Titan Machinery Inc (TITN) 2018 Q1 法說會逐字稿

Good day, and welcome to the Titan Machinery Inc. First Quarter 2018 Earnings Call. Today's conference is being recorded.

And at this time, I'd like to turn the call over to John Mills of ICR. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to the Titan Machinery First Quarter Fiscal 2018 Earnings Conference Call. On the call today from the company are David Meyer, Chairman and Chief Executive Officer; and Mark Kalvoda, Chief Financial Officer.

By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2017, which went out this morning at approximately 6:45 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, and you can 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.

You'll see on Slide 2 of the presentation our Safe Harbor statement. We'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them.

These forward-looking 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 annual report on Form 10-K. These risk factors contain more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, 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'll 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've included reconciliations of these non-GAAP financial measures in today's release and have provided information regarding the adjustments that are added back or excluded in these non-GAAP financial measures.

Today's call will last approximately 45 minutes, and at the conclusion of our prepared remarks, we will open the call to take your questions. (Operator Instructions)

Now I'd 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 2018 Earnings Conference Call. On today's call, I'll provide a brief summary of our results and then an overview of each of our business segments. Mark will then review financial results for the first quarter of fiscal 2018 and update you on the status of our inventory. We will conclude with a review of our updated modeling assumptions for fiscal 2018.

If you turn to Slide 3, you'll see an overview of our first quarter financial results. Our first quarter revenue was $264 million with an adjusted pretax loss of $6.5 million and adjusted loss per diluted share of $0.19. Overall, these results are aligned with our expectations, reflecting continuing industry challenges in domestic Agriculture and Construction segments. This include the time and delay of restructuring cost savings, but also earlier-than-expected equipment margin improvement enabled by our aggressive equipment inventory reduction and the overall industry inventory environment.

Equipment demand in our International segment has also grown ahead of expectations. I will say more on each of these, but foremost, we remain committed to a profitable year and I'm pleased with our progress.

Now I'd like to provide additional detail for our 3 operating segments including our domestic Agriculture and Construction segments and our International segment.

On Slide 4 is an overview of our domestic Agriculture segment. Despite late snow and intermittent rains, planting and early crop development appears on track. Overall business conditions are consistent with our expectations with continued low commodity prices continuing to dampen equipment demand.

Stalling South American production contributes to the impact on commodity prices, however, we're seeing used equipment value stabilizing, helping margins. We are executing targeted marketing and product offering and flexible financing to stimulate demand, all with an expanded focus on product support and precision ag. We continue to manage our new and used inventories to reduce demand and to implement cost savings and efficiency improvements as part of our recent restructuring.

Turning to Slide 5, you will see an overview of our domestic Construction segment. Although there are some segment that Construction will be strengthened by federal infrastructure programs heading into 2018, we don't expect this to translate into broad-based growth in our territory this fiscal year as evidenced by our first quarter results.

Overall, we have seen revenues decline slightly in line with our expectations with ongoing residual impact of [dying] Agriculture and energy markets in our footprint. However, we're seeing a few bright spots, including solid growth in major metro areas and modest increases in the oil and natural gas productions. We'll continue to expand the rental focus and target increasing contract demand with a strong lineup of construction equipment in growth areas. By continuing to optimize our rental fleet mix to increase utilization and through achieving our restructuring expense reductions and efficiency gains, we are well positioned for profitability on our Construction segment. With our expansive construction slope footprint reaching from Canada and Mexico across the Western and Central United States, this will allow us to fully capitalize on growth as the market turns up.

On Slide 6, we have an overview of our International segment including Ukraine and the Balkan countries of Bulgaria, Romania and Serbia. The overall business climate in Eastern Europe continues to improve, and we are seeing results of this on our first quarter performance versus last year. It's also been a favorable start to the growing year in all of 4 countries. In Ukraine, Romania and of late Serbia, we're seeing a combination of a sustained economic growth, available financing and favorable growing conditions that is encouraging strong equipment sales growth.

We're taking steps to optimize our sales coverage and expand our product support business to further improve customer loyalty and margins.

In Bulgaria, strong economic uncertainty is contributing to a slower equipment market than the other 3 countries. The market remains similar to what we experienced last year. We're taking advantage of specific customer sales opportunities, while continuing to manage our equipment inventories and expenses based on current demand. Altogether, our overall company performance is aligned with expectations with international growth somewhat ahead.

We continue to execute on our initiative to remove structural cost from the business, which I would like to revisit. We remain confident that we will remove $25 million of annual cost, while continuing to meet customer needs. Although there is a timing delay in store closings due to customer service demand in advance of spring planting, the expected store closures are completed towards the end of the quarter and related inventories are in the final stages of being reallocated or sold. With our new expert team operating structure now in place, we are executing on our cost-reduction plan, where we will see the benefits of improved efficiencies and decreased costs throughout the remaining 3 quarters of this fiscal year and beyond.

