John Mills - IR, ICR, Inc. David Meyer - Chairman and Chief Executive Officer Mark Kalvoda - Chief Financial Officer

Greg Palm - Craig-Hallum Capital Group Rick Nelson - Stephens Mig Dobre - Robert W. Baird Neil Frohnapple - Longbow Research Brent Rystrom - Feltl Brad Winges - Piper Jaffray Joe Mondillo - Sidoti & Company Larry De Maria - William Blair

Please standby, we are about to begin. Good day. And welcome to the Titan Machinery Incorporated Third Quarter Fiscal Year 2016 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. Welcome to the Titan Machinery third quarter fiscal 2016 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 third quarter ended October 31, 2015, which went out this morning at approximately 6:45 a.m. Eastern Time. If you've 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 directly below the webcast information in the middle of the page. Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. These statements are based on current expectations of management, and involve inherent risks and uncertainties, including those identified in the Risk Factors section of Titan's most recently 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. Titan assumes no obligation to update any forward-looking statements that maybe 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 compared -- comparing underlying results from period to period. We have included a reconciliation of these non-GAAP measures for today's release and have provided as much detail as possible on any adjustments that are added back. Lastly, due to the number of participants on today’s call, we ask that you keep your question period to two questions and then rejoin the queue. The call will last approximately 45 minutes. David Meyer will provide highlights of the company's third quarter results and a general update on the company's business, and then Mark Kalvoda will discuss the company's financial results and the fiscal 2016 annual modeling assumptions. At the conclusion of their prepared remarks, we will open up the call to take your questions. 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 third quarter fiscal 2016 earnings conference call. As John mentioned, to help you follow today's prepared remarks, we provided a slide presentation, which you can access on the Investor Relations portion of our website at titanmachinery.com. If you turn to slide three, you will see a quick overview of our third quarter financial results. Revenue was $345 million, primarily reflecting lower agricultural equipment sales in North America as this segment continues to face industry headwinds. Those are also impacted by lower than anticipated revenue contribution from our Parts and Service businesses. Farmers throughout our key market experienced very favorable harvest conditions, which resulted in a relatively fast harvest requiring minimal equipment repairs. Our third quarter sales are also impacted by lower Construction sales, resulting from lower oil prices and reduced demand for Construction equipment from agricultural customer. As we navigate the challenging business environment, we have focused on managing our expenses and other controllable assets of our business. Our third quarter results benefited from a cost structure that is better aligned with current sales volumes, reflecting the implementation of our previously announced realignment plan. We generated adjusted EBITDA of $17.5 million and adjusted pretax income was $6.9 million, an improvement compared to $6.2 million in the third quarter of last fiscal year. Lower operating and interest expenses enable us to increase our adjusted diluted earnings per share to $0.20 in the third quarter of fiscal year 2016. On today's call, I will provide an industry overview for each of our business segments. Mark will review financial results for the third quarter and first nine months of the year and update you on the status of our inventory reduction plan and balance sheet de-leveraging progress for fiscal 2016. We will then conclude with an update of our modeling assumptions for fiscal 2016. Now I would like to provide some more color for you today on the Agriculture and Construction Industries and International markets in which we operate. On slide four is an overview of the Agriculture industry. Crop conditions for the fall harvest were good across our key markets and as I stated earlier, the harvest was relatively quick and easy for most of our customers, which required minimal equipment repairs. The favorable fall conditions enabled our customers to finish their fall field preparations, which positions them well for spring planning. With these ideal fall conditions, many of our growers experienced significantly less drying, tillage and harvest-related costs. Yields across our footprint were average to above average and in some markets our customers reported record yields. These excellent yields combined with lower harvest costs will benefit our customers’ current year profitability and balance sheet. While we do not expect strong buyer demand in the near-term quarters, the ongoing financial health and balance sheet strength of our farmer customer provides stability in our markets and long-term opportunities for equipment purchases. Lower commodity prices throughout the industry continue to adversely impact our end-user demand, which is reflected in the most recent USDA projected net farm income. Lastly, USDA updated its calendar year 2015 net farm income estimate. They now expect income to be down approximately 38% from last year, compared to its previous estimate of 36% reduction in net farm income. This is a second straight year of a material decline in the net