Titan Machinery Inc (TITN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for holding and welcome to the Titan Machinery Second Quarter Fiscal 2009 Results Conference Call on 15th of September 2008. Throughout today's recorded presentation, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

I will now hand the conference over to Mr. John Mills of Integrated Corporate Relations. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to Titan Machinery's second quarter conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer, and Peter Christianson, President and Chief Financial Officer.

By now, everyone should have accessed the second quarter earnings release for the period ending July 31, 2008, which went out this morning at approximately 6:00 a.m. Eastern Time. If you have not received the release, it is available on the investor relations portion of Titan's website at titanmachinery.com. This call is being webcast, and a replay will be available on the Company's website as well.

Before we begin, we'd 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 statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the risk factor section of Titan's most recently filed 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 statement.

Titan assumes no obligation to update any forward-looking projections that may be made in today's release or conference call. And with that, I'd like to turn the call over to the Company's Chairman and Chief Executive Officer, Mr. David Meyer. Go ahead, David.

Thank you, John. Good morning, everyone, and welcome to our second quarter call. On today's call, I will provide some highlights of our second quarter and year-end date results, a general update on our business, and discuss some of our recent acquisitions.

Then, Peter will review the financial results for the second quarter and first six months in more detail and discuss our full year guidance. I will then provide some closing remarks, and we will open up the call to take questions.

I am pleased to report a strong second quarter and first half of fiscal 2009 for Titan Machinery. Revenue for our second quarter increased to $135 million, up 57% from $86 million in the second quarter of last year. Our gross profit for the quarter was up 66% to $25 million compared to gross profit of $15 million in the comparable period last year.

Our gross margins in this quarter were 18.8%, up from 17.9% in the second quarter of fiscal 2008. Our pretax income for the quarter was $5.6 million compared to $2.4 million last year. This equates to a 130 basis point improvement in our pretax margins to 4.2% from 2.9% last year.

Now looking at our first six month results, as we have said in previous calls, we evaluate our business on an annual as opposed to a quarterly basis. This is because our business is based on our customers' annual production cycles. Revenue can shift from one quarter to another based on when our customers are buying equipment or requiring services related to weather patterns.

Even though we experienced a strong first and second quarter, having been in this business for over 25 years and understanding the potential of quarterly changes, we believe a six months number provides you a better insight into our overall performance and quarterly results.

Revenue for the first half of fiscal 2009 increased 74% to $287 million, up from $166 million in the same period last year. Gross profit increased to $50 million from gross profit of $28 million in the first half of fiscal 2008. This represents gross margins of 17.4% versus gross margins of 17% in the first half of last year.

And, our pretax income increased over 200% to $11.3 million from $3.7 million in the first half of last year. This is a 170 basis point improvement in pretax margins, 3.9% this year versus 2.2% in the first half of last year. Our financial performance in the first half of the year underscores our solid business fundamentals as we experience improvements in both our volume of business as well as our gross margins -- gross and pretax margins.

I'd like to highlight that we are continuing to grow our parts and service business, which represented 50% of our gross profit for the first six months of this year. This is extremely important part of our business model as parts and services represent a recurring revenue stream for us, providing stability for our business.

If the ag economy was not as robust, our customers will continue to come to us for supporting parts and services. We are able to leverage our skill to ensure that we always have the leading technicians and superior selection of parts at the right dealership at the right time.

As such, our long-term earnings potential is not solely predicated on external factors such as commodity prices. While our business, especially our top line, is certainly benefiting from the robust agricultural economy, and we anticipate this trend to continue for a number of years, our long-term market share gains and geographic expansion opportunities are based on our ability to execute on our business model, not on commodity prices.

As we have said in the past, we see an excellent acquisition pipeline. We continue to have a very strong relationship with CNH as our growth model fits perfectly with their stated goal to have a solid dealership network that has the ability to represent the CNH brands and sell our products in any economy.

