Titan Machinery Inc (TITN) 2009 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, thank you for standing by. Welcome to the Titan Machinery Inc. Third Quarter 2009 Financial Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Monday, December 15th, 2008.

I would now like to turn the conference over to John Mills, Senior Managing Director of ICR. Please go ahead, sir.

Great. Thank you. Good afternoon, ladies and gentlemen, and welcome to Titan Machinery's Third 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 access to the third quarter earnings release for the period ending October 31, 2008, which went out this afternoon at approximately 4 p.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.

In addition, we're providing a slide presentation to accompany today's prepared remarks. We suggest you access the presentation now, by going to Titan's website, and click on the Investor Relations tab, and the presentation is directly below the webcast information in the middle of the page.

Before we will 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 risk and uncertainties, including those identified in the Risk Factors section of Titan's most recently filed 10-Q and 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. 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.

Thanks, John. Good afternoon, everyone, and welcome to our third quarter call. In today's call, I will provide some highlights of our third quarter and year-end results, discuss our recent acquisitions, and longer term unit growth opportunities, and then provide a general overview of the environment in which we are operating.

Peter will review the financial results for the third quarter and the first nine months of fiscal 2009 in more detail, and update our full-year guidance. I will then provide some brief closing remarks, and we'll open up the call to take questions.

As John mentioned, to help you follow today's prepared remarks, we have provided a slide presentation, which you can access on the Investor Relations portion of our website at titanmachinery.com, and click on the Investor Relations tab on the right hand side of the page, and you will see the presentation directly below the webcast, in the middle of the page. I will pause for a few minutes to allow you to access the presentation on our website.

I am very pleased to report another strong quarter and first nine months of fiscal 2009 for Titan Machinery. Slide two gives an overview of our third quarter. Our revenue for our third quarter increased to $214 million, up 62% from the third quarter of last year. We saw growth in all three of our revenue streams, equipment, parts and service.

Our gross profit for the quarter grew to $37.3 million, up 83% from the third quarter of fiscal 2008. Both equipment margins and parts margins improved in the quarter. Pre-tax income for the quarter more than doubled compared to the last year, creating earnings per share of $0.45 this quarter, compared to $0.36 per share for the third quarter last year, a 25% increase to earnings per share.

It's important to note that the average diluted share count increased from 7.7 million for the third quarter last year, to 18 million in the current quarter, due to our initial public offering complete this time last year, and our follow-on offering earlier this year. Our strong financial performance for the quarter reflects strong demand due to the excellent regional economy, Titan's ability to capitalize on the market, and the added contributions of our new acquisitions.

Now, turning to slide three, reviewing our first nine months' results. As we have said in previous conference calls, we evaluate our business on an annual basis 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, and parts that are required in service related to weather patterns. This annual production cycle applies for both our agricultural and construction customers. Revenue for the first nine months of fiscal 2009 increased 68% to $501 million, up from $298 million in the same period last year.

Gross profit increased to $87 million from gross profit of $48 million in the first nine months of fiscal 2008. And our pre-tax income increased over 200%, to $25.2 million from $8.2 million in the comparable period last year. After the effect of our increased share count, our diluted earnings per share increased from $0.72 for the first nine months last year to $0.91 this year, a 26% increase.

Our financial performance in the first nine months of the year in revenue growth and increased margin underscores our solid business fundamentals, our execution of acquisition growth, the strong regional economy, and our ability to leverage best practices throughout our network of stores.

Turning to slide four -- we have been able to achieve these strong three-month and nine-month results because our business is, and will continue to be driven by two profitable growth factors -- organic growth, as well as a deep pipeline of acquisition opportunities.

Our organic growth represented 42% of our third quarter revenue increase, and 34% of our first nine month revenue increase. We continue to focus on organic growth by expanding existing locations, and incorporating acquired locations into our operating model. A key driver for our organic growth is increased market share. We do this based on our equipment expertise, our superior marketing and advertising programs, our ability to optimize parts and equipment offerings across the network of stores, and our best-in-class maintenance facilities and service availability.

