Good day, ladies and gentlemen, and welcome to The Toro Company's Second Quarter Earnings Conference Call. My name is Jonathan, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Heather Hille, Director of Investor Relations and External Communications for The Toro Company. Please proceed, Ms. Hille.

Thank you, and good morning. Our earnings release was issued this morning by Business Wire, and a copy of the earnings release, including a reconciliation of non-GAAP financial measures, can be found in the Investor Information section of our corporate website, thetorocompany.com. On our call today are Rick Olson, Chairman and Chief Executive Officer; and Renee Peterson, Vice President, Treasurer and Chief Financial Officer. We begin with our customary forward-looking statement policy, as well as information regarding non-GAAP measures. During this call, we will make forward-looking statements regarding our business and future financial and operating results. You all are aware of the inherent difficulties, risks, and uncertainties in making predictive statements. Our earnings release, as well as our SEC filings detail some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our earnings release and this related call contain certain non-GAAP measures. Given the significance of Charles Machine Works and the closure of this acquisition on April 1, 2019, we have revised our definition of non-GAAP financial measures to exclude the impact of one-time cost associated with acquisitions, including transaction and non-recurring integration cost and one-time purchase accounting adjustments that are not operational in nature. This is in addition to the previously excluded impact of the excess tax deduction for share based compensation. The company believes these measures may be useful in performing meaningful comparisons of past and present operating results to understand the performance of its ongoing operations and how management views the business. Reconciliations of adjusted non-GAAP measures to reported GAAP financial measures are included in the schedules contained in our earnings release. Such non-GAAP measures should not be considered superior to, as a substitute for or as an alternative to, and should be considered in conjunction with the GAAP measures presented in our earnings release and this related call. With that, I will now turn the call over to Rick.

Thank you, Heather, and good morning to all our listeners. We accomplished much during the second quarter from successfully closing our acquisition of Charles Machine Works ahead of schedule, to achieving nearly double-digit sales growth in both our professional and residential segments despite significant headwinds. Net sales for the quarter grew 9.9% to $962 million with reported net earnings of $1.07 per share and adjusted net earnings of $1.17 per share. Professional segment sales grew 9.6% for the quarter, driven by the acquisition of Charles Machine Works. Increased sales across our landscape contractors, snow and ice management, ag irrigation, and the Toro branded rental and construction product lines also contributed to our professional segment results for the quarter. Our residential segment registered a 9.4% sales gain as a result of demand for both walk and riding mowers, as well as for snowblowers and portable power offering. Importantly, international sales increases enhanced our results for both segments. Following a brief commentary on the state of our businesses to date, Renee will discuss our financial and operating results in more detail. First, our rental and specialty construction businesses delivered strong second quarter results, driven by our successful close of the Charles Machine Works acquisition and strong dealer channel demand for our latest innovations, including the revolutionary Dingo TXL 2000 Compact Utility Loader. Orders written in connection with the American Rental Association show in February were up versus last year. The Charles Machine Works Toro integration process is going well and is further reinforcing the cultural alignment we cited as one of the reasons behind the decision to pursue this transformational acquisition. Our people share intense visceral commitments to innovation and customer service. The timely addition of Charles Machine Works made a strong contribution to our second quarter results. Our landscape contractor businesses…