In the second quarter of fiscal 2009, we closed on two acquisitions consisting of seven stores with historical revenues of $63.1 million. To date in the third quarter, we have announced one acquisition and we entered into a definitive purchase agreement for another acquisition.

Let me briefly review these acquisitions. In the second quarter we acquired Quad County Implement, a farm dealership in Blairstown, Iowa. This dealership is strategically located in contiguous markets to two of our existing stores in Iowa and near some of the most productive farmland in the state of Iowa.

Also in the second quarter, we also closed on the acquisition of Mid-Land Equipment Company, which consists of six Case Construction Equipment dealerships, four in Iowa and two in Nebraska. These dealerships are contiguous to existing Case Construction stores of South Dakota and strategically overlay our nine agricultural stores in Iowa and marked our entrance into Nebraska, our fifth state we now operate in. This acquisition meaningfully increases our presence in the construction market and further strengthens the Titan Machinery brand.

While looking at our acquisition activity to date in the third quarter, on September 12 we closed on the acquisition of Wolf's Farm Equipment, a farm equipment dealership representing the New Holland brand in Kintyre, North Dakota. This dealership is strategically located between our Jamestown, Wishek, and Mandan, North Dakota stores, and has an excellent reputation for top-notch parts and service support for new lawn tractors and hay equipment.

Additionally, we announced that we entered into a definitive purchase agreement to acquire the agricultural division of Pioneer Garage, which is a farm equipment dealership selling the Case IH and New Holland brands. We expect this acquisition to close this October.

Pioneer Garage has Case IH and New Holland dealerships in Pierre and Highmore, South Dakota and a New Holland dealership in Miller, South Dakota. The three locations are contiguous to our existing stores in Huron and Redfield, South Dakota.

We have a strong track record of integrating our newly acquired stores, retaining acquired store employees, and continuing acquired store customer relationships, all of which are critical components of the overall success of Titan Machinery's business model and are the reasons we are able to expand our market share for stores that we have acquired.

We are well positioned to continue to capitalize on this aspect of our business in addition to continuing to enjoy organic growth through same-store sales. With that, I would like to turn the call over to Peter to review our financial results of the quarter in more detail and provide an update to our full-year guidance.

Thanks, David. Our total revenue for the second quarter ended July 31, 2008, was $134.9 million. It was primarily made up of the following three sources. Revenue from equipment sales increased to $97.8 million from $61.4 million in the second quarter last year. Our parts sales increased to $23.6 million in the quarter compared to $14.9 million in the same period a year ago.

Revenue generated from our services business increased to $10.8 million versus $7.6 million last year. This gives us a sales mix of approximately 73% for equipment and 26% for the After-Sales Support Parts and Service portion of our business.

Our same-store sales increased 16% for the second quarter. As a reminder, when you look at same-store sales, we know that it's an important metric, but it's equally important to remember sales mix is a very important driver of profitability, as our Parts and Service business generally drives a higher margin than our equipment sales.

In the current ag economy, we expect same-store sales to be driven by a higher percentage of our revenue coming from big ticket equipment purchases. If the ag economy were not as strong, we'd see a greater percentage of our revenue stream coming from our higher margin after-sales parts and service business, which generates significantly higher margins. In short, based on our diversified revenue stream and business model, we believe a better measure of our business is the results of our pretax income.

Our gross profit for the quarter increased to $25.4 million with gross margins of 18.8% compared to a gross profit of $15.3 million and a gross margin of 17.9% a year ago. Our operating expenses as a percentage of net sales were 14.4% in the second quarter versus 13.3% in the second quarter of the prior year. The increase in operating expenses as a percent of revenue was primarily driven by Sarbanes-Oxley compliance costs as well as higher commission expenses.

We expect operating expenses as a percentage of revenue to decrease in the back half of fiscal 2009, primarily because we incorporate -- as we incorporate acquisitions into our operating model, we achieve higher operating efficiencies that our acquired companies previously achieved.