farm income as 2014 decreased 27% compared to 2013. The 2015 net farm income projection reflects a decline in crop cash receipts compared to last year, led by a decline in corn of approximately $8.6 billion. In addition livestock cash receipts are expected to be down 12% on a year-over-year basis. The lower net farm income continues to generate negative sentiment in the market, which has impacted farmers spending, resulting in low end-user demand and high industry supply, which reduces equipment, sales volume, affects used equipment prices and compresses margins. Legislation is currently pending on Section 179 and bonus depreciation. Similarly to the last year, we anticipate that if it’s passed, it maybe finalized too late in the year to materially benefit our fourth quarter equipment revenue. In summary, the Agriculture industry faces a number of headwinds and our near-term focus is on cost containment and inventory reduction to best position our business and infrastructure for current industry conditions. Our financial results reflect the benefit of our realignment plan and inventory reduction plan. Long-term, we remain very confident in our outlook for the Ag industry. Although, farmers are operating with a cautious sentiment in the current environment, they continue to carry strong balance sheets and global trends indicate a long-term demand for Agriculture commodities. We will be well-positioned to return to growth when improvement to Ag the cycle begin. Now, I’d like to turn the call over to the Construction segment of our business. On slide 5, we’ve provided an overview of the Construction industry in our market. Overall Construction industry conditions remain challenging in our market and continue to be impacted by lower oil prices and reduced Construction demand from Agriculture customer. Year-over-year oil prices have dropped by approximately 42%, which is negatively impacting both our equipment sales and rental. As I discussed on our previous earnings call earlier this year, the equipment industry began redistributing rental fleet and equipment inventory to surrounding region. The ongoing result of this does not only lower in demand in the [energy] [ph] markets, but also margin pressure has resulted in increased fleet size and inventory levels in other regions of Titan’s footprint. The challenges I spoke to in the Agriculture industry overview are reducing demand from our agricultural customers for Construction equipment such as equipment used for land improvements, grain and material handling. Residential Construction continues to be positive in our markets, primarily driven by the stronger residential demand coming from our larger metro markets. We believe industry’s new equipment inventory levels are trending up due to the less new equipment demand than previously anticipated by the industry. Similar to what I discussed on our Ag industry overview, we also do not anticipate section 179 and bonus depreciation to materially benefit our fourth quarter Construction equipment revenue. In summary, while our Construction businesses continue to be impacted by industry headwinds we improved year-over-year Construction pretax income in the third quarter, which highlights the positive impact from our realignment and other cost saving initiatives. We’ve improved our cost structure. In the long term, we feel good about our Construction footprint which has us well positioned for future profitable growth. On slide six, we have an overview of the industry in our International segment, consisting of Bulgaria, Romania, Serbia, which are located in the Balkan region and the Ukrainian market. The fall harvest has been completed in our footprints, with reduced yields due to late season hot, dry weather primarily in the Balkan region. The winter wheat and canola crops which are planted in the fall are also impacted by the dry conditions and potentially could have lower yields next year. Similar to North America, lower global commodity prices are impacting customer sentiment and income in all international markets which is reflected in reduced equipment demand. Offsetting some of the challenges, the European Union subvention funds are available in the Romanian and Bulgarian markets. As you may recall, the subvention funds are monies that European Union has budgeted to support investment in agricultural production in developing markets of Eastern Europe, providing 50% to 70% of the cost, qualifying new equipment purchases. Ukraine continues experiencing a challenged marketing environment. High interest rate and limited credit availability continued to impact end-user demand. The local currency remained relatively stable in the third quarter. We continue to experienced demand for our Parts and Service businesses, as customers need to maintain or repair their existing equipment fleet. It is important to note that machine usage in Ukraine for growing season is much higher than in North America, which was a key driver of higher margin Parts and Service revenue on an annual basis. Our International segment pretax income improvements reflect the benefits of steps taken to improve profitability, including reducing our operating expenses, lowering our equipment inventories, which will reduce our floorplan interest expense. This enabled us to offset lower international revenue and achieved international pretax income for the third quarter. Before I turn the call over to Mark to review our financial results, inventory reduction plan and modelling of substance in more detail, I'll like to personally thank all our employees for your efforts, hard work, dedication and ongoing ability to meet the needs of our customer. Mark?

