Titan Machinery Inc (TITN) 2012 Q3 法說會逐字稿

Good day ladies and gentlemen. Thank you for standing by. Welcome to today's Titan Machinery Incorporated third-quarter fiscal 2012 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. (Operator Instructions) Hosting today's conference will be John Mills with ICR. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. John Mills. Please go ahead, Sir.

Thank you. Good morning, ladies and gentlemen. Welcome to Titan Machinery third-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 third-quarter ended October 31, 2011, which went out this morning at approximately 6.45 AM Eastern time. If you have not received the release, it is available on the investor relations portion of Titan's website at www.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 risks 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 statements that may be made in today's release or call.

Lastly, due to the number of participants on the 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 third-quarter results, a general update on our business, and review our recent acquisitions, then Mark Kalvoda will review the financial results in more detail, and Peter Christianson will discuss our segment operating results and our increased fiscal 2012 annual revenue, net income, and earnings per diluted share guidance range, along with our outlook modeling assumptions. Then, we will open the call to take your questions. Now, I'd like to open up the call to the Company's Chairman and CEO, Mr. David Meyer. Go ahead, David.

Thank you, John. Good morning, everyone. Welcome to our third quarter of fiscal 2012 conference call. 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 www.TitanMachinery.com. If you click on the investor relations tab on the right side of the page, you will see the presentation directly below the webcast in the middle of the page.

On slide 2 you'll see our fiscal third quarter 2012 results. Our revenue for the third quarter was $423 million, our pretax income was $21.3 million and we earned $0.61 per diluted share. For the first nine months of the fiscal 2012 our revenue was $1.05 billion, our pretax income was $43.9 million, and we earned $1.31 per diluted share. We were pleased with our year-to-date results as we are positioned to deliver another record year of revenue and net income results for Titan Machinery. Our results were driven by solid execution on all fronts as organic and acquired growth both contributed to our strong financial performance, including contributions from our parts, service, and rental businesses. Favorable conditions at both Agriculture and Construction markets continue to benefit our Business. Farmers continue to enjoy strong balance sheets and our Agriculture segment continues to benefit from an overall successful harvest in our region in a tight global supply of grain. We are also pleased with the increase in our Construction business which grew significantly compared to the year ago period, a $3.4 million pretax income improvement. Industry and internal operating improvements positively impacted this segment as well as our initiative to expand the rental business.

On slide 3, you will see we are raising our revenue, net income and earnings per diluted share guidance range for the full-year ending January 31, 2012. We now expect to achieve revenue for the full-year ending January 31, 2012 in the range of $1.425 billion to $1.5 billion. Net income is now expected to be in the range of $35.9 million to $37.9 million and our earnings per diluted share to now expected to be in the range of $1.76 to $1.86 compared to the previous range of $1.56 to $1.66, based on estimated weighted average diluted shares outstanding of 20.4 million.

Now, I would like to provide some color in each of our industries that are key to our Business. On slide 4, we provide an overview of our Agricultural industry. There continues to be many favorable factors that should benefit our Agriculture business. Crop yield across Titan's footprint were better than national yields, which were impacted this year due to some of the drought conditions in many regions, especially in the southern plains. Favorable weather conditions will offer a successful harvest with lower costs and good field preparation for the 2012 calendar year crop through our region. The field conditions coupled with relatively stable input costs such as fuel, fertilizer and chemicals, projected for 2012, signal favorable market production conditions. Overall, we continue to see strength in the Ag industry in all sectors, livestock, row crops and small grains, all sectors are positive. The low projected ending global stocks continue to support favorable pricing through calendar year 2012 giving our customers a strong marketing opportunity for 2011 and 2012 crops.

