Titan Machinery Inc (TITN) 2015 Q1 法說會逐字稿

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Good morning ladies and gentlemen.

Thank you for standing by. Welcome to today's Titan Machinery first quarter FY15 earnings conference call.

At this time, all participants are in a listen only mode.

(Operator Instructions).

Hosting today's conference will be John mills of ICR.

As a reminder, today's conference is being recorded.

Now, I would like to turn the conference over to Mr. John mills.

These go ahead, Sir.

Thank you.

Morning ladies and gentlemen welcome to Titan Machinery first quarter Fiscal 2015 earnings conference call.

On the call today from the company are David Meyer, Chairman and Chief Executive Officer, Peter Christianson President, and Mark call voted Chief Financial Officer.

By now everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2014. Which went out this morning at approximately 6 a.m.

eastern time.

Of you have not received the release it is available on the river Investor Relations portion of Titan's website at Titan M achinery.com.

This call is being webcast and a replay will be available on the company's website, as well.

In addition, we are providing acquired presentation to accompany today's prepared remarks.

We suggest you access the presentation now by going to T itan'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, 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.

The 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 were filed annual report and form 10-K.

These risk factors containing 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 first quarter results and a general update on the company's business, then Peter Christianson will discuss the company's international overview and segment operating results Mark Kalvoda will discuss the company's financial results in more detail and in Fiscal 2015 annual revenue, net income, earnings-per-share guidance and non-GAAP operating cash flow ranges along with outlook and modeling assumptions.

At the end we will open the call to take your questions.

Now now, other to introduce the company's Chairman and CEO Mr. David Meyer.

Go ahead, David.

Thank you John.

Good morning everyone.

Welcome to our first quarter Fiscal 2015 earnings conference call.

As John mentioned, to help you follow today's prepared remarks, we provided a slide presentation which you can access on the Investor Relations portions of our website at Titan Machinery.com.

If you turn to slide to you will see our first quarter financial results.

Revenue was $465 million reflecting an increase in sales in all four revenue streams. Equipment, parts, service and rental.

On a segment basis, higher sales for construction and international segments were partially offset by lower exit as we anticipated.

Adjusted pretax loss excluding the store closing and realignment cost was $3.1 million on an adjusted loss share was $0.11. As we discussed on our last conference call, this year, one of our key areas of focus is improving our adjusted operating cash flow.

In the first quarter, we've generated $10.7 million in adjusted operating cash flow.

Based on our visibility for the remainder of the year, we are reiterating our previously issued annual outlook for Fiscal 2015, which Mark which Mark wearable view in in more detail later in today's call.

Now, I'd like to provide some more color for you today on agriculture and construction industries in which we operate.

Peter will provide color on the industry within our international segment.

On slide 3 is an overview of the agriculture industry.

Initial crop progress has been delayed in our northern footprint due to a late start this spring.

We have adequate moisture levels for the majority of our footprint as we had in the beginning of the production cycle.

As forecasted in the most recent was to report current production is projected for this year which is reflected in lower commodity p rices.

USDA projected ag farm income to be down 27% in calendar year 2014. Our FY15 modeling assumptions take into consideration these industry headwinds and the associated impact on our agriculture equipment sales.

They ag equipment industry has and will continue to experience price increases as a final price rolling across all equipment affecting overall equipment sales and compressing industry equipment margins.

We believe our Tier 4 technology is the best solution to achieve new emission standards for our customers.

The industry continues to experience pressure on these equipment prices as a result of the lower commodity prices and the current level of used equipment in the industry.

This is reflected our equipment margin guidance.

Currently, most depreciation has expired and section 179 depreciation deduction has been reduced to $25,000 per year.

Right now, these tax items are in committee and we expect them to be adjusted later in the year.

Although we are facing some near term headwinds it's important to remind our customers continue to benefit from low interest rates and of their balance sheet's remain very strong strong.