Thanks, David. Turning to slide seven. Our total revenue for the fiscal 2016 third quarter was $345 million, a decrease of 30% compared to last year, primarily due to the lower same-store sales in the Ag and Construction segment, which reflected challenges in both segment, David previously mentioned. Equipment sales declined 37.2% quarter-over-quarter. Equipment sales reflect the impact of the lower net farm income and conservative customer sentiment that David previously discussed. Our parts revenue decreased 8.5% in the quarter and service revenue decreased 19.6%. These declines were greater than we anticipated and were primarily due to the relatively early and easy harvest, which required less repairs by farmers across the upper Midwest. In addition, we continue to experience lower warrant and predelivery service work as a result of lower equipment sales. Our rental and other revenue decreased 19.7% in the third quarter, primarily due to the lower utilization and a reduced rental fleet, reflecting the lower activity in our energy producing markets and in the industry fleet relocation to the surrounding regions as David discussed earlier. Our rental fleet dollar utilization was 29.6% for the current quarter compared to 33.6% in the same period last year. In addition to the lower utilization, we reduced our fleet by $13.5 million compared to the end of the same quarter last year. On slide eight, our gross profit for the quarter was $67 million compared to $85 million in the same quarter last year, primarily reflecting the lower revenue I just discussed. Our gross profit margin was 19.5%, an increase of 230 basis point compared to the same quarter last year. Improvement in gross margin was due to a larger percent of revenue coming from our higher margin part business compared to the prior period as well as an increase in equipment margins of 70 basis points due to reduced volatility of commodity prices, compared to the prior year period. As you may recall, last year during the second and third quarter, corn experienced a sharp price decline, which pressured our equipment margins. Our operating expenses as a percentage of revenue in the third quarter of fiscal 2016, was 15.5% compared to 14.1% for the same quarter last year. Although our operating expenses as a percentage of revenue increased due to the lower revenues in the current quarter. We decreased our operating expenses by $16 million or 23% on an absolute dollar basis, primarily reflecting the impact of our first quarter fiscal 2016 realignment and other initiatives, including our International segment cost reduction implemented during the fourth quarter of last year. Our reduced operating expenses better aligned our cost structure with the current market conditions. In the third quarter, we recorded non-GAAP adjustment of $1.2 million, which primarily reflects $1 million write-off of debt issuance costs associated with amending our credit facility. In the prior year period, we recorded non-GAAP adjustment of $0.5 million, which related to Ukraine remeasurement expense. Floorplan and another interest expense as a percent of revenue increased 70 basis points due to the lower revenue in the current quarter, decreased $1.4 million or 60% on an absolute dollar basis, excluding the $1 million write-off of debt issuance costs. This reflects a decrease in our average interest-bearing inventory and the reduction in our long-term debt as compared to the third quarter of last year. For the third quarter of fiscal 2016, we generated adjusted EBITDA of $17.5 million which compares to $19 million in the third quarter of last year. We calculated adjusted EBITDA by including our floor plan interest expense and excluding non-recurring items such as remeasurements, impairment and realignment costs as we believe this better reflects the ongoing operations of our business. For the third quarter, we reported adjusted net income of $4.2 million or adjusted earnings per diluted share of $0.20. This compares to adjusted net income of $2.9 million, or adjusted earnings per diluted share of $0.14 in the third quarter last year. The increase in adjusted net income and earnings per share reflects the benefit of our reduced operating expenses, as well as progress on our inventory reduction plan, which has lowered our floorplan interest expense. At the end of our slide presentation, we have included the reconciliation table to help illustrate the adjustments to our GAAP results. On slide nine, you'll see an overview of our segment results for the third quarter. For your reference, we have included a slide in the appendix of our presentation that provides more detail on same-store sales and same-store gross profit, which are primary factors of our segment results. Agricultural sales of $211 million, a decrease of 38.1%, primarily reflecting a 37.4% decrease in Ag same-store sales, which were impacted by the headwinds David discussed earlier. Our Ag segment