Titan Machinery Inc (TITN) 2016 Q1 法說會逐字稿

Good day, and welcome to the Titan Machinery Incorporated first-quarter FY2016 conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen, and welcome to the Titan Machinery first quarter FY2016 earnings conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer; Peter Christianson, President; and Mark Kalvoda, Chief Financial Officer.

By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2015, 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 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 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 located under the events and presentations tab under investor relations.

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. 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 sections of Titan's most recently filed annual report on Form 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.

Please note that during today's call, we will discuss non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing results of operation, particularly when comparing underlying results from period to period. We have included reconciliation of these non-GAAP measures for today's release and have provided as much detail as possible on any addendums that are added back.

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. And next Mark Kalvoda will discuss the Company's financial results in more detail and the FY2016 annual modeling assumptions. At the conclusion of the prepared remarks, we will open the call to take your questions.

Now I would like 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 2016 earnings 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 portions of our website at titanmachinery.com.

If you turn to slide 3 you will see our first-quarter financial results. Revenue was $353 million, primarily reflecting lower agricultural equipment sales in North America. We have generated adjusted EBITDA of $5.1 million and adjusted pretax loss was $4.6 million and adjusted loss per diluted share was $0.13.

These results were in line with our expectations and reflect ongoing headwinds in our agricultural business. Based on our first-quarter results, we are reiterating our fiscal 2016 annual modeling assumptions which Mark will review during his remarks.

On today's call, we will discuss the challenges we are facing in our agricultural segment and provide an update on the construction industry. Next we will review our realignment plan that we implemented in the first quarter. Peter will provide an update on our international segment as well as an overall Company segment performance. Mark will review financial results for the first quarter, discuss our inventory reduction for fiscal 2016 and we'll conclude with an overview of our modeling assumptions for fiscal 2016.

Now I would like to provide some color for you today on the agriculture and construction industries in which we operate. On slide 4 is an overview of the agriculture industry. The most recent USDA crop progress report issued earlier this week showing planting and crop progress is on schedule in our footprint and some states are ahead of last year at this time. Moisture levels improved in the majority of our footprint with adequate moisture for early crop development.

May's initial new crop WASDE report projects continued high [ending] stocks which is reflected in continued low commodity prices. USDA currently projects calendar year 2015 net farm income to be $73.6 billion, which represents a 31.8% decrease from projected net farm income in calendar 2014.

The 2015 net farm income projection reflects an expected continued decline in crop cash receipts, led by a decline in corn of $6.7 billion, but continues to be a relatively strength in the livestock sector. The lower net farm income continues to generate negative sentiment in the market and it impacts farmers' spending, resulting in lower end-user demand and high industry supply that continues to affect used equipment prices and compress margins.

In summary, the agriculture industry continues to face a number of headwinds. To best navigate the current climate, our focus is on managing the controllable aspects of our business in order to improve our results and position ourselves to capitalize on future opportunities. We remain confident in the future agriculture industry outlook as farmers continue to carry strong balance sheets and underlying macro trends are projected to continue driving long-term demand for agricultural commodities.

Now I would like to turn to the construction segment of our business. On slide 5, we provide an overview of the construction industry and our markets. Industry conditions are similar to what we discussed on our April 15 call with improvement in the Metro markets reflecting increased residential and commercial activity. The strength of the livestock markets continues to support construction equipment sales activity in our agricultural-driven markets which we anticipate to be flat year-over-year.

The decrease in oil and gas pricing has causing lower sales and rental activity in our energy markets. The lack of snow during the winter months in the upper Midwest limited the amount of snow removal activity in those markets which impacted our parts, service and rental sales. The partial recovery in oil prices should support second-half stability in our energy markets.

Calendar year 2014, the housing industry experienced an increase in housing permits in our footprint, which is a positive indicator for medium and light equipment product offerings. We expect this trend to continue in calendar year 2015, but at a reduced growth rate. There is continued strength in used construction equipment pricing throughout the industry. The favorable pricing environment is resulting in higher equipment margins.

In summary, over the past year we made meaningful improvements to our construction business and while industry conditions have remained challenging, we have reduced our pretax loss in the first quarter of FY2016 compared to the first quarter of fiscal 2015, reflecting the benefit of a number of initiatives we implemented last year and during the first quarter of this year.

