Titan Machinery Inc (TITN) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by. Welcome to today's Titan Machinery Inc. fourth-quarter and fiscal year 2011 earnings conference call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. Hosting today's conference will be John Mills with ICR. As a reminder, today's conference is being recorded.

Now I would like to turn the call over to Mr. Mills. Please go ahead sir.

Great. Thank you. Good morning ladies and gentlemen. Welcome to Titan Machinery's fourth-quarter conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer, Peter Christianson, President and Chief Operating Officer, and Mark Kalvoda, Chief Financial Officer.

By now, everyone should have access to the earnings release for the fiscal fourth quarter ending January 31, 2011, which went out this morning at approximately 7 a.m. Eastern time. If you've not received the release, 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 are providing a slide presentation to accompany today's prepared remarks. We suggest you access the presentation now by going to Titan's website and clicking on the Investor Relations tab. The presentation is directly below the webcast information in the middle of the page.

Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. These 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-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 call.

Lastly, due to the number of participants on the conference call today, we ask that you keep your question period to one or two questions and then rejoin the queue. The call will last approximately 45 minutes.

David Meyer will provide highlights of the Company's fourth-quarter results, provide a general update on our business and review our acquisitions. Then Mark Kalvoda will review the financial results in more detail, and Peter Christianson will discuss our segment operating results and our fiscal 2012 annual revenue and earnings per share guidance, along with our outlook modeling assumptions. Then we will open up the call to take your questions.

With that, I'll turn the call over to the Company's Chairman and CEO, Mr. David Meyer. Go ahead David.

Thank you John. Good morning everyone. Welcome to our fourth-quarter fiscal 2011 conference call.

As John mentioned, to help you follow today's prepared remarks, we've provided a slide presentation which you can access on the Investor Relations portion of our website at TitanMachinery.com. If you clicked on the Investor Relations tab on the right side of the page, you'll see the presentation directly below the webcast in the middle of the page.

On Slide 2, you will see our fiscal fourth-quarter 2011 results as well as full-year results. Our revenue for the fourth quarter was $361.1 million. Our pretax income was $17.2 million, and we earned $0.50 per diluted share.

Looking at our results for the full year, we exceeded the $1 billion revenue milestone, a target we set during our IPO in 2007. Our pretax income was $37.2 million, and we earned $1.23 per diluted share.

We are pleased with our fourth-quarter and full-year results in fiscal 2011 which exceeded our previous annual revenue and EPS guidance due to a number of factors, including stronger revenues than expected in both our Agriculture and Ag Construction segments and our ability to achieve operating leverage across higher revenues. We achieved our Construction segment goal of delivering annual same-store sales growth of 25% and reduced our pretax loss by half compared to the prior fiscal year.

As we begin fiscal 2012, we are confident that we can build off this positive momentum and continue to deliver strong top and bottom-line results. Fiscal 2012 organic growth will be fueled by the excellent ag environment in our footprint due to the current high level of commodity prices and projected increase in farm cash receipts, along with the anticipated rebound in the construction equipment business, combined with additional strength coming from our [seed] markets with energy resources.

We continue to have a strong pipeline of acquisition opportunities that will continue our growth.

Now, I would like to provide some color on each of our two (inaudible) that are key to our business. On Slide 3, we outline an overview of our agricultural industry, which has many favorable factors that should continue the momentum from the end of last year into our current-year production cycle. The favorable weather last fall allowed our customers extended time for tillage, land improvements, and fertilizer applications, positioning their fields favorably for spring planting. While drought and excess moisture conditions exist in some areas of North America, moisture conditions in our footprint remain favorable for the current crop year.

The strength in the ag industry is across all sectors, livestock, row crop, small grains; all sectors are positive. Production costs are trending higher but not as quickly as product prices and profitability forecasts still look strong. Many costs like cash rents lag, and there is an opportunity for a multi-year run of higher farm profits.

Interest rates remain low as well.