had an adjusted pre-tax income of $4.3 million compared to an adjusted pre-tax income of $6.1 million in the prior year period. The Ag segment results reflect lower equipment sales, as well as lower Parts and Service revenue due to the early and fast fall harvest, partially offset by improved equipment margins, reduced operating expense and lower floorplan interest expense. Turning to our Construction segment. Our revenue was $87 million, a decrease of 11.4%, primarily reflecting an 8.3% decrease in Construction same-store sales, which were impacted by the factors discussed earlier. Adjusted pre-tax income for our Construction segment was $1.3 million compared to breakeven in the same period last year. The Construction segment results reflect a reduction in operating expenses, partially offset by lower overall revenues. In the third quarter of fiscal 2016, our international revenue was $47 million which was a 12.6% decrease. Our international revenue was negatively impacted by the euro U.S. dollar exchange rate difference and by lower commodity prices. Our adjusted pre-tax income was $0.5 million, an improvement compared to adjusted pre-tax loss of $0.9 million in the prior year period, reflecting reduced operating expenses, as a result of our cost saving initiatives and benefit of the euro U.S. dollar exchange rates. In addition, the improved results reflect the lower floorplan interest expense due to reduced levels of equipment inventory. On slide 10, we have provided a nine month revenue analysis. The year-over-year changes for the nine months revenue analysis are similar to what I discussed for our third quarter. As you can see, our high-margin Parts and Service performed better year-over-year than compared to our equipment revenue. On slide 11, you also see that our first nine month results have similar year-over-year changes that I discussed for our third quarter. A notable difference is the non-GAAP adjustment. In the first nine months of fiscal 2016, we recognized a $5.4 million adjustment compared to an $8.3 million non-GAAP adjustment for the first nine months of the prior year. Our adjusted diluted earnings per share was $0.06, for the first nine months of fiscal 2016, compared to an adjusted diluted earnings per share of $0.11 in the prior year period. On slide 12, we provide a nine months segment overview. The factors impacting year-over-year changes for the nine months segment results are similar to what I discussed for the third quarter. Regarding nine months same-store sales, Ag same-store sales decreased 32.1%, while Construction same-store sales decreased 10.8%, and our international same-store sales decreased 3.2%. For modeling purposes, it's important to remember that we calculate same-store sales by including stores that were with Titan in prior periods of both fiscal years which we are comparing. Turning to slide 13, here we provide an overview of our balance sheet highlights at the end of third quarter. As we have stated on prior calls, in light of the headwinds we are currently facing, improving our balance sheet remains one of our key areas of focus and we are pleased with the progress we have made in the first nine months of fiscal 2016. We had cash of $78 million as of October 31, 2015. As we have discussed on prior earnings calls, we are using a portion of our cash to reduce interest-bearing floorplan payable and other debt to deleverage our balance sheet. Our equipment inventory as of October 31, 2015 was $716 million, a decrease of $217 million, or 23% compared to our equipment inventory of $933 million as of October 31, 2014. The inventory change includes a decrease in new equipment of $200 million and a decrease in used equipment of $17 million from the end of the third quarter of fiscal 2015. In a few minutes, I will provide an update on our anticipated full year inventory reduction for fiscal 2016. Our rental fleet assets at the end of the third quarter were $138 million compared to $151 million for the end of the same period last year. A portion of this reduction was related to the de-fleeting in stores impacted by a reduction in energy related activity. As of October 31, 2015, we had $549 million of outstanding floorplans payable on $1 billion of floorplan lines of credit. In the third quarter, we amended our $362 million credit facility with the group of banks led by Wells Fargo. The new credit facility reduced interest rates and provides for a secured credit facility in an amount up to $350 million, consisting of $275 million floorplan facility and a $75 million working capital revolving credit facility. In addition, the amended credit agreement removed certain financial covenants. We feel comfortable that we will be in compliance with the agreement for the foreseeable future. Total liability to tangible net worth improved to 2.2 as of October 31, 2015, from 3.2 as of October 31, 2014. The year-over-year reduction in inventory and associated