USDA's most recent estimates, which were released the last week of November, expect net farm income to increase approximately 28% in calendar 2011, as compared to calendar 2010. This suggests that farmers will continue to enjoy strong balance sheets, and have the ability to invest in equipment, service and parts. The $500,000 section 179 and 100% bonus depreciation tax incentives are available to our Ag and Construction customers through December 31, 2011. It is important to remember that these tax incentives will not be eliminated for calendar year 2012, but will continue with the section 179 tax incentives at $125,000 and bonus depreciation at 50% available in 2012. With the accelerated depreciation in recent years, our customers have very little basis left in their equipment and will factor this into their buying decisions in calendar year 2012 as they look for ways to offset future income. In summary, we are excited to be out participating in a very robust agricultural economy and are well-positioned to capitalize on the opportunities presented by it.

Now, turning to the Construction segment of our business on slide 5, we've outlined an overview of the Construction industry in our markets. Our business is benefiting from increased energy industry activity. As many of you are aware, several of our states are capitalized on Bakken, Three Forks, and Tyler oil formations. In addition, recent oil field expirations suggest that the Bakken formation may extend as far west of the Rocky Mountain front in Montana. All of these formations are within our CE footprint. The oil industry activity in our markets has a multiplier effect on the economy, as it increases the need for additional infrastructure, expansion of new housing, as well as other support industries in addition to drilling, exploration, extraction, and transportation of oil.

Our Agricultural customers continued to drive demand for our construction equipment to use in their farming operations including feed lots, material handling, and land maintenance. The tight supply of both new and used equipment is a key indicator reflecting the strong retail demand of the market. In addition, our rental revenue has more than doubled compared to both the third quarter and first nine months of last year reflecting increased rental demand. As part of our initiative to expand the rental business, we have been growing our rental fleet and expect this area of our Business to continue to contribute to the Construction segment results. Even though there are many positive factors influencing our Construction segment, residential housing starts are relatively flat in our footprint due to the existing inventory of homes, we expect this trend to continue through calendar year 2012. Given these factors, combined with our expanded Construction business footprint, we have increased our inventory on hand to support this growing demand and are very excited about the long-term prospects of this segment of our Business.

We are pleased that our Construction segment has now become a key contributor to our top and bottom-line growth giving us greater diversification in our overall Business. In our first nine months of the year we have generated $4.5 million in pretax income from our Construction business, which significantly exceeded our expected $2 million in Construction profit for the full-year. We are confident that we will continue to generate strong top-line and pretax income growth for this segment in the fourth quarter of fiscal 2012, as well as in coming years, in line with our long-term growth strategy.

Turning to slide 6, we are continuing to expand the Titan Machinery footprint through strategic acquisitions as well as selective new store openings. For the first nine months of this year we have completed seven acquisitions and one new store opening. In the third quarter, we completed two acquisitions consisting of two agricultural dealerships, opened one CE store in Dickinson, North Dakota and consolidated and closed our Elk River, Minnesota location. Thus far in the fourth quarter we have completed two acquisitions, also consisting of two agricultural dealerships. We also announced our first international dealerships, with the pending acquisition of two Case IH dealerships in Romania which I will discuss in more detail in a moment.

Let me now provide some color on our acquisitions and store openings in the upper Midwest. On August 1 we opened a new Case Construction equipment dealership in Dickinson, North Dakota, located in the Western North Dakota. This dealership is well-positioned to benefit from our numerous factors that are supporting the favorable construction equipment market in this region including energy, agriculture, government surpluses, infrastructure, investment, and low unemployment rates. As we announced last quarter, we consolidated our dealership in Elk River, Minnesota into our recently acquired Rogers location. We did not recognize any material cost associated with this consolidation. On September 2, we completed the acquisitions of Virgil Implement and Victors Inc which collectively consists of Agricultural equipment locations in Wahoo and Fremont, Nebraska. These dealerships are situated among what we believe some of the world's most productive agricultural land, both dealerships benefit from the proximity of the Ogallala Aquifers that provides irrigation resources, resulting in a concentration of intense agriculture, high yields, and diversification through all weather cycles.