The USDA estimates 2011 net prime income to increase approximately 20%. The 2011 forecast is the second highest inflation-adjusted value for net farm income recorded in the last 35 years. There has been much publicity in [whole] projected global (inaudible) grain stocks and resulting high commodity prices. This long trading window has allowed many of our customers to lock in favorable pricing not only for this year but also [through] two years production.

Turning to our equipment, I am proud to announce initial test results show much improved fuel efficiencies with C&H's Tier 4 technology resulting in continued customer command. Similar to what we experienced with the Tier 4 tractor product launch, we look forward to the launch of combined Tier 4 technology with model year 2012 production. [The] $500,000 Section 179 and the 100% bonus depreciation tax incentives available to our Ag and Construction customers in calendar year 2011 could drive additional sales of this calendar year. In summary, we are excited to be participating in a very robust agriculture economy and are well positioned to capitalize on the opportunities.

Now turning to the Construction segment of the business, on Slide 4 we have outlined an overview on the construction industry in our market. Key indicators highlight the improvement in the construction equipment industry. Used equipment auction values have been increasing over the last 12 months and are a strong indicator of strengthening demand and a firming of the overall market.

We are also seeing increased demand for rental equipment reflecting increased construction activity. Manufacturers are increasing production levels in line with sector improvement.

In addition, it is important to keep in mind a few other factors that influence the construction industry in our markets, including the lower unemployment rate in the Upper Midwest relative to the national average and a relatively stable housing market and commercial activity. We also benefit from the fact that North Dakota is currently enjoying a budget surplus, driving infrastructure investment.

The construction industry continues to benefit from the robust agricultural economy in the region. Farmers and ranchers are an excellent source for new and used construction equipment such as skid steer loaders, loader backhoes, wheel loaders, excavators, forklifts and dozers.

As we've discussed on previous calls, our business is also benefiting from the increased oil industry. As many of you are aware, our stores are capitalized on the Bakken, Three Forks and Tyler oil formations, which are all within our CE footprint in the Dakotas and Montana. North Dakota is now the fourth-largest oil-producing state behind Texas, California and Alaska.

In addition, there is increased activity in the Niobrara formation, which is in Wyoming, potentially creating additional business opportunities. This has a multiple effect on our economy as it increases the need for additional infrastructure, expansion of new housing, as well as other support industries. With the recent increase in oil prices, we believe our Construction segment will continue to benefit from a strong energy sector.

In addition to these market factors I just discussed, our Construction business is now better positioned due to the successful execution on our Construction business plan in fiscal 2011. Last year, we outlined a plan to reduce our prior-year loss by 50%. We achieved this result and are confident we will maintain this trend and reach breakeven in fiscal 2012.

Regarding acquisitions, on Slide 5, we highlight our acquisitions made in fiscal 2011 as well as the ones we made thus far in fiscal 2012. As you can see, our recent activity at the end of calendar year 2010 and beginning of 2011 accentuates our successful execution of long-term acquisition growth strategy. In fiscal 2011, we completed two acquisitions, Hubbard Implement and Fairbanks International, consisting of seven agricultural equipment dealerships. Combined, these dealerships generated approximately $93 million in revenue during their most recently reported fiscal years. In addition, we opened a new Williston North Dakota CE location.

Looking at our year-to-date activities, we've closed on three acquisitions thus far in fiscal 2012, entered into a purchase agreement for an additional CE acquisition, and expanded our Cedar Falls Center Point, Iowa location with a [Case 8] agricultural contract.

On February 28, we closed on Tri-State Implement, which includes one new owned brand ag equipment store in Sioux Falls, South Dakota. The dealership is strategically located in a regional trade center and is well-positioned to benefit from the agricultural activity in the area.

On March 31, we completed the acquisition of Schoffman's, consisting of one Case [IH] agricultural dealership located in Redwood Falls, Minnesota. The dealership is strategically located in the fertile Minnesota River Valley and is contiguous to our Marshall dealership.