lower levels of floorplan payables at the end of our fiscal third quarter of 2016, improved our total liabilities to tangible net worth ratio. Slide 14 provides an overview of our cash flow statement for the first nine months of fiscal 2016. The GAAP reported cash flow from operating activities for the period was $198.8 million, primarily reflecting proceeds from manufacturer floorplan financing of inventory. We believe, including all equipment inventory financing, including non-manufacturer floorplan activity as part of our operating cash flow, better reflects the net cash flow of our operations. In addition, as I mentioned earlier, we're using a portion of our operating cash flow and cash in our balance sheet to reduce our floorplan payables and other debt. Our adjustment for non-manufacturer floorplan net payments shows a reduction of $201 million. We monitor interest rates and manufacturer incentive programs on inventory and the associated various floorplan credit facilities on a continual basis. During the second quarter, we began to utilize additional manufacturer floorplan on our inventory tied to manufacturer incentive program, which resulted in reduced non-manufacturer inventory financing. To accurately reflect cash from operating activities, we adjust our cash flow to reflect a constant equity in our equipment inventory. By providing this adjustment, we are able to show cash from operating activities, exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory increased 5 percentage points during the nine-month period and represents a $35.4 million use of cash. In line with our cash strategy, we will continue to increase our equity equipment inventory as we generate cash flow and reduce interest bearing floorplan payable. Making these adjustments, our adjusted cash flow provided by operating activities was $32.9 million for the nine-month period ending October 31, 2015, a $48 million improvement compared to the same period last year. Turning to slide 15, I would like to provide an update on our equipment inventory. Similar to what we’ve provided in the past, you’ll see a chart outlining our equipment inventory position for the last four years, as well as our first three fiscal quarters and ending inventory target for fiscal 2016. We continue to anticipate $150 million reduction of equipment inventory in fiscal 2016. As you can see, we reduced our inventory in the third quarter and we expect a continued decrease in equipment inventory during the fourth quarter resulting in a stronger balance sheet. Turning to slide 16, you’ll see a chart showing our total liabilities to tangible net worth ratio over the past four years, as well as our first three fiscal quarters and ending target for fiscal 2016. Given the current market condition, we believe it is prudent to delever our balance sheet in order to best position the company to capitalize on long-term opportunity. This chart shows a notable improvement in this ratio from a high of 3.3 in the second quarter of fiscal 2015 to 2.2 at the end of the current quarter. Based on a consistent level of tangible net worth, we continue to expect a further -- to further reduce the ratio to approximately 1.9 at the end of the fiscal 2015 as we decreased our inventory and associated floorplan payable. Slide 17 shows our fiscal 2016 annual modeling assumption. We are updating the modeling assumptions that we’ve previously provided. As David discussed, industry conditions are more challenging than we had anticipated. We now expect our Ag same-store sales to decrease 28% to 33%, compared to our previous assumption of a decrease of 20% to 25%. This primarily reflects lower anticipated results from our equipment revenue and to a lesser extent a decrease in our Parts and Service revenue. We now expect our Construction same-store sales to decrease 8% to 13%, compared to our previous assumption of flat to down 5%. We are modeling International same-store sales to be the same as previously expected flat to down 5%. We continue to model equipment margins for the full year to be in the range of 7.7% to 8.3%. Due to a more challenging environment than previously expected, we believe we have -- we will have an annual loss in fiscal 2016 on an adjusted diluted earnings per share basis, despite an expected improvement in the fourth quarter fiscal 2016 results over the fourth quarter of fiscal 2015. We remain focused on taking the necessary steps to manage through the challenging operating environment. In the fourth quarter of fiscal 2015 and next fiscal year, we will continue to benefit from our improved cost structure, ongoing inventory reduction, which will continue to generate strong adjusted cash flow, as well as other actions that we have taken over the past year, designed to improve the performance of our overall business. This concludes the prepared comments for our call. Operator, we are now ready for the question-and-answer session of our call.

