Greetings. Welcome to Titan Machinery's Fourth Quarter and Fiscal Year 2020 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, John Mills at ICR. Thank you. You may begin.

Great. Thank you. Good morning, ladies and gentlemen. Welcome to the Titan Machinery fourth quarter fiscal 2020 earnings conference call. On the call today from the company are David Meyer, Chairman and CEO; and Mark Kalvoda, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal third quarter ended January 31, 2020, which went out this morning at approximately 6:45 AM Eastern Time. If you have not received the release, it is available on the Investor Relations tab of Titan's website at ir.titanmachinery.com. This call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks. We suggest you access the presentation now by going to Titan's website at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on Slide 2 of the presentation our Safe Harbor statement. We would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Titan's most recently filed Annual Report on Form 10-K. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we'll discuss non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release. The call will last approximately 45 minutes today, and at the conclusion of the prepared remarks we will open the call to take your questions. Now, I'd like to introduce the company's Chairman and CEO, Mr. David Meyer. Go ahead, David.

Thank you, John. Good morning, everyone. Welcome to our fourth quarter fiscal 2020 earnings conference call. As John mentioned, to help you follow today's prepared remarks, we provided a slide presentation, which you can access on the Investor Relations tab of our website at ir.titanmachinery.com. On today's call, I will provide a summary of our results and then an overview for each of our business segments. Mark will then review financial results for the fourth quarter and full year of fiscal 2020 and conclude with some commentary around our fiscal 2021 outward. If you turn to Slide 4, you will see an overview of our fourth quarter and full-year financial results. Our fourth quarter revenue was down 2.4% to $351 million compared to the same period last year with adjusted pre-tax income improving to $1.3 million versus a $500,000 loss in the prior year period. Adjusted EPS was $0.02 compared to a loss of $0.04 in the same period last year. For the full year, we generated revenue of $1.31 billion, which was up 3.5% compared to fiscal 2019. Our adjusted pre-tax income was $25.6 million versus $19.3 million for the prior year. Adjusted EPS was $0.79 compared to $0.67 last year. Fiscal 2020 was a successful year with a revenue growth across all three of our operating segments, North America Agriculture, North America Construction and International. In the face of some challenging industry dynamics, we are proud to be able to post a solid profit number to our bottom line. This is a testament to the strong commitment and performance of our team. I will now provide more detail around the three operating segments. On Slide 5 is an overview of our North America Agriculture segment. Calendar 2019 was a very difficult climate year for our customers. It started…

Thanks, David. Turning to Slide 8, our total revenue for the fiscal 2020 fourth quarter was $351 million, a decrease of 2.4% compared to last year. Ongoing strength in our high margin parts and service business led to improved profitability during the quarter, but was not enough to completely offset top-line softness in equipment sales that we experienced during the quarter. Equipment revenue decreased 7.5% during the current three-month period, which is predominantly driven by lower equipment sales in our Agriculture segment, and to a lesser degree within our Construction and International businesses. As David noted, our Equipment business within our Agriculture and International segments continues to be impacted by ongoing macroeconomic challenges. Our recent trend parts -- of strong parts and service growth continued in the fourth quarter, increasing 19.2% and 16.6% respectively. The growth in these revenue categories reflects our increased focus on customer care across all segments and was supported by the difficult harvest environment as well as an aging customer fleet within our ag business. Our rental and other revenue increased 7.3% in the fourth quarter due to an increase in rental fleet and inventory rentals in our Construction segment. We experienced a 130 basis point improvement over the prior year quarter in our rental fleet dollar utilization from 23.7% in the fourth quarter last year to 25% in the current quarter. This improvement is the result of our focus in this area as well as rightsizing our rental fleet assets to improve our utilization rates. On Slide 9, our gross profit for the quarter increased by 10% to $61.1 million and our gross profit margin improved by 190 basis points year-over-year to 17.4%. These improvements were driven by increased equipment margins and a greater proportion of higher margin parts and service revenue as compared to…

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

Thanks. Good morning, guys. Very detailed prepared remarks. I don't have much but curious as to how your capital allocation changes or how you think about that in this environment, are you are you bunkered down for a bit. On one hand, you can buy your own stock for half of tangible book value, are you still looking opportunistically at acquisitions? Thanks.