Now turning to our acquisition activity so far in the fourth quarter, on November 1 we completed acquisition of Van Der Werff Implement, which consist of one Case IH and New Holland agriculture dealership located in Platte, South Dakota. This dealership is located in a diverse crop and livestock agricultural region of South Dakota, and is well situated to serve the farmers and ranchers in this area, and will benefit from synergies with our existing South Dakota dealerships in Sioux Falls, Huron, Miller, Highmore, and Pierre. On December 1 we completed the acquisition of Jewell Implement company which consist of one Case IH agriculture equipment dealership located in Jewell, Iowa. The dealership is located in the fertile farmland of central Iowa, and is in a prime location to complement our existing dealerships in Iowa including our nearby Iowa Falls store.

On November 17 we entered into a definitive purchase agreement to acquire AgroExpert, which consists of two Case IH dealerships located in Bucharest and Timisoara, Romania. International markets are an opportunity for us to leverage our operating model and distribution experience, with an additional growth platform. Although this will be our first Titan dealership abroad, members of our Management team have previous experience with equipment sales in Eastern Europe. We have been exploring expansion in Europe for a period of time, and we believe we have found a significant opportunity to begin building the Titan brand abroad. Romania is one of Europe's top leading agricultural producers, as a member of the economic European Union. The country's agriculture as a percentage of gross domestic product is among the highest in Europe according to the World Bank, even though they are currently only using two thirds of the 22 million acres available for production. Bucharest and Timisoara are Romania's the first and foremost populated cities respectively, and the dealerships have access to the Danube River and Black Sea which is important for machine and crop logistics. Romania's farmland is similar in size to Illinois and with 80% of farm tractors considered aged or obsolete, we believe this represents a strong opportunity for us.

In addition to these positive external factors in Romania, AgroExpert has an experienced management team with local knowledge and strong relationships in the Romanian agricultural market. AgroExpert will continue to be managed by its existing team and it will also retain a minority interest in the Company. AgroExpert has been in operation since 2006, and in its most recent completed fiscal year, generated revenues of approximately $14 million. By applying the Titan operating model and our expertise with CNH products, parts and service to these locations, we are confident that our first international dealerships will contribute to our growth for years to come. Also it is important to mention that these new dealerships will not add material expenses or overhead to create this growth platform. We expect this acquisition to close around the end of this calendar year.

While we are excited to begin leveraging our model abroad, we have many additional growth opportunities in our existing and contiguous footprints, markets in the United States. We continued to see a healthy acquisition pipeline of both agriculture and construction dealerships throughout the entire Midwest, and will make selective and strategic acquisition choices. It is important to remember that the [15%] capital gains tax rate is scheduled through December 2012, which supports accelerated, ongoing dealership consolidation in our industry.

In summary, we're pleased with our Business in the first nine months of the year. We continue to execute on all fronts and are optimistic about our long-term growth potential. Now, I'd like to turn the call over to Mark Kalvoda, our Chief Financial Officer, to review our financials in greater detail.

Thanks, David. Turning to slide 7, our total revenue for the fiscal 2012 third quarter grew 35.9% to $423 million, with approximately 36% from organic growth and 64% from acquisition growth. All three of our main revenue sources contributed to this strong growth. It's worth noting that the favorable harvest conditions allowed our higher-margin parts and service business, to achieve strong quarter-over-quarter increases. This change in sales mix drives a higher overall gross profit margin versus the prior year quarter. We also benefited from a strong quarter-over-quarter increase in our rental business. The increase in our rental business reflects our initiative to expand this growth platform primarily through strategic acquisitions including the purchase of ABC Rental in the first quarter of this fiscal year. New construction store openings and new increase in the size of our designated rental fleet.

On slide 8, our gross profit for the quarter increased 52.4% to $74 million, reflecting higher revenue and a higher gross profit margin. Our gross profit margin was 17.5% compared to 15.4% for the same quarter last year. The main contributors to the gross profit margin improvement were an increase in the equipment gross profit margin, primarily reflective of an improved construction equipment market and higher rental margins due to the increased utilization of our rental fleet. In addition, a larger percentage of the revenue coming from the higher-margin parts, service, and rental business contributed to the improvement.