Acquisition growth represented 58% of our third quarter revenue increase, and 66% of our first nine months' revenue increase. Our numerous quantity of acquisition opportunities is being driven by the right environment for major consolidation in our industry.

Besides our fragmented, aged dealer group, the support demands of today's sophisticated equipment, combined with the growing dealer capitalization requirements, are providing numerous acquisition opportunities. Both John Deere and Case IH are advocating consolidation. Titan's longstanding relationship with CNH, combined with our track record of successfully operating acquired dealerships puts us in an excellent position to capitalize on future acquisitions.

Turning to slide five shows our ability to execute on our acquisition growth strategy. The cumulative effect of this slide is 18 acquisitions in the last five years, consisting of 38 locations. There are high barriers to entry in this off-road, agricultural and construction equipment business. We have the capital and expertise to continue this trend into the foreseeable future.

On slide six, you can see the seven acquisitions consisting of $181 million in revenue that we have made since becoming a public company on December 6th of 2008, just a little over a year ago. Our newly acquired stores are performing very well, as we are continuing on a strong track record of retaining acquired store employees and customer relationships, while implementing our Titan operating model.

Slide seven demonstrates the size of our acquisition opportunity. Currently, we are projecting fiscal 2009 represents less than 20% of the market opportunity in the upper Midwest. This does not even include the opportunities in other regions in the United States. We are the largest CNH dealer, with 51 dealership locations, which represents less than 2% of the total CNH dealer base in North America. As important as the growth opportunities is the point that CNH continues to support us in their efforts to grow our business through strategic acquisitions.

In September, 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 Holland lawn tractors and hay equipment.

Additionally, in October, we closed on the acquisition of the agricultural division of Pioneer Garage, which is a farm equipment dealership selling the Case IH and New Holland brands. 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. These dealerships will further bolster our industry-leading position in the State of South Dakota.

Slide eight -- I would now like to discuss the ag economy in regards to our business. Farmers continue to have extremely strong balance sheets. As you can see from slide eight, both US farm debt and US farm debt-to-equity ratios are at historic lows. These leverage ratios in the 9% to 10% range put our customers in an excellent financial position to not only purchase new and used machinery, but also have multiple sources for financing and liquidity. CNH Capital, Farm Credit Services, local and regional banks in our markets are aggressively competing for the equipment financing of the farm sector.

Slide nine -- I would like to make a couple of comments on commodity prices. Even though we've had wild swings in commodity prices during this year of 2008, you can see from slide nine that our current level of corn prices are well within the range of a 20-year trend line. In addition, many of our grower customers took advantage of marketing opportunities available starting in late 2007, through much of 2008.

Farmers are also benefiting from lower input costs, resulting from declines of gas and fertilizer prices. Bottom line is that farmers are experiencing a record year of farm income. This combined with very strong balance sheets puts our growers in a position to invest in equipment, parts and service for many years to come.

Another positive worth commenting on is the current success of our construction equipment stores. The construction economy in the upper Midwest is defying national trends. In towns like Sioux Falls, Bismarck, Fargo and Rapid City, we are seeing strong construction activity, due to the influence of both agriculture and energy. The additional resources targeted at our infrastructure as proposed by President-Elect Obama will be a huge shot in the arm to the construction equipment business in the years ahead.

Before turning the call over to Peter to review our financial results in more detail, along with updating our guidance for the year, I want to restate our huge growth potential from organic and acquisition growth and that we are very optimistic for the long-term outlook for our farmer and contractor customers. Peter?

Thanks, David. Turning to slide 10, our total revenue for the third quarter ended October 31st, 2008 was $214 million. It was primarily made up of the following three sources. Revenue from equipment sales increased to $168 million, from $103.4 million in the third quarter last year.

Our parts sales increased to $29.8 million in the quarter, compared to $18.4 million in the same period a year ago. Revenue generated from our service business increased to $12.9 million versus $7.9 million last year. This gives us a sales mix of approximately 79% for equipment, and 20% for the after-sale support parts and service portion of our business.