We are confident to the long-term of the agriculture industry reported by an increasing global demand for agricultural production.

Now, and like to turn to the construction segment of our business.

On slide four we provided an overview of the construction industry and our markets.

We are seeing signs that the overall economic environment is gradually improving, providing support for increased construction activity throughout the current fiscal year.

Short-term interest rates continue to be very favorable supporting capital investments.

Overall, construction equipment inventory levels are improving and getting closer to be in line with end-user demand.

In the upper Midwest, the agriculture energy activity continues to support the construction industry.

The ongoing buildout of the Bakken and adjacent oil and gas reserves with related infrastructure continue to drive demand in the industry.

The housing industry is rebounding with permits increasing, particularly in our Southwest footprint, which is a positive indicator for our medium light and equipment product offerings.

We expect growth in the rental equipment demand in our footprint to be aligned with industry forecasts of approximately 10% growth in 2014, which is being fueled by the factors I just mentioned.

Lastly, the industry is experiencing improvement in used construction equipment pricing reflecting increased demand in many regions throughout North America.

Now, turning to slide 5, and like to review our construction realignment which we announced on our last call.

In order to better position our construction and rental business in certain markets, we've made a strategic decision to reduce our construction related headcount by approximately 12%, primarily to consolidation income flows are of seven construction stores.

In addition, we now position our fleet in rental hubs centered large rental market providing better selection for our customers, internal efficiencies, and increased utilization of our rental fleet.

Overall, realignment accounts for proximally 4.5 R Bard total headcount.

The closing and realignment cost recognized in the first quarter $3.2 million pretax, or $0.09 per share and we anticipate creating additional Lloyd $6 million pretax or $0.02 per share in the second quarter of this year.

The costs associated with this realignment our anticipated to be slightly less than our previous expectations.

We are confident that the realignment and consolidation will position our construction segment for improved pretax profits and will lead to stronger performance in our construction business.

On a pro forma basis, excluding the one-time realignment charges, we anticipate realizing approximately $0.12 per share in the fiscal year 2015 and realignment savings.

Based on our first quarter realignment and the key admissions we implemented during the past year we continue to expect significant improvement in our construction segment results of FY15. Looking ahead in Fiscal 2015, we'll continue to look for opportunities to take acquisitions both domestically and internationally.

In the first quarter this year we opened two new dealerships, one new creating and one in Romania in our 15th and 16th locations in Eastern Europe.

Our international business represents a fairly small portion of our overall operations, and we continue to expect that long-term we will benefit from the growth opportunity importance of agriculture in these regions.

Now, and like to turn the call over to Peter Christianson, our President, to discuss the agriculture, construction and international operating segments in more detail.

Peter?

Thanks, David.

On slide 6 we have an overview of the industry in our international segment, which includes stores in Bulgaria, Romania, Serbia and Ukraine.

There are favorable crop conditions in our market areas with anticipated early harvest of cereal brands and adequate moisture levels to support fall role crops.

The lower global commodity prices are impacting the net income summer international customers just like farmers in North America.

We continue to see the possibility that our customers in Bulgaria and Romania may receive an extra benefit during the second half of this year from the European Union union prevention funds which will provide subsidies for the purchase of equipment.

Although we have not added this into our international projections, this could be a benefit for these two countries operating results.

We expect our stores in Romania, Serbia and Bulgaria to achieve growth and improved operating results in Fiscal 2015 as a result of the growing awareness of our increased focus on after sale product support and the availability of equipment in the countries we operate.

In Ukraine, the current geopolitical and financial environment is negatively impacting our customers and our operations.

Our customers are experiencing reduced credit availability across footprints including equipment purchases.

Rising interest rates and the devaluation of the local currency are affect Inc.

all businesses throughout the country.

Even considering these factors, our customers are proceeding with the crop production cycle.

The May 25 presidential election was held successfully, which we anticipate will help stabilize the geopolitical and financial environment.