On April 1, we closed on the acquisition of ABC Rental, an independent rental yard company, which consists of four rental equipment locations in Missoula, Bozeman and Big Sky, Montana, and Williston, North Dakota. The locations in Missoula, Williston, and Bozeman will be consolidated with our existing Case CE dealerships in the respective markets, leveraging the synergies of both companies. We are excited about the acquisition and our expansion of the construction rental business. The timing of this acquisition coincides with increased rental demand activity in the industry, and we believe this is going to be another key contributor to our overall business.

We have been preparing for the right opportunity to expand our rental model and with ABC Rental as part of the organization, the proper growth platform is now in place in this area of our business. We believe this is a very strong, long-term growth opportunity for our business.

On April 15, we announced the acquisition of Carlson Tractor and Equipment with CE locations in the Minneapolis suburbs of Rosemont and Rogers. We are excited about gaining entry into this large metro area and solidifying our New Holland CE business in the state of Minnesota. We are anticipating a mid-May close.

We also relocated our Case Construction equipment dealerships in Cedar Rapids, Iowa to Center Point, Iowa, just outside of Cedar Rapids metro. Given the success of our existing agricultural equipment dealerships in Iowa, the large Center Point agricultural market potential, improved accessibility and the productive agricultural land in the strong areas, we expanded our operations to include Case IH agricultural equipment and a full line of construction equipment product lines. We believe all of these new dealerships are well located to capitalize on the strong dynamics of the respective markets and complement our existing network.

We continue to see a healthy acquisition pipeline of both agriculture and construction dealerships throughout the entire Upper Midwest and will continue to make selective and strategic acquisition choices. C&H has been a strong supporter of our acquisition efforts. We are thankful to be associated with this well-run organization representing such powerful brands.

In summary, fiscal 2011 was a strong year for our business across the board. We achieved strong organic growth in both our business segments and improved each segment's bottom-line results. We continue to execute on our long-term acquisition growth strategy and are excited to continue to be a leader in the consolidation of our industry.

As we begin fiscal 2012, we are encouraged by industry trends and anticipate another strong year building on the success we experience in fiscal 2011. We look forward to continuing to capitalize on the opportunities ahead of us by providing our agriculture and construction equipment customers with the best-in-class products and after-sales support.

Before I turn the call over, I would like to briefly comment on last week's announcement of our expanded management team. Mark Kalvoda, who has been serving as the Company's Chief Accounting Officer, has been promoted to Chief Financial Officer. We brought Mark into our company in 2007 with the goal of Mark being our CFO. His past responsibilities with public reporting companies, combined with the excellent performance Mark has exhibited as Titan's Chief Accounting Officer and his three-plus years of hands-on industry experience gives our Company confidence of promoting Mark to this important CFO position.

We want to thank Peter Christianson for the great job he has done as CFO. I'm looking forward to his continued focus on operations as President and Chief Operating Officer, this in line with our ongoing long-term plan to attract high-quality individuals to executive positions in our Company.

With great pleasure, I would like to turn the call over to Mark Kalvoda, our Chief Financial Officer, to review our financials in greater detail.

Turning to Slide 6, our total revenue for fiscal 2011 fourth quarter grew 45.9% to $368.1 million, compared to the same period last year, primarily reflecting our strong equipment sales. We achieved parts revenue growth during the fourth quarter of fiscal 2011 over strong comps from the fourth quarter of fiscal 2010. Organic and acquired growth continues to drive all three of our revenue streams.

Turning to Slide 7, our gross profit for the quarter was $56.1 million. Our gross profit margin improved to 15.2% from 14.7% last year. The improvement in gross margins was driven by higher equipment margins due to increased market demand and the timing and increased amount earned under manufacturer incentive programs compared to the same period last year.