I'm satisfied that these and previous restructuring efforts, in combination with our ongoing disciplined inventory management that put us in a favorable cash position with a strong balance sheet to achieve sustained profitability even at the bottom of the industry cycles.

If business conditions improve, we are poised to capitalize on growth and deliver increasing returns.

Finally, I'd like to thank our dedicated employees in the United States and Europe for your outstanding efforts and the contributions you are making every day to our customers and company.

I will now turn the call over to Mark to review our financial results and our continued success of inventory reduction, and finally, to update you on the updated modeling assumptions. Mark?

Thanks, David. Turning to Slide 7. Our total revenue for the fiscal 2018 first quarter was $264 million, a decrease of 7.3% compared to last year.

Equipment sales declined 9.2% quarter-over-quarter, which is primarily driven by the industry factors David discussed. Our parts revenue decreased 1.6% in the quarter and service revenue decreased 7.2%. Our parts and service business is still being impacted by lower overall equipment revenue levels, providing a lower level of service opportunities on pre-delivery and warranty work. Our parts and service business was also affected in the first quarter as we closed stores related to our restructuring plan and began transitioning customers to adjacent floors.

Our rental and other revenue decreased 5.5% in the first quarter, primarily reflecting the factors David discussed and slightly lower rental fleet dollar utilization of 19.3% for the current quarter compared to 19.7% in the same period last year.

On Slide 8, our gross profit for the quarter was $49 million compared to $54 million in the same quarter last year. Our gross profit margin was 18.5%, a decrease of 30 basis points compared to the same quarter last year. The gross profit margin decrease was primarily due to the lower new equipment revenues -- equipment margins, which we expected due to the industry factors David discussed earlier.

Our operating expenses decreased by $2.5 million to $52 million for the first quarter. As a percentage of revenue, operating expenses in the first quarter of fiscal 2018 were 19.6% compared to 19.1% for the same quarter last year. The increase in operating expenses as a percentage of revenue was primarily due to the decrease in revenue in the first quarter of fiscal 2018 as compared to the first quarter of fiscal 2017, which affected our ability to leverage our fixed operating costs.

In addition, our store closings related to our restructuring occurred later in the first quarter than we initially expected and this delayed the initial cost savings, reducing the cost benefits in the first quarter compared to earlier expectations. We still anticipate reducing annual expenses by $25 million, but now anticipate $13 million to $17 million to benefit fiscal year 2018 compared to our original expectation of $20 million.

Restructuring costs were $2.3 million for the first quarter of fiscal 2018 compared to $200,000 for the same period last year. The restructuring cost recognized in the first quarter of fiscal 2018 are the result of our restructuring plan announced in February to consolidate certain dealership locations and to implement a reorganization of our operating structure. We estimate the additional restructuring cost to be approximately $7 million for the remainder of fiscal 2018.

Floorplan and other interest expense was relatively flat at $4.8 million in the first quarter of this year compared to $4.7 million in the prior year quarter. Our floorplan and other interest expense would have shown a meaningful improvement year-over-year due to the large decrease in our interest-bearing equipment inventory and reduced level of convertible notes. However, we recorded a $2.1 million gain in last year's period associated with the repurchase of our convertible notes.

For the first quarter of fiscal 2018, we generated adjusted EBITDA of $1.6 million, which compares to $1.8 million in the first quarter of last year. We calculate adjusted EBITDA by adding back our floorplan interest expense and excluding nonrecurring items. You can find a reconciliation of adjusted EBITDA in the appendix to the slide presentation.

In the first quarter of fiscal 2018, our adjusted net loss including noncontrolling interest, was $4.2 million compared to adjusted net loss including noncontrolling interest of $4.8 million for the first quarter of fiscal 2017.

Our adjusted loss per diluted share was $0.19 for the first quarter of fiscal 2018, which excludes certain non-GAAP items as outlined in the reconciliation table in the appendix of the slide presentation. This compares to adjusted loss per diluted share of $0.21 in the first quarter of last year.

At the bottom of the page, you will see our absorption, which reflects the ability of parts, service and rental gross profits to absorb fixed operating costs. We believe this is a good metric. It's a good indicator of our progress towards growing our higher margin product support business, while also achieving more cost-effective operations. This makes us more resilient to both the current and future market downturns and associated equipment pricing pressures and delayed equipment purchasing.

Our absorption for the first quarter of fiscal 2018 was 73.1% compared to 72.1% in the same period last year. As our reduction in fixed operating costs and floorplan interest expense more than offset our decrease in gross profit from parts, service and rental and other. We expect to continue to improve our absorption rate throughout the year as we fully implement our restructuring plan and focus more on parts, service and rental, while reducing our operating cost structure.