Thank you, Rick and good morning everyone. As we reported earlier this morning, net sales for the quarter grew to $962 million, compared to $875 million for the same period a year ago. We also delivered net earnings of $115.6 million or $1.07 per share, compared to $1.21 in the second quarter of fiscal 2018. As Heather mentioned, given the significance of Charles Machine Works and the closure of this acquisition on April 1, 2019, we have revised our definition of non-GAAP financial measures to exclude the impact of one-time costs associated with the acquisition, including transaction and non-recurring integration cost, and one-time accounting adjustments that are not operational in nature. This is in addition to the previously excluded impact of excess tax deduction for share-based compensation. Adjusted net earnings for the quarter were $126 million or $1.17 per share, compared to adjusted net earnings of $130.3 million or $1.20 per share in the comparable 2018 period, a decrease of 2.5%. Year-to-date net sales were up 9.9% to $1.565 billion. We achieved net earnings of $175.1 million or $1.62 per share. Adjusted net earnings for the first six months were $182.7 million or $1.69 per share, compared to adjusted net earnings of $182.4 million or $1.16 per share in the comparable 2018 period, an increase of 0.6%. Please see our earnings release for a reconciliation of financial measures calculated and reported in accordance with GAAP, as well as adjusted non-GAAP financial measures. Professional segment sales were up 9.6% for the quarter to $723.5 million. Year-to-date, professional sales were up 10.8% to $1,178.5 million. These increases were driven by the addition of Charles Machine Works and the demand for landscape contractor, snow and ice management, ag irrigation, and Toro branded rental and construction product. Professional segment earnings for the quarter totaled…

Thank you, Renee. While inflation, tariff related costs and the weather continued to be a challenge, we are confident of delivering another good year. This confidence is founded on a number of factors. First, field inventories are in good shape to address customer needs. Assuming a return to more normal weather conditions, we’re well-positioned with strong portfolios of innovative products to capitalize on current demand and new growth opportunities across our businesses. Second, we have taken steps to mitigate supply-chain challenges throughout the enterprise by collaborating with suppliers to ensure consistent delivery of critical components. In addition, we will continue to optimize inventory levels and have made significant capital investments in our plants. These investments, which include a state-of-the-art paint system, new fiber optic lasers for fabrication purposes and new technology to streamline our parts sorting and packing process should increase capacity and reduce costs through enhanced productivity and provide an ergonomically improved work environment. Third, the transformational addition of Charles Machine Works not only vastly expands our presence in the rental and construction businesses, but is providing opportunities to capitalize on synergies across the enterprise. Our integration management office, comprised the leaders from the two formally separate companies, is making great progress on the integration. Furthermore, we contracted with a leading consulting firm to assist with the process. Our goal is to ensure we remain a strong dynamical organization adept at anticipating potential obstacles, yet agile enough to meet unpredictable challenges so we can continue to win in the marketplace. Thanks to the good work of our integration team. We believe we are on track to achieve the acquisition specified run rate synergy target, as well as improvements in working capital and other savings across the company. This acquisition is a catalyst for looking across the enterprise to drive…

Certainly. [Operator Instructions] Our first question comes from the line of Joe Mondillo from Sidoti and Company. Your question please.

Hi, good morning everyone.

Good morning, Joe.

I just was hoping to cover a couple of basics on the acquisition in terms of some of the financials. So, I wondering if you could provide, I’m not sure if I heard this, but the revenue contribution in the quarter itself? And then also, what sort of normalized D&A you're looking for whether you want to give me the whole entire company or what? That would be great, thanks.

Thanks for the question. So, we have now included Charles Machine Works in the Professional segment and they were a significant contributor to the segment. So far this year if you look at the first half results, the Professional segment is ahead, but in second quarter some of our businesses, the golf and grounds business, and irrigation were challenged by some of the weather impact and some of internal supply issues. So – but other parts of the Professional business, like the landscape contractor, specialty construction and BOSS, all had fantastic quarters and are on track for the year. So, overall, we feel good about the position of the Profession business. Obviously, Charles Machine Works was a major contributor to that. Weather is affecting some of those segments, but we feel positive going forward.

And Joe, maybe I could address the question on D&A. In our investor relations presentation that was posted on our website this morning, we did include revised cash flow guidance and revised capital expenditure guidance. We didn’t specifically address D&A although its embedded, you know, in free cash flow guidance. You know we’re still working through our provisional purchase accounting. There’ll be a little more detail on that when we publish the Q as well, and, you know, we’re just very early in – on the acquisition, so we’re still working through some of the details.

Okay. So, it's sort of difficult so the first quarter you saw a growth in the Professional segment of 13%. I know that wasn't sustainable rates, but just trying to hash out what kind of organic growth versus acquisition. I guess because of competitive reasons you don't want to divulge the revenue versus CMW is that the case?