We improved our operating expenses as a percentage of net sales in the fourth quarter of fiscal 2011. Expenses decreased to 10.5% of sales, a 130 basis point improvement, which reflects our ability to leverage fixed operating costs across higher revenues.

Our pretax margins improved to 4.7%, which represents a 230 basis point improvement over the fourth quarter of last year. The improvement reflects operating leverage, improved gross margins, and the positive impact of lower floor-plan interest expense from our new credit agreement which began in the fourth quarter. Earnings per diluted share for the fiscal fourth quarter 2011 increased to $0.57 compared to $0.19 in the fourth quarter last year.

Turning to Slide 8, you'll see our revenue for the full year. We generated $1.09 billion in sales in fiscal 2011, which represents a 30.5% increase compared to last year. The increase was driven by both organic and acquisition growth. All three of our revenue streams contributed to this growth.

On Slide 9, we have an overview of our full-year financials. Our gross profit for fiscal 2011 increased to $174.6 million. Our gross profit margin declined 90 basis points to 15.9%. Gross margins were impacted primarily by lower equipment margins in the earlier quarters of fiscal 2011 due to the market pricing pressures.

Operating expenses improved 110 basis points to 11.9% sales, which again reflects our ability to achieve operating leverage with higher revenues.

Our pretax margins improved 20 basis points to 3.4%. Keep in mind that full-year pretax margins only included the benefit of lower floor-plan interest expense for the fourth quarter when we entered into the new senior credit facility.

Turning Slide 10, we provide an overview of our balance sheet highlights at the end of fiscal 2011. We have cash and cash equivalents of $76 million. Our inventory is $432 million, which we believe is an appropriate level to support our annual sales plan.

I would like to provide more color on our inventory. At the end of our third quarter fiscal 2011, our total inventory was $431 million. It's important to recognize that the inventory balance at the end of the year includes $36 million of additional inventory from our fourth-quarter acquisition. Taking this additional inventory into consideration, our same-store inventory declined from the end of the third quarter to the end of the fourth quarter.

Working capital at the end of the fourth quarter of fiscal 2011 was $167 million. As of January 31, 2011, we had $242 million available of our $550 million total discretionary floor-plan lines of credit. Additionally, at year-end, we had $24 million on our $50 million working capital line of credit.

Slide 11 gives an overview of our cash flow statement for fiscal 2011. When we evaluate our business, we look at our cash flow related to inventory net of floor-plan activities, which is reported on our statement of cash flow as both operating and financing activities. When considering non-manufacture floor-plan proceeds in fiscal 2011, our net cash flow for inventories was $6.3 million.

On our statement of cash flows, the GAAP reported net cash used for operating activities was $35 million. We believe including the non-manufacture floor-plan proceeds and the advances on contracts in transit as part of our operating cash flow better reflects the net cash flow of our operations. Making these adjustments, the net cash generated from operating activities during fiscal 2011 was approximately $47 million. Reconciliation of this non-GAAP measure is contained in this slide which is posted on our website.

Now, I would like to turn the call over to Peter to discuss our Agriculture and Construction operating segments in more detail and to introduce our fiscal 2012 annual guidance. Peter?

Thanks Mark. Now, turning to slide 12, you'll see an overview of our segment results for the fourth quarter. We are pleased with the improvement in both segments.

Our Agriculture sales group to $333.7 million, driven by the favorable ag economy for our customers in the fourth quarter. This sales growth, combined with higher equipment margins, operating leverage, and lower floor-plan interest expenses, enabled us to improve our Agriculture pretax income to $18.6 million.

Turning to our Construction segment, we are pleased with the strong sales growth, which is primarily due to organic growth and highlights our successful execution on our Construction business action plan. We also reduced our pretax loss by 77.5% this quarter to a $0.5 million loss compared to a loss of $2.3 million in the fourth quarter last year. We're pleased with this improvement and believe we'll reach breakeven in this segment of our business in fiscal 2012.