Our operating income was $6 million with an operating margin of 4.4% versus $3.9 million and an operating margin of 4.6% in the second quarter last year. Pretax income was $5.6 million, or 4.2% of revenue, compared to $2.4 million, or 2.9% of revenue, a 130 basis point improvement year-over-year.

Net income for the second quarter was $3.3 million compared to net income of $1.5 million in the second quarter of last year. After giving effect to the increase in our share count to 17.2 million from 7 million shares, our earnings per share was $0.19 per diluted share in the current quarter as compared to $0.22 per diluted share in the second quarter of last year.

Now, briefly discussing our year-to-date results. Revenue for the first six months of fiscal 2009 was $287 million compared to $166 million in the same period last year. Same-store sales for the first half of fiscal 2009 were up 26%. For modeling purposes, it's worth noting that 18 dealerships are not included in our same-store sales analysis for the first half of fiscal 2009.

We calculate same-store sales by including stores which were with Titan for the entire period which we're comparing to. So, only the stores which were part of Titan for the entire first six months of fiscal 2008 are the ones which are included in our same-store comparison.

Operating income for the first six months increased to $12.4 million, up from $6.7 million in the same period one year ago. Operating margins improved to 4.3% in the first half of fiscal 2009 from 4.1% in the first half of fiscal 2008. Operating expenses as a percent of net sales were 13.8% for the first six months compared to 13% in the first half of fiscal 2008.

Pretax income for the six months of fiscal 2009 was $11.3 million, or 3.9% of revenue, compared to $3.7 million, or 2.2% of revenue. Net income for the first six months of fiscal 2009 was $6.7 million, or $0.43 per diluted share, compared to net income of $2.2 million, or $0.34 per diluted share in the first half of last year.

On our balance sheet, our inventories totaled $183 million at the end of the second quarter compared to $146 million at the end of our last fiscal year. We're very pleased with our inventory and believe our inventory level has us well positioned to support our annual sales growth and revenue outlook.

At the end of the second quarter, we had no subordinated debt compared to $1.3 million of subordinated debt on January 31, 2008. We continue to have a strong balance sheet with a cash position of approximately $87 million to pursue further future acquisitions and fund working capital and general corporate purposes.

Now, turning to our outlook. As a reminder, our policy on guidance is that we give annual revenue and earning per share guidance on our fourth quarter call, and update, if necessary, in subsequent quarters. Based on this criteria, our better than anticipated performance in the first half of the year, and our increased visibility into the remainder of the year, for the full fiscal year of 2009 we're raising our revenue outlook to a range of $590 million to $635 million compared to our previously issued guidance range of $575 million to $625 million.

Now, turning to our earnings guidance. We're raising our net income expectation to a range of $15 million to $15.9 million from a range of $14.6 million to $15.5 million. We're raising our earnings per share guidance to $0.89 to $0.94 from a range of $0.86 to $0.91.

It's important to note that our weighted average diluted shares outstanding, used for calculating our earnings per diluted share for fiscal year ending January 31, 2009, is approximately 16.9 million shares. Now, I'd like to turn the call back to David for closing comments.

Thanks, Peter. We are pleased with our results for the second quarter and first six months of fiscal 2009, and believe it is a testament to our strong operating model and growth objectives. We are confident we can continue to have success with both organic growth and strategic acquisitions as well as improving margins. We will remain keenly focused on the opportunity ahead more diligently to achieve our full potential and maximize long-term shareholder value.

Before we take your questions, I'd like to conclude by thanking our employees for all their hard work and thank our valued customers for their continued support. Operator, we are now ready for the question-and-answer portion of the call.

Thank you, sir. (Operator Instructions). One moment, please, for the first question. And the first question comes from Rick Nelson. Please state your company name followed by your question.

Stephens Incorporated. Good morning, guys.

Morning.

Morning.

Can you talk about same-store growth by segment, give us some feel of -- it looks as if the mix did shift towards service and parts in the quarter, and also how price increases in equipment, to what extent that was reflected in the second quarter results and how much of that we'll see going forward?