Although this event will not immediately turn the country to fully normalize conditions, we do believe this is a positive step to resolve the current situation.

Potential economic investment packages from the West to Ukraine could improve the financial climate during the back half of the year.

I want to remind you that we are located in the center of the country and most of the geopolitical uncertainty is located in the South and Eastern portion of the country.

We do not believe our assets in Ukraine are in jeopardy.

On slide 7, you'll see an overview of our segment results for the first quarter.

Agricultural sales were $352.6 million, a decrease of 2.1%.

We generated adjusted ag pretax income of $4 million compared to $8 million in the prior year p eriod.

The primary factors impacting our ag segment results out lower equipment margins and increased floorplan interest expense compared to the same period last year.

Reflecting the industry headwinds David discussed earlier.

Turning to our construction s egment, our revenue was $101.9 million, up 23%, which reflects higher same-store sales.

The adjusted pretax loss for the construction segment, excluding the $2.3 million realignment charge was $3.5 million in the first quarter of Fiscal 2015. Compared to a loss of $6.5 million in the same period last year.

The improved results primarily reflect higher revenue and stronger equipment margins.

As David mentioned earlier, industry conditions are encouraging for this segment of our business and we are beginning to see the positive impact of our initiatives.

We believe we are moving in the right direction and we will continue to be confident that the construction segment of our business to be an important long-term contributor to our overall growth and profitability.

In the first quarter of Fiscal 2015, our international revenue was $30.3 million, and 9.4% increase compared to the prior year period.

This growth primarily reflects the increase from new store openings.

Our pretax loss for international was $3.1 million compared to $.5 million in the same quarter last year.

Primarily reflecting the impact from our Ukrainian operations, costs associated with building our distribution network and the cost of our European operations center in Vienna, Austria.

These additional cost will be more than offset as we ramp up the volume of business in the segment.

Turning to slide 8, this shows our same-store results for the first quarter of Fiscal 2015. Our overall same-store sales increased 3.2%.

The agricultural same-store sales decreased of 1.2% reflects the industry headwinds David discussed earlier.

Our first quarter Fiscal 2015 construction same-store sales increased 24.4%, highlighting the benefits of our initiatives we implemented last year, as well as the overall industry improvement.

Our international same-store sales increased 1.9%.

We expect to see improved same-store sales to achieve our annual outlook in this segment.

For the first quarter of Fiscal 2015, overall same-store growth profit increased 2.5%.

The 22.2% improvement in the construction segment primarily reflects the growth in revenues.

The 23.4% increase in the international segment gross profit primarily reflects the growth of our higher margin parts business, as customers become more aware of our after sales product support.

The increases in the construction and international segment were mostly offset by the 4.1% same-store gross profit decline in the ag segment.

For modeling purposes, it's important to remember that we calculate same-store sales by including stores that were with Titan for the entire period of both fiscal years, which we are comparing.

In other words, only stores that were part of Titan for the entire three months of the first quarter of Fiscal 2014 and the first quarter of Fiscal 2015 are included in the first quarter same-store comparison.

The stores which were closed in the first quarter of FY15 are also excluded from this year's same-store sales calculation.

In the first quarter, of Fiscal 2015, a total of 12 locations were not included in our first quarter same-store results.

Consisting of one agriculture s tore, nine construction stores, and two international locations.

Now, I will turn the call over to Mark Kalvoda, our CFO, to review results in more detail, provide an update on our reduction in inventory and Fiscal 2015 guidance.

Thanks, Peter.

Turning to slide 9. Our total revenue for the Fiscal 20,151st quarter was $465.5 million, an increase of 5.4% compared to last year.

Equipment sales increased 3.1% quarter over quarter, reflecting strength within our construction segment, as well as the expected headwinds within our ag segment, which David previously discussed.

Our parts and service business performed well in the quarter, increasing 8.8% and 15.9%, respectively.