Good morning. Yes, we are looking at different alternatives for capital allocation. The HorizonWest deal that we announced this morning has been in place for a while. We actually struck that deal some time ago. So we do look and we share -- we talk with the Board about different capital allocation opportunities, some which includes the price of our stock and the potential share repurchase. But in these times, we think there's a lot of value as well just maintaining a high level of liquidity during these uncertain times. So, I think we'll continue to kind of be conservative in that regard until we gain more understanding of the situation that's before us today around this COVID-19 outbreak.

Got it. And then, the only other one for me, I guess, Mark, you touched a little bit on part supply. With so much manufacturing shutdown, what's sort of your confidence level either on the equipment or the parts side of having a steady flow? Thanks.

Yes. So far -- this is Dave, Steve. So far so good. We're getting -- things are coming in. China is actually coming back online, I guess so, which is pretty helpful, and as we said in our remarks, we looked at our critical high demand parts and upped our stock inventory than those. And we're starting out the year with really good whole goods inventory. And from our visibility to our orders, everything is coming on plank, our pre-sold equipments come in on plan, and some of the products that we were getting short on, we ordered up, looks like, they come on plan. So, what we can see at least for the first half of the year, it looks pretty good. And like I say, we were started off the year with ample inventory. So we really -- feel really good probably for pretty much the whole year with our current level inventories and parts situations we're seeing.

Got it. Great. Good luck, guys.

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

Thank you. Good morning, guys. I guess, my -- I guess my first question. This coronavirus is a very recent occurrence, and I understand that most of the data points out there still failed to properly take it into account. So, I'm wondering, can you give us some color on how your equipment sales have trended in the past week or two weeks to sort of gauge what the impact of this crisis might be. And I'm also wondering, have you seen any of the equipment that's been pre-ordered, being canceled or farmers trying to essentially say, hey, look, I want to take delivery later than it originally planned given the uncertainty?

Yes. I mean, well, so as I said, we're fully staffed right now. So, our parts and service departments are busy getting all equipment out there for spring work, so that's a good thing. So, parts and service revenues should begin [ph], and like we said in our comments, all the -- obviously everything kind of turned upside down here a little bit, but the farmers' settlement, I think it's probably a natural instinct to see -- let's see how we come out of this thing a little bit. So -- but there's pre-sold equipment that's being settled out that was bought -- customers put their names on it, and we're delivering that. I think to-date, we've only seen one cancellation so far, which is good. I think typically when we see the farmers getting the fields and the contractors getting their job site, let's get the crop planned and that gets going. And then they look at their equipment, need to get the job done. And so, we anticipate that still to continue. Our sales people are staying fully engaged. And I think things were up until if we look at the industry, you've probably seen the industry numbers, they really haven't backed off in January and February. So, the trends were looking good. And I can say that net farm income year-over-year is good, so it's pretty good carryover. So, I guess, we're cautiously optimistic. As we come out the other side, this is going to be pretty good. But the main thing is that we keep our people healthy and we keep this parts and service business going.

No. I understand that. I mean, January and February, this is all very much lagging, which is why I'm asking for equipment specifically in the last couple of weeks. Sorry to press you on this, but I think really at this point it's pretty important if you can provide that perspective.

We typically don't disclose that. And another thing was just a lot of -- as you've probably been aware that in these industries too there is a lot of negotiations of the customers and the OEMs and the pricing, really it goes on, and there's a lot of business gets done in the last two, three days of a month. And we can continue look at that. So we don't really -- this is like from every day, what's written in the cash the whole good deal, a lot of stuff kind of back-end loaded, that's typical of the industry. So we really, really don't have these, but we're still selling equipment every day. Worse [ph], we're getting daily sales sheets. And the guys are out there getting the job done. Our sales people who are out in the farms, in the construction sites, and we're seeing important sales every day. So, we're going to continue with that. But I don't -- we don't track those exact numbers. It's very difficult every day on that because that was a pretty back-loaded in the month on those numbers.

Okay. Then maybe a question for you, Mark. Can you give us a little more color on what you're doing to preserve and enhance the liquidity of the company at this point? Maybe comment on your covenants as well. Are there any actions that you're looking to take down the line here to further bolster the company's liquidity position?