Slide 13 shows our segment results for the full year. Our increased Agriculture sales reflect both acquisition growth and strong organic growth. Our Construction segment sales primarily reflect strong organic growth. On an annual basis, Agriculture pretax income improved 22%, reflecting higher sales and operating leverage, partially offset by lower equipment margins in the earlier quarters of fiscal 2011.

Looking at the Construction pretax loss, we achieved our goal of reducing the loss for this segment by approximately 50%. It is worth noting that this represents strong improvements in the last two quarters of the year when our Construction business plan was more fully implemented and we experienced an improving environment in the industry.

Turning to Slide 14, this shows our same-store sales results for the fourth quarter of fiscal 2011. Our overall same-store sales increased 42.1%, highlighting strong year-over-year improvements in both segments. The improved agricultural same-store sales are reflective of the robust agriculture economy and lower fourth-quarter fiscal 2010 comps due to last year's adverse weather conditions.

Our Construction same-store sales reflect the implementation of our construction business plan and an improving environment in the industry. For the fourth quarter, overall same-store gross profit increased 47.3% year-over-year. Improvements in Ag gross margins were driven by higher equipment margins due to increased market demand, the timing and increase in the amount earned under manufacture incentive programs compared to last year. Construction margins reflect actions taken as part of the Construction business plan to grow revenue.

Slide 15 shows our same-store results increased by 23.1% for the full year, reflecting the stronger-than-anticipated Agriculture sales and strong Construction sales in line with our business plan compared to the prior year. Agriculture gross profit increased on a dollar basis despite the pressure on our equipment margins in the first three quarters of the year. Construction's gross profit increased in line with our sales growth.

For modeling purposes, it is important to remember that we calculate same-store sales by including stores that were with Titan for the entire period in which we are comparing. In other words, only stores that were part of Titan for the entire three months of the fourth quarter of fiscal 2010 and the fourth quarter of fiscal 2011 are included in the fourth-quarter same-store comparison. A total of 11 locations were not included in our fourth-quarter same-store results, eight Agriculture stores and three Construction stores. A total of 19 locations were not included in the full-year same-store results, 15 Agricultural stores and 4 Construction stores.

Now, turning to Slide 16, you'll see our fiscal 2012 annual guidance. We are anticipating achieving increased revenue for the full year ending January 31, 2012 in a range of $1.275 billion to $1.35 billion. Net income is expected to be in the range of $27.5 million to $29.4 million, resulting in earnings per diluted share range of $1.50 to $1.60 based on estimated weighted average diluted shares of 18.35 million.

When modeling our business for the 2011 forecast, we expect our same-store growth to be in the range of 3% to 8%. We expect our Construction same-store growth to be in the range of 8% to 13% over strong comps from fiscal 2011.

Equipment margins are expected to be approximately 9.5%. We expect to achieve breakeven on an annual basis in our construction business. We look forward to another strong year in fiscal 2012 as we capitalize on the opportunities in this market.

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

(Operator Instructions). Steve Dyer, Craig Hallum.

Thank you. Good morning and congratulations on the good results. I'm just wondering. There seems to be, with all the budget chatter lately, a lot of chatter about ag farm subsidies and so forth. How do you guys think about that? Is that something you think is realistic, or are you seeing any spending changes as a result of that?

You're talking about the farm program then?

Yes.

If you read it, there's a lot of discussion on that. If you look at all the details of that program and look at the production agriculture ,there's a lot of different schools of thought on that. I think if you look at the current level of commodity prices that we have today, a lot of people are really wondering if they want to be in the farm program at all. So I think there's some important things like safety nets and some of these things, some of the crop insurance program that takes place, but if we look at our long-term commodity supplies we have out there, the long-term trends and stuff, this is going to be interesting. I think there's going to be a pretty good pressure to keep safety nets in place, keep the crop insurance program in place. With that, I think you're going to look at -- a lot of these growers are looking at more of a market-driven type program.