Demonstrating the strength and stability of the recurring revenue from these areas of our business.

In particular, these increases were driven by strength in our construction segment and growth in our expanded international segment.

Our rental and other revenue increased 23.7% in the first quarter.

The increase was primarily due to an expanded rental fleet compared to the first quarter of last year.

The dollar utilization rate on our rental fleet was relatively flat compared to the same period last year.

On slide 10, our gross profit for the quarter was $75.9 million, our gross profit margin was 16.3%, a decrease of 40 basis points compared to the same quarter last year.

The decrease primarily reflects lower equipment margins, which declined to 8.3% compared to 9.2% in the prior year period.

This was partially offset by stronger growth in our higher-margin recurring parts and service business.

Our operating expenses as a percentage of net sales in the first quarter of Fiscal 2015 were 15.3% compared to 15.6% for the same quarter last year.

This improvement was due to positive fixed expense leveraging and our construction segment.

This was slightly offset by additional expenses related to the expansion of our international segment.

In the first quarter of Fiscal 2015, we recognized realignment charges of $2.8 million.

We expect that we will record an additional $600,000 charge in the second quarter and we believe this will be the final costs associated with this realignment.

This results in store closing and alignment charges of $0.09 for the first quarter and an estimated charge of $0.02 in the second quarter for total cost of $0.11 compared to the original estimate of $0.12. Our overall interest expense increased 20 basis points, which is primarily driven by higher equipment inventory levels.

Inventory reduction in fiscal 2015 is one of our key company initiatives and I will speak more to this in a moment.

Our adjusted diluted loss per share was $0.11 for the first quarter of Fiscal 2015, which excludes $0.09 per share of store closing and realignment charges.

That compares to a loss per share of $0.02 per diluted share in the first quarter last year.

At the end of our slide presentation, we have included a reconciliation table to help illustrate the adjustments we are making to our GAAP results.

Turning to slide 11. Here, we provide an overview of our balance sheet highlights at the end of the first quarter.

We had cash of $82 million as of April 30, 2014. We ended the first quarter with equipment inventory of 900 $70.7 million compared to $939.3 million as of January 31, 2014. The inventory change includes an increase of new equipment and $47.2 million and a decrease of used equipment of $15.8 million from the end of Fiscal 2014. On the next slide I will talk about the positive impact of our inventory reduction initiative on our adjusted operating cash flow in Fiscal 2015. Our rental fleet assets at the end of the first quarter were $147 million, which is relatively unchanged from $145 million at the end of FY14. We do not expect a significant increase in our rental fleet are in Fiscal 2015. As of April 30, 2014, we had $701.5 million of outstanding floor plan payables on $1.2 billion of floorplan lines of credit.

It's important to remember that we look at our floorplan lines of credit as payables based on their terms instead of looking at them as debt.

The floorplan balances are directly related to our inventory, which is a current asset and at any time, approximately half of our floorplan is non-interest-bearing.

Turning to slide 12. I like to provide an update on our company equipment inventory initiatives.

Similar to what we provided on our last earnings call, you will see a chart outlining our equipment inventory position for the last five years.

On the right side of the graph is the targeted year-end for Fiscal 2015. Representing $250 million reduction in inventory excluding acquisitions and new store openings compared to the end of FY14. Our first quarter ending inventory is up slightly, which is the consistent with our expectations stated on our last earnings call.

We continue to anticipate a slight increase in inventory levels through the second quarter.

We expect our inventory levels to begin decreasing in the third quarter, unlike last years stocking trend to meet our year-end target which will significantly contribute to our guidance range of $60 million to $80 million of adjusted operating cash flow this year.

Slide 13 gives an overview of our cash flow statement for the first quarter of Fiscal 2015. When we evaluate our business, we look at our cash flow related to the equipment inventory net of financing activities with both manufacturers and other sources including non-manufacture of floorplan notes payable which are reported on our statement of cash flow and operating and financing activities.

