarter, we recognized $2.6 million of impairment costs combined compared to $100000 in the prior year.
Most of the current quarter impairment costs related to the impairment of goodwill and other intangible assets of our Germany from 40 unit within our international segment.
Floorplan and other interest expense decreased 29.4% to $1.7 million in the third quarter of fiscal 2021 compare.
Compared to $2.4 million in the same quarter last year.
The decrease was due to a lower interest rate environment.
Lower interest rates spread under our new Bank Syndicate credit agreement that we finalized an April 2020.
As well as lower borrowings on our line of credit.
The third quarter of fiscal 2021, our adjusted net income increased 21.3% to $13 million.
The adjusted figure for third quarter of fiscal 2021 excludes $3.1 million adjusted net of taxes.
Related to impairment charges ERP.
ERP transition costs, Ukraine, Remeasurement losses, and then income tax valuation allowance.
This compares to the prior year, where we excluded $2.5 million of similar adjustments net of taxes.
Our adjusted earnings per diluted share for the quarter was 58 cents compared to 48 cents in the third quarter of last year.
For the third quarter of fiscal 2021, adjusted EBITDA increased 16% to $24.8 million compared to $21.4 million in the third 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 third quarter of fiscal year 2021.
Our agriculture segment revenue increased 3.1% to $220.6 million driven by ongoing momentum in parts parts and service.
While his contribution from our horizon West acquisition.
The higher level of parts and service combined with the relatively flat operating expenses and lower Floorplan interest expense increased our adjusted pre tax income by 34.7% to $13.8 million compared to 10.3 million down from the prior year three month.
Turning to our construction segment.
Revenue increased 1.3% to $79 million compared to the prior year period.
Primarily due to increased equipment sales, partially offset by lower rental revenue.
Lower operating expenses combined with lower interest costs drove a 1 million dollar improvement in segment adjusted pre tax income to $1.4 million compared to $400000 in the third quarter of the prior year.
Our international segment revenue decreased 11.1% to $61.2 million.
The softness in this business that began late in the in our first quarter continues to persist and impacted our third quarter as well.
Lower equipment sales drove the overall decrease in this segment our parts and service.
On a more stable, but still down slightly.
The lower sales are the result of difficult end market conditions, Brian spoke to earlier, including the pandemic and lower crop yields in areas of our footprint.
Adjusted pre tax income declined to $200000 in the third quarter versus $1.6 million in the prior year period, Despite operating expense reductions.
Turning to slide 10.
You will see our first nine month results.
Total revenue increased 2.1% compared to the same period last year.
Year to date equipment sales increased 1.2% parts increased 7.1%.
Service revenue increased 9.2% and rental and other revenue decreased 18%.
Strong agricultural segment performance drove the increases in the equipment parts and service categories of revenue.
While the soft conditions in our construction segment end markets drove the lower results in rental and other.
Turning to slide 11.
Our gross profit for the first nine months was $193.7 million, a 2.1% increase compared to the same period last year.
Our gross profit margin was flat year over year at 19.9% for the first nine months of fiscal 2021.
Our operating expenses decreased by $5.3 million or 3.2% for the first nine months of fiscal 2000 $21 million to $160.3 million.
As a percentage of revenue operating expenses decreased 100 basis points to 16.4% compared to 17.4% in the prior year.
Impairment cost increased from $200000 in the prior year to $2.8 million in the current nine month period.
Floorplan and other interest expense decreased $1.6 million or 21.8% to $5.7 million in the first nine months due to the interest expense savings, resulting from our retirement of the remaining balance of the company's convertible notes overall lower interest rates.
On our floor plan payables and lower borrowings on our line of credit.
Our adjusted diluted earnings per share increased 25.9% to a dollar two cents for the first nine months of fiscal 2021.
Hard to 81 cents net.
Prior year period.
On slide 12, we provide our segment overview for the nine month period.
Overall, our adjusted pre tax income was $31.3 million for the first nine months of fiscal 2021.
Compared to $23.7 million in the same period last year.
This 31.9% increase was the result of strong performance in our agriculture segment that was further supported by improved construction segment resolve and partially offset by lower performance in international.
On slide 13.
Divide and overview of our balance sheet highlights at the end of the third quarter fiscal 2021.
Get cash of $41.8 million as of October 31, 2020.
Our equipment inventory at the end of the third quarter was $450 million a decrease of $66 million from January 31, 2020, reflecting a 36 million dollar decrease in new equipment, and a $30 million decrease in used equipment.