Slide 6 provides an overview of our realignment plan we have successfully implemented in the first quarter. We continue to expect this realignment will generate a pro forma benefit of approximately $20 million or $0.56 per share in FY2016. We anticipate costs associated with the realignment to be approximately $2 million, of which $1.7 million was recorded through the first quarter fiscal 2016. We are confident that our realignment plan, combined with inventory reduction and strengthening our balance sheet positions our business for improved future financial performance.

Before I conclude my remarks, I would like to discuss a change in our senior management structure. A few weeks ago we announced that, effective next month, Peter Christianson will transition from his current role as President to Chairman of International Operations so he can focus his efforts on this segment of our business.

After the current fiscal year, he will serve as a consultant to our Company for a three-year term which will enable us to leverage his many years of experience in many areas throughout our Company. We are very appreciative of Peter's significant contributions to Titan Machinery and we look forward to his continued contributions to the Company in the coming years.

Now I would like to turn the call over to Peter Christianson to provide an update on our initiatives in our international segment and discuss our agricultural construction and international operating segments. Peter?

Thanks, David. On slide 7, we have an overview of the industry in our international segment, which includes stores in Bulgaria, Romania, Serbia and Ukraine. Spring planting is completed in our markets. Our overall crop progress is on schedule with adequate moisture. However, Bulgaria is experiencing persistent wet conditions which delayed spring planting and is impacting early crop development.

Lower global commodity prices continue to impact customers in all of our international markets, which is reflected in reduced farmer spending. This has also led to high industry equipment inventory levels resulting in equipment margin pressure as we strive to achieve our revenue targets in this segment.

Offsetting some of the challenges, the European Union's subvention funds are becoming available in some of our markets, with Romania having access to these funds beginning in the third quarter of fiscal 2015. The application process for funds in Bulgaria began in April and we anticipate funding to begin during the second half of this year. As you recall, the subvention funds are monies the European Union has budgeted to support investment in agricultural production in the developing markets of Eastern Europe, providing 50% to 70% of the cost of qualifying new equipment purchases.

Ukraine continues to experience a very challenging market environment. Limited credit availability, rising interest rates and the further devaluation of the local currency are affecting all businesses throughout the country.

During the first quarter, the Ukrainian region has experienced an additional devaluation of 49%. In spite of these challenges, we achieved our revenue target in Ukraine for the first quarter; however, we expect the recent devaluation and limited credit availability to have a negative effect on sales beginning in the second quarter as customers limit large investments such as equipment purchases. As I stated on our fourth-quarter call, although the Ukrainian farmers had good yields in calendar year 2014, they were limited in their ability to purchase crop inputs this spring, which is resulting in lower crop production estimates this year.

On slide 8, you will see an overview of our segment results for the first quarter. Agricultural sales were $240 million, a decrease of 30.4%, primarily reflecting the headwinds David discussed earlier. We generated ag-adjusted pretax loss of $400,000 compared to adjusted pretax income of $4.2 million in the prior-year period.

The primary factor impacting our ag segment results were lower equipment sales and lower equipment margins due to oversupply of equipment in the ag industry. Ag segment pretax loss includes lower operating expenses due to cost savings associated with the realignment plan.

Turning to our construction segment, our revenue was $81 million, which is 11.5% lower than in the prior-year period. This reflects lower same-store sales, lower store count, as well as strong year-over-year comp store sales. Construction segment sales were impacted by the factors that David discussed earlier, including lower oil prices which impacted certain locations.

Adjusted pretax loss for our construction segment was $2.9 million, an improvement from our adjusted pretax loss of $3.7 million in the same period last year. The improved results primarily reflect cost savings from our realignment implemented last fiscal year and during the first quarter of this year. We believe that the improvements in our construction segment operating results in the past few quarters indicate that we are on the right track for our construction business to be a key component of our long-term growth and profitability.

In the first quarter of fiscal 2016, our international revenue was $32 million, which is a 9.7% increase compared to the prior-year period. Our adjusted pretax loss was $2.3 million, compared to an adjusted pretax loss of $2.1 million in the prior-year period, reflecting compressed equipment gross profit margins arising from the challenging industry and economic conditions present in some of our markets, partially offset by lower operating expenses as part of our cost savings initiatives implemented last year and lower floorplan interest expense due to lower levels of inventory.

Adjusted pretax losses exclude remeasurement charges of $2 million and $3.1 million in the first quarters of fiscal 2016 and 2015 respectively from the balance sheet impact of the Ukrainian hryvnia devaluation.