When considering our n on-manufactured floorplan p roceeds, non-GAAP net cash provided by inventories was $6 million in the first quarter of Fiscal 202015. Our GAAP cash used for inventories was $42 million.

In our statement of cash flows, the GAAP reported net cash used for operating activities for the period was $54.6 million.

We believe including all equipment inventory financing as part of our operating cash flow better reflects the net cash flow from our operations.

Making these adjustments, our non-GAAP adjusted cash from operating activities was $10.7 million and $8.6 million improvement compared to the first quarter of last year.

Throughout this fiscal year, we are focusing on improving our non-GAAP operating cash flow.

As we execute our inventory reduction targets, we are confident we are positioned to achieve improved cash flow from operating activities in Fiscal 2015. Slide 14 shows our Fiscal 2015 annual guidance.

As David stated, we are reiterating our annual outlook.

You continue to expect Fiscal 2015 revenue to be an a range of 1.95 million dollars to $2.15 billion.

As a result of our store closing and realignment charges, we anticipate recording $3.8 million pretax charge for $0.11 per diluted share.

In the first half of Fiscal 2015. Please note this is a slight improvement from our previously expected pretax charge of $4.2 million or $0.12 per share.

For modeling purposes, excluding the store closing and realignment charges, the pro forma benefit of the realignment and store consolidations we have implemented is expect it to be $0.12 per share for Fiscal 2015. We expect our annual adjusted net income attributable to current stockholders to be in the range of 14.8 to $21.8 million, resulting in adjusted earnings per share diluted range of $0.70 to $1. Based on an estimated average diluted common shares outstanding of 21.1 million shares.

On a GAAP basis, including the store closing and realignment charges, we expect net income of 12.5 million dollars to $18.8 million or earnings per diluted share in the range of $0.59 to $0.89. For for the full-year, we continue to expect adjusted cash flow from operations in the range of $60 million to $80 million, which represents an improvement of 111 to $131 million compared to the adjusted cash flow from operations in the last fiscal year.

As I mentioned earlier, the primary driver of this improvement is expected to be a $250 million reduction in inventory in Fiscal 2015. Modeling assumptions supporting our guidance are as follows.

Expect our ad same-store sales to be negative 10% to 15%, our construction same-store sales to be in the range of positive 15% to 20%, compared to our previous estimate of positive 10% to 15%, and international same-store sales in the range of positive 5% to 10%.

Our equipment margins modeling assumption for the full year is projected to be in the range of eight .3% to 8.8%.

We are modeling annual rental dollar utilization to be in the range of 32% to 34%.

As a reminder, there is seasonality in our utilization and generally, the winter season has lower utilization than the other seasons of the year.

This concludes the prepared comments for our call.

Operator, we are now ready for the question and answer session of our call.

(Operator Instructions).

Michael Cox with Piper Jaffray.

This is Amanda on for Michael Cox this morning.

The question that we have, what are your thoughts and expectations on section 179, the renewals for this year in 2014.

I see this recently, that it passed the House committee and I think the recommendation is that other tax bills which include our continuation of what we saw in the previous year's.

These go to the Senate and I'm hearing that we are not going to see much action on that until after the November elections.

From all conversations, with our representatives in Congress, they are putting us a high priority.

We anticipate something happening there.

What's out there, we still have the standard depreciation which a lot of our customers utilize regardless of the depreciation.

Great.

Thanks for that color.

Peter with Cantor Fitzgerald.

You had strength in construction sales this quarter and that's despite the consolidation initiatives you have, which may have served as a bit of a distraction.

Can you highlight some of the areas that the strength was coming from?

I'm just wondering, to some of those gains come at the expense of lower margins as you brought down your inventory?

No. We think that whole segment is across the board has been strong.

Ukraine has been excellent.

We're seeing good we'll order s ales.

Excavators sales.

It's across the footprint it's been pretty good.