Our operating expense as a percentage of net sales in the third quarter of fiscal 2012 were 11.8% compared to 10.5% for the same quarter last year. This primarily reflects a larger portion of our overall Business coming from our Construction segment, which normally has a higher gross profit margin but also encouraged increased operating expenses. In addition, we had higher expenses associated with growing the rental business. Is important to keep in mind that although there are higher expenses as a percentage of rental revenues, the higher rental gross profits more than offset the additional operating expenses. Operating expenses were also impacted by the Company's compensation expense such as sales commissions, which are based on equipment gross profits rather than revenue. Our pretax margins improved to 5%, which represents a 90 basis point improvement over the third quarter of last year. Earnings per diluted share for 2012's fiscal third quarter increased to $0.61, compared to $0.42 in the third quarter of last year. For modeling purposes, keep in mind that our weighted average diluted shares outstanding increased 16%, to 21.1 million, primarily due to our May follow-on offering.

Turning to slide 9, for the first nine months of fiscal 2012, our revenue increased 44.8% to $1.05 billion. Organic growth represents 52% of the total revenue growth and acquisitions contributed 48%. All of our revenue sources contributed to the increase, including rental and other.

On slide 10, our gross profit margin was 17.4% for the first nine months of fiscal 2012, an increase of 110 basis points compared to the same period last year, primarily reflecting higher equipment margins and an increase in utilization of our rental fleet. In the first nine months of fiscal 2012, our operating expenses as a percentage of sales increased 10 basis points to 12.7%, due to higher operating expenses associated with our Construction business as I discussed earlier. Pretax margins improved 140 basis points to 4.2% primarily due to a higher gross profit margin. Earnings per diluted share were a $1.31 in the first nine months of fiscal 2012 compared to $0.66 in the same period last year.

Turning to slide 11, we provide an overview of our balance sheet highlights at the end of the third quarter. We have cash and cash equivalents of $98 million. Our inventory level was $738 million as of October 31, 2011, compared to $622 million as of July 31, 2011 and $430 million at the end of fiscal 2011. Our inventory balance at the end of the third quarter includes $73 million of additional inventory from our acquisitions during the first nine months of fiscal 2012.

I would like to provide some additional color on our nine months inventory build. We had $21 million increase in parts inventory and service work in process, in line with our parts and service revenue growth. Our new equipment inventory is up $290 million from the beginning of the year while our used equipment inventory is down $3 million. This is in line with our retail sales plan and supports our expected increase sales volume in the fourth quarter of fiscal 2012 and into fiscal 2013. As of October 31, 2011, we had $24 million available of our $75 million total working capital line of credit, and $106 million available of our $650 million floor plan lines of credit.

Slide 12 gives an overview of our cash flow statement through the first nine months of fiscal 2012. 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-manufacturer floor plan proceeds in the first nine months of fiscal 2012, our net cash used for inventories was $61.6 million. In our statement of cash flows, the GAAP reported net cash used for operating activities was $176.8 million. We believe including the non-manufacturer 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, our non-GAAP net cash used for operating activities during the first nine months of fiscal 2012, was approximately $14.5 million. Our planned new equipment inventory build is the primary use of this cash used for operating activities. A reconciliation of this non-GAAP measure is contained in slide 12, which is posted on our website as part of this presentation.

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

Thanks, Mark. Now, turning to slide 13. You'll see an overview of our segment results for the third quarter. We're pleased with the improvement in both segments. Agricultural sales were $361.6 million driven by acquisitions and organic growth, due to the favorable Ag economy for our customers in the third quarter. We generated Ag pretax income of $20.1 million. This increase was primarily due to higher sales.

Turning to our Construction segment, we're pleased with the strong sales growth, which also was driven by acquired growth and strong organic growth. Our Construction sales increased 94.4% to $77.4 million, underscoring the stronger construction equipment market and internal operational improvements. We generated pretax income of $3.3 million, compared to a pretax loss of $200,000 for the same period last year, a significant improvement. Driven by higher retail sales and rental revenue as well as equipment and rental margin improvement.