That’s fair to say, and I think I would say again, the underlying business – we mentioned the challenges in a couple of the underlying businesses and markets, but overall, we feel good about the first half. So far, we’ve had, you know, good results in many of the segments so far.

Okay.

Yes, and I would just – building upon that, I would just add that, you know, where we did see the challenges related to weather, we feel those are the same challenges that our competitors would have seen, and I think Ricky would say that market share remains solid.

You know there was no question with the new products that we’ve talked about in the past. The startups from the landscape contractor side under the ex-mark brand, the outcross and the commercial area, the new TriFlex greensmowers and so forth, we feel fantastic about the product line that we have, the innovations and any impact that would be there from weather is the same that our competitors are feeling. Our field inventory is in great shape even in the more challenged areas. Field inventory it at or below what it was last year, so we’re in good position.

Okay. Last nuance question from me and I just have one more question after that. Is the $20 million of sort of one-time type clause? Did that all fall in the Professional segment or was some of that in corporate or corporate costs?

Yes. So, it would be split about 50% in the Professional segment, about 50% in other, and just to give you a little more information on that, in particular, within the Professional segment, you’re going to see the impact of the inventory step-up in that part of the purchase accounting. Within the other segment, you would see more of the transaction related expenses. And then, integration expense is really – as in this case and also as we go forward, it could be included in either one of those segments due to the enterprise shaping, impact of Charles Machine Works, you’ll see some of those initiatives will be broader and impact areas outside of Charles Machine Works, so those would be in the other section.

Okay. And then, I wanted to ask about sort of the guidance for the year and then I’ll pass it on to the next person. The annual guidance sort of suggest that the fourth quarter is going to be – see some pretty nice year-over-year growth, and I’m just wondering is that related to anything related to sort of CMW and maybe what they have in the backlog or what sort of driving that thought process of strength there?

Yes. If you – if you look at – if you reflect that kind of comments for the full year previously, we did anticipate to – we did anticipate getting the full benefits of our actions in response to the increased tariffs and commodity costs situation that we're facing. So, in the fourth quarter, we will see the full benefits of the actions that we took beginning last year and fully come into place just as we speak. We do expect the second half to have improved margins and the fourth quarter is really the quarter where we see all those benefits coming in, and then we’re comping against a quarter last year that included much of the effects of the tariffs and increased costs.

And I would just say, you know, the profile as we’ve commented in the past for Charles Machine Works is a little bit different. And so, it is going to change our quarterly profile as well. It isn't as seasonal as the Toro business and impacted by different factors. So, that is a piece of also what we’re seeing in Q4.

And maybe just to add on a couple other factors, the fall is obviously when many of the golf irrigation projects take place and even those that would have taken place earlier this year have been pushed out to that period, and then, we are expecting a very good snow season based on a number of factors. The new products that we’re having coming out that I mentioned in the earlier remarks, and then the fact that the inventory was pretty well cleared out of the field due to the late season – late in the winter season snow events. So, we’re in good shape there too, have a very solid beginning to the summer here.

Okay, great. Thanks all. I’ll hop back in queue. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Sam Darkatsh from Raymond James. Your question please.

Yes, this is Josh filling in for Sam. Thank you for taking my questions.

Thank you, Josh.

Hi, Josh.

Hi. So, going back to Charles Machine Works, you said it's less seasonal than your other businesses. Should we just assume the sales in the quarter was roughly similar to one month’s average sales?

Yes. I mean all things being equal. Its less seasonal, it's not exactly linear as we learn more and more about the company, but it is not going to be as weighted toward Q2 and Q3 as the legacy Toro business would be, and that was, you know, one of the factors that was really attractive to us when we looked at the acquisition. It was helping us to balance out some of the natural seasonality that we have as a company.

Really, we talked about previously that it was really tied to different market drivers and we really have immediately seen the benefit of that that it’s not really tied to weather situations, for example, as opposed to the communications build-out, the infrastructure investments and so forth. So, it’s – we’re seeing the benefit of being tied to different drivers already in terms of stabilizing demand.