Equipment inventory turns were 1.6 versus 1.7 in the prior year period.
I will provide a little more color on our inventory on the next slide.
Our rental fleet assets at the end of the third quarter decreased to $94.2 million compared to $104.1 million at the end of fiscal 2020.
We expect to remain around the current fleet levels for the balance of fiscal 2021.
As of October 31, 2020 net.
$287.8 million of outstanding Floorplan payable on 765760 $5 million of total floorplan lines of credit.
Our adjusted debt to tangible net worth ratio is a strong 1.0 cash.
Compared to 1.3 in the prior year period and is well above yes, sorry is well below 3.5, which is the leverage covenant requirement of our two largest floorplan facilities outside our bank Bank Syndicate.
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 inventories down in the third quarter with a $66 million reduction versus the beginning of the fiscal year.
We continue to have confidence that we will end the year with inventory levels below that of fiscal 2020, Despite our may acquisition.
The lower inventory levels combined with our revenue expectations should improve our equipment inventory turns to 1.7 or possibly 1.8 for the full year fiscal 2021 from 1.5 fiscal 2020.
The overall quality of our inventory remains healthy.
Currently 36.6% of our inventory is under non interest bearing terms, which can be seen by the gray bar on the slide.
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 from the first nine months of fiscal 2021.
The GAAP reported cash flow provided by operating activities for the period was $60.8 million compared to cash used for operating activities of $8.3 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 a constant equity in our equipment inventory.
Allowing us to evaluate operating cash flows exclusive of changes in equipment inventory financing decisions.
After applying these adjustments our adjusted cash provided by operating activities.
$56.5 million for the nine month period ended October 31, 2020 compare.
Compared to adjusted cash used for operating activities of $35 million for the same period last year.
The substantial increase in adjusted cash flow of $91.5 million is due to improved operating income and inventory levels versus the prior year.
Slide 16 shows our updated fiscal 2021 annual modeling assumptions.
Which we are raising across the board.
While our business is performing well we believe.
Areas of our business will continue to be impacted by the challenging global economy due to COVID-19.
Operating a higher degree of uncertainty to these assumptions compared to a normal environment.
For the Agriculture segment, we are increasing our revenue growth assumption to up 5% to 10% from flat to up 5%.
This compares to our year to date results, which was up 9.3%.
We expect our fourth quarter equipment sales activity to be supported very well by the recent improvement in farmer sentiment.
You are being driven by higher commodity prices and for the most part a completed harvest.
However, parts and service are up against much more difficult fourth quarter comps with prior year growth for parts at 25.1% and service at 16.5%.
Will be difficult to grow on these high levels, particularly with much lower harvest activity in the current fiscal year fourth quarter relative to the prior year period.
Additionally, please remember to account for a full year revenue contribution of approximately $25 million from our horizon West acquisition that closed in May 2020.
For the construction segment, we are increasing our revenue assumption to flat to down 5% from down 5% to 10%.
The updated assumption accounts for the better than expected third quarter performance for this segment grew 1.3% and.
And assumes a similar level similar small level of growth in our fourth quarter.
Also please consider the January 2020 divestiture of our Albuquerque, New Mexico store.
Which generated approximately $8.5 million of revenue in fiscal 2020.
For the International segment, we are increasing our revenue assumption to down 5% to 10% from.
From down 10% to 15%.
International's third quarter top line results did perform better than expected.
But our outlook for the fourth quarter still includes lower revenues compared to that of the prior year.
From an earnings per share perspective, we are increasing our adjusted diluted earnings per share assumption by 35 cents at the midpoint to a new range of one dollar five to $1.15 cents.
For fiscal 2021.
This concludes our prepared remarks, operator, we are now ready for the question and answer session of our call.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your does from Keybanc.
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Our first question comes from the line of Mig Dobre with Baird. Please proceed with your question.
Good morning, guys and.
Congrats on the good execution this quarter.
More on big.
Yes, good morning, I guess, where where I'd like to start it.
With the.
Well your comments on slide four.
On the agriculture segment.
I'm curious how you think about the sustainability of that.
These improved trends in demand.
As you look maybe even beyond the near quarter here.
There are some moving pieces here, especially in terms of potential use in support for farmers.
Next year do you think that plays any any part or roll in.
Dampening equipment demand or are you thinking that were on pretty pretty from putting that thats sustainable going forward.
Well that's a good question Megan I think you're on the run with that in soybeans, you know I think some price as a lot of people, including the growers out there.