Thank you for the question. This is Peter. First, I'd like to clarify myself. I understand that I made a mistake when I was talking about our first six months operations. I had indicated that our operating expenses as a percent of net sales were 13.8%. They were not. They were 13.1% for the first six months of this year compared to 13% in the first half of 2008. I'm sorry for the error and just wanted to clear that up.

Talking about our same-store sales and the -- basically the sales mix, that's why we like to give our guidance on an annual basis because of these production cycles. And really what we saw was the first quarter being more robust on our sales than actually the mix. Our parts and service after-sales product support remains very steady throughout the year.

And so as you see the sales revenue number, our top line revenue between our second quarter and our first quarter, the second quarter being a little less sales, the equipment sales are really what shows the spike. And that will be reflected in that sales mix.

So, that, again, going back to when I originally made a comment on same-store sales, that's why it's so important for us as we talk about same-store sales to remember the sales mix. As far as the price on product coming through and the effect of that, Dave?

What we're seeing on that is most of the product we delivered in the second quarter was -- there was some price protection involved. A lot of it was pre-sold equipment and locked in pre-surcharge. And what we're seeing is any price increases right now are basically a pass-through.

And as far as from a lot of the growers' standpoint, at least on the ag side, that the price increases they're seeing in the equipment side are far less than what they're seeing in fertilizer, fuel, land prices, cash rent, things like that. So, like I say, it's fairly reasonable pass-through type increases which have had very little effect on our bottom line.

Is there any way to quantify how the Economic Stimulus Act of '08 is affecting sales, and as this goes away at year-end, how do you sort of look at 2009?

Well, you're continually seeing this from year to year, different factors that will have an effect one way or the other on the economy. So I think what you're going to see is a lot of people taking advantage of the Economic Stimulus Bill.

I'd say some of the sharper individuals who were aware of it earlier part of the year and have done some of their buying earlier. But I think we're going to see a lot of activity involved with that when people start looking at their taxes and you start getting into October, November, and December.

And -- but what this actually does is there's going to be, I feel, a lot of grain that's going to get ford. It's going to get sold in the 2009 calendar year. And from a depreciation standpoint, these growers are going to continue to need depreciation year after year, even though they used a lot of it up this year.

And what's really going to -- is you see these increased expenses that they're going to be seeing right now with the fuel, you're seeing it with fertilizer, you're seeing it with the chemical and things like that that they're going to really need going ahead is the products that we have that's going to increase their productivity. It's going to increase their yields and it's going to help them better manage their expenses.

And that's what's really going to drive your equipment sales as you go into 2009, 2010. With or without the Economic Stimulus Bill, they're still going to need that ongoing depreciation. They're going to need to do the purchases year after year in order to get that, and just the fact that a lot of their machinery just plain wears out, so --

All right. Thank you for that. One final question, if I could, the SG&A widening in the quarter, I think you would attribute it to Sarb-Ox and higher commissions and you would begin to leverage on SG&A in the back half of the year. Can you explain that?

Well, one of the things that happened in the second quarter is that we are realizing stronger margins on our equipment. And our commission system is set up so that it's variable. The field marketers are paid a percentage of the margin. And so as we see this robust economy and are able to realize higher margins, that comes directly through into our operating expenses.

At our Sarbanes-Oxley, we're right now in the implementation stages for SOX 404, and we've had to put a huge initiative into doing that. We need to be compliant with that by the end of our fiscal year. So we are really throwing a lot of resources at that, and that was going on during our second quarter.

Got it, thank you.

Next question comes from Bob Evans. Please state your company name followed by your question.

Craig-Hallum Capital. Good morning, everyone. First, can you talk a little bit more about the inventory and how you feel about it? You were up sequentially, I think probably as expected, but you had jumped up a bit. Can you give us some perspective there?

Yes, there are two things that we look at on that. First of all, we do have some inventory growth, which is just a factor of us doing more acquisitions and operating over a larger revenue base. But importantly is that we look at our inventory and we look at that and we measure it by a metric of how many turns we have on our inventory. And we feel very comfortable that right now we've been running at a three time turn on our new and a three-an-a-half time turn on our used inventory.