Got it. And just to be extra clear on what assumptions are included in the guidance, can you talk about whether you're including the recent increases in the tariffs on Chinese goods and the reduction in steel tariffs?

Yes. So, at any given moment, when we provide guidance looking forward, we look at all of those factors and we try to make our best judgment on what the impact for Toro will be. So, we had factored in some of the reduction that we were starting to see in steel. In fact, we’ve built that into our original plan for the year. So, we do have that built in, and from a tariff standpoint, we have now, based on the knowledge that the [indiscernible] is going to 25%, we have built that into our guidance for the year as well. So, we’re disappointed that the tariff did increase or that we don't have a better tariff situation, but we’ve now built in our best thinking about what that’s going to be for the rest of the year and that it does include [indiscernible] of 25%.

What might the benefit be if those were to be removed?

We haven’t specifically called out the impact of the tariffs and in part because it's very difficult for us to segregate some of the tariffs – direct tariffs from the tariff-related actions and we talked about in the past steel is a great example of that. Most of the steel we’re buying is not actually impacted by direct tariffs, but yet we saw steel prices change, you know, in our global economy because of the tariffs. So, it’s hard for us to segregate those two, and therefore, we talked about it more in total.

And the last one for me, you mentioned in the release some specific supplier related issues in the golf and irrigation segment. Are those ongoing or those been fully resolved?

You know the – we’re living both the positives of strong economy and the negatives – and the negatives are that our suppliers are strained to keep up with demand across all of their customer base. So that with the same kinds of issues of – that they have, which are labor, getting workers etcetera. And what we particularly saw in the last quarter here is also weather was a – had an impact on our – in our markets, but it also had an impact on our supply chain beginning in April. In the month of April, we don't usually expect to lose days of production due to meeting to close plants essentially and our suppliers saw that as well. So, the answer to your question is we are managing those intensely, and we believe that we are on top of those, but they continue to be a challenge. We don't expect the supplier challenges to completely go away anytime soon, but we believe we are managing those in a way that supports our business plan going forward.

Yes. And just building upon that, you know, we have taken action as Rick’s said and implemented processes that we believe will address those issues for the remainder of the year, in particular, around inventory. You know, we will selectively bring in some higher levels of critical components to help us manage. We’re working closely collaborating with our suppliers, but we’ll also carry a little bit more finished goods, higher levels of our fast turning, you know, finished goods to give us a little more flexibility in this, you know, dynamic time. At the end of the quarter, we actually – if you would extract Charles Machine Works out of inventory, we saw that our inventory were – the company less Charles Machine Works actually go down, and we actually had less finished goods and a little bit higher working process than normal. So, we think that, you know, going forward there are some steps we can take to help us to better balance that.

Got it. Good luck for the next quarter.

Thank you.

Thank you.

Thank you. Our next comes from the line of Tom Mahoney from Cleveland Research Company. Your question please.

Hi, good morning.

Good morning.

I wanted to ask about the organic revenue assumption inside of the new $3.2 billion revenue guidance. Is it fair to say that’s unchanged in the 4% plus range that you guys have talked about prior?

I think that’s, you know, including Charles Machine Works, we would be back at that mid-single-digit sort of range for the company, but with a larger base obviously.

Yes, and more of that being again weighted towards pro versus residential, but no change in the fundamental.

Okay, got that. And then, the driver of less finished goods, going back to inventory, the driver – what segments or what lines were drivers of less finished goods and inventory year-over-year on a Toro organic basis?

Yes. So, primarily golf and grounds from a finished goods standpoint. We – you know first of all, we’re in good shape in the field, but internally if we could have changed something, we would have probably had a little bit higher finished goods of some of our key bread-and-butter products and would have been able to convert some of the whip to finished goods. So that’s just what Renee had referred to as we have a little bit higher whip and we would expect to have relative to finished goods and we would prefer to have a few more units available in some of our key bread-and-butter products.