On Slide 9, you will see an overview of our segment results for the first quarter of fiscal year 2018. Agricultural sales were $164 million, a decrease of 8.5%. Our Ag segment had an adjusted pretax loss of $2.4 million compared to an adjusted pretax loss of $3.9 million in the prior-year period. The revenue decrease was primarily due to the -- to lower equipment sales. The improvement in our pretax loss was substantially driven by lower levels of operating and floorplan interest expense.

Turning to our Construction segment. Our revenue was $63 million, a decrease of 18.7%. Reduction in quarter-over-quarter revenue decline was primarily due to $8.6 million of equipment revenue associated with our expanded marketing of aged equipment inventory in the prior year and the current industry conditions David discussed earlier.

Our adjusted pretax loss for our Construction segment was $2.5 million compared to $2 million in the same period last year.

In the first quarter of fiscal 2018, our international revenue was $37 million, which increased 32% compared to the prior-year period. These results exceeded our expectations, particularly in Romania where we are beginning to generate stronger customer demand through our recent build-out of our distribution footprint as well as our customers having availability of European Union subvention funds. Our adjusted pretax income was $600,000 compared to adjusted pretax loss of $300,000 in the prior-year period.

Turning to Slide 10. Here, we provide an overview of our balance sheet highlights at the end the first quarter of 2018. We had cash of $56 million as of April 30, 2017. Our equipment inventory at the end of the quarter was $403 million, an increase of $7 million from January 31, 2017. This reflects a seasonal increase in new equipment inventory of $23 million, partially offset by a $16 million or 9.7% decrease in used equipment inventory. In a few minutes, I will provide additional color on our inventory outlook for fiscal 2018.

Our rental fleet assets at the end of the first quarter were $126 million compared to $124 million at the end of the fourth quarter of fiscal 2017. We continue to expect the size of our rental fleet to remain relatively flat in the current year.

We had $260 million outstanding floorplan payables on $808 million total discretionary floorplan lines of credit as of April 30, 2017. As a result of our successful equipment inventory reduction in fiscal year 2017 and current year inventory plans, we lowered our floorplan capacity by $70 million in the month of May, resulting in current available floorplan lines of $738 million.

We continue to maintain a healthy total liabilities-to-tangible net worth ratio of 1.5. During the first quarter of fiscal 2018, the company repurchased $20.3 million face value of convertible notes, with $19.3 million in cash. The company has now retired a total of $74.5 million or approximately 50% of the original face value of our convertible notes.

Slide 11 provides an overview of our cash flow statement for the first 3 months of fiscal 2018. The GAAP reported cash flow provided by operating activities for the period was $41 million, primarily attributable to a changing mix of manufacturer versus non-manufacturer floorplan financing. As part of our adjusted cash flow provided by operating activities, we include all equipment inventory financing, including non-manufacturer floorplan activity. Our adjustment for non-manufacturer floorplan payable amounted to a reduction of cash of $26 million.

To accurately reflect cash flow provided by operating activities, we adjust our cash flow to reflect the constant equity in our equipment inventory. By providing this adjustment, we are able to show cash flow provided by operating activities exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory decreased 5.5% during the 3-month period and represents a $22 million adjustment to our cash flow provided by operating activities. Making these adjustments, our adjusted cash flow used by operating activities was $7 million for the 3-month period ended April 30, 2017, compared to $6 million for the same period last year.

Turning to Slide 12. I'd like to provide an overview -- an update on our equipment inventory. This chart outlines our ending equipment inventory position for 5 years, including our ending inventory target for fiscal 2018. In the first quarter of 2018, our equipment inventory increased $7 million, which I indicated earlier consisted of a $23 million increase in new inventory and a notable decrease in used inventory of $16 million or a 9.7% reduction. Our inventory is in the best position it's been for many years, and we continue to anticipate further improvements with an additional $50 million reduction of equipment inventory in fiscal 2018.

By the end of fiscal 2018, we expect to have reduced our equipment inventory by nearly $600 million or 63% compared to the end of fiscal 2014, representing a major improvement in our balance sheet in the face of various challenging market conditions.

The improvement in our inventory level is generating improved equipment inventory turns as we now moved up to a 1.5x turn in the current quarter despite lower revenues. This is reflected in the black line on the chart. The benefits of higher inventory turns, our lower carrying cost and less compression in equipment margins. We will continue to see lower floorplan and other interest expenses as a result of our efforts in this area and are now beginning to see some strengthening of used margins as well.

Slide 13 shows our updated fiscal 2018 annual modeling assumptions. We are updating the modeling assumptions, reflecting our first quarter results and increased visibility in current market conditions.