You all corn still I mean, the I mean, the elevator, that's it's still under $4 up maybe on some of our markets. So I mean fairly close to breakeven with some of that so.
I think.
As we look on the next year you know there is some talk about some global dry analysts around the globe the old with diluent, Lena weather patterns, which which could play into this but I still think we need to be looking at the.
Ethanol industry and other motto ethanol is being used in the channel or decreases on that because a cold. So like you said there is a lot of variables out there.
I think you know.
Farmers, even though they are happy for what the current soybeans are done right and all other and that's a real positive and even the good positive movement in corn and to some extent on we'd I still think there is no cautious optimism out there on a little bit careful because like you say there are a lot of moving pieces.
And a lot of this is going to be weather related but.
All is I see all the fuel preparation in the planted acres go on the U.S. and they're in the yield trends are going on at all we've got the ability to raise on a crop soon.
And on what's going to happen on the dollar is going on factor into this a little bit. So like you said, there's a lot of moving pieces. So I think it's.
You know I think the trends are great.
Good farmer sentiment right ball, there, but I still think that's on a certain level of cautious optimism on there.
I see.
You know as it pertains to your modeling assumptions that youve updated here.
Im looking at the plus five to 10 in agriculture on what what that implies for the fourth quarter.
At the pure midpoint of.
This assumption.
It looks like the fourth quarter is implied.
Flattish relative to the third in terms of revenue.
Even though seasonally right we should be we should be seeing a sequential uptick.
Based on what's happening with with equipment demand. So I guess I'm curious is that.
Sort of some conservatism that you're baking here should we be thinking something closer to the high end of debt of that range.
Or is there enough headwind in parts and service to sort of generate this kind of like flattish revenue sequentially.
Yes, Mig this is mark.
I mean, we definitely have some level of growth in our equipment sales on the AG side for the for the fourth quarter.
So maybe that gets you toward on to the higher end of that five.
5% to 10% on.
That's that's there, but as we did discuss and you just mentioned again parts and service will be a little bit more difficult with those extremely good comps.
Comps are those extremely good numbers that we have.
On a quarter last year, but we are showing.
Certainly some level of growth on the equipment sales side in our AG segment.
Okay. Okay. So so maybe closer to the high end.
How you shake out.
It's sort of a similar question on construction right.
Good day.
Formants, you're better than high for one expected and one would guess going on what's happening on coal debt, but if were again looking at your updated assumption down zero to five for the full year again, the midpoint using that as the anchor would imply that in the fourth quarter.
This business picks up quite a bit sequentially and it's up high single digits relative to the prior year.
So I guess my question is what informed view to give the debt level of confidence to have this modeling assumption.
What are you hearing from customers because to.
To me this is a bit of a standout.
Stand out if you will in terms of your guidance.
Yes, I think where we were sitting three months ago, we were less optimistic here as well on on the construction segment.
And we just had a good level of activity growing at that 1.3% during the quarter.
We felt good about that the level of activity that's out there and that.
Let us to this.
What we have is similar level, maybe a little bit higher than that level of growth here in the fourth quarter for further.
For the CE segment. So again there is there is a range there.
That can take you a little bit stronger or weaker on it but we are showing some.
Smaller level of growth there in the in the fourth quarter similar to what we saw on the third.
But mark what generated the upside surprise relative to your expectations.
Sure.
Like what is what the culprit.
Well it came on the it came on the equipment sales side of things parts and service came in relatively close to where we were expecting and I guess I can't point to any in unless BJ, you have something here, Brian but as far as the.
Any certain sector of our business I don't know that there was any one in one thing in particular that stood out.
Other than just kind of l.
Elevated across the board, but it was more so on the equipment sales side as opposed to the rental and.
On the parts and service.
Yes, sorry pressing on this but.
You you, obviously have exposure to debt to the oil patch and I'm presuming that that's not where you generated upside can you can you give us a sense. If it was some of your more urban dealerships that maybe benefit from housing or anything else that there is to know here.
Yeah, Hey, Mig this is Brian.
Yeah, you know Weve put a lot of focus on our on our court case product.
On and a lot of focus on operational improvements internally to drive increased selling activity.
And a lot of areas in the in the construction segment. So.
Well, we've been we've been seeing good luck and good results with.
The increased focus on driving the case product.
Especially yet as you pointed out in a lot of our.
More world to mid level markets actually.
Some of our our bigger markets were a little more impacted by the cobot.
Our high population areas as well as like you mentioned, the oil and gas sector, even at today's price is still down.
Roughly 25% from a year ago, So I, so thats, primarily where it's coming from.