Got it. And then, just structurally on CMW, can you talk about the distribution network that that business utilizes? And, you know, we’re all familiar with the distribution network and the strength of it in the pro segment that you guys utilize. Can use just compare and contrast the CMW distribution network to the core toward pro distribution network?

I think this is – this is one of those examples that the more we learn about Charles Machine Works and the more work that we do on the integration, the more pleased we are. I had a chance to visit one of our dealer – one of our Ditch Witch dealers and had a chance to meet with a group of them and I could not have been more impressed. We have now a terrific new channel in the construction market, very high quality, very professional partners with Ditch Witch and the other brands are a part of Charles Machine Works. So, it’s been one of the very positive discoveries just how good that channel is. It’s not something we were able to do as much deep due diligence into because for obvious reasons visiting dealers was difficult, but now that we have a chance to do that, it has been very pleasing on what we’ve seen there.

Understood. Thank you.

Thank you.

Thank you. Our next question comes the line of David MacGregor from Longbow Research. Your question please.

Hi, Rob Aurand for David MacGregor this morning. I wanted to ask you about residential profitability. You made the comment in the release that it’s going to improve throughout the year. You have a competitor, you know, ramping up at lows. Can you talk about the extent that might impact your promotional cadence for the rest of the year?

Yes. We feel good about the residential business. As we’ve talked about, the residential business was especially hit by the commodity and tariff situation, so that’s been the challenge from a profitability standpoint over the last year with regards to new or different competition or changes. We have great respect for the Craftsman brands and we know that they are at in a new location. But at the same time, we’ve been competing with the Craftsman brands for a very long time. And obviously, their math partner has been out there for some time. So, there’s – in some respects, there’s newness, but in other respect, it’s not dissimilar to what we faced in the past. And I could just say, we are incredibly pleased to be with our partner in the [math period], The Home Depot and feel that we have the right partner there and has been a key part of the success of taking our market share from the low-single digits to the leading market share in walk power mowers, for example, and we are pleased with our partnership today and looking forward to doing even more going forward. So, we feel – we understand what’s going on and we feel good about our position.

Okay. And then, with the $0.70 to $0.75 guidance you’ve given for the third quarter, can you quantify what accretion from CMW is in that?

Yes. When we gave the guidance for both the quarter and for the year, we really tried to look at this as the new combined enterprise. So, we’re not specifically breaking out the impact for Charles Machine Works, but have included that, you know, in our guidance to the best of our ability.

Okay. I guess just last from me, on some of these new products coming out, the Greensmaster 1000 coming after spring, and the eTriFlex this summer, can you give any kind of initial commentary around what you’re getting from customers, you know, how pre-orders are trending for those new products?

Yes. you know the response for those, looking at ion, fully lithium ion products has been fantastic and I can just say from a personal standpoint, I had a chance to mow a green, for example, with our new TriFlex and I have some baseline of the experience I will say, if I were buying a product that I were going to operate that’s the one that I would get. There are lots of reasons why people are interested in the fully lithium ion products, its machines, but it’s also operator experience, so less noise, which has a lot of benefits, and less noise, for example, in the context of a residential development that might be surrounding a golf course, which means more productivity for the golf course that can get started earlier in the morning. So, there is great demand and interest, and I can just say that they will be very pleased with the results and being able to move 18 plus greens with a single charge, it’s just – it’s going to be a great experience for people, for the operators and the golf course.

In particular, we’re also excited about the 60-volt within residential.

60-volt also and this is one of those areas we talk about the leverage between our commercial business and residential. The expertise that we’re developing in both areas, back and forth, have been helpful and our 60-volt line for the residential walk power mower is – you know it’s only been out there for a short time, so there are only a handful of reviews. The reviews publicly have been very positive, and once again, I can say my personal experience is it’s a great product, it’s not one that compromises and just to be able to have an electric, it's really looking at the whole – the whole product, including what people will really love about is it’s got our personal pace drive system, which is preferred in the marketplace and has been a key differentiator for us for a long time.

Alright. Thank you very much for answering my questions.