Essentially what's happened is that our used inventory has stayed flat because we've been turning it better, and our new inventory we've been positioning ourselves for our third and fourth quarter coming up. And we see it -- we're very comfortable with our current inventory position.

Okay, and can you also, just a detail item, do you know how many dealers were in your comp base this quarter, dealerships, I should say?

Well, we excluded 18 dealerships.

Okay, excluded 18, all right.

That's in the year-over-year. So --

Right.

--we're basically talking 48 including two outlet stores.

Okay, all right. And --

There were 14 stores excluded for the quarterly calculation.

Okay.

There were 18 excluded for the first six months.

Okay, 14 for the quarterly, okay. That's what I was wondering, okay.

Just to clarify it, the reason that there are 18 for the first six months versus 14 for the quarter is that in order to be in our second six months, the stores had to be with Titan for the entire first half of 2008. And so we've taken on four stores that we took on part way through the first quarter. So, they were only with us for the entire second quarter, and that's why the numbers are different between the first half of the year and our quarterly number.

Okay, and as you look at the -- can you give us a ballpark idea of the kind of average blended price increases that you're seeing for the kind of equipment categories that you primarily sell?

Well, you're -- on an average blended, that's kind of a tough way to -- you're seeing price increases ranging somewhere between the 5% and 10% range on your bigger ticket tractor and combine type items. And that would be more of a going ahead number than it was probably a going back number. I think you're going to see -- most of that we're going to see in the third and fourth quarter than what we saw in the first and second quarter.

Okay, and when you look at the demand environment now as you see it versus last -- the call last quarter, would you say it's about the same, has it changed positively, negatively? Can you give us some perspective just on terms of how you view things now versus a quarter ago?

Well, I think it's stronger because I think the quarter before, as everyone is aware of, it was an awful wet, and late, and cold spring, so everything was two to three weeks behind. So, a lot of the time during that first quarter, there was that real unknown of, first of all, if they were going to get a crop, and then, second, at what time the freeze is going to happen.

And we've been real fortunate that, even though the crops are two to three weeks behind, as they're sitting right now as of September 15, we have not seen a killing frost in basically our whole market that we've got our footprint into right now.

And I know as I look at the next -- I looked at the forecast this morning. The next five days there are above-average temperatures. You're looking at 75 to 80 degrees, and the lows in the evenings are in that 40 degree to 50 degree range. So, it looks like we've bypassed that whole frost thing. I'd say that looms really heavily in a lot of the growers' mind if the crop is going to mature, and it looks like we're going to make it there.

So, I think you're going to see a lot more optimism on the bushels and the crops are actually going to get in the bin. And then you compound that with the fact that I believe that the market price they're actually going to receive for their crop in this growing season is going to be substantially higher than it was a year ago. So, the combination of good crops and the fact of high prices.

And just to go a step further, like just take the wheat crop in our markets. We had the absolute best wheat crop that I've ever seen. I've been in business up in this country for over 30 years now, and a lot of growers are saying 70 to 75, 80 bushels hard spring wheat yields and weighing up 64 to 66 pounds. And that's almost unheard of. So, you take all the combination of things and I think it's a little more positive now than it was in the first quarter going ahead.

Okay, thank you. And last question, kind of similar question on the acquisition pipeline, now versus a quarter ago, strengthened, weakened? What type of -- are you seeing more opportunities? And also from a pricing standpoint, you made a couple acquisitions lately. Have things changed from what you need to pay, given kind of the success that you've had?

To answer your second part of the question, as far as pricing, it's been basically relatively flat and it's consistent to what we've done in the last two to three years on the pricing side of it. As far as the demand on the acquisitions, I've seen no slow-down in the context that I'm receiving from dealerships that are interested in Titan Machinery as far as acquisition or merger type situations.