Thank you. [Operator Instructions] And we’ll go first to Steve Dyer with Craig-Hallum Capital Group.

Hey. Good morning, guys. It’s Greg Palm on for Steve. Thanks for taking our questions.

Good morning, Greg.

Maybe just starting out with sort of a general question on the environment, Ag has been obviously weak for some time, everyone just trying to figure out, how far away we are from the bottom, anything changing in terms of sentiment or order patterns as you talk to your customers and what are you hearing from your customer base?

Well, the customers, obviously, even in the good times sometimes, the farmer customer is always paying too much taxes there, but overall, we are fortunate I think in a lot of our markets are really good yield this year. When you put the bushels in I think some positive there. But that I think they’ve really been in some hard time looking at their balance sheet, looking at their capitalization, looking to their debt, working with their bankers, kind of, sorting through this, doing projection for next year and then acting like business people. So, but like I said in my comments, their balance sheet still remains strong. They got some good bushel this year and I think just navigating through this. So I don’t see a big change right now, but overall, I think, they have had some good years under their belt and I think overall as a group they feel pretty good about things.

Okay. Good color. And as it relates to the realignment plan, you’ve done a great job given the current environment. Is there still room for additional costs or is it sort of a good level given where we are at in environment?

Well, we continually look at our expenses on an ongoing basis. We look at our footprint optimization. And yeah, I think that’s something that’s important and an ongoing effort. And yeah, definitely I think there is some things we can do and probably need to do.

Okay. That’s all I have. I’ll go back in the queue.

And we’ll take our next question from Rick Nelson with Stephens.

Thanks and good morning. Can you talk about the amended credit agreement, what it means in terms of covenant particularly that pretax income requirement? I think that the old covenant was $10 million.

Yes. So I guess, overall two major points about the new credit facility, one is what you’re asking about in the covenant. And with this new line of credit, it doesn’t have any, what I would call, direct financial covenants. So there is no pretax income covenant, the 10 million covenant is no longer in place under this agreement. The only thing it does contain is the springing fixed charge coverage ratio. If we finance at a higher level of borrowing base which we’re well below today that fixed charge coverage ratio is 1.1%, so anything greater than - we need to maintain it greater than 1.1%, which we’re well over today. But again that’s only in a springing situation. Secondly, the other big thing is just lower interest rates. It’s just about, not quite, but just about a 100 basis point lower interest rate than what we had in our previous agreement.

Thanks for that, Mark. Dave, what are the signs that that you would look to [in the center] [ph] to start acquiring other stores during this downturn?

Well, we’ve are focused on quality Ag acquisitions, accretive to our earnings, we continue to take a long-term view on investing in high potential Ag markets. And in this environment, we anticipate favorable pricing or acquisition. We think there is going to be another round of [indiscernible] consolidations but today we’re focused on strengthening our balance sheet and operating [improvements] [ph] which position us well for future acquisition growth opportunities, Rick.

Okay. Got you. Thanks and good luck.

And we’ll take our next question from Mig Dobre with Robert W. Baird.

Yeah. Good morning, guys. So John Deere, just very recently called for North American industry volumes to be down -- in Ag that is, to be down 15% to 20% next year and [real] [ph] crop, where you guys arguably speaking have a little more exposure to be down well above that. So, I guess, I’m looking to see what your thoughts are versus Deere is at this point and back to a question that was already asked. If Deere’s assessment of next year is correct then how you are thinking about the cost structures? And how should we be thinking about your ability to pull cost levers into next year?

First of all, we haven’t given -- we are not going to give guidance for next year yet. We typically view our forecast after our Q4 year end earnings release. So, in talking about our business since we did much of our rightsizing in the first and second quarter of the current fiscal year and right now, in our next fiscal year, you’re going to see a full 12-month benefit from -- in 2017 from some of the rightsizing we did this year. So that is going to help. As I told Rick, we continue to look at our store optimization and expenses on our ongoing basis but another big item is we’re reducing our inventories down, we expect the floorplan interest to be down next year over this year too which is going to be a big item.

Okay. But you’re not in a position to give us a sense whether or not you expect Ag to be under continued pressure in 2016, but not at this point?

Well, listening to what the OEM is saying and if you look at where the commodity prices are, Mig, there haven’t been lots of change in the business out there. So, you probably answered that question yourself.

Okay. Right. Look, I understand you guys are not providing guidance, but we are at the point of the year where I think this is really kind of the salient question because the fourth quarter, I would argue is perhaps less important to investors at this point. That’s why I’m asking it basically?

I think, I agree with what you probably heard from the two OEMs. But one thing when we look at our business, we’ve got that service component in there which helps a lot which is a little bit of a differentiator.

Okay. I appreciate that. Then my follow-up is I’m trying to understand the change in guidance that you’ve provided. Just based on my own model, it seems to me like most of the change was related to the third quarter itself in terms of the topline. Am I interpreting this correctly, and if that is the case, why wouldn’t some of the weakness that was evident in the third quarter slip into the fourth as well?