Thank you.

Thank you. Our next question comes from the line of Josh Chan from Baird. Your question please.

Hi, good morning, Rick, Renee, Heather.

Hi, Josh.

Good morning.

Good morning. I just wanted to ask about the – one from a topline perspective in terms of weather, would you say that that impacted all of your businesses, including the ones that grew or the – you know was it sort of more isolated, I guess? And then, I guess as a follow on to that when you say that your guidance assumes normal weather, do you assume that you also kind of capture that lost revenue in the back half of the year? Or is it, you know, more normal in the second half I suppose?

Yes. So, the weather affected our businesses to varying degrees in some cases positively and in some cases negatively, obviously. So, for example, the snow season that we ended up with was a big driver of our BOSS professional snow and ice management business and it helped us return to a more normal snow year for the residential snow blower business. And looking forward, and some of the more challenged ones would be coming out to buy a mower in the spring as a residential customer or looking at replacing equipment from a golf and ground standpoint. Some of those were more challenged by that, but what we assume going forward is that we take our best estimate of what's happened so far and then project that for the year. Now, if you look out of the window where you are at least where we are. We see cold and rainy, so that does, you know that’s not a good thing looking forward, but as we look to the forecast here, it looks like couple of days, it’s time for the Memorial Day. So, we take our best shot. Looking forward, we assume a return to more normal weather, real time at this moment we look out the window and it’s raining and it’s 50 degrees. So, those are just all the factors. We do our best to incorporate to what we think will be normal weather going forward.

Alright. That makes sense. Hopefully [indiscernible] for you guys there. And then on the just a definition of adjusted EPS, in addition to some of the onetime items there is an ongoing intangible asset amortization that usually comes with these deals, does that ongoing piece of amortization get included or is it excluded too from EPS?

We would consider that to be more operational or ongoing. So, we would not exclude that in our non-GAAP measure. So, it would be included in both the GAAP and then not exclude it from a non-GAAP standpoint.

Alright. That sounds good. And then I guess my last question is, is there any comment you can make about gross margin, I recognize, Renee that you said that gross margins and the businesses should be up in the second half, but I realized that Charles Machine Works probably impacts that calculus as you kind of play with the consolidated level. So, any type of guidance, update on the full-year, I guess adjusted gross margin?

Yes. As we’ve talked about across enterprise, we do expect as you said, gross margin will improve in the second half across all businesses. However, you are correct that Charles Machine Works would be dilutive overall. And so that will be included mainly from a mix standpoint, is how I would think about that impacting. It is included in our guidance both for Q3, as well as for Q4 and we think that in Q3 it is really going to be that turning point where we start to see the improvement accelerating into Q4, but the mix impact from Charles Machine Works would be dilutive.

Okay. Thanks for your time and good luck in the rest of the year.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Tom Hayes from Northcoast Research. Your question please.

Thank you. Good morning, everyone.

Good morning.

Hi, Tom.

Hi, Rick. I was just wondering, I did see the new 60-volt mower in one of the – in Home Depot in the last couple of weeks, I was just wondering, does that displace a gas mower that you currently kind of have spotted int that spot or is it just kind of opening up a new category?

It, as you know, precisely I would have to check with our team to know exactly how that fit in with the lineup, I don’t not believe it displaced a gas model at this point. I can’t say that with a 100% confidence, But I do not believe so. It was definitely incremental to our model lineup in math.

Okay, great. Renee, I think you kind of booked around $20 million in acquisition related cost in the quarter, could you kind of give us some kind of super scale on the expected acquisition cost for the balance of the year?

As we look forward, we are still, it’s very early in the acquisition, up 45 days or so. We certainly had some of the more significant ones recognized in the quarter with the transaction related expenses. So, the majority of all of those expenses are behind us. We will see more from a purchase inventory step-up purchase accounting standpoint. We will see that continue for the next couple of quarters as we work through that inventory level. And then we go up ongoing integration expenses. So, I don’t have a specific amount to share with you as I did somewhat fluid as we work through the integration, but certainly some of the largest transaction related expenses are behind us.