So, the demographics are continually looking at a fragmented dealer group out there. You're looking at a lot in age or the type of retirement thing, lack of succession. So, you're looking at all the factors involved in there that still looks like it's a huge growth story. There are a lot of acquisitions, not only short-term, but long-term, out in front of us right now.

Okay, thank you.

The next question comes from [Scott Mackey]. Please state your company name followed by your question.

Can you hear me?

Yes.

Okay, [Ad]. And congratulations on a great quarter. Hey, I apologize, I know you just said this, but I missed it. What did you say the same-store sales number for the second quarter was?

16%.

Great, and then I appreciate the commentary. The -- on the range of price increases that you're seeing coming through in that 5% to 10% on large tractors, especially with the acquisition of Mid-Land, can you talk just a little bit or give us an idea of your underlying equipment sales mix, kind of that large tractor and combine, relative to maybe the smaller under 100 horsepower tractors and construction equipment?

Yes, that's a good question. We really look at our business, it's most important for us to look at our business and compare our total equipment sales, whether they're large or small. We look at that as one bucket, the equipment sales, and then we compare that to our after-sales product support.

And because of the fact that that after-sales product support is such a higher margin business and it gives stability into our overall business model, we see our mix between large and small equipment as really not having any material change and looking very much like what -- it's running the same type of trends as what we've seen historically where we do have light industrial on the construction side with a real strong market presence with skid steers, and loader backhoes, and wheel loaders.

And likewise on the agricultural side of the business, we have a full line all the way down to the 20 to 30 horsepower range with utility tractors and 80 to 100 horsepower and all the way up the line. So, we don't see any significant change in that mix from what we've been experiencing over the last 12 to 24 months.

What is that mix, just in general terms, on a dollar weighted basis?

We really haven't broken that out, and I wouldn't feel comfortable with breaking it out now. Really, like I say, the margin levels that we see on equipment really run across all lines. So that for us, it really brings better clarity for us to look at our business and look at the entire amount of what we call whole goods or unit sales versus what our after-sales product support is.

So, the margins on the construction equipment are similar to those on the large tractors?

Similar range, yes.

And then the gross margin number on the equipment sales is outstanding. Is there a difference between the gross margin you realize on the used equipment versus the new?

There can be, but without getting into too much detail, what I can tell you is that about 80% to 90% of the time when we do a transaction, whether it's on the agricultural or the construction side, it involves what we call a trade-in piece of machinery, which is where one of the services that we're providing for our end user is that we're getting them their residual value out of their piece of equipment that they're operating. And of course that's one of the values that we can bring with a larger footprint and more outlets as we maximize that residual value.

Relative to our margins, usually what ends up happening is we have a standardized split between our new and our used, and what we're experiencing right now is with this strong economy on the agricultural side, we're -- because of the way that we compensate our field marketers, we're actually able to realize a little stronger -- a very healthy margin on our used equipment.

And then just two more questions, if I may. The first, just in terms of the revenue outlook, that $590 million to $635 million, I think you may have mentioned this earlier, what dollar figure is attributable to acquisitions made this year?

We look at our long-term outlook and we feel much better about that, given the fact that we're halfway through our year and we've been experiencing a good first half of the year. And that outlook, what we've done is we've given outlook based on our total revenue and on our earnings per share basis and haven't split out the amount of that that's tied to the acquisitions.

In the past, we've talked about -- I know that we've had question on same-store sales and how we model our business and have traditionally modeled our business on 5% same-store sales. We're looking at closer to 10% same-store sales for the second half of the year, and that's built into that outlook that I gave where we raised our revenue outlook.

Great, thank you, that's helpful. And finally, I guess, just kind of sitting back and thinking bigger picture and watching, I understand that ag commodities are certainly different than some of the other commodities that are out there.

But when we talk about executing the business plan, I'm just curious, in a less advantageous commodity price environment, just to help us learn more about the business, how the execution changes or the business model changes, what things you look to do. And is the ag economy or the underlying fundamentals changed? Just how the managerial focus changes or what things you look to do or how the business is run differently if the underlying environment changes.