We continue to expect our Ag segment sales to be down 10% to 15% and our Construction segment sales to be down 5% to 10%. We expect the decline in these 2 segments include the impact of closed stores and anticipated lower equipment revenue. We are updating our expectations for our International segment following the better-than-expected performance during the first quarter of fiscal 2018 with forecasted sales now anticipated to be up 13% to 18% compared to our prior forecast of 3% to 8%, reflecting the improving results in our international countries, particularly in Romania and Ukraine markets.

We are also updating our expectations for equipment margins for the full year to a new range of 7% to 7.5% compared to our prior forecast in the range of 6.3% to 6.8%. The anticipated increase in margins primarily reflects our improved inventory conditions as well as used ag equipment values stabilizing in the market. We are maintaining our expectations for diluted earnings per share to be slightly positive with higher anticipated equipment margins offsetting the delay in restructuring benefits. Our expectation for positive diluted earnings per share is exclusive of the anticipated charges associated with our restructuring activity.

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

(Operator Instructions) We'll take our first from Neil Frohnapple, Longbow Research.

Within the Ag segment, could you elaborate more on the used equipment value stablism uptick helping margins? I mean, is that broad-based including larger equipment? I mean, any color that you could provide would be great.

Yes. I think across the board, we're seeing that on all products in oil field, I think machinery pg comes with all of these indexes. I see, as you see on number of years where you've seen that downward trend. Now all of a sudden it's not only flattening up, but it's starting to uptick a little bit. I think self-propelled sprayers, combines, forward drives were probably maybe mid-range of that 100, 200-something horsepower, low-crop tractor maybe not quite as much as those other ones that I aforementioned there.

Okay. And then I was hoping you could talk more about the Construction segment. I mean, we've seen a few of the OEMs significantly increase their revenue forecast for this business over the last month. So was the 18% same-store sales decline in the quarter below your expectations? And I guess more importantly, are you more bullish on the outlook from here? Or is it just the demand driven by farmers and lower activity in energy markets just tempering your outlook?

I think first of all, and we did kind of call it out where last year, we did have some of those marketing units that sold in the first quarter, particularly in the (inaudible) trucks rolling out in the first quarter last year brought up the revenues and made the comp (inaudible), those quarters. So adjusting those out, we're still down about 7.5%, but not near to the level that of 19%. and then second of all, I think there is positive sentiment out there. It just hasn't translated to sales yet. Even in rural areas, particularly in the Balkan, we're starting to see more activities just not translating to sales. I think there is the optimism out there. I think some of the (inaudible) excuse me, when they're talking about some of the positives, they're talking the (inaudible) out there maybe in the southern part of the energy activity out there down in the Texas area. But there is optimism and we do believe it'll translate to sales as we go throughout the year. So I don't think we were -- it was probably a little bit lower than expectations in the fourth -- I'm sorry, in our first quarter, but not off significantly.

We'll go next to Steve Dyer, Craig-Hallum.

I'm wondering you each talked a little bit about inventory. I'm wondering what you're seeing sort of on off lease machinery coming back. How you're handling that? If you feel like it's a challenge or it's at a sort of a good pace so far?

I think it's been well managed, and I think proactively being planned for. I think it's totally anticipated baked into our numbers and that's going to be coming back. Some of these are being sold back to the original customers because our inventory is in good shape. We're -- often it's opportunistically purchasing select units to meet some of our retail demand. So it's out there and they are coming back, but I do think it's be managed pretty well.

Okay. Do you feel like, as far as equipment gross margins, this is I think the first upward revision we've seen in a few years, even. Does it feel like sort of margins have at least bottomed there, not necessarily that they're going to go significantly higher in the near term? But does it feel like kind of the worst is behind you? And maybe an update on the inventory liquidation program that you guys put in place last year.

Yes. So first of all, maybe to respond to the latter part of your question first, we did finish that whole program where we identified all those units to go through the expanded marketing channel that was completed. There was a little bit that flowed through the first quarter here, but not much. But we are past that, and we always have some level of inventory, where we use different marketing channels through. But as far as that chunk that we called out here just over a year ago, we're complete with that. I think as far as our -- the strengthening equipment margins -- first of all, there's probably 2 reasons. The biggest is some of the ag used margins that we're seeing, it's not because of a lift in demand out there. It's more of a balancing of the supply with demand that's occurring out there. That, combined with, specifically, our inventory getting down and turns coming up in our used. The other smaller piece to kind of our equipment margin range coming up is the strength of international. With international coming up, those tend to be a little bit higher margins over there on the equipment that we're selling. So barring any type of big downturn in demand, which we're not expecting outside of a decrease that we have in our guidance assumptions, we think we're comfortable with that range from Margins that we put out there.

Got it. And then lastly for me, could you comment a little bit on sort of the progress in planting so far? I know, a lot of the country has seen a lot of rain. How are you feeling sort of in your footprint and how you anticipate that may or may not impact corn prices going forward?