So, we think the whole settlement, the inventory levels will come more in line.

I think a lot of the operational improvements that we've been putting in place over the last 18 months are starting to pay dividends.

As we discussed on the call, those energy and Agee are contributing to it. We have stores not only in the Bakken, Wyoming and Colorado we are seeing the increased natural gas taking place right now.

Housing starts are up. So, we're just seeing a lot of positive is across that whole sector.

It's taking a while on a number of fronts and like I say, I think a lot of our operational improvements are starting to take hold, also.

Great.

The second question is on i nventory.

You did see the usual seasonal lift in Q1. As well, I noticed that the turns may have come down just a here.

I'm wondering, what are the key drivers that will help you achieve what still seems a bit of an aggressive target of getting your inventory down by year-end?

I'm just wondering, related to t hat, is that something that CNH is supporting you in any way?

I think we are right in line with our plan.

A lot of this has to do -- as far as what happens in the order of pipeline for Q3 and Q4. A sickly, what you are going to see as the liquidation of our current inventory inventory, Q3 and Q4, rather than the new shipments the level we've seen in the past.

I think our inventory is in line to do that.

We are right on target with what our plan is.

That's it for me. Thanks.

Rick Nelson from Stevens.

I want to ask about that internet and all segments.

How that is performing relative to your initial guidance and the profitability that you are expecting their for the year.

What the guidance assumes about international?

Rick, this is Peter.

On the international side, we saw a little slower start in the first quarter.

Like I said in the comments on the call, the lower commodities prices impacting our customers.

They were delaying on selling the crop and I wanted to get the cash proceeds from that.

We did have some impact to our Ukrainian operations.

We look for the rest of the year -- our outlook that Mark talked about we've built that into our numbers.

We talk about the fact that we think we are going to experience growth in the Bakken countries in Romania, Bulgaria and Serbia.

Ukraine, more challenging?

Right.

Peter, you've been in the business for many years.

Curious in down cycles, in the ag segment, to those stores remain profitable given the advantage of service and parts?

Do they impact the losses in trough type environments?

No. No. Our experience is to be profitable in these cycles.

They have been, historically.

I'd say we are in more of a normalized situation.

We look at the level of farm income right now.

It's still at some of the highest levels it's ever been at. I would call this more of a normalized the tuition we are at right now.

Thanks a lot and good luck.

Steve Dyer with Craig-Hallum.

As it relates to ag, it seems like we are in this period where we are moving from an every every year trade-in, and every year flip of equipment for a lot of these larger guys to more of a -- back to a more normalized every three or four years.

Is that what you are seeing?

How do you think that plays out over the next year or two?

You are going to see some customers continue to want to trade their their equipment every year and to annual roles.

I think they look at what's their way -- if they minimize our cost per hour and whatever way works the best.

I know from our standpoint, we want to make sure that we can move the used.

A be in the last couple of years there was some late-model used buyers that elected to go new.

They may all of a sudden, now, become used buyer's again.

That makes another used piece that's out there instead of creating another used piece.

I think we can manage some of these things.

Personally, people that trade every two or three years or even five years, it works really well.

You are going to see some people in each one of these segments.

I even noticed some of the marketplace out there moving from 1 year to two and three at the customers request.

I think that's all good and h ealthy.

Okay.

On the rental business, can you give a little bit more more granularity in the quarter, if you would.

What you are seeing in terms of utilization and how you expect that to turn throughout the year?

I know you gave full-year guidance, but maybe utilization and if you are seeing an improvement in profitability there?

The utilization that we had for the quarter was about 23% utilization.

This is dollar utilization.

It's down just a little bit from the prior year at about 24%.

As I mentioned on the call, we do expect lower levels of dollar utilization in these winter months and as we get to Q2, the expectation there would be that it would pick up and peak in Q3 and come back down some in Q4. We get away from some of that seasonality with ours southern footprint.