Okay. Then I was just wondering if you could comment on the acquisition pipeline. How does it look, sort of vis-a-vis how it's looked historically? Is it primarily in the footprint? Are you looking outside the footprint even? Are there opportunities internationally that you've looked at? Just any color there would be helpful.

You can see by what's happened in the last three or four months (inaudible) that it's a pretty brisk acquisition pace. We still have the 50% capital gain tax which has been extended, which is going to continue to drive acquisitions. The demographics really haven't changed much (inaudible) we feel are on the front end of a long runway on these acquisitions right now. We think the base is going to continue and then we have a lot of people that I'm talking to, a lot of really interested parties. We're doing a great job at it, and there's just a lot of acquisitions out there.

Like we said on previous calls, we are exploring international (inaudible) we talked about before, and that's still out there. We've got some great visibility right now. If you look at the ag economy and (inaudible) the factor of a public company, our progress we've made on our earnings and our ability to hit our guidance and exceed it, things are going really well.

I'll hop back into queue. Thanks.

Brent Rystrom, Feltl.

Good morning. My congratulations as well. I was in a couple of your stores over the weekend, and obviously you see how well sales are going. I was in Elbow Lake, and I think you've got one [9120] there. Everything else is used. How is the deliveries? Are you still seeing Tier 3 engines coming in? When do the Tier 4s really ramp up to full-scale deliveries?

We are starting to get shipments right now on the Tier 4 production. Many of these -- we had presold in our calendar year fourth quarter, and we're starting to get those deliveries out of the plants right now. So everything is full speed ahead. Like I said earlier on our call, we are excited about the preliminary test results and the fuel economy on the Tier 4, which is great news. We're going to see probably the same thing we are seeing on tractors out (inaudible) again with combines later on this year.

When you look at the Tier 3 engines (technical difficulty) C&H can keep delivering those, they just have to pay a fee, right, to deliver with the old Tier 3 engine?

For the most part, on all your tractors, you're seeing all production right now on tractors is basically Tier 4.

It's now fully Tier 4? Okay.

Right.

That's what I was wondering. Looking at another thing, one of the things that popped up, a few people asked about how long the Section 179 exists. Have you been following what's going on with maybe shifting farm machinery depreciation from seven years to five years? That would pretty much replace 179 as far as how quickly you can recognize the depreciation. Have you guys looked at that relative to the potential impact?

We keep an eye on that. Right now, they have extended the Section 179 depreciation as well as that 100% bonus depreciation. That's going to be a strong influence on the market this year with the strong farm incomes.

I would imagine though, if you go from seven to five, that would also be pretty favorable -- I mean because you'd be getting, you know, (inaudible) accelerate depreciation you'd be getting back half the value of that unit in about two years.

Yes, that's exactly right. So from an ongoing standpoint, it's nice to know we've got that in the background in addition to what we see going on currently with the 179 and the bonus.

Final quick question -- from the looks of things this spring, it looks like we're going to have -- I was up, like I said I was up in Elbow Lake, I was up at a couple of the other locations up in kind of the eastern part of the [Red Rubelle] yesterday. It looks like it's going to be a lot later planning this year. Does that present any issues as far as your first or second quarter?

We'll monitor that. It's still -- granted the upper end of our footprint [it's] still been pretty cold out, but things can change in a hurry. What we are seeing is the floods peaked through the Fargo area here about a week ago, and so we get some good sunshine, that should put us back on track.

One other thing that really plays into this is what happened last fall with everyone being able to get all of their fieldwork and all their fields prepped very strongly. So, we'll monitor it but we do -- we do, when we talk about our outlook and our guidance, we don't give quarterly guidance. This is a classic example where the weather can change revenues from quarter to quarter, and it's too early for us to determine that.

Thanks again. [Sunny] great quarter.

Rick Nelson, Stephens.

Thank you. Good morning. My congratulations as well and congrats to Mark on his new position.