Okay last question from me on that on the cost side I'm curious if we can get some updated thoughts on on EPS Gionee. Once again that that line item was was quite quite a bit better than what we expected how do you think about this.
Slide items sequentially relative to the third quarter. Thank you.
Yes, I think from an expense standpoint.
If you look at the fourth quarter last year, we were running at around 58 million.
I think given some of the corporate related expenses some of the expense reductions we had.
During the year.
Also offset with some of the acquisitions I think it will come on in less than than the 58.
But it will come in higher than that 53, especially with some of which is what we had for the current quarter. So call. It around 55 is probably 50 556 is probably on.
A good number to assume for from modeling here for the fourth quarter is going to be a higher level of commissions with the higher level of.
Equipment sales in our fourth quarter.
Yeah that makes sense, thanks for the help and happy Thanksgiving guys.
Okay.
Thank you. Our next question comes from the line of Rick Nelson with Stephens. Please proceed with your question.
Thanks, Good morning.
Yes.
Hi, Jeff.
The acquisition.
Our environment.
Hi, Eric.
Acquire were would you be finishing on that you Laos and on.
Our national or terms trucks from strength.
Well I think you all in all you on we are a growth company and definitely were always you all interest in acquisition. So those I think there is a there is two phenomena is going on right on our revenue on first of all in on what the coal would you know I think a lot other dealers zone in people that have been moving around.
On and walking the talk and we visit they visit us and neurologists there.
Good on mode, a little bit on and we're on massive nominal on a lot of traffic from their offices and dealerships as del Sol and all then it also is a little bit of a pause on I think the as I've talked about on our our last call you on most of the dealer groups out there we've got some.
Fairly sizable on.
PPP will you all loans are and all other it in there on that whole process to get that loans from given so.
So not only is the positive on the timing issue, but also that's that's a pretty good shot in the arm for.
All you all from.
For these dealer groups out there. So so the combination of the coal would it all of the PPP and get that going through the whole loan forgiveness on processes I'd say, it's caused a little bit of a pause, but but it definitely.
We're engaged with a number of potential sellers youre looking at the host succession solution. So yes definitely.
We spent a lot of time with that and that's part of our model.
Okay.
Thanks for that.
The north.
Well its fair share you've got one on.
Under your belt.
There are other.
Our growth starts months under your belt, Jim you talked about how those two.
Two acquisitions are performing relative to your expectations or heard coming on from it.
Hey, Rick this is Bryan.
Yes, Northwood is.
You are right. After we acquired they've had some tough crop conditions out there.
Back to back.
The challenge weather patterns and so on but.
Integrating nicely.
On a lot of synergies very very similar product customer type deal contiguous raid right in the heart of our footprint.
So integrating very well.
I'd say coming right in line with our modeling assumption a little delayed there.
Because of those challenging weather factors.
And then as you mentioned pretty early on with Horizon West, but again were really excited about that acquisition.
Great employee down on a great customers dollar.
Out of high value variety of crops, you always sugar beets, potatoes, corn soybeans.
Soybeans debt will be and so on and.
And and you know a good access to water and and so on.
So were excited as they continue to come on board and again, very similar customer type equipment type and contiguous and and right there on our existing footprint.
Again, so pretty early on that one, but but we're optimistic as well on the on the integration down as well.
Great. Thanks for the color.
C O coming yet no.
CNH industrial I mean, other preliminary thoughts on.
That might impact.
On the ships.
Have you met with growth Scrimmages holders sort of local yes.
Yes.
Potential impacts tight.
Rick I think key starts right. After the first year or so I think as you finish up is step with Polaris on but boy what you on this looks like what a great track record and I know I've talked to a number of.
People on the financial community or work with him on it just is everything really positive strong leader great great track record.
Produces excellent results. So slides I'd say, it's just a huge plus I know what's on the CNH industrial organization and all of that had been spent a lot of time really trying to find our quality individual on it and I think they've done that so I think from little more balance that everybody is on on the step I know we're excited to go.
Good day.
So mid west.
So you understand this product he understands customers on our standard dealerships only I think from.
We're excited and a little more balance everybody's stuff that we've got a a leader on going to be in place here from what I'm very shortly.
Great.
Hi, good as good but I'm sorry, yes.
Crop progress.
The same sector headquarters.
Narrowing your inventory levels still from you.
Inventory turns 1.6 times the error on goal you Inc.
For inventory turns from if you could comment also on industry supply on where you see that debt.
Well you know we think the all these turn as we can get those on.