On slide 11, you can see that our gross margin for the third quarter increased to $37.3 million, with gross margins of 17.5%, compared to a gross profit of $20.4 million, and a gross margin of 15.4% a year ago. Our gross margin increase was due to a number of factors, including higher sales of used equipment, and an increase in our parts margins. Reoccurring gross profit from parts and service were 46% of overall gross profit, reflecting the change in sales mix with the increased equipment sales.

Our operating expenses as a percentage of net sales were 10.8% in the third quarter versus 10.9% in the third quarter of the prior year. Our flat operating expenses as a percent of revenue were due to costs associated with being a public company, including additional accounting staff and Sarbanes-Oxley compliance costs. In addition, our incentives and commissions are a variable expense component, reflective of the strong financial performance we are experiencing.

Our operating income for the third quarter was $14.2 million, with an operating margin of 6.6%, versus $6 million and an operating margin of 4.5% in the third quarter last year. This improvement was due to growth in all three of our main revenue lines, and improvement in our gross profit margin.

Pre-tax income was $13.9 million, or 6.5% of revenue, compared to $4.5 million or 3.4% of revenue, a 310 basis point improvement year-over-year. Net income for the third quarter was $8.2 million, compared to net income of $2.7 million in the third quarter of last year. Our earnings per share was $0.45 per diluted share in the current quarter, as compared to $0.36 per diluted share in the third quarter of last year.

Now, turning to slide 12, to review our nine month year-to-date results. Revenue for the first nine months of fiscal 2009 was $501.4 million, compared to $297.8 million in the same period last year. Equipment sales were $386.7 million, compared to $225.8 million. Parts sales were $74.9 million, compared to $45.5 million. And service revenue increased to $32.6 million, compared to $20.9 million.

Turning to slide 13, gross profit for the first nine months of fiscal 2009 increased 80% to $87 million, and gross profit margin increased 110 basis points to 17.4%. As David mentioned, our reoccurring parts and service gross profit was 48% of overall gross profit for the first nine months of 2009.

Operating income for the first nine months increased to $26.6 million, up from $12.7 million in the same period one year ago. Operating margins improved to 5.3% in the first nine months of fiscal 2009 from 4.3% in the same period of fiscal 2008. Operating expenses, as a percent of net sales, were 12.1% for the first nine months, basically flat compared to operating expenses in the comparable period of fiscal 2008.

Pre-tax income for the nine months of fiscal 2009 was $25.2 million, or 5% of revenue, compared to $8.2 million, or 2.7% of revenue last year. Net income for the first nine months of fiscal 2009 was $14.9 million, or $0.91 per diluted share, compared to net income of $4.9 million, or $0.72 per diluted share in the first nine months of last year.

Turning to slide 14, our same-store sales for the first nine months of 2008 increased 25.3%. As a reminder, when you look at same-store sales, we know that's an important metric, but we believe it's more important to measure our business based on same-store gross profit, because sales mix is a very important driver of profitability, as our parts and service business drives a higher margin than our equipment sales.

We believe the best measure of our organic growth is by same-store gross profit. During the first nine months of 2008, our same-store gross profit improved 34.2%, to $58.2 million from $43.3 million. For the three months ending October 31, 2008, our same-store sales increased 26.1%. Same-store gross profit improved 43.4%, to $29.2 million from $20.4 million. Our historical same-store sales for the previous three years has averaged 11.5%, highlighting the robust markets we're experiencing this year.

While we expect our business to continue to benefit from the positive long-term economic climate for farmers, I do not want to overshadow the strength of our operating model. While leveraging best practices across all our existing stores, and newly acquired stores, we continue to improve our same-store pre-tax margins, and position ourselves for continued earnings growth.

For modeling purposes, it's worth noting that 16 dealerships are not included in our same-store analysis for the third quarter of fiscal 2009. And 22 dealerships are not included in our same-store analysis for the first nine months of 2009. We calculate same-store sales by including stores which were with Titan for the entire period which we are comparing to. So, only the stores which were part of Titan for the entire three months, and the first nine months of fiscal 2008, are the ones which are included in our same-store comparison.