Slide 14 shows our segment results for the first nine months of fiscal 2012. Our Agricultural revenue increased 41.8% to $914.9 million. And our pretax income increased to $44 million driven by the same factors I discussed above for our third-quarter results. Our Construction revenue increased 67.7% in the first nine months of fiscal 2012 compared to the same period last year. We generated pretax income for our Construction business of $4.5 million compared to a pretax loss of $2.9 million in the same period last year. We're very pleased with the year-to-date contribution of our Construction business and are confident that we will continue to generate solid results for this segment in the remainder of fiscal 2012 and in coming years.

Turning to slide 15, this shows our same-store results for the third quarter of fiscal 2012. Our overall same-store sales increased 12.8%, highlighting strong year-over-year improvements in both segments. The improved Agricultural same-store sales of 9.9% for the third quarter of fiscal 2012 are reflective of the continuation of the strong agricultural economy. It is important to keep in mind that we had a very strong third quarter of fiscal 2011 as our Ag same-store sales increased 29.5%. Our third-quarter fiscal 2012 Construction same-store sales increased 34.3%, underscoring our operational improvements in this segment and the improved construction equipment market. For the third-quarter of fiscal 2012 overall same-store gross profit increased 24.4% year-over-year, reflecting higher equipment margins as well as a sales mix shift to our higher-margin parts and service business. Improvements in Ag gross profits were driven by the revenue increase in sales mix shift. Construction same-store gross profit improvements reflect the higher revenue and higher equipment margins as well as improved gross profit margin for the rental business.

Slide 16 shows our same-store results for the first nine months of fiscal 2012. Our overall same-store sales increased 23.4% compared to the same period last year, driven by increased same-store sales for both business segments. In the first nine months of fiscal 2012, overall same-store gross profit increased 27.7%. Our Ag same-store gross profit increased 21.1%, and our Construction same-store gross profit increased 57.6%. 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 third quarter of fiscal 2011 and the third quarter of fiscal 2012, are included in the third quarter same-store comparison. In the third quarter of fiscal 2012, a total of 22 locations were not included in our third-quarter same-store results, consisting of 11 agricultural stores and 11 construction stores. In the first nine months of fiscal 2012, 23 locations were not included consisting of 12 agricultural and 11 construction stores.

Now turning to slide 17. You'll see our updated fiscal 2012 annual guidance. As David mentioned, we're increasing our revenue, net income, and earnings per diluted share guidance. We're now anticipating achieving revenue for the full-year ending January 31, 2012 in the range of $1.425 billion to $1.5 billion, compared to our previous estimate of $1.33 billion to $1.405 billion. Net income is now expected to be in the range of $35.9 million to $37.9 million, increased from the previous net income range of $31.8 million to $33.9 million. Our increased net income range equates to an earnings per diluted share range of $1.76 to $1.86 based on an estimated weighted average diluted shares outstanding of 20.4 million. Compared to previous guidance of $1.56 to $1.66 per diluted share range on the same share count.

When modeling our business for fiscal year 2012 forecast, we expect our same-store growth to be higher than our previous forecast. We've increased our Ag same-store sales to be in the range of 12% to 15%, compared to the previous guidance of 8% to 13%. We expect our construction same-store annual growth to be in the range of 30% to 33% compared to the previous guidance range of 18% to 23%. Although this year we've experienced stronger same-store sales today, for both our Ag and Construction segments, it is important to remember that we have very high fourth-quarter fiscal 2011 same-store comps. 41.2% for our Ag segment and 48.9% for our Construction segment. Due to the seasonal nature of our Business, equipment margins fluctuate throughout the year, we continue to expect or annual equipment margins to be approximately 9.8%. This is one of the reasons why we look at our Business on an annual basis. Based on the continued improvements in our Construction segment, we now expect to achieve Construction segment profitability of approximately $6 million for the full fiscal year of 2012. We look forward to additional earnings leverage in this segment of our Business, as we capitalize on the opportunities in this market going forward.