All between the two and three number at all.
Especially we start driving more more presell.
So I'd say right in all we feel good about you on current inventory levels on enough to meet demand through our fourth quarter I think that's going to come about rate run on a combination of farmers that want to buy equipment.
Well this year refer regional for tax reasons only want delivery on December and we feel we've got the inventory to do that and Theres. Other growers out there that are all taking advantage of presell programs and and so on their name to unit sales will be delivered in calendar 2021 day in and right now than in others available slots and thats. Good soil. So I think.
On both fronts on we feel good about our inventory on let's say long term, we want to continue to improve these turns in and Weve got certain stores on certain market was soft from we're seeing these kind of numbers as they keep improving between the two on three level and definitely attainable.
Thanks, a lot.
Prior Mark share good luck accounts, we pushed forward.
Thanks Rich.
Thank you. Our next question comes from the line of Larry de Maria with William Blair. Please proceed with your question.
Thank you good morning, everybody.
On his talk.
You talked a little bit about the I guess, the course optimistic outlook for agriculture currently, but we're moving to a period where were actually ration gains same may even have a nice export market. The China from curious how you've seen the customer behavior change I guess in real time over the last six weeks is these developments have occurred.
And maybe you could tie that into maybe the year over year order numbers on that.
Visibility have to the extent that extends beyond your fiscal fourth quarter.
Hey, Larry this Brian.
You add as both Mark I mentioned, we're seeing.
Significantly improved customer sentiment out there on.
Almost with each week that goes by.
On it as they have gotten through the harvest here got.
Got a lot of ground work, which really sets them up nights for next year.
Get some optimistic about.
On the improve chances then have a better yields next year as well so.
I think just tempering and keep in mind that you know.
A lot of our.
Farmers are are not making a lot on money at at you know these.
These commodity price is right now some of them have some healing up to do from previous years. So this will really help with that help us shore up their balance sheets allow them to pay off some debt.
So thats all good as well, but definitely on the in the near term.
Yes on were quite positive about the near term outlook and thus the reason weve raised our revenue and modeling assumptions that guidance.
Okay, well this year on year over year order number you could point to or.
Maybe even looking into this spring was based on kind of early order programs and things just had to just frame it a bit for us I was to be orders are up year over year, maybe that's a good way to do it.
Yes, they are pre sell as Dave mentioned that we continue to improve on.
To help with the inventory turns as well.
Order Board is is up year over year on.
Generally don't get into the detail the exact number but.
And it and it's improving where.
Were seeing as Dave mentioned, a number of customers here that over the next five weeks, we'll have some.
Some tax things with their account and we will be looking to purchase on hand equipment, right, now, which which again, we feel well positioned for and then we have a number of other customers.
Looking for spring or summer deliveries and and we will continue to drive that presell with them and again, there we're seeing nice activity, so where support feeling good about the numbers we're seeing there.
Just a comment a little bit too just on what happened on these growers on on on on their on their beans, you know if I go back to say August 7th at the elevator I think there were getting just a little over $8 total too.
In like say, an average in South Dakota elevator for their soybeans on then they started to move up gradually but up as they start to move up I think.
Based on recommendations from their their marketing people a lot of farmer started selling on temperature other crop 50 percentage in the.
The whole will help so even though I think these yesterday's beans closed 11 41 year old you. All there is a lot of beans, or got sort of along the way and on I don't think there's a lot of beans left on the most of growers are from the move on there. So if they still have some level those are fortunate enough to but but even from last years on all the forward contracted some money on and.
And because the other beans have been pretty much.
On the dumps for a while right. So sold day started to see on these beans or on the other half from $10 and stop loss from getting contracted so not all these beans got sold at this 11, some dollar Mark Larry Saul.
I do think they're all lot of inventory as we go on in the airports and demand still stays up there is all the other so theres from positive on there and I think from.
Farmers looking forward to the pharma next year.
Yes.
Okay. Thank you for that.
Now the obviously you got it had a good parts quarter and now we're talking about I guess, we think a flatting out maybe a parts or something into the fourth quarter based on the comp I just want to think about the comp into next year based on what you've done already this year average how big was the impact from the Jericho and these other things that.
I'll begin at other words has a tough comp next year or because of that day recall and other factors on the parts side or should still be fairly normal.
Well, yeah, it's kind of an interesting that that the direct goal was.
That was just from probably one on 100 years, we're going to get that they've got a third I always are going to get their entire crop flatten national corn crop. So.