On slide 15, we give an overview of our balance sheet highlights. We continue to have a strong balance sheet with a cash position of approximately $92 million to pursue future acquisitions and fund working capital and general corporate purposes. Our inventories totaled $235 million at the end of the third 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 third quarter, we had minimal long-term debt balance of $3.8 million. The Company has a $300 million wholesale floor plan credit facility with CNH Capital. As of October 31st, 2008, the Company had $150 million in available borrowing remaining under its floor plan lines of credit. In addition, the company has a $25 million operating line of credit with Bremer Bank.

For quarterly modeling purposes, it's worth noting that weather patterns impacted our third quarter revenue, particularly our equipment business. On our first quarter call, we discussed that weather delayed planting in spring. And as a result, harvesting was delayed in the fall. This gave farmers more time to buy new and used equipment, as well as new parts and service for their existing equipment, leading to higher revenue in the third quarter.

Also, as we have said in previous conference calls, we evaluate our business on an annual basis 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 and parts, or requiring services related to weather patterns.

On slide 16, we turn to our revenue 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 nine months 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 $635 million to $675 million, compared to our previously issued guidance range of $590 million to $635 million.

Now, turning to our earnings guidance -- we raised our net income expectation to a range of $18 million to $18.7 million, from a range of $15 million to $15.9 million. We're raising our earnings per share guidance to $1.07 to $1.11, from a range of $0.89 to $0.94. 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 31st, 2009, is approximately 16.8 million shares.

Now, I'd like to turn the call back to David for closing comments.

Thanks, Peter. We are very pleased with our year-to-date results, and the results we have achieved during our 28-year history. We believe that we are well-positioned to continue to grow our business through organic growth and strategic acquisitions. Before I open up the call to take questions, I want to conclude by thanking all of our employees for all their hard work, and our valued customers for their support.

Operator, we are now ready for the first question.

Thank you. We will now begin the question-and-answer session. (Operator Instructions).

Our first question comes from the line of Bob Evans with Craig-Hallum Capital. Please go ahead.

Good afternoon. Thanks for taking my questions, and congratulations on a great quarter. First, can you talk about the acquisition pipeline that you're currently seeing, and how it's maybe changed with the recent -- with the changes in the economy, and maybe a slower macro outlook? Can you give us a little color there?

Well, right now, this acquisition pipeline, Bob, has been really steady for a number of years now. I mean, I think the basic -- if you look at the demographics of the existing dealer out there, you're looking at a -- not only a fragmented dealer organization out here right now, but a very -- it's aged.

The sophistication of this machine, with all the GPS technology on some of these things is increasing. So, you're seeing some of the investment it's going to take in these dealerships to support that type of sophistication we have in today's equipment. And you're seeing a lack of succession. So, that hasn't really changed.

So, like we've talked about call after call here, we've got a huge pipeline out there in a number of them. You also, with default in the investment market that's out there right now, and -- we're working with some high-priced equipment. We're looking at $300,000 combines, $250,000 tractors. This is a highly capital intensive business. So, you take all those combinations, and it remains a full acquisition pipeline. I'm managing a number of potential sellers right now, and it stays on track, and it's definitely not diminishing any from where it has been.

Since we've had the last call, and there's certainly been changes in the economy since then, would you say that pipeline has -- or at least pricing and maybe willingness to sell has gotten better, worse or stayed about the same?

Well, I think things have stayed about the same. I think the people -- the reason these guys aren't really wanting to get out of business right now, it isn't really much because of the economy. It's just because when you're 65-years-old, when you're 68-year-old or you're 70-years-old, there's a lack of succession in your dealership. It's when your customers are looking for 7/24 support. They've -- we've got some very sophisticated equipment.

That really hasn't changed any, Bob. And to tell you the truth, we don't want it to accelerate much more than it is right now, because, boy, we're handling these things at a really high rate right now, and we're -- you've seen what we've done in the last nine months. And I don't know if we'd want them coming at us faster than that in the future.

And you've got to understand, too -- is we're buying these dealerships on their asset value. They're -- I think they're priced right. You're not seeing a large amount of goodwill in acquisitions. So, really, if it stays at the same pace, we're satisfied with that.