Well, first of all, we've always prided ourselves that we're really a strong after-sales support company with the parts and service business, and we have some very strong parts and service departments. And like I say, this is over 50% of our margin dollars today.

Well, as you see this mix starting and that gets to be a larger percent of our business that becomes Parts and Service, then you see our overall gross margins actually increase if you're seeing less large equipment on the Whole Goods side of our business. So, from that aspect it's good.

I think one thing -- well, first of all, I would say I think that we've seen a dynamic shift to our demand shift right now. Long-term, in these commodity prices, I don't see any short-term letdown of that. But if that would happen, I think the first thing is we're really good at managing our inventory. We've got a lot of checks and balances.

I think the main thing is you don't want to pay a lot of interest on that equipment. You want to maintain your turn levels. And like I say, the way we've got our sales compensation factors drawn up, a lot of internal checks and balances system, we will feel real comfortable that we're going to be able to maintain these margin levels going ahead, and that brings opportunities.

I mean, if you see a little bit tighter economy, all of a sudden these growers are looking for better ways that they can improve their bottom line. They need to manage their expenses better, and if they increase their productivity, they have to increase their yields. And they really need to come through us to do these things.

So, and the fact is then you've got these certain cycles going on. And you take our capital position -- our strength and our capital position, in a little bit more of a down cycle, it creates a lot of opportunities. So, I don't think that's coming ahead of us in the near future, but if it does, I think we're in a really good position to take advantage of that.

Guys, I appreciate your time as always, and, again, congratulations on a great quarter.

All right, thanks.

Thanks.

(Operator Instructions). Next questions come from Matt McConnell. Please state your company name followed by your question.

Robert W. Baird & Co. Could you compare construction sales growth to ag equipment growth in the quarter or maybe in the first half of this year versus the first half of last year?

We talk about our overall equipment sales. Again, what we do is we look at our business where we have all of our equipment sales in essentially one bucket, and we then look at that relative to what our after-sales product support is.

With the acquisition of the Mid-Land group of dealerships, we're going to be experiencing a greater share of our business going to the construction industry. And we've given in the past -- basically, our direction on that is that our prior revenue mix between ag and CE was about 12% construction and 88% agricultural. And looking forward with the additional purchase of the Mid-Land group, we see that probably going more towards 20% of our overall sales mix being construction versus agricultural.

One of the things that's good about the CE business versus the ag business is that there are so many synergies between the two. And, first of all, when we talk about all of our metrics as far as our sales mix relative to our after-sales product support, that's really goes hand in hand, whether it's the ag business or the CE business.

And additionally, we see a lot of synergies between the construction business and the ag business where we're getting these stores that are overlaying our existing ag footprint and looking at putting some additional sales through our investment in our ag stores in these regional centers.

A classic example would be Aberdeen, South Dakota, which didn't have a standalone CE store, but yet we could actually supplement what we're doing out of the ag outlet and drive higher revenue out of that investment. And we see that as a good synergy.

Okay, and does your revised forecast include the Pioneer and Wolf's Farm acquisitions to clarification there?

Yes, we have a component of our outlook which we do have built into it for acquisitions that we are trying to execute on an acquisition growth strategy right along.

Okay, could you give us any idea of Pioneer's profitability and the price paid for that. The Wolf's price was in the Q, but I'm not sure if we know what the Pioneer acquisition was for.

Once we get the Pioneer acquisition closed. Right now we're entered into a definitive purchase agreement. Once we get that closed, then, we'll report that back to you in our quarterly filings.

But one thing that's really important to think about when you look at Titan and their acquisitions is that when we do an acquisition and we disclose to you what their historical revenues are, and really the way that we run our business model is that we come in there on these acquisitions and we integrate them into the Titan operating model. And their balance sheet, regardless of what the balance sheet looks like on the day of closing, that balance sheet, we get that moved around.

Because essentially what we're doing is we're buying assets with a very little bit of goodwill. And so we're in a position that very quickly we can realign that balance sheet so that it basically resembles what our standard operating model is on the Titan operating model.