I think in our footprint, I think we're really fortunate. I think overall, if you look at where our stores are in Minnesota, in Iowa, in Nebraska, in North, South Dakota, most of the crops' in. They got in. We're not seeing these big floods. I'd say as you move from West to East, some of the Western part of our markets is actually a little bit droughty Western South Dakota. Then as you move more towards East you get more moisture, the in far Eastern parts of what's really a little bit out of our market, then it gets a little bit too wet. So I'd say most part in our markets, we're on track. Crops coming up, crops are grown. Things are good. People are I'd like to say on schedule. So I'd say we're pretty fortunate right now. And the nice thing, there is good ample moisture and all even Western South Dakota picked up some rain. So I think overall, we're pretty optimistic to where we are, especially when you compare to as you seen some of the other parts in the Eastern Corn Belt and you hear about Illinois, where the replanting was flooded, the corn is yellow and all of that. So it's probably a little too early to see what impact it's going to have on the market, but I think right now, I'd say I like the spot we're in, we are pretty fortunate right now in most of our markets.

We'll go next to Mig Dobre, Baird.

I just wanted to make sure that we get all the guidance elements right. So your increasing gross margins, call it, 65 basis points at the midpoint. That adds $5 million or so of pretax income and you're taking $5 million out in terms of savings, which get delayed. And that $5 million would come out of SG&A. Mark, am I correct?

Yes, that pretty much sums it up.

Okay. And you're still expecting SG&A to be roughly $50 million lower on year-over-year basis for fiscal '18?

Right. There's just some subtleties with the equipment margins being up some variable expenses like commissions will also push expenses up a little bit. So there's a couple million there as well. $1 million, $1.2 million, something like that.

All right. So I guess, my question is we sort of have a kind of a one-step forward, one step back dynamic here. Something has obviously gotten a little bit better in your business guiding equipment margins higher, but I'm trying to understand why the pace of the savings or the restructuring is slower. Does this have to do with you maybe dragging your feet a little bit vis-à-vis store closures as potentially you are seeing a bottoming of the market, does that have to do with the pace of planting and supporting your farmer customer? Or is it simply related to execution bandwidth? What's really going on here?

I think Mig, in our initial thoughts, we were potentially kind of some store closings in the early part of the quarter, it always takes you in that February, March time frame. With that said, our stores, and there we have got to have give them credit for this year. The shops were full of equipment getting in advanced of spring planting season and that continued even as we started to announce some of the store closings in advance to some of our customers. All of a sudden, they kept bringing their equipment in. So rather than kind of load off equipment, some of that was torn down and you got engines in half repair, whatever, we just made the decision to kind of target that April 1 time frame, March 31, which is pretty much in line with when people are getting to the field and then really try to finish out of the build out of all of that equipment prior to spring planting. So I'd say that for the most part, that's where the delays came in. Really, what it did is it helped for a really orderly transition with both our customers and our employees by doing that. So all-in-all, I think it was the right decision.

So you're saying this was basically customer-driven and you attempting to service that customer? This has nothing to do with some of the things, from an execution standpoint, internally, vis-à-vis those savings?

No. I'd say we're right on plan and the demand for that -- to service our shops in those potentially closed consolidated stores that could complete that work prior to the spring planting season.

So related to this, as the customer has reacted to the news that you're closing stores, they rushed to bring in equipment. I'm sure that there was some conversation surrounding the fallout of these closed stores and what will happen post April. Can you maybe give us an update as to how customers are taking it? Are they kind of accepting this idea that they're going to have to go elsewhere for service? Any color here is helpful.

Well, first of all, change is difficult for everybody, right? Correct? But on the same time, I think with the expertise models, I think that what we can bring for customer support in these stores that were consolidated into, which typically are larger stores, larger staffs, more resources, more expertise, our expertise model. Some of these customers are doing business with some of the stores already. So overall, we're putting a lot of effort into the whole customer retention area. We're doing some things, the contacts. I think, yes, there's probably always a little bit of a delay and people need to get used to this. And will 100% of people will be happy? Probably not, but the lion's share of them -- and it's our job to go out and really show that we can do a better job of supporting the customers, the expertise, what we bring to the table. And at the end of the day, it's all about scale and just doing a better job. I think that we've proven that we can do that. So we're leveraging our best salespeople. That's important across a bigger footprint, and I think it's starting to look pretty well and we're seeing evidence of that.

All right. I guess last question for me, I got 2 parts here. You really have not changed your ag same-store outlook. Even though I would argue that OEMs have on a pretty broad basis have sounded more positive. So I guess, I'm wondering if you're seeing something different in OEMs or if it's simply a factor of OEMs under producing demand last year and having a bit of a snapback that they're recognizing this year? And then the second portion of the question is: your assessment for used equipment inventories beyond what you've got on the lot what you're seeing from your competitors. Is it fair to say that your other -- your competing dealers have also worked down a good chunk of that used equipment sitting on their lots? Or is that still something that the industry has to broadly deal with this year?