Now turning to slide 9, this shows our same-store results for the first quarter of fiscal 2016. Our overall same-store sales decreased 21.9%, primarily reflecting the 28.7% decrease in ag same-store sales, driven primarily from lower equipment sales. Construction same-store sales decreased 5.9% and international increased 9.7%.

For the first quarter of fiscal 2016, overall same-store gross profit decreased 18.2% compared to the prior year. The ag segment same-store gross profit decreased by 22.3% reflecting lower equipment sales and margin, partially offset by a favorable change in mix to higher margin parts and service.

The 4.2% decrease in the construction segment same-store gross profits reflects the lower same-store sales partially offset by improved equipment margins. Regarding international, same-store gross profit decreased 27.8%, reflecting lower equipment margins primarily driven by the lower global commodity prices, high industry equipment levels, as well as other challenges I discussed earlier.

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 2015 and the first quarter of fiscal 2016 are included in the quarter same-store comparisons.

The stores which were closed in the first quarter of fiscal 2016 are also excluded from this year's same-store sales calculations for both periods reported. In the first quarter of fiscal 16, a total of five locations were not included in our first quarter same-store results, consisting of four ag locations and one construction store.

Now I will turn the call to Mark Kalvoda, our CFO, to review results in more detail, provide an update on our inventory reduction and balance sheet initiatives, and to discuss our fiscal 2016 modeling assumptions.

Thanks, Peter. Turning to slide 10, our total revenue for the fiscal 2016 first quarter was $353 million, a decrease of 24.1% compared to last year, which primarily reflects lower same-store sales in the ag and construction segments.

Equipment sales decreased 29% quarter over quarter, primarily reflecting the ag headwinds David discussed in his remarks. Our parts revenue decreased 10% in the quarter and service revenue decreased 11.3%, driven by decreases in both our ag and construction segments.

The lower parts and service revenue in our ag segment was the result of a decreased amount of customer preventative maintenance as well as reduced service business associated with the pre-delivery of sold new equipment. The quarter-over-quarter decline in our parts and service construction revenue was attributed to the dry winter that David spoke to earlier, as well as tougher comps in this period last year as construction parts revenue was up 16.5% and service revenue was up 9.3% in the same period last year.

Our rental and other revenue decreased 7.8% in the first quarter, primarily due to the lower utilization and a reduced rental fleet. Our rental fleet dollar utilization was 19.1% for the current quarter, compared to 22.9% in the same period last year. Decreased utilization was partially due to lower oil prices affecting rental demand in our oil-producing markets.

On slide 11, our gross profit for the quarter was $60 million and our gross profit margin was 17.1%, an increase of 80 basis points compared to the same quarter last year. Improvement in gross margin was due to a change in gross profit mix to our higher margin parts and service business compared to the prior-year period, partially offset by a decrease in equipment margins of 100 basis points.

Our operating expenses as a percentage of revenue in the first quarter of fiscal 2016 was 16.2%, compared to 15.3% for the same quarter last year. The increase in operating expenses as a percentage of revenue was due to the deleveraging of our fixed expenses as total revenue decreased from the prior year.

Although our operating expenses as a percentage of revenue increased, we decreased our operating expenses by $14 million or 19.7%, primarily reflecting the impact of our first quarter fiscal 2016 and 2015 realignments and the initiatives implemented in our international segment last year. We have reduced overall operating expenses to better align our cost structure with the current market conditions.

For modeling purposes, it is important to note that we recognize non-GAAP adjustments of $4.2 million in the first quarter of FY2016, which primarily consists of realignment and store closing costs of $1.6 million and Ukraine remeasurement expense of $2 million. The current quarter remeasurement expense was due to the significant currency devaluation in Ukraine that Peter spoke to earlier.

In the prior-year period, we reported non-GAAP adjustments totaling $6.3 million, which included realignment and store closing costs of $3.2 million and a Ukraine remeasurement expense of $3.1 million. Floorplan and other interest expense increased 70 basis points as a percent of revenue but remained relatively flat in absolute dollars. The increase as a percent of revenue was primarily due to the deleveraging interest expense over lower revenue. We anticipate a reduction in our floorplan interest expense in fiscal 2016 compared to the prior year.

For the first quarter of fiscal 2016, we generated adjusted EBITDA of $5.1 million, which compares to $7.6 million in the first quarter of last year. We calculate adjusted EBITDA by including our floorplan interest expense and excluding nonrecurring items such as remeasurements, impairment and realignment costs, as we believe this better reflects the ongoing operations of our business.