I'd like to ask about gross margins. How much of the improvement in growth in the fourth quarter was due to volume incentives, and how much would you attribute to tight supply? It looks like your guidance equipment margins is a little more conservative.

This is Mark. Our strong results, our strong earnings results, had to do with a number of factors, including beating our revenue forecast by approximately $100 million for the fourth quarter and leveraging our operating costs.

As far as the manufacturer incentives, there was the timing difference where we recognized some of that in the third quarter last year. This year, because of the change in the manufacture timing of that program, it was recognized in the fourth quarter. But for competitive reasons, we don't disclose the exact amount of that manufacturer program.

Got you. Thanks. I'd like to ask you about the current cash position. I see that you've closed three deals since year-end. If you could tell us where you sit presently with cash and possibly debt, that would be helpful.

Our cash right now, we are sitting at $76 million is what we are showing for our year-end balance sheet. As far as our debt, we do use our working capital facility that we have that came out of that senior credit facility. We are into that at about $24 million -- about $26 million we are into that. So that's kind of where we are sitting today for both our cash and our debt.

That's where you're sitting presently since year-end, and following these acquisition closings?

The acquisitions that we've done recently are in the normal course of business. We do them throughout the entire year, so there is not a material difference.

Okay, got you. Then finally if I could ask you about SG&A. It's been below 70% as a percent of gross profit the last two quarters. What is your expectation there? Is that a sustainable level?

As far as next year goes, we don't see a big change in that. We see it maybe up a little bit just because of some of the strong sales growth that we had but remaining relatively, as a percent of sales, at right around that 12% level.

Great. Thank you.

Chris Weltzer, Robert W. Baird.

Good morning guys. I'm wondering if you could talk a little bit more or give a little bit more detail on sort of what the timing is for roll-out of new combine models?

Right now the Tier 4 combines are going to be via the 2012 models. The manufacturer has a little bit of flexibility exactly when that is going to take place, when that model change is going to be. Historically that's been October 1, but I can't give you that exact date. So everything I hear right now is you are going to have that range somewhere between October 1 and the end of the year is when you're going to see Tier 4 in combines.

I got you. Can customers still order a Tier 3 combine at this point?

We've got some inventory available. We've got order slots in place, but basically all of the 2011 models -- I'll call them order slots -- are pretty much taken. But Titan Machinery has some and we have some combines in inventory right now. So we will definitely sell you a Tier 3 if you want one.

Got you. There was a decent sized jump it looks like in customer deposits on the balance sheet this quarter. Does that have to do with people ordering some stuff ahead, or what's going on with that line?

Yes, with that line, with the year-end activity that we had, there's some good activity out there where we are getting some deposits early on some future sales.

Okay. No change in your policies or when you would take deposits, that sort of thing?

No. There's been no change at all in our accounting policy or the way we handle that with our customers.

Got it. Then could you just update us on the progress of the ERP roll-out?

Yes, we continue on our implementation of that. We have been on the financials with the ERP since October of 2009. We have the CRM that's fully implemented and are running pilot store implementation and continue to do that. We'd like to get that done during this fiscal year if possible.

Got it. Then just a quick update on what you're seeing in the used pricing front. Now the Tier 4 -- or Tier 3 tractor availability has gotten much tougher. Have you seen the used equipment prices come up, or has that sort of plateaued at this point?

I think we're seeing some strength in the construction side; we're definitely seeing some strength in there. We are seeing some tractor models (inaudible) the tractor. There's people standing in line for some of these used tractors. There's definitely some shortages on the used market on the tractor side. I'd say the supply of used combines seems to be a little larger than what we are seeing on the construction business in tractors, so (inaudible) with the current level of commodity prices and stuff there, we are moving used combines every day. So it's a good (inaudible) economy out there, and that tends to increase the demand. Like I say, you've got some tight supplies in certain models, but no issues at all we don't see right now on the used valuations on any of the fronts.