Okay. So if we look at what the OEMs, they're probably -- if you look at United States or say North America, so I mostly talk about North America. They're talking what, down 5 is what I'm see most of the time. So they're basically talking down, right? They may have one of the more recent ones that proved some of the guidance. But when we talk about North America, I think we really need to look at the difference between Canada and the United States. And I can give you some examples like, say, year-to-date, industry numbers for Canada, I'd say, South of (inaudible) is up 46%; United States, down 11.5%. But (inaudible) in Canada, up 48%; United States, down 10%. If you look at 100 horsepower plus trackers in Canada, up 9.8%; United States, down 11%. So when the OEMs includes both U.S. and Canada it tends -- and when you get that strong of numbers in Canada, that tends to -- and we don't have that going on our markets right now. And if you look at the commodity prices right now, really, what the customers are getting at the elevator on corn and also our markets clearly right around that $3 mark in soybeans, you're seeing that $8.30, $8.40 at the elevator. And actually, soybeans, if you compare that to say, January, that's a dollar off. But we're really not seeing our commodity side. Anything is going say, hey all of a sudden customers are going to be jumping up and down and running out. So it's becoming more of a replacement demand market out there, and I think we're pretty confident in our numbers.

And on the used equipment inventory side?

We've done, we know, we've done and we've done a really good job. I know that when you drive around the country you do see some of our competitors, they have some pretty good numbers, equipment line out in their lots. So I guess, we can manage what we're doing and we just really feel good that the position we are in on our inventory in all we've done a great job and that really positions us on the good spot to trade in future equipment on as the cycle starts moving, hopefully, positive.

We'll go next to Rick Nelson, Stevens.

I'd like to follow up on that restructuring. There's a fairly big range now around the cost savings relative to what you provided previously. And if you could provide some color around that and what goes into that?

Right. So what we -- so first of all, the $25 million is constant. That's kind of the overall and it's mostly structural savings that we're expecting to get over last year on a full year annual basis. That stays the same. The part is the timing within the year that's going to affect the current year. Before, what we indicated was $20 million positive impact to the current year. Now basically with the midpoint that we had a range there of 13% to 17% midpoint, I'll call, it $15 million that we're putting out there today. Now some of that just depends on -- so even with the stores closed today, there's still kind of getting the assets out of those locations. There is moving, as an example parts around shop tools, getting everything repaired, where we can find alternative uses for that real estate property out there. So there's some of that range is to how soon we can get all those done and some of them are going to vary earlier, some of them are going to vary later. And then also, there's just other initiatives that we have when they come into play -- what in the second quarter and third quarter. Number of initiatives in this restructuring plan that's planned for the next kind of 2 quarters here. So it's the timing of how those all fall where there could be some variability, and that's the reason for that range.

Okay. I'd like to talk -- if you could speak to your thoughts about acquisitions at this point? A bulk of your capital is going to reduce those converts, but at what point do you step in and say it's time to buy some of these dealerships?

Well, right now, there is starting to become -- I'm getting phone calls. There's a lot of discussion going on for current dealers looking for some type of succession solution, retirement, things like that. So there's definitely some discussion going on in the marketplace, and we're going to continue to look at these. I think we definitely have our balance sheet and our capital and our cash flow. We're definitely in a position where we can execute on some M&As, some acquisitions out there, Rick. So I guess, it's definitely -- I think, that's something we'd like to do. I think, we've demonstrated you do a good job of that and we're positioned to do it. So I think it's continued to evaluate markets to make sure if we do, do acquisition, we're getting the right ones and they make a lot of sense. And we're into that right now. And actually, hopefully, we can show something sometime in the near future on some acquisition announcements.

And is that more likely to be in your current trade territory? Or would you look beyond to (inaudible)?

I think, predominantly, if you look at the 5 state area that we've got Ag stores in, Minnesota, Iowa, Nebraska, North/South Dakota, I think there's plenty of activities. We like that market. I think they're contiguous to some of our current locations and I think it makes a lot of sense. So I guess, predominantly that's the market were looking in on the ag side of the business. And just like I discussed earlier on the construction side business, we have a pretty enviable footprint right now, all the way from Arizona and New Mexico, all the way up to Colorado, Montana, Wyoming. Then in addition to the 5 state area we have our ag, we also have construction. So we've got a pretty good footprint right there right now.

We'll go next to Joe Mondillo with Sidoti & Company.