Our adjusted loss per diluted share was $0.13 for the first quarter of fiscal 2016. This compares to adjusted loss per diluted share of $0.07 in the first quarter last year. At the end of our slide presentation, we have included a reconciliation table to help illustrate the adjustments to our GAAP results.

Turning to slide 12. Here we provide an overview of our balance sheet highlights at the end of the first quarter. In light of the headwinds we are currently facing in the ag industry, improving our balance sheet was and remains one of our key areas of focus. We had cash of $104 million as of April 30, 2015.

As I discussed on our last earnings call, we are using a portion of our cash to reduce interest-bearing floorplan payables. Our equipment inventory as of April 30, 2015, was $775 million, a decrease of over 20% compared to our equipment inventory of $971 million as of April 30, 2014. The inventory change includes a decrease in new equipment of $166 million and a decrease in used equipment of $30 million from the end of the first quarter of fiscal 2015. In a few minutes I will provide an update on our anticipated inventory reduction in fiscal 2016.

Our rental fleet assets at the end of the first quarter were $138 million, compared to $148 million at the end of fiscal 2015. A portion of this reduction was related to the de-fleeting in stores impacted by energy-related activity. As of April 30, 2015, we had $607 million of outstanding floorplan payables on $1.1 billion of floorplan lines of credit.

Total liabilities to tangible net worth improved to 2.6% as of April 30, 2015, from 3.2% as of April 30, 2014. The year-over-year reduction in inventory and associated lower levels of floorplan payables at the end of our fiscal first quarter of 2015 improved our total liabilities to tangible net worth ratio.

Slide 13 gives an overview of our cash flow statement for the first three months of fiscal 2016. The GAAP reported cash flow from operating activities for the period was $14.3 million. We believe including all equipment inventory financing, including non-manufacture floorplan activity as a part of our operating cash flow better reflects the net cash flow of our operation.

In addition, as I discussed on the last call, we are using a portion of our operating cash flow and cash on our balance sheet to reduce our floorplan payables. To accurately reflect cash from operating activities, we are adjusting our cash flow to reflect the constant equity in our equipment inventory. By providing this adjustment, we are able to show cash from operating activities exclusive of changes in equipment financing decisions.

The equity in our equipment inventory increased 3.1 percentage points during the quarter and represents a $23.7 million use of cash. In line with our cash strategy, we will continue to increase our equity and equipment inventory as we generate operating cash flow. Making these adjustments, our adjusted cash flow from operating activities was $8 million for the period ended April 30, 2015.

Turning to slide 14, I would like to provide an update on our Company equipment inventory. Similar to what we have provided in the past, you will see a chart outlining our equipment inventory position for the last four years, as well as our first fiscal quarter and ending inventory target for fiscal 2016. We continue to anticipate a $150 million reduction of equipment inventory in fiscal 2016.

As we mentioned on our last call, inventory at the end of the first quarter of fiscal 2016 was similar to inventory levels at the end of fiscal 2015. We expect the quarterly inventory stocking trend to be similar to that of fiscal 2015, with most of the reduction occurring in the fourth quarter.

Turning to slide 15, you will see a chart showing our total liabilities to tangible net worth ratio over the past four years. This chart shows a notable improvement in this ratio from a high of 3.3 in the second quarter of fiscal 2015 to 2.6 at the end of the first quarter of FY2016. Based on a consistent level of tangible net worth, we continue to expect to further reduce the ratio to approximately 1.9 at the end of fiscal 2016.

We expect the timing of this decrease to closely track with the expected equipment inventory reduction which was noted as occurring primarily in the fourth quarter. Given the current market conditions, particularly in the ag sector, we believe it is prudent to delever our balance sheet in order to best position the Company to capitalize on long-term opportunities.

Slide16 shows our fiscal 2016 annual modeling assumptions. We are reiterating the modeling assumptions that we provided on our last earnings call, which are as follows. We continue to expect our ag same-store sales to decrease 20% to 25%. This primarily reflects lower anticipated results from our equipment revenue, as well as a slight decrease in our parts and service revenue.

We expect both our construction and international same-store sales to be flat. Although first-quarter ag and construction comps were below our annual expectations, it is important to remember that ag and construction faced stronger year-over-year comps for the first half of fiscal 2016.