Got it. Then can you guys comment? I don't know if you're comfortable doing this or not, but what your overall market share, whether it was flat, up, down in fiscal year '11?

When you talk about market share, there's a lot of different categories and product groups, and you're looking at (inaudible) over there (inaudible) kind of construction. But overall I would say what we have done from a market share standpoint has been really positive here this last year.

Fair enough. Thanks guys.

(Operator Instructions). David Raso, ISI Group.

Good morning. A quick question -- I apologize if I missed it. But on pricing for new, the new Tier 4, what price increases are actually out there, and what's been the feedback from clients in their ability to stick?

I guess, if we go back, let's go back six, seven months ago in that transition from Tier 3 to Tier 4, and with the strong economy, a lot of the manufactures baked in some price increases. But overall, if you go year-over-year, a tractor today compared to maybe what it was a year ago, you are probably looking close to 10% from a Tier 3 to Tier 4 going back 12 months.

I'm trying to square that up with -- and I know it's not everything out yet, Tier 4. But still when I see the modeling assumptions for Ag same-store growth of only 3% to 8% from the bonus depreciation, obviously strong farm fundamentals, the pricing you just alluded to. Just trying to square up -- we'd obviously just put up a same-store growth for Ag over 20% for last year. But I'm just trying to think why is it only 3% to 8%? Is there something about the capacity constraints, the product availability on this thing?

The first thing you need to keep in mind is that some of that pricing, like David talk about, was already established with the final Tier 3 production. In other words, there was a stepping on the pricing. It wasn't just all on Tier 4, so those numbers were included with some of our results of last year.

Secondly, we talk about a 3% to 7% long-term organic growth in our business, and yet last year we came in with about double that, you know, at 15.8% on the Agriculture side. So coming off of a strong comp, we just like to model our business so that we are very confident in being able to achieve what we model on. If that should change during the year with increased visibility, we will update you.

I appreciate that. It's the start of the year, so it's better to start low. But just so I'm clear reading it from -- I know some of the Tier 3 pricing is in that 10, so you already had some. But even if you just cut that in half, it's almost a whole same-store sales growth would almost just be that pricing. So just to make sure I don't get the wrong message, the product availability that you have to take advantage of the current strong fundamentals -- the farmers, the bonus depreciation -- how do you feel about your ability to get product from Case New Holland? I'm talking just Ag. Did you have the product availability hitting the delivery dates that David spoke of for the upcoming months? Do you still feel good about the delivery dates being met and so forth?

We are getting equipment out of the plants right now, and the manufacturers are gearing up production as much as possible in that.

The one thing to keep in mind too, if you remember our call this time last year, there were a lot of units available that were initially intended to go over overseas. Because of the financial crisis and some of the issues with financing over in, say, the former CIS regions and some of that, a lot of that unit inventory came back into North America and we talked about a very competitive but a large supply in a very competitive marketplace a year ago on this call which (inaudible).

But to answer your question on the current revenue, we are getting units every day. Early on, last -- the fourth quarter of 2010, the calendar year, we locked in order slots. We had a good run of pre-sales and we are continuing to get product and the manufacturers are -- they are driven on production. So I don't really see a lot of big issues right now. Like I say, you can see our inventory right now is at a fairly high level compared to what it was a year ago. So I mean, we've got the inventory on hand, and plus we are getting slots from the Company. Does that answer your question?

It does. I appreciate the conservatism to start the year. I just want to make sure I wasn't missing something. I appreciate it. Thank you very much.

It appears we do have time for one more question today. Tom Varesh, M Partners.

Good morning. Great quarter. Actually the previous two questions -- or callers answered the questions that I had. So I've got no questions at this point.

Thanks Tom.

That concludes our question-and-answer session for today. I'll turn things back over to our presenters for any additional or closing comments.

I want to thank everyone for listening to our call today. We look forward to speaking to you again in a couple of months. Have a great day everybody.

That does conclude today's conference. Thank you all for your participation and have a wonderful day.