I just had a question related to the restructuring that I -- sort of a follow-up from one of the prior questions. I wasn't sure if it was exactly clear. In terms -- relative to your expectations several months ago, do you have a clear idea if you are retaining customers, particularly on the service and parts side of things with related to these store closings? Or is it just too early mainly?

No, it's a little early. We're talking about 1 month basically right now, so it's a little bit earlier. But our marketing department and our on CRM we are really identifying the customers in the closed stores. We're monitoring that. We've got a lot of plans in place. We've got off of that way ahead of time. I think we've done some -- really identifying specific customers and some actions between our people and some things we've done. And so I think we are -- and we're going to continue to really monitor that, it's important to us. I mean, that was one of the first things in our early discussions on this to lay out a plan and I think we've done that and the team has done a good job of executing on that. So I'm confident we're going to hit the retention numbers that we're anticipating.

Okay. And then just sort of a bigger level sort of question. Over the last 3 years, it's been a long downturn year here. The timing of this restructuring and relative to this quarter in particular that we've seen you bring up your equipment margins pretty significantly. Looking back to sort of the last 3 years, and in particular, sort of this latest restructuring it seems like this restructuring is a bit late from our perspective anyways. Can you comment on that? And do you have any sort of regrets? Or did you think about may be slowing down this restructuring, given the stabilization that you're seeing in equipment margins, particularly on the used side of things, which has been the tougher side of the market? Any thoughts on that regarding the restructuring?

Well, the first part of your question is, "Hey, was this late in the game?" I think you have to remember that this is really probably the third -- this is our third round of doing this. 2 years ago, we took about $50 million out of the system, and that was our second round. And just the year before that, we did announced some consolidation mostly on the construction side. And 3 years ago, both ag and construction and now this also. So we've been I think serious about that. So I'd say right now, we're looking at it -- I think it's really about the size and the revenue coming out of these stores and the revenue per rough comp. So if you really look at where if we're going to really be truly be successful in this business and are you going to get that the scale and the leverage across, you got to have a certain amount of minimum revenue sort of rooftops. So we really looked at this. And as you look at all this -- consolidation is not new to our industry and there is fewer of the larger farmers, now this equipment is getting larger, more complex and we're seeing this increased technology data GPS and precision and some of that is pretty new right now. And we just -- so this is really thought through. I think it's really about scale. It's a revenue per location and really run the numbers on that. I definitely think it's the smart move. And like I say, this is really the third round in the last 4 years that we've done this.

Right. And I understand that and you guys have done a pretty good job over the last couple of years. I guess just the odd thing for me is that one of the prior questions just before me was related to acquisitions. And we're just starting to think about and talk about acquisitions because we're seeing support in equipment margins. We're seeing sort of a turnaround in the overall macro sense of the market, yet we're sort of still in the midst of still initiating this latest round of restructuring. And I'm just wondering sort of, I guess, going forward, are we going to start making acquisitions in the regions? I guess what's your long-term strategy? In terms of acquisitions, are you going to be focused on areas where you're not even close to? Or are we going to go going back into regions where we're just closing over the last couple of months?

Well, we like areas that have really productive farmland, where we think that we have very well-capitalized farmers, with really good balance sheets, okay. There are markets like that. So one of the first things to look at is what is the industry potential? So if you do this acquisition and you get a certain level of share, what kind of new and used equipment revenue you get and that translates and usually lay our model on top of that. You're going to get with your mix in your certain parts and service. So when you run the pro forma statements on that and the first thing is always it has to have that market potential, and you tend to get that market potential when you are into these really good farming areas. So I'd say when look at the delivering value in North Dakota, the state of Iowa, the irrigation and the land and the productivity you see out in Nebraska. What we have in the Dakotas with, but also in irrigation, but really I think some really pretty productive areas. We're in some pretty sweet spot. And in some of these markets have -- we have consolidated. I think we're getting bigger trade areas per rooftop. I think when you get that market potential, so this is a pretty good area to go into. Now if you -- not to say there aren't other areas in the United States that are pretty good and we're looking at some of these. And keep in mind too, there is -- there has, over the last 10 to 15 years, been some dealership consolidation. So now there's some of these 6, 8, 10, 12 store dealers groups and some are doing $200 million, some are $300 million in revenue, but there could be some opportunities in some of those groups also. So not only is the one in 2 store talking operations, but there's also some nice dealer groups out there that may or may not be looking for capital solution, succession solution, retirement solution, things like that. So there are a number of different ones out there, we're going to be really smart about that, but we definitely not going to -- if you look at the situation why we closed the store because maybe a market was too small, maybe it was an area that didn't really have long term from a production area culture standpoint, maybe wasn't going to be there. And some of the considerations that we did part and machinery, the competitive landscape around that dealership, all of those things that we took into consideration, we're going to continue to evaluate future acquisitions -- our idea isn't to go in and do an acquisition and all of sudden turn around and shut it down. We want to go in to win. We've got long-term market potential and can really do a good job with that and benefit our bottom line.