To improve the consistency between segment reporting and same-store sales, beginning in the first quarter we are including eliminations in each applicable segment instead of having a separate line item titled eliminations. You will notice a slight change in last year's individual segment revenue and pretax income as a result of this. This change does not affect overall revenue or any other line item except individual segment revenue and pretax income.

To help you with your modeling, for prior quarters we have included a table in the back of today's presentation. Our modeling assumption for equipment margins for the full year is projected to be in the range of 7.7% to 8.3%. We expect to be profitable on an adjusted diluted earnings per share basis for fiscal 2016.

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

(Operator Instructions)

Neil Frohnapplen with Longbow Research

Could you guys provide any more granularity on the equipment margins in the quarter? The guidance implied a sizable step-up for the remainder of the year. So is first quarter the low watermark? And what gives you guys confidence that margins will accelerate to around 8% on average for the remainder of the year to hit the low end of the guidance?

This is Mark, Neil. The equipment margins, as you know, the lower cost to market we take on a ongoing basis. When you have a quarter where there is lower revenue, any kind of write-down in that lower of cost to market creates a larger impact on the margins coming out of that equipment business.

Yes, we did reiterate the midpoint there of around 8% for the year, so we do anticipate those margins to expand throughout the year.

Could you provide some more color on -- you mentioned the partial recovery in oil prices support second half stability in energy markets. Are you seeing signs of stabilization already there?

Yes, I think what we've seen is there was a little bit of shock and awe out there to begin with with the rapid decline in the oil prices out in the market out there. And as things have settled down and they've reached what appears to be a bottom on oil prices down below $50, and it's rebounded above that now, I think some of that is passed and there's more activity going on. A lot of infrastructure projects are taking place and we are starting to see some renewed activity going on in that market.

Rick Nelson, Stephens,

I would like to follow up on the margin pressure as well. If you could break that down perhaps between new and used equipment, where the pressures are? And any comments about inventory in the channel? I realize you've made good progress in terms of reducing inventory, but any overall comments about the industry inventory.

To the margin question again, it's still more pressure on the used. No, we're not anticipating or nor have we expected any kind of notable compression there. The used is still where we are having some of the lower cost to market adjustments, which is keeping the margins down in that area. The used equipment market out there is the tougher one.

As far as overall inventory conditions, yes, we continue to work down the inventory. It's seasonally -- it's a quarter, first and second quarter we tend to stock more. We get more deliveries in. I would say we continue to make some progress on the new and used out there.

Still more to go, as we're expecting to get down $150 million for the year, but we continue to make progress in that regard.

Thanks a lot for those comments. Good luck.

Mig Dobre, Robert Baird.

I'm going to stick with margin as well. If I look at margin progression in equipment, we've seen a sequential decline for now four quarters. And I'm wondering here, if we're going to see a sequential uptick going forward back to 8% from 7.3%, doesn't that necessarily imply that you're baking into your outlook some sort of stabilization, if not even potentially some kind of a rebound, in used-equipment pricing?

No. I would say it's not necessarily figuring on some price -- pricing increase there any kind of -- I would describe it more as less pressure where it would be lower levels of write-downs that we would incur in the used equipment area.

The other thing, again, I mentioned it earlier, but with having a lower level of sales compared to a fourth quarter, for instance. Fourth quarter if you had the same amount of some of these lower cost to market adjustments, your overall margin wouldn't be as affected near as much because you're taking it over a much larger numerator in that instance. No, I don't think it's implying that there's any kind of pricing increase or anything like that in the overall markets, but I would say it's more less pressure.

Why would you expect less pressure?

Further along in the cycle and a combination of that and overall over levels of used equipment inventory levels.

On SG&A, you guys have done a tremendous job there, and I'm wondering how to think about this number going forward? Is this, call it below $60 million level sustainable as you look at the rest of the year?

No, I wouldn't indicate that because again some of these -- some of what we have in the first quarter with commission expense, so again you get out to a fourth quarter where you have the higher levels of equipment sales, you're going to have higher variable costs such as commissions. Where you did see the bigger year-over-year improvement would be Q1 because you really had both of those realignments helping in Q1.

Brett Long, Piper Jaffray.

Looking at your comment there with the cycle, I'm just wondering what your expectations for the crop are this year, particularly on yields when you compare it to what the USDA has provided given the current planting progress and expected growing conditions. You talked about adequate moisture levels in your footprint. Just wondering what you can say there?