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

(Operator Instructions). Steve Dyer, Craig Hallum.

The parts, service and rental growth has really been very good. Is that a trend you'd expect to see? Was there anything in the quarter that was sort of a lot better than expected? And, or should we think about that kind of going forward as really a faster growing part of the Business?

Well we had pretty favorable harvest conditions and you can see that from quarter-to-quarter and that helped our parts and service side of the business. And, Steve, the rental side of the business, we look at that continuing. We put an initiative in place to get into that business and we've been growing our fleet and that's been a strong contributor to our Construction segment. We see that going forward.

Okay. And then I wonder if you have any sense as to -- if you see any pull forward of sales into this fiscal year just from the rolloff or the lower credit for the accelerated depreciation next year? Is there any sense that you're sort of borrowing some sales for next year? Or is that not an issue?

Steve, I think it's following historical trends and you've got certain customers that have used up a lot of their depreciation so they want to get -- they want to make purchases into the next fiscal year. You've got some people that want the equipment now that are ordering, they're doing some presale to get it delivered later, so I think it's following normal trends here and I don't see a significant, one way or another on that.

Okay. And then last question for me and I will hop back in the queue, your inventory levels, up again on an absolute basis, but pretty much in line as you look at sort of days of inventory. I know last quarter you had said that you are actually -- you feel like you're a little bit light or you were hoping you could maybe get a little bit more in a couple different product lines, how do you feel about your overall inventory? And then, are there any areas where you feel like maybe you have too much or you would like a little bit more going into the end of the year?

I think we're positioned pretty well. As you're aware, our fourth quarter is a strong sales quarter for us. We think we put that inventory in place, what significant is that our build is primarily -- it is in new equipment and on our parts and service side, our used equipment was actually down and so now what we need to do is we need to go through this sales cycle with the fourth quarter, which will take that new, and we'll be taking a lot of trade-ins in and then we'll have to get that used through the system, going into 2013.

Okay, but you feel good about kind of the level that you have in the different product lines right now?

Yes. We think we've got a good balance and we planned our business ahead, we made the orders and got the production slots working with the manufacturers, and so we're positioned to take advantage of what we see in the marketplace.

All right, thanks, guys. I'll hop back in the queue.

Brent Rystrom, Feltl & Company.

First one would be on combines. I'm just curious how you're seeing the combine supply situation as the Bosch pump has come back into supply from what I understand to normal levels. Are you seeing the combine supply from CNH coming back to normal levels?

Yes we don't see any production constraints right now based on components, I think everything is back up and I think the manufacturer is geared up for the capacity of their plants to handle this level of production, Brent.

They are telling me they're running about 20% above where they normally would be to catch up on essentially what you guys on the retail side of order, does that sound consistent?

Well I'll tell you -- I don't think we're totally privy to that information, Brent. All I knows it seems like we're able to get the equipment we need to meet the demand.

All right. And then just out of curiosity I'm just curious, how did North Dakota, obviously it's a place where I've some land and so I'm a little familiar with it. How did your comps in North Dakota compare on the Ag side compared to the other states where the crops were stronger?

Well, we don't really break that out that way for competitive reasons, but North Dakota is where we have some of our core stores where we started with. So we've got a pretty strong customer base here, and they seem to be in line with historical trends.

So, an odd way of asking this, but so even in North Dakota you were positive on comps?

Yes. There's so much business Brent that we do in the fourth quarter that that's really the way we look at our Business on an annual basis so we'll know that when the numbers come in.

All right, thanks, guys. I'll hop back in queue.

Rick Nelson, Stephens.

Congratulations, on a terrific quarter. I'd like to ask you about the acquisition pipeline, how that looks, US versus international? What the recent acquisition in Romania?