Okay, good. And also, can you comment on availability of financing for dealers? I get that question a lot. What are dealers saying, or what are the options for financing for their equipment?

If you're talking about dealers, it's kind of two things, dealers and customers. And, basically --

Well, I'm saying for the customers.

Okay. Right now, the manufacturers provide the floor plan financing. But as far as our customers are concerned, like we talked in our slide, you're looking at leverage covenant -- or leverage ratios of these guys at 9%-10% range. There aren't too many consumers out there that are in the financial position as our farmer customers right now.

So, in talking with our growers, especially our large growers, they've got no less than three to four lending institutions knocking on their door, wanting their financing business right now. They're sitting in excellent financial condition. They're in great shape. I think that the regional banks in our market here didn't participate in the subprime and some of these issues, and some of this derivative stuff that some of these other banks around the the nation did.

And I think they've got access to capital. They want these farmers' business. And I think they're aggressively going after it. You've got a very strong Farm Credit Services group in this agency, which is -- they've got some implicit guaranteed government bonds from where they're borrowing their funds from. And so, I think we've got a good source of financing.

And I'm seeing no slowdown. You've got Deere Credit, Case IH. There's CNH Capital -- is actively after that business. Plus, the local banks want to keep as much business as they can. So, between those three organizations, there's a real aggressiveness out there to get every financing dollar that's out there from these farmers right now.

Okay. And final question -- I just want to clarify on the same-store sales. I believe a year ago, you had a lease revenue of around -- I think it was $16 million or so. Is that -- in your same-store sales calculation, is that comparing against that lease revenue in there as well?

Bob, we included that $16 million when we did our comparison.

You did? Okay, so if you were to average that out, then -- I don't have the numbers in front of me, but it would, obviously, be considerably higher?

Yes, it would.

Okay. That's fair enough. Thank you.

Thank you. Our next question comes from the line of Rick Nelson with Stephens. Please go ahead.

Thank you and good afternoon. And my congratulations as well.

Good afternoon, Rick.

Rick, I bet it's a little warmer where you're calling from than it is in Fargo today?

It's chilly here, too. Question for you Dave -- for Peter -- related to the guidance. The implied fourth quarter guide would assume a slowdown from what you've seen in the third quarter and the year-to-date. I'm wondering if there's something you see in the business here in the current quarter, or is it just a desire to be conservative?

Well, Rick -- this is Peter -- and I talked about it in the call, where our customers are all on an annual production cycle. And the weather plays such a role in our business and in their business. And we had an extremely delayed fall harvest this year. And so, we saw them having more of a chance to make some of those equipment purchases. And, of course, they've got the economic stimulus that they're looking at, and the tax benefits of that. And so, they had more time to do that.

We saw the same thing in our parts and service business. And we are just modeling our business conservatively. We still look at it on an annual basis. And we think we're going to finish out the year with our guidance at $1.11. We feel pretty confident on that.

Very good. I want to also ask you about the gross margin improvement in equipment and the parts segments. What are the big drivers there?

The gross margin increases on the equipment sales primarily came on the used side of the business. And one of the drivers is definitely the current market that we're in. But I want to mention that we have our sales people all compensated with a variable commission. And basically, our compensation and our operating model is driving them to get the results where we're achieving a little better margins. And in the parts area, we've been leveraging across all of our stores, and doing a better job on our ordering.

Okay. Thank you. A question also about same-store growth -- I know in the last call, you had talked about a target of 10% for the second half. You put up substantially more growth than that in the third quarter. How do you think about the remaining quarter?

Well, Rick, that's why, earlier in the call, I mentioned that our three-year average was 11.5%. And we're very pleased with the strong same-store results that we've been achieving so far this year. It's very good results. We're still modeling that 10% number -- going for the rest of the year. Like I say, we still have to look at this thing on an annual basis. And we need to keep in mind that we had the delayed harvest, and see how the year goes from there, based on our guidance.

Very good. I realize you don't have 2009 or fiscal 2010 guidance out there yet. But how do you think about it in terms of same-store growth? Do you think you will be able to grow, given what's happened to the macro environment and commodity prices?