And I think one of the things that we talked about our inventory turns, we're certainly managing our working capital. There's a lot of discussions internally with domestic and our international business to pull down working capital levels. Overall, managed the higher turns, particularly on our inventories. I mentioned as far as our credit facility, we are looking to finalize that in a couple of weeks -- within a couple of weeks. And that should allow us a greater level of liquidities and higher advance rates, should be part of that deal as well. And I think there's always some level of just expense management and discipline, and none higher than where we're at today, given the situation. So I think those are three of the items that we're really focused on with working capital probably being the biggest one to ensure that we maximize our liquidity.

Yes. So I'm curious on working capital and inventories specifically. You said that you exited the year maybe with a little more inventory than you wanted. As you're thinking about 2020, where do you see yourself exiting this year? And have you changed your order patterns to the OEM at this point in order to reflect on this clear need for de-stocking?

We have, so that has been we are in the process of adjusting that some of the orders have been adjusted here and the plans for that throughout the year. Yes, I think it's a big focus for us. We mentioned the parts on the parts side, we are bringing in more. So there will be more parts on that just to make sure that we don't run into any type of supply chain challenge there. But on the equipment side, we are managing that to more of just-in-time inventory here as we move throughout the year. As far as ending the year, I think that's a little bit -- it's a little bit -- whatever it be, very tough I think to give that at this point, given all the uncertainty that's out there. What I would say is, with us ending at 1.5 with our inventory turns, that we're planning to pull that up. So, we certainly do expect that to improve this year. So even on a flat level of sales, we should be able to maintain or pull down that inventory overall a little bit from the current year.

Okay. And I'm sorry, I don't think you mentioned the covenant. Maybe you can help us there and then I'm done. Thanks.

Yes. So, our covenants that we have with our banks, 3.5 is that total liabilities for tangible net worth. We're sitting at a 1.9 right now. So that's one of the bigger covenants that we have with our banks. And the other one is just kind of around excess availability that we have. It's kind of the liquidity measure, and we're in very good shape. We're not close to testing that at this time. And with a new agreement out there, we should have even more of a cushion there, more room there, if you will, as we expect higher advance rates in the new facility.

Great. Thank you.

Our next question is from Rick Nelson with Stephens. Please proceed.

Thanks. Good morning. I have a follow-up in terms of customer behavior that you're seeing since COVID-19, really all of that did embarge [ph]. I know some of the car dealers [indiscernible] seeing big declines in new and used sales, this morning or last night equipment sales down 50% to 70% since March, if you could comment on overall behavior which you're seeing?

Well, Rick, also I don't know that as business of that consumer, we're -- I'd say, we're more a B2B or business-to-business, so probably not a good comparison. And like we said in our comments, we don't get a lot of customer floor traffic. These are planned purchases, high ticket items. A lot of times, our sales people are out to the farm, out to the construction site. So I think it's a whole different business model out there. There again, it's not a lot of spontaneous type decisions, like I said, it's more planned. So, I just hear, before we just recently cut access outdoor to our customers in our facilities. But the restaurants, coffee shops were closed all of a sudden, the farmers are coming in just coming back from Florida, coming back from Hawaii, coming back from Arizona, talking about where they've been. That's one of the reasons -- and like business usually for them get ready go in the fields, getting their equipment ready to go, talking about what they're going to need, talking about the commodity prices all that kind of stuff. So, they've acted pretty normal. If you look at like the number of COVID-19 cases in some of our footprint, that there's a -- down there, there's some pretty low numbers in some of these. I'll give you some examples. I think, we've got a lot of our head there are store count, South Dakota is 30 cases. This is as of noon yesterday, 30 cases in North Dakota, Wyoming 30, North Dakota 37, Montana 48, Nebraska 53, Iowa 124, so those states were really compared to some of the tougher states like Colorado we have three stores like 921. So really some big variances out there. But where our core AG markets are -- I think due to probably the sparse populations and how dispersed everybody are. We're not seeing that's all. I'd say, from the farmers, the business is as usual. I think the contractors there, that business a little bit goes with the economy. I think there's enough jobs that were built last fall last winter, they've been funded. There's still [indiscernible] some project, there's some infrastructure stuff, there's diversions or something like that. I anticipate it looks like there's going to be some still pretty good risk for some floods in certain areas, and that drives some of that business. But like I say, we're not -- we're business-to-business, planned purchases, customers want to get their equipment that they need for their operations fixed. So it's just more of a necessity. So that's what we're seeing out there right now and I think this is a distraction. It's a distraction and we want to make sure our customers stay healthy and our people stay healthy. But I think we're prepared as we get through this.