First of all, this is probably pretty ideal planting conditions across some of your more productive growing areas in the upper Midwest. Crops were in early; corn was in early; ideal planting conditions; great weather conditions. We've got a great jump on things. Where we were in some moderate drought situations three or four weeks ago, there has been really nice ample rains in the Dakotas, Minnesota, Iowa, Nebraska.

My anticipation is, as you look around, pretty good piece of the United States right now, there's some really ideal growing conditions, good plants, a lot of things are ahead of the game. So I'm optimistic that there's going to be some excellent yields, especially in our footprint.

Everything is setting up. We?re still a ways from harvest, but everything is set up about as well as you can imagine right now for good yields.

If you have expectations for good yields, do you think those could be above trend line and then where do you think that puts pending stocks and how does that impact the cycle and farmer sentiment in terms of equipment purchases?

First of all, it's nice to have the bushels. Once you have the bushels, I think our growers have some pretty good staying power and they don't have a gun to their head to sell right off the combine. I think they have -- the bushel has been good.

But then, as it does for overall commodity prices, more supply is going to put pressure on commodity prices. That's the offset to that.

You need the bushels regardless of the price. So that's a positive. But then again I think we'll have to wait and see really what affect that's going to have on commodity prices as we get into our third and fourth quarters.

Joe Mondello, Sidoti & Company.

I have two questions. First, in terms of the construction segment, it seems like, in terms of the organic growth assumptions, that you are assuming a fairly -- a good rebound in the second half of the year. Is that largely related to smaller pressures on the energy side? Could you comment on what you are seeing within that segment that's been sort of a challenge over the last couple of years?

I think the biggest thing that it says is, for the year we indicated flat, overall flat on construction as far as sales growth. Being down 6% in the first quarter, yes, implies some improvement going forward. But you really have to look at last year's comps to that where we are up nearly 25%, 27% in Q1, Q2.

So were up against some very tough comps that get much more relaxed in the back half of the year. I don't think it's more -- I think it's more of what we're comping against rather than what we're seeing in the current year.

It seems like the revenue base would be above $100 million for the rest of the year in terms of what the guidance implies? Am I looking at that right?

And if so, last year you were sort of consistent on a quarter-to-quarter basis. Maybe give or take $5 million or $10 million, but the uptick from the $80 million that you did in the first quarter seems a bit large. I'm just wondering where you are going to see the big improvement starting later in the year?

The first quarter is generally our lowest quarter, seasonally low quarter, especially up in the upper part of our footprint here with winter going on and the ground frozen and everything like that there is not near the activity that we have later in the year. Similar to the ag side, there is a year-end buying element, too, that happens on the equipment side. If I understood your question right, some of it is seasonality here too that happens in that first quarter versus the others.

Secondly, in terms of the international segment, business continues to lose a lot of money. The currency pressures alone seem like it make the economics of this business pretty tough to take. It's going to continue for a few more quarters, just wondering if you can update us on your thoughts on that venture?

We're committed to the business. We continue to work through the challenges that face us in certain markets that we are operating in. I made comments on the call about Ukraine and then in Bulgaria we had wet conditions last year. We are working through that and selling down our inventory to reduce exposure on inventory.

What my question really is is at what point does that commitment -- do you start to rethink that, given the money that you are losing for a long period of time now?

As I said, we are committed to the business and understand that under any scenario the business needs to be operating profitably. We need to get the business in the right condition.

Finally, do you anticipate at the end of this year that you can get that business to a right-enough point where you?re at least breakeven?

For the full year, I think that's going to be tough as we get through --

No, I mean a run rate at the end of the year?

Yes, I think that's possible. As Peter indicated, we are getting our assets to a level, given the type of revenues we're seeing out of the business over there.

As you know, the floorplanning over there, the financing is more expensive, particularly in the Ukraine. So as we get those assets down and get the exposure down in the country of Ukraine, I think that does set us up for a run rate to profitability as we get toward the end of the year.

(Operator Instructions)

Larry De Maria, William Blair.

Couple questions. First, as you say, we're off to a good planting season and ideal growing conditions. I want to understand specifically how much risk do you guys see in the second half if we have a good harvest and, obviously, would imply lower prices? In other words, how important is the summer weather to your outlook this year and is there a risk to another letdown in the second half in your guys' view?