Yeah. No, that is not the case. Certainly, what is in our guidance and our new modeling assumption has some weakness baked into it for the fourth quarter as well, not only in the third quarter but the fourth quarter as well. I think maybe we did expect a stronger third quarter than what we had even though I think it was real close to consensus out there from a bottomline standpoint. We did expect a stronger third quarter than what came out this morning, what we announced this morning. And it’s particularly due to some of that what was shorter in the Parts and Service side than what we had initially expected. So we are expecting or what’s built into this -- these assumptions is some softness in Q4 as well compared to what we had originally expected.

All right. Thank you, guys.

And we will go next to Neil Frohnapple with Longbow Research.

Hi. Good morning, guys.

Hi, Neil.

I believe in the quarter you indicated that used constructed equipment pricing remains strong. Is it still the case where pricing starting to slide with some of the requirements in equipment sales?

Yeah. I guess what -- as we look at that, I would say we took a way that we are strong. We don’t see that there is a lot of degradation in there but I’d say it’s holding fairly consistent.

Okay. And then you also mentioned that new Construction equipment, inventory levels are continuing to increase, is this within specific category or is it more broad-based?

No. I would say it is broad-based. But I think the equipment that’s affected by commodities, oil, mining, I think you’ve probably seen higher levels in those types of equipment.

All right. I will pass. Thanks, David.

And we’ll go next to Brent Rystrom with Feltl. Please proceed with your question.

Brent, you there?

Yes. Thank you. Quick couple of questions for you. Little bit of history, we are in a very strong El Niño right now. And the last time we were in a strong El Niño was 2009. And in 2009 to ’10, we experienced very rough crop conditions in Eastern Europe, similar to what you're talking about now. Rough crop conditions in Africa, rough crop conditions in Australia, all of which are happening now. And that’s set up the following year and multi-year cycle of reduced graining supply. So from a simplistic perspective, can you recollect in calendar year 2009, going to ’10, kind of how your business reacted through that?

If I remember that’s been a few years ago. We saw some pretty good turns in our business. I think there is some positive there but I can't tell you exactly.

I looked at up this morning data and at the time in early 2010, Deere was guiding to substantially negative North American delivery equipments. And by the end of the year, they were seeing substantial increases in equipment sales. If we are in a situation where this El Niño causes the crops to be hit the way they look to be hit and then it is followed by a strong La Niña, which is typically very likely when you have a strong El Niño, which tends to bring hotter and dryer weather to North America and South America. Would you guess that the commodity outlook might finally have bottom and maybe poised for some improvement to close situation played out like they had in the past?

Couple of things here, Brent. First of all, I think there is a fairly tight supply. So, one major weather event in the world could be positive for commodity prices. But I think as we modeled our business going into next year, we need to model on current level of commodities. We do store inventories. We build cash. It really puts us in a position and so if that does happen, we can really capitalize on that.

All right. And I’m not disagreeing with that. I’m just curios for your thoughts on what might happen. So, when I look at your guidance for the fourth quarter, particularly in the agricultural division it appears that comps in the fourth quarter could be anywhere from comparable to the third quarter, kind of in that, minus 30, high 30s to somewhere in the 20. And with a mid-point some place around the 26%. Is there something you’re seeing that tells you that sequentially, we should be seeing a flat to an improving comp, or is it just at this point a best guess?

I think one of the things to take a look at is just last year. Last year, it’s been down meaning the Ag division down 38% in the fourth quarter where the third quarter was down for both, down quite a bit. But certainly, what I would say would be a little easier comps there in the fourth quarter that we are comping against is probably one of the biggest things to look at. And I think we are relatively on the same page and we made some comments on the Section 179 and Bonus Depreciation, where that’s not going to influence things, that we don’t believe it is going to influence things any different than what it did last year. So, I think it just goes back to little bit more than easier comp to the prior year.

Great. Thanks guys.

And we’ll go next to Brad Winges with Piper Jaffray.

Hey, guys. Thanks for taking my question. I just wanted to dig into inventory a little bit. Just wondering, if your third quarter reduction was kind of what you expected and kind of talk to what gives you confidence to achieve your reiterated goal or target by year end?