Perfect. That's helpful, Dave. And then, some parts right now allowing Ags to the stores. How do you think that affects that segment of your business?

Well, not that much because right now there has been quite a bit of -- people called on the phone, hey, do you have this at all, can you tell stay away we have drop boxes scattered all throughout our footprint, so many times our customers send their hired people in and to pick up the parts of somebody's driving by. And so basically what we're seeing instead of hanging out in our dealerships not knowing what kind of exposure it might have or say, hey, call us up first, pull up in front of the dealerships, let us know what you need and we'll take them out the back door for you, we'll come load up your pick up. So that's what we're kind of doing. So really it's not much different than what happened before. And it's just like whether we're just trying to minimize the exposure because at the end of the day, it's really, really important as we have to keep our employees safe and healthy through the spring season, right. And we don't want to take the risk of unknown people. Some of our customers know what we know, some we don't know. Our vendors, they come in and they happen to expose one of our stores, that's not good. So we're trying to stay away from that. But really the way they we do business and probably half our parts are installed on the equipment by our service tax [ph]. They're on their mobile service trucks, and they're going out to their farms and the construction sites or they're working on that equipment at the big shops. So a lot of that's going out that way too. So really we don't see a lot of interruptions, it's not like it's a spontaneous type business. It's what they need to get their equipment to get their jobs done.

Right, right, right. And on the used equipment side, any changes you're seeing of late in terms of pricing?

No, we're still seeing that good amount and even people wanting because there's been a pretty low new machinery industry numbers for the last two, three years, right. So that means less trades coming back in. We're not seeing the level of lease returns coming back in right now. And the ones that are it seems like the residuals are priced about right. So, like I say, there's good demand right now for good late model good use equipment, and we're seeing that. So, for the near-term, we don't see a lot of things changing because, like I say, the new industry numbers are still staying pretty low, and so the amount of good news coming back into the pipeline is limited.

Okay. Very good. Thanks and good luck.

Okay. Thanks, Rick.

Our next question is from Larry De Maria with William Blair. Please proceed.

Thanks. Good morning, everybody. Hey, hope everybody is doing okay and safe. I guess, just maybe finish up on the prior conversation that I'm having. I'm just curious, I know you guys are being careful about what you say because you have ongoing customer conversations, but let's look at it differently. How have the customer conversations changed, let's say, from a month ago to now, where they're extending, are they much more cautious or are the customers looking this as a short-term disruption that thought to figure out how to get through. So curious how the tone to the conversations have changed, and if so how materially?

Well, I think the tones -- I think to the certain level, probably distraction frustrated most of our customers, whether it be farmers or contractors, they're in the go mode. They want to go. This kind of takes away from that, but I think that's probably weighing on the farmers more than anything is this continued level of depressed commodity prices. So, the China phase of the China trade deal, getting that done is a good thing. The USMCA bill is good, but at the same time, we've got to get -- we've got to get this corner up closer to $4, and we need to get the soybeans up closer to $10. I think that's probably weighing on our growers more than anything, Larry, right now. So, I'd say, that probably trumps -- I think we have to put a good eye on what's going on with ethanol right now, with this low --with the low oil prices, that's definitely impacting the profitability of ethanol plants, and there is a lot of corn that goes into the ethanol plants. So I'd say, that probably is weighing on the growers more than the COVID-19, because they're not really seeing much of the COVID-19 in their farming operation on their markets.

Well, yes, that's sort of where I was trying to get to also. It looks, we obviously [indiscernible] guidance, and I think with more due to COVID-19 than anything else. But $3 -- sub-$3.50 corn, sub $9 beans, that would take COVID outside of everything, that would imply fairly challenging year ahead, wouldn't it? I mean, you guys are talking cautiously optimistic, but just the commodity prices ended up themselves would probably be more balanced negatively than your technology placing upgrades, right. I'm trying to understand, how negatively balanced that would be and how you're thinking about...