Weather is always an issue. To get your maximum yields, especially in the corn and soybean areas, it takes some timely July, August rain, so that's still out there. I feel a lot more positive right now about the moisture conditions in some of our areas we have a lot of stores in, the Dakotas, Minnesota, Nebraska, Iowa.

There's good subsoil moisture and it's set up so the moderate risk for crop failure now in a lot of those areas is much less than it was three or four weeks ago. There's been some really nice timely rains. There again, the top and the maximum yields are really dependent on some good July, August rains in these markets.

Assuming that happens, I'm curious, how worried are you guys that the second half could come in below expectations based on what looks to be a good crop so far?

I think that's going to be positive for us, a good crop development. The same time, you take a lot of our growers out there are -- understand, we've got some stock commodity prices out there. I think a lot of their buying intentions and settlements, that's been ongoing here for the last six, seven, eight, nine months and will continue that way.

That's out there. The one variable is the yields and I think the yields are going to be positive. But yet I think everybody right now is under the realization that there's pressure on commodity price and it's going to continue for some time in the future.

Moving to industry inventory. How much difference do you think there is between you and your competitors and how long do you think this excess channel inventory for both new and used will remain in the industry? It's probably going to spill into next year, I would assume, but delineate how much better or worse you guys are versus your competition?

As I drive around and our competitors' lots and compare that to ours, I think everybody is in probably a fairly close same level of inventory. It's good to hear the manufacturers are talking about underproducing the retail as we go ahead.

I think the trend is there's going to be less new equipment shipments and I think both us and our competitors will move through the used in some period of time. As long as the new keeps coming out at less levels than retail, and so inventory levels, both new and used, are in line, we're going to be in good shape at that point.

When do you think that the inventories will be in line with end-market demand at this point?

I don't have a crystal ball out there, but I think we are doing everything we can that we can control to accelerate that as fast as possible from our standpoint to minimize our interest expense and any future exposure. We're doing everything we can to make sure that we're ahead of the curve.

You talked to renewed activity in oil and gas. Are you specifically getting orders now in those basins or is the quoting picking up or you are just seeing what might lead to orders? Just curious about how tangible the pickup is right now?

The way we talked about it was more stabilization, called it stabilized environment. I would not want to leave the impression that it's really (technical difficulty) a great amount or anything like that.

We are getting new deals done out there. We are seeing some more activity in the rental business that we have up in that area. Yes, there is what we would call stabilization going on out there.

Mig Dobre, Robert Baird.

Just a couple of items. Sticking with rental here, can you maybe, Mark, give us some color here on the slight decline in the rental fleet? And I'm also wondering, within your overall outlook, what sort of utilization levels are you baking in and how does that compare to what you were able to do from a utilization standpoint last year?

I think for the quarter, some of the things that we saw there affecting our utilization compared to the prior-year, certainly some of that energy-related stuff. So it's moving out. We've got some of it moving out of that energy area.

Just the fact that the stuff that's in the energy area is getting a lower level of utilization but also moving it out and dispersing it into some of the other areas, it takes a little bit of a ramp-up to happen when we do that. That's some of the things affecting the quarter, along with the weather factors that we discussed earlier and the snow removal opportunities that didn't present itself this year with the dry weather.

Regarding the de-fleeting, some of that was also in this energy area. Rather than dispersing it, we did de-fleet some of that. I would say it's somewhat of a planned de-fleet, maybe a little bit more than what we initially expected. Much of that de-fleet was associated with some of that energy area stuff.

In regards to the full year, we don't provide that modeling assumption anymore, but based on last year, I think we're starting out slower, but we do expect that to pick up somewhat. Probably to a level similar to last year ending results.

That's helpful. With Peter's role changing, especially as we look beyond fiscal 2016, how should we be thinking about the person that will assume actual executive management of the international business? Not on a consulting basis, but call it a full-time basis within the Company? Especially since, from what I understand, you've also made some adjustments to the shared resources that you put out there.

First of all, we have some strong leaders in place in Eastern Europe right now. We really think that that business over there is best managed by people that have the European background, European culture and understand the business over there. Like I say, we've got strong leaders in place and we are continuing to develop that organization with the group of leaders we have a lot of confidence in right now.

It appears there are no further questions at this time. I would now like to turn the call back to Mr. Dave Meyer.

Thank you, everyone, for being on the call and your interest in Titan. We look forward to updating you on our progress on our next call. Have a good day.

That concludes today's conference call. Thank you for your participation.