So what that David as you mentioned, Larry the unit volume sudden you know there is a lot of equipment damage on farmers are coming on or by on headliners and parts for their cabs in or their hoppers on or combines and damage or their hoods zone.
On some parts sales were probably not going to get again on but then again that probably didnt get the hours on some of the machines were probably not get is they're not going to have as much of the field repairs on the hours on some of that that kind of offsets that so.
So next year is probably going to get more back into some some some normal parts situations on that.
But but you got to remember too early on next year that there were probably going to get some probably some of the best farmland in the world rights in Iowa on some of the highest yield the potential you know they're going to get back in the chances are they're going on that type of supply is going to be back alter in industry again.
So all of that so as you look to the likely to answer your question did the comps going into next year.
All are going to be a little bit trickier, and then then didn't have that quite as tough a duty cycle the on going into the go.
Going into the winter freeze up like we did last year come on a corner the snow on the water and all thats been done too.
So we're not going to kind of have that like like we like we did this year.
If you looked at our parts business on the in the first quarter a lot of that was done from some of the really tough duty was going on in in the harvest on.
The year before.
Okay. So there is some puts and takes into next year, but I mean, I don't think it doesn't sound like we should expect that the comp is so masking debt, it's difficult to overcome all things equal next year.
I guess, maybe from arguably you want to hide yes, I think I think I mean.
Couple of the big drivers here too for parts and service Theres some between quarters that happens like what we're talking about here between third and fourth.
But just that aging fleet that's out there certainly is still happening and we've got a lot of internal.
Initiatives pointed in the direction of growing that parts and service and really impressing the customer on that.
You know side of what we do on so that will certainly.
On pay dividends and help us continue to grow into next year as well.
Okay. Thank you and then last question from me you discussed M&A outlook, a little bit already but not with let's say great detail.
What's your appetite at this point for larger stuff, but I think we all know that there's at least one potentially large deal out there just trying to gauge your interest in thinking about doing something a little bit more transformative than the usual feet on the ones and twos.
Well you know where you are always difficult, we can't really comment on specific M&A opportunities on it.
On and especially with yields and reference what you just talked about.
On there is that active go shop period. It all in place until December six or something so really from that perspective, you don't really difficult to comment on that but again were we continue to look at all all all acquisitions on both the 123 store tuck ins and then some of these larger dealer groups have been put together over the years.
So we continue to look at both.
And how the balance sheet that couldnt on continuing to look at those opportunities.
Okay fair enough, thanks, and good luck.
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Our next question comes from the line of Steve Dyer with Craig Hallum Capital. Please proceed with your question.
Oh. Thanks, Good morning, guys. Most of my other than had been answered already just just real briefly as it relates to inventory I know you.
Youre kind of managing towards those turns on the two to three area but.
Just trying to get some sense as to whether you feel like as you manage for turns you'll lose any you lose any business or just.
Your your inventories down fairly significantly year over year.
With that backdrop, and I, especially continues to improve it looks like we'll be another fairly decent year next year.
Hi, This is Brian I'll take.
There's a number of.
Activities, we do did to ensure that we're we're not sacrificing the business at the expense of of turns we do keep a minimum level of inventory on hand at all times to try to account for that unplanned purchase.
However, as Dave mentioned, so much of it is shifting to pre sell in our industry you think about these.
These tractors and combines nowadays and and on the construction side the ex wears wheel loaders. The about the price of your average house and so Tim.
Typically a lot of planning our equipment sales consultants do with the customers and pre plan. Those purchases you got some fairly long lead times a lot of the equipment is spec specific to the customer as well, which are some other advantages of presell and and so.
Typically we can play on the business pretty well that way through the presale again combined with keeping some level of inventory on hand, as well with dealer to dealer transfers and then also as some level of company inventory so between those two.
For pools.
Yes, we can keep it covered pretty well.
Got it so you're not seeing any necessarily any scarcity or disruption with Cobra manufacturing on things like that everything is sort of as you would like it to be at this point.
Yes, definitely I know there were some delays.
With a cold, but but I think it allowed the manufacturers and the dealers to.
Do some de stocking and and.
Has created some.
Some good demand out.
Out there as well, it's helping our turns is as well and.
Ill positioned us us well for healthier inventories and.
And.
Yeah generally.
We get the iron or find the air.
Got it okay. Thanks, guys, yes.
Yes, Thanks, Steve.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Meyer for any final comments.
Okay well. Thank you for your interest in Titan machinery, and we look forward to updating you on.
Our progress on our next call so have a good day everyone.
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