On the income statement side, we immediately put all of the staff on the Titan compensation programs. And we really drive our income statement results into the Titan operating model rather quickly too. So, I think if you go back to your model and you look at our historical revenue that we report back, that I think you can go back then and you can build the balance sheet that will look like what Titan looks like, and you can build all of your operating metrics and be pretty close with your model.

Okay, thanks for that. And there was a question about the Economic Stimulus Bill earlier. Is there a certain deadline that farmers need to purchase equipment by to claim the accelerated depreciation for the 2008 tax year? Is it before the end of the year or is it just December 31st?

It's December 31st, and they actually need to take possession and have a serial number, and the machine has to be built and made and in their possession by December. They actually need to check with their individual tax guy to make sure on that, but that's how I understand it.

Okay, and then is there any CNH-driven marketing program for that or anything else that's similar to the program that was -- that you had in the third quarter of '08 last year?

Well, CNH has been real good in there from their marketing, but really try to make customer awareness as the Economic Stimulus Bill is out there and these are available to them to support that. So, other than that, I think we're looking for fairly consistent programming from CNH from -- as we've seen historically from them, some consistency throughout the year because there's still competition out there with John Deere and they want to maintain their market share position.

And does Deere have any programs that you know of, kind of one-time promotional programs associated with this that you've --

Oh, I don't think -- I think the Economic Stimulus Bill is fact. Actually, the manufacturers could probably decrease their discounting of their programs because of this because there's such a strong demand out there right now and the pipeline is so short of equipment that I actually anticipate stronger pricing for the manufacturers offset because of the strong demand.

All right, great. Thanks very much.

We have got a follow-up question from Bob Evans. Please go ahead, sir.

Good morning, again. To follow up the construction versus ag sales mix, do you happen to have that sales mix for Q2? Or, if not, is it close to that 88% level?

We don't have it for Q2, but I think, Bob, if you look at when we closed on that transaction with Mid-Land, it's real traditional when we first close that it takes us a little time to get it spooled up to get all the sales and everything cranking through an acquisition, and that was towards -- I believe it was two months. So, you can kind of do the math on that.

Okay, okay, and then if we look at Q3 versus Q2 from a Parts and Service revenue standpoint, looking back the last couple of years, typically, at least in the Parts area, it looks like there's a sequential pickup, maybe a little bit in the Service, but particularly in the Parts. Is that something that we should expect to see again this year?

It's all part of our forecast that we use when we give you our outlook, and the third quarter is, of course, harvest time, and so we do see the third quarter being strong Parts and Service side because we have to provide that value by keeping our growers running.

And also I want to point out that it's a very strong Construction quarter where all the contractors are looking at getting -- we're in the upper Midwest, so they're all working at getting jobs completed before freeze up. So, the third quarter's when we're on our -- we have to be on our A game for after-sales product support.

Okay, okay, and is there much difference in construction versus ag from a gross margin standpoint?

Relative to?

Well, construction gross margin -- equipment gross margins versus ag equipment gross margins.

No, we haven't seen a material differential between the two of them. And that's why I say there are so many synergies between the ag business and the construction equipment business. Of course, they have a little different customer base, but what Titan does for value for those customers is virtually the same.

Okay, so that the construction gross margins are kind of running in that -- free equipment are running in that 10%, 11% range?

You can look -- you'll see it on our statements as what our average is coming at, yes.

Okay, thank you.

There appear to be no questions anymore. Mr. David Meyer, please go ahead with any points you wish to raise.

Well, we want to thank everybody for being on the call, and any time if there are any questions, we're really good about trying to get back to everybody. If anybody wants to come visit some of our stores and see us, we're sure open to that.

We are going to be out to the -- presenting at the Thomas Weisel conference next Monday in New York. We'll be there for anybody that's convenient for. So, with that, again, we want to thank everybody, and we're excited about the business.

This concludes the Titan Machinery second quarter fiscal 2009 results conference call. Thank you for participating. You may now disconnect your line.