I think you're seeing consolidation taking place both domestically and internationally and that pace is going to continue. I think all these manufacturers are pretty public of the fact that they are driving to consolidate their distribution channels in both markets. So, we continue to see robust pace of consolidation Rick, and then as I stated in the release here that we still have 15% capital gains taxes slated for calendar year 2012 which we think is -- with some of the money some of these dealers are making of the last couple of years they've been pushing out that decision. You've still got the age and some of the other things are happening, so I think you're going to see some of these owners or family businesses taking advantage of that 15% capital tax rate in calendar year 2012.

As we look out Dave over the next 12 months would you think more of the acquisitions will come overseas? And if you could comment on what you see as a long-term revenue opportunity in Eastern Europe?

Well we're going to continue to look at opportunistic acquisitions. I think it's important that once this is our initial startup over internationally, we want to make sure we do that right and go about this real methodically and real carefully. And you've got to admit, though, the environment in North America is excellent so it doesn't really matter where so we're going to look at the opportunities. But we like both markets but like I said the United States and North America looks pretty good right now, too also.

I was hoping to ask you about equipment margins to date, year-to-date through the nine months, it looks like you're tracking below the forecast. If you could comment on what your expectation is for the fourth quarter as maybe as it relates to incentives? And are you in fact seeing that gross margin lift today?

Rick, this is Peter. Yes, that's why we kind of give the equipment margins and have them for modeling purposes because there is some fluctuation in those margins, when you look quarter-over-quarter. And historically what we see is we see a lift in our equipment margins on the Ag side driven with the manufacturer year-end incentives, and so we've got that built into our model. We see the Construction, when you put it in your model or whatever, that's pretty flat as far as what the equipment margins do through the end of the year on that. So that kind of gives you some color on it. That's where we come up with the overall modeling assumption.

Got you. Thanks a lot and good luck.

(Operator Instructions). Robert McCarthy, Robert W Baird.

Wow. Impressive quarter, congratulations.

Thank you.

First question, your guidance for this year, your revised guidance does allow for, in the lower part of the range to allow for revenue to decline in the fourth quarter compared with the third. But you've got a strong inventory position, sounds like you have a great deal of conviction about ongoing strength of demand. Why would -- can you describe -- what's the scenario where revenue actually goes down in the fourth quarter compared with the third?

Well we've got tough comps, year-over-year, and we had a very strong third-quarter so we think our guidance is in line with the annual numbers, Rob. And, pretty much most of the range is positive and we think that this fourth quarter traditionally has been a pretty strong quarter and that's what we stocked up our inventory levels for.

Okay. And it sounds like -- correct me if I'm wrong but, it sounds to me like you'd argue that to the extent that there is any drag on demand created by the decline in the tax incentives after January 1, that you believe that that's going to be offset by an ongoing strong appetite, need for depreciation as an income offset in an environment of ongoing, strong Ag sector earnings. So, if I'm reading you correctly and please confirm that I am, is there any reason why you wouldn't expect to be able to deliver positive same-store sales growth in the Ag business next year?

Well, we give updated guidance on that on our next call, Rob. And you can see from our inventory stocking levels that we think that there's good, solid farmer confidence out here and we think there's strong equipment demand going forward. Right now we're really focused on getting fiscal 2012 finished up and we've got a big quarter that is always historically a strong quarter, so we're really focusing on that and we're going to update everybody with what we see for next year on our next call, we give our annual guidance then. But, it looks like things for our outlook, when we look at our fourth-quarter we've got that built into our modeling.

And I just wanted to add a little bit on your question, too on the depreciation, Rob, historically the farmers, if you go back in time before all this accelerated, most farmers had the seven year depreciation schedule so they would have this straight-line one-seventh through depreciation every year and they really made a lot of their purchases, and their tax planning people, their bankers that want to make sure they always had or were maximizing that straight-line one-seventh depreciation. And once they start having machines get out of that cycle, everybody that really coached these farmers and make sure you keep that going. So they're used to that. And so what we're seeing right now is there is not a lot of tax basis left in any of their machinery fleet right now. So even as we see declining of levels of this accelerated, we think there's a long run rate just to get back to these normal pipeline of distribution in their current fleet. So that's how -- if that answers your question on that.