Yes. I guess, that -- there's a direct relation between industry, high horsepower equipment and corn price, right. So, yes, I think that definitely weighs in there. Like we talked -- I talked in my comments, it was a really late harvest, there's still farmers out there combing corn right now, but there is a lot of field work that needs to get done even before they can begin thinking about planting right now. And I think that's front in mind of a lot of these guys to get that -- to get the corn combine, to get the residue off and get those fields in shape, and get the planning done. But definitely the commodity prices for our growers and ability to buy new farm equipment. But there -- with that said though that, that just extends away from that parts and service business that we can do. But if you look back a year ago, Larry, if today compare to a year ago, prices are pretty similar. And all what happened last year, we had that nice pop in late June early July, that's still a little bit unforeseen. But I know exports to China is starting to pick up a little bit. They're starting to get some -- so basically if we see the impact from the trading fees, one of the trade deal of the USMCA, some of the benefits from that, let's see what happens here.

Okay. Understood. And just to clarify, you talked about only one cancellation and you have some visibility on the pre-orders, right. How much visibility do you think you have? I mean, obviously some of your competitors tend to pre-sell a lot of equipment, case pre-sell less in general. So how much visibility do you think you have at this point [indiscernible]?

Well, we've got good visibility to our pre-sells, and our pre-sells are up year-over-year this year. So we think that's a good trend going forward. So, I'd say, we've got -- we've got good visibility, basically we're getting, I think on the orders pretty good visibility. I told you we could get out into that August-September timeframe for sure. And I'll keep reminding too, we're starting the year with almost $100 million of inventory on hand that we didn't have a year ago. So that's going to add to what we've got. So, I think we're really in good shape on what's coming in, and what we have on hand to meet the needs of our growers.

Okay. And then, maybe you could talk about the Senate bill and the impact on ag and a couple of things in there. And maybe it's more payments that end up being like MFP, I'm not sure, but can you talk about how you think the Senate bill plays in for Ag? A – David Meyer: Well, I guess, they just signed in the middle of night last night. And I think it's got to get through the House here right, Larry. So I guess I'm not really in a position to comment. I know last year, if you look at that 11% that focus a lot -- goes on that 01:01:10 payment helped a lot. There is -- in the regular Farmville, some good safety nets in addition to that too. So, yes, I think it supported their businesses last year, the farmers and any help this year, I am sure that they're going to appreciate.

Okay. I'll need to sneak one more in here and then -- that's it. I'm just curious, the average farmer as we're going into planning season, do they have the tools, the working capital loans, the parts sounds like you guys get parking, not worried about that technician seat out there in the supply chain in general. You think that they are fully locked and loaded to be able to plant a big crop or at least that's their intentions are. Or do you see so many stress in the system in the working capital loans, credit, availability of parts and other things in the supply chain. How are you thinking about that?

No, I think they are in really good shape. I was talking to the grower this morning, and he is buying some huge propane storage tanks right now because this price of propanes are rock bottom. I think you're going to see good diesel fuel and gas prices is going to help them out. Fertilizer has already come down because a little bit of lack of demand, so some of the crop inputs are coming down. I think probably if you look at the yields, a lot of times when they don't get that volatility is done and they are doing a lot of that in the spring, a big ruts in your field. Sometimes the yields on that ground isn't as good as if they get normal tillage. So that's probably a little bit of a risk from the yield side on those. But I think the corn is starting to come off in the last three weeks, some of this corn that hadn't -- generally once 40% of the corn was still in the fields in North Dakota. So they've been banging away at that and getting some of that off. So that's been helpful. But overall, I'd say, from -- they've got good -- strong balance sheet yet, they had a fairly decent year this year, like I'd say net farm income was up. I think for the most part, the relationships with their banks are in good shape. And as far as the equipment we sell, we've got good CNH Industrial Capital, we've got good financing plans for the new and used equipment. So, you combine all that up, I think it's business as usual. We want to keep our employees safe. I have to say that as of this morning in both Europe and North America, we've yet to have one employee test positive for COVID-19. So that's real plus. And like I can say, I think that's really important because the farmers don't have a lot of hired people right now. A few family members, maybe one, two hired man, and a lot of progress coming make sure we keep everybody healthy. And I'd say, with that, it's business as usual, but it is something we just have to be aware of and more so on the construction side and just get through this of the back end, I'm healthy and back working.

Okay, great. Thanks. That was good to hear. Best of luck this year and be safe.

Okay. Thanks, Larry.

We have no more questions at this time. I would like to turn the call back over to David Meyer for closing comments.

Okay. All right. Thank you, everyone, for your time today and your time in our call. And we look for updating on our progress ahead and everybody stay healthy.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day.