Overall, we still see that trend continuing.

Okay.

Last one for me. What are you seeing on the acquisition front?

Are you approaching at the same way you always have?

It's been quiet for little while and I just wondered if you are more inwardly focused at the moment are just not seeing the opportunities that you historically see?

We are focused on operations.

But, there continues to be interest out there.

We're spending a lot of time talking with potential people in the marketplace.

Time maybe a little bit on our s ide, right now.

But, there's definitely going to be acquisitions.

There's still a lot of consolidation to be done on the ag side of the business.

We are front and center right in the middle of that.

Thank you.

Joe with Sidoti.

Our first question related to the ag segment.

A couple of things.

First off, the guidance of down 10% to 15% implies that the latter three quarters in the year are going to be down a little bit more than what we saw in the first quarter.

Wondering what you are thinking about that, regarding that.

Is it parts and services coming down with the lower acreage?

How do you think about -- especially with the comp supposedly getting easier in the back half of the year.

Yes.

We do expect same-store -- obviously in the first quarter with down 1.2%, we do expect worse -- down more in future quarters.

We did have, and the last couple years -- not so much this last y ear, but in the years before that in the fourth quarter we had very strong fourth quarters.

We don't anticipate that to be as strong.

As far as the parts service, we do believe that's very reoccurring in nature.

Even in a down cycle, that parts and service is going to hang in there nicely.

So, the negative same-store numbers are really coming from the equipment side of the business.

Okay.

Last fourth quarter was down pretty good, even with either your comp, do still anticipate a tough back half?

Yes.

We would still anticipated to be down in our fourth-quarter quarter in the current year.

Okay.

And regard to the margins in that segment, first off, excluding the floorplan, can you give us an idea of what that looks like?

Regarding the floorplan, how do anticipate that to trend throughout the year?

The interest.

The interest expense -- first of all, with the floorplan interest expense, though it's higher at this point in there, we expect that you can track it with our inventory level.

We said inventories are going to be up slightly, again, in Q2 and drop -- starting to drop off.

For the floorplan interest expense, we somewhat match that and we should see some flipping around -- third somewhat quite a bit in the fourth quarter where it will start coming down.

Overall, for the year, trending very similar to where we ended up last year.

And regard to margins, I'm not sure if you are talking about equipment margins or talking about free cat --

The overall agriculture pretax margins that you give.

Yes.

Basically, with the guidance we provided with ag being down on a same-store basis and construction being up, you're seeing some flipping there as far as what's driving the results for the year.

So, it will be down over last years pretax numbers.

Okay.

All right.

Thank you.

(Operator Instructions).

Robert W. Baird.

This is Bryant on form eight.

I was hoping you could talk how manufacturing incentives impact of the quarter and, specifically versus last year.

I think you are seeing some consistency in the business, fairly business as usual.

Got it. Okay.

Taking a look at SG&A, ticked up a little bit in the quarter versus last year.

What should we be expecting for the full year?

What caused the increase over the quarter, if you look at this quarter versus last year quarters, it's really two areas, primarily international, now that we've got the European operations center open and got into Ukraine, basically, at the end of the first quarter last year and opened up in additional store.

It's some of those additional expenses associated with international that brought it up. Also, just with the pickup in the seed business, additional commissions associated with that pickup that drove SG&A up approximately $2 million, $2.5 million.

As for the year, SG&A -- we kind of talked about it in terms of percent --% of revenue.

It will be up as a percent of revenue and our revenue is going to be down, primarily on the ag side.

So, last year I think we were at 13.1%.

It would be up from that, anticipating somewhere around 13.9%, 14%.

Got it. Thank you.

At this time, we have no -- we have no further questions.

I would like to turn the call back over to David Meyer for any additional or closing remarks.

Thank you for your interest in Titan and we look forward to updating you on our progress on our next call.

Have a good day.

That concludes today's conference.

We appreciate your participation.

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