Okay. And I appreciate that. And just lastly, I don't know if I missed this or I might have missed this, but the reorganization part of this whole thing regarding the personnel and sales managers and such. Where are we in terms of that process of reorganizing the structure of your personnel and the structure there?

Well, I'd say most of that was completed in the month of February and early March. So all that was well done and in place before we actually closed the stores. So we've got some really good people. I -- over the last probably through the end of March or probably April, I think there a lot of focus on the store closings. Some of the assets, some of the people. The retaining customers were pretty busy. But thereafter, I think we've got some good people in place. We're getting good traction. We're doing a lot of right things. We're seeing some wins out there, which are good. So I'd say it's all been in place for us and already to keep improving the business with is what they bring to the table. And I'd say it's a pretty impressive team that we have out there right now.

We'll go next to Tyler Etten, Piper Jaffray.

We're running out of time, maybe just a couple of quick ones. Since you talked enough about M&A specifically on the North American side, maybe if there's the you see opportunities in the International segment now that we've seen a nice inflection in that market? I haven't seen any acquisitions since the fiscal '14 year. Just curious if you guys are feeling out any prices in that area?

Yes. So what we've been focused on the last couple of years is really building out our existing footprint. So the way you in operating, we had 4 oblasts inside the Ukraine, for example, and doing some of the geopolitical stuff going on a few years ago. We did not have facilities of brick-and-mortar in 2 to 4 oblasts so basically. Those are all completed up and running, so we're actually physically in 4 oblasts in the Ukraine now. Romania, we built our footprint in Romania and now we've got 3 additional locations in Romania that we did not have 3 years ago. So we're building out the footprint and that really starting to show its dividends and at the same time, we're seeing really an uptick in the business over there. So we've got a good team in place. We've got good European management in place. So yes, we’re in a position, I think, we're we continue to just like we analyzed North America acquisition, we do the same thing in Europe. And I just really feel good about what we've done with our people, our team to build our current footprint. And now it start and some of these developing countries, starting to provide some contributions to the bottom line, which is really good to see.

Got it. Understood. And then last one here. Maybe if you could talk about the pricing pressure you saw on the rental markets. I'm just curious what areas you're seeing this pricing pressure, given that we all see the optimism out of the industry although we don't know when that's actually going to be impacted. Has any of that rental weakness continued into the second quarter and just your expectations from there?

Well, first of all, I think it's -- you realize discussion about a very competitive business. There's still an overhang of equipment and so we saw that in the first quarter. But and busy with the team in the field and we're starting to see that stabilize and I think we're seeing signs of improvement out there. Now at the same time, we're really need take a hard look at our fleet and the mix in our fleet, and de-fleeting some of the units that haven't been getting the utilization replacing them with some of the higher utilization. Some of the aerial equipment, light plants, generators, some of that type of equipment. Maybe a little less and some of the dirt in the fleet itself, and so we're doing at the same time. And I think as if some of the planned infrastructure spend comes to fruition there's going to be some really good positive in the business and just we're, hopefully, as an all our competitors can take advantage of that with some of the pricing out there, which, like I say, we're very competitive in the first quarter.

We'll take our final question from Aaron Steele, Feltl and Company.

I was just hoping you could provide maybe a little bit more detail on the restructuring efforts for the rest of the year. Could you give us any detail on the cadence of the store closures? And then kind of an overall view of what would you say, what type of inning would you say how far along you in the process of the restructuring plan and completing that?

Right. I think as we talked about, you're going to see the benefits over the next 3 quarters. We're on track. We've got a number of levers to pull. We want to make sure, again we're very thoughtful, we do it right and we've done that. I'd say everything is in the position from a competitive standpoint, there's some sensitive information there. And I think you just have to understand that we've identified the levers. We know what they are and we're very confident we're going to execute on our plan and you're going to see that over the next 3 quarters.

All right. And then looking at the $50 million expected decrease in inventory, how does that mix kind of look going between used and new equipment sales for the remainder of the year?

I think -- so we did bring up the new in the current quarter. It's typically when we kind of stock up is earlier in the year, and we continue to anticipate to make progress on our used inventory. So I think, overall, I think the mix will probably trend a little bit, but it won't change drastically. But we probably see -- it will probably remain relatively stable. So as we sell down some of the inventory that we just currently brought in, in the first quarter on new, that will sell down and we'll see similar reduction in used as we continue to move throughout the year with our focus on that used inventory.

I'd like to turn it back to the presenters for closing remarks.

Okay. Well, thank you, for everybody for your time today and your interest in Titan. We look forward to updating you on our progress on our next call. So have a good day.

That concludes today's conference. We thank you for your participation. You may now disconnect.