Yes, Rick. Right now, what we're concentrating on is finishing out our fiscal 2009 year. And what we'll do is we'll be studying on that a lot. And when we make our fourth quarter call, then we're going to give the outlook for fiscal year 2010, and give you some good information on that call.

Very good. Thanks a lot.

Thank you. Our next question comes from the line of Chris Weltzer with Robert W. Baird. Please go ahead.

Good afternoon, gentlemen.

Good afternoon, Chris.

Couple questions -- I guess we'll start with some pricing questions. First, judging from your gross margin in equipment this quarter, it looks like used equipment pricing is still positive. Is that still increasing on a year-over-year basis for you, or is used equipment pricing starting to level off at all?

It has been through the third quarter that we're reporting on here. We've seen strong demand in the marketplace. And the margins are reflecting that.

Got you. Okay. And what are you hearing from customers as far as their willingness to accept some of the 5% to 10% sort of price increases that have been put in place for -- coming into next year?

Well, if you look at all these farmer inputs, I think the machinery increases are probably the smallest of any of them out there right now. And what -- and also with some of these increases, you're seeing some technology increases. You're seeing some of this GPS equipment. You're seeing more fuel efficient engines. You're seeing some difference in tires. You're seeing larger capacity combines.

So, there's a lot of things that go with that right now. So -- and then, at the same time, we talked about this increase in values of used equipment, of what they're trading in is worth more money. So right now, I think, like I said before, of all the inputs out there we're seeing in the farm sector right now, the farm equipment is the lowest increase of all those inputs.

Okay, very good. Of the price increases we've seen over the last six months or so, were any of CNH's specifically steel surcharges? And is there any risk that those disappear as steel prices come down?

We had a steel surcharge that was put on earlier in the year right now. And then, I think some of that surcharge got incorporated into some of the 2009 pricing. And from my discussions with CNH, they're talking pretty optimistic about steel prices going ahead. We're seeing a decline right now. So, I continue to see -- CNH is very aggressive right now on their -- in the marketplace right now. I continue to see it to be as competitive as possible with their equipment pricing.

Okay. I think I get you there. And, then, have you heard of any changes in your floor planned financing terms on tap for next year, as far as the length of your interest free period, or the interest rate being charged?

We have not seen any changes right now into the scheduled terms of discounts you'd see is for the terms of the financing right now. When it comes into -- when you start talking about -- when you go outside of the standard floor plan window, when you go outside of that, I think you could see some possibilities. There could be some different rates charged.

But we've got some provisions in place that we've made proactively, here, a long time ago -- put some things into place that -- we're in great shape. And right now, we have no risk here through a good portion of 2009 right now, because of some things we did earlier to provide for -- in the event some things we just saw take place happen.

I'm sorry. I'm not quite following you here.

Well, what we did is we managed some of the risk by procuring some credit lines. And from some of the competitive nature of some of the things that -- I just don't want to disclose certain things yet. But basically, we're -- we've got the same floor planning rates that we had all through 2008, guaranteed to us well within -- through some various sources, through the third -- second quarter and third quarter of 2009.

Okay. That's --

And then, you've got your standard interest free floor plan period. When you have that within CNH, there is no change in that because there is no interest. So, there is -- it doesn't matter what the rate is, because you don't pay interest.

Right, but the length of the term hasn't changed to the interest free --?

The length of the term has not changed.

Got you. Okay. And, then, last question -- I'm just trying to get a sense for the stability of parts and service revenue through a -- equipment downturn, if you will. I mean, when you look back, I mean, we have industry sales data, and we can see what happened to equipment volume -- new equipment volumes, at least. What happens to parts and service revenue, typically, over the same time? Is it much more stable, I'd imagine?

Yes, it's -- the parts and service side of our business is probably the biggest differentiator between us and the manufacturers. And the thing of it is is that if equipment sales go down, all of the existing installed base still has to be used. The duty cycle is still the same. All the acres are still farmed. And so, if you would sell less new equipment, ultimately, it results in needing more parts and service repair. And so, it's much more stable than what the equipment is.