Generally it does and I appreciate the fact that you're not issuing guidance for next year at this time. But I'm just looking for what I think is confirmation of something that's almost self-evident that directionally, all else equal as you sit here today in late December, in mid December, there's no reason to expect the Ag business to decline next year?

We have our inventory levels in line, fourth quarter and going forward into fiscal 2013, Rob.

Okay. If you are going to humor me on one more and then I'll shut up. It looks to me like you're starting to run out of head room in your credit facilities. Is this something that you're going to need to address the next quarter or two, Mark?

Yes. If you notice that we did up our credit lines in the current quarter, we upped it $100 million on our floor plan lines of credit and we're looking at avenues there to increase that line for going forward as well, Rob.

Okay. All right. Thank you.

(Operator Instructions). Tom Varesh, M Partners.

Recently, we've been reading about the situation with MF Global and farmers having considerable amount of money tied up with them. What are you hearing? Do you see the fallout of what's going on there potentially impacting some of your sales in the next fiscal year?

Well, the last few days, I made a few phone calls around our markets around and talked to some of the elevators and things like that and what I heard for the most part that most of these large elevator complexes that we have in our markets did not use MF Global. They had other commission houses, historical ones, long-term established companies that they use. And most of the farmers and a lot of their forward contacts and the way they head some of their commodities, they are doing that through that local elevator. So I feel that this is a random probably more growers out there just the same as anybody out there that wants to use MF Global from a speculative type situation. So I think it's random, I don't see a widespread problem, and I see that most of our growers have gone through established elevators and established commission houses for most of that grain hedging. So that's what I gleaned out of the surveys and the calls I've made since this was all announced.

Okay. Can you comment, I don't know if you have in the past or not about what your market share is like in the US and if you're making actually gains in terms of market share? Can you comment on that at all?

Well for competitive reasons we really don't like to comment on that but as you can see, we've got excellent organic growth and if we just extrapolate that out, I think figure out that we're doing well in the area of market share.

Okay, great. Thanks very much. That's all for me.

Brent Rystrom, Feltl & Company.

I just had a curiosity, can you refresh us on combine pricing? How that might change early next year?

Well, what we're seeing, we're still selling mostly two or three combines right now so you will see some price increases on the tier 4 models, but with that you see increased features, Brent, you see in that that fuel economy savings with that, so if it's any indication of what happened with the 4-wheel drives is we moved from tier 3 to tier 4; it was almost a non-event. So I think you're going to see like I say some increase through to future year's end and the tier 4, but at the same time, you're going to see some increased value with the fuel savings you're going to see with that tier 4 engine.

It should be a likely driver to comps because it looks like the units are holding are building and the pricing is going up, it should be favorable to comps.

Well, there's a couple things going on here. It is going to play a role, but as you see new combine pricing increase that actually helps the values of used combines also.

All right. Going to a lot of your stores here the last couple weeks, your people are telling me there's a bigger mix of 8120s and 9120s, is that something that's favorably impacting comps? Is actually happening and obviously if it is, it's a big driver of comps. Is that something you would say you see?

Well really, Brent, that's just a result, on the combine business, virtually every new combine you sell, you take in a used combine and that's just reflective of what is the install base and we're working our way down that cascade of users so that in order for the new one to go out, now we've got more population of 8120s and it's a popular model.

All right. And then, just a final quick question. As far as the timing of the last couple of acquisitions, could you refresh us real quickly just on the revenues, particular Van Der Werff?

Yes. We can get that for you. Maybe we can follow up, we'll take another question and we can come back to that.

All right, thanks, guys.

Thank you and there are no further questions at this time. I'd like to turn the conference back over to the Management for any additional or closing remarks.

Well thank you everyone for listening to our call today. We look forward to speaking to you again in the new year and everyone have a good day.

Thank you. That does conclude today's presentation. Thank you for your participation.