Great. Just finally Rick, you sound fairly positive on the outlook for the snow season coming up, just want to confirm that and make sure most of that is kind of driven through the inventory channels probably got reduced by the late storms here.

Yes, exactly. There was some regional variation in that, so the Midwest had a much stronger snow year than last year or much more snow. So, inventories are, you know, bare-bones from a field inventory standpoint. The East Coast was not as heavy of winter, but it had at some events. So, it’s – on average, our field inventories are in very good condition in those markets for both single and two-stage, especially so in the Midwest, but we also feel on average, we’re in good shape.

Great. Thanks. I appreciate the color.

Thank you. And our final question today is a follow-up from the line of Joe Mondillo from Sidoti and Company. Your question please.

Hi, everyone. Thanks for taking a follow-up. I’m just first off curious on the synergies with the CMW. I know it’s still early in this acquisition, but any change of sort of thoughts on how much and the timing of how that plays out over the next three years?

Yes. I would say as Renee mentioned, we’re 45 days in, but we are on track with the run rate – achieving the run rate for the $30 million that we talked about and we feel very positive about the opportunities of that we see and perhaps to go beyond that at some point here, especially as we look at the overall enterprise, not just specifically the intersection of our two companies. So, we feel very positive about the work that the team has done so far with the assistance. So, we’ve had from the outside that’s really helped us start to execute very rapidly and that we feel good about our commitments, and we believe as you look across the whole company that there are opportunities to do more as a company.

Okay. And then, Renee, I thought – correct me if I’m wrong, I thought you had said that the full-year tax rate would be 20.5%. If that's correct, I think that assumes 26% in the back half of the year?

Yes. Often, you know, our tax rate can move around from quarter-to-quarter. We’re trying to give you the best total year tax rate, but part of it depends on off of discrete items as well. So, that may be the case. If you look historically, our Q4 tax rate can also – in particular, it’s the one that we see the most change as we close out the year, smaller quarter…

Okay.

Smaller items have a bigger change on the tax rate, they are discrete items.

Okay. I think we were thinking sort of low 20s for the year initially. Obviously, with the acquisition everything is changing things up, but could you just tell me would CMW sort of weight the average rate up or down relative to past expectations?

Yes. We did revise our total year tax rate to be slightly favorable from what we had told you before, that includes the addition of CMW. So, looking at their footprint and their – you know where they're earning their taxable income, as well as there's been some additional guidance that has been given after tax reform, in particular, for some of the international areas. So, both of those are impacting and improving our tax rate from a total year standpoint.

Okay. And then, just lastly on the debt, could you just walk me through what that debt is made up of now and at what rates?

Yes. We – so we had published at – when we signed our credit agreements information related to that. We had two term loans that we had for $200 million and $300 million each, both three and five-year term loans and they were at a LIBOR plus type of rate, and then, we entered into a private placement for $200 million. Its split into two tranches, a $100 million, that is 10-year and a $100 million, that’s a 12-year, and those are on fixed-rate basis. The specific interest rates are detailed out in our filings that we had, but we felt really good about the ability to secure both of the fixed rate, as well as the term loans at very attractive rates. I had also mentioned that one of our priorities has been then to try to pay down that debt. Although we’re still within our targeted debt-to-EBITDA range of 1 to 2, we were in the higher end, and because of the good cash flow that we had and the focus on that versus share repurchases, we had paid down about $200 million to-date, and we do think that Charles Machine Works will contribute to our cash flow for the year. So, we’ll continue to reprice or to prioritize that repayment in the short-term, but continue to look for growth opportunities as well.

Okay, great. Thanks for taking my follow-up questions, good luck and talk to you soon.

Thank you.

Thank you.

Thank you. This does conclude the question and answer session of today’s program. I would like to hand the program back to Heather Hille for any further remarks.

Thank you for your questions and interest in Toro. We will talk with you again in August to discuss our third quarter results. Thank you and have a good day.

Thank you, ladies and gentlemen for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.