Okay. But still would likely decline modestly in a new equipment downturn, or would it stay flat or grow? Or what has it done historically? Excuse me.

It's remained pretty flat.

Okay. That's very helpful. Thanks, guys, great quarter.

Thank you. (Operator Instructions).

And our next question is a follow-up question from Bob Evans. Please go ahead.

Hello again. Can you give us the mix of new versus used equipment this quarter, in terms of new equipment -- in terms of equipment sales?

Bob, I don't know that we break that out in our 10-Q.

Pardon me?

I don't think we break that out in our 10-Q. We don't report that breakout.

Can you just give us a general idea? I'm just wondering how that's trended.

Well, I guess I would -- it's following historical trends.

And remind me what that is, Peter. I apologize, I don't have it in front of me.

Well, they -- we look at probably 60% on the new.

Okay. Okay. And, Dave, can you -- or Peter -- can you comment in terms of the grower attitudes in terms of how the market has changed in the last quarter or two in terms of commodity pricing and input costs? I mean, what's -- you're coming off of record incomes. You've had your commodity prices spike up, and then come down again, and -- as well as input costs. I mean, what are the general attitudes that you're hearing, kind of as we head into '09?

Well, if you've dealt with farmers very much over the year, I mean, even in good times, they kind of -- they don't really tell you they're good. I mean, they always can find negatives out there. So, this is kind of par for the course.

I think I've got to remind you that a lot of these guys took advantage of the high commodity prices as -- from late 2007 into a good share of 2008. And not only did they sell all their existing inventories that they had in their bins, or else they forward contracted this 2008 crop, or I know of some individuals even went out into 2009 or even 2010.

So, I think the -- you have good market result there. I think that they're pretty happy that, as late as the growing season is, we're seeing some good yields that came through this year. There were some real homeruns hit in the wheat crop this year, with 70 bushel -- 80 bushel of wheat. And a lot of this wheat got -- sold somewhere between that $10 and $20 mark.

So, there's been some real positives out there. And I think these farmers have all -- understand the cycles. They've lived through the cycles. I think this time of year, historically, right off the combine, you tend to see a little bit lower grain prices this time of year. And so, this is nothing new for our growers.

And their main concern is that they've got the best equipment, and they are able to maximize their yields, manage their expenses, and get the highest amount of productivity. And they're going to do it from the equipment side, what it takes, so that they're -- can get their crop in on a timely basis, and off on a timely basis.

And if you go around the country and watch people, in the last two weeks, combining their corn, out in this frozen field, and falling through the ice and the mud and the cold and it gives you a real sense of appreciation for late model, reliable equipment to get their crop in and off on a timely basis.

Okay. I couldn't agree more. Can you also comment on -- year-to-date, I believe you've got a 5%, or a little bit more than 5% operating margin, which is what we had held as maybe a target operating margin. When you get closer to $1 billion in sales, it looks like you might get there with a much lower revenue number. Is -- I guess, as you continue to grow and scale-up, should we continue to see operating margin expansion over time here?

Well, right now, we look at it two ways. One of them is us improving our operating margins through driving best practices through all of our stores. But the other one, no doubt, is that we are experiencing strong margins right now. And so, we'll monitor that as we go forward. But we feel like, as we scale the business, that we can continue to work on improving our margin based on leveraging those best practices throughout the stores.

Okay -- all right. Thank you.

Thank you. And there are no further questions at this time. I'd like to turn the conference back over to David Meyer.

Okay. Thank you, everyone, for being on our call today. Just as a reminder, we will be attending a number of conferences and marketing road shows throughout the upcoming months here. We hope to see you at some of these events. And both me and Peter, if you have any questions, we'd be happy to -- call our numbers in our website in there, and we'd be happy to help you with any questions you might have. So, again, thanks for being on the call today. Good-bye.

Thank you, ladies and gentlemen. This concludes the conference call. This conference will be available for replay today through December 29th at midnight. You may access the replay system at any time by dialing 303-590-3030, or 1-800-406-7325, and entering the access code of 3947934. Thank you for your participation. You may now disconnect.