Yeah. It probably wasn't quite as good as what we expected and driving that would've been the lower sales, less than, certainly than what we had anticipated. I think what gives us the confidence and just maybe for your understanding and that we can still maintain or hit the $150 million reduction is when we started out the year with some of the modeling assumptions. We didn't put a procurement plan in place to necessarily support all of that revenue for the year with some of the shorter lead-times with the OEMs out there. We had a little more flexibility in our procurement cycle there. So we did hold off on procuring some of that in the event that things were softer than what we did. That being said, I think, to hit this $150 million by the end of the year we need to hit or we will have to hit these modeling assumptions that are out there now, if we don’t we could fall little short of that $150 million. But if we hit it, we feel like we are in good shape. If we hit those modeling assumptions we feel like we are in a good shape to hit that $150 million down.

Okay. That’s great color. Thanks. And I know you are not providing guidance for fiscal ’17 yet, but just wondering what you are gong to thinking about inventory reduction next year and the how you are going to kind of continue to reduce the best plan and how you are going to really limit new equipment that you take from your OEM partners?

Yeah. I think, going into next year, so if the scenario is right, we know the, what the OEMs have put there today that certainly gives us opportunity to reduce inventories further into next year as we continue to kind of try move more toward a three-time turn overall in our equipment inventory. But I would say even if it was more of a flattish type scenario, I think, there is still some opportunity to take that inventory down into the next year.

Okay. Great. And then just talking about the margins a little bit, you talked to improve equipment margins? Can you just speak little bit about what’s driving that really your expectation as we look into fourth quarter, obviously, you kind of reiterated your guidance range, just wondering, if you are seeing to improved margin, why not adjust that range?

I think the improved margin -- if you look the improved margin over last year is more to do with last year's third quarter margin, which was significantly pressured. Our margin last year was 7.5% in the quarter and that had dropped quite a bit from what the first and second quarter was last year. During that time, that’s what we commented on the call that corn prices had significantly reduced in that kind of second/third quarter timeframe and we had more pressure and are used with some of our lower cost to market adjustments that we had. The 8.2% that we experienced in the current quarter is sequentially pretty much in line with our second quarter. So I think to anticipate something like that and something similar to that will get us right at that -- right in the middle of that range that we put out there at -- what the midpoint of 8%. So I think we are set up well to continue on more of that sequential type margin rather than what we saw in the third quarter last year.

Okay. Great. Thanks Mark. And then, just one last one for me, you mentioned the available EU substantial fund helping to drive equipment spend in Romania and Bulgaria. Is that actually helping or is it micro-conditions really outweigh, what you are seeing there?

Yeah. That’s definitely helping, I mean, that’s a big shot in the arm and that storm brought some people to the table that purchase equipment that may would have done that previously.

Great. And are you -- have you seen any increase in demand in that region recently compared to earlier in the year?

Yeah. I think, so, like we have said, the our -- the whole world is facing this lower commodity prices that are out there, but I think, some of the stability in the Ukraine has helped, so definitely the partner service group business we are getting in the Ukraine is helpful. So I think you can see that number overall I think the overall stability and things have started to smooth out in that region for us.

Great. Thank you.

And we will go next to Joe Mondillo with Sidoti & Company.

Hi, guys. Good morning. I am wondering if I could just take another step that sort of the cost structure aspect and how you are thinking about the business headed into next year. It sounds like you are not willing to really talk about it and I am just wondering are you sort of in the midst of trying to figure that out, or are you happy with where things are, given the adjustments that you made earlier this year?

No. I think, I mean, we -- I think, there is -- we certainly have done a lot and we have taken down our expenses, I think, on the nine months $42 million. I think with that over the prior -- less than the prior year. But I think with that being said, I think what we are saying is that there is still some opportunity we believe. If the market does go down and there is less revenues, less sales to be had next year, there is still some opportunity there. We are not going to elaborate on what any of that is, or what that means. But I think it’s helpful for you to know that there is still some opportunity to decrease expenses for next year, if the environment stays difficult or gets more even more challenging.

Okay. And so I guess that brings me to my follow-up, which is sort of related to what the OEMs are saying. It sounds like you are waiting for further deterioration to happen. And so I’m just trying to understand from your point of view in terms of the dealership. I know the OEMs are different model and they are different business and they see different things. But from your point of view, do you wait until you start to see it or do you sort of say at this point in time, it seems like next year is pretty safe to say it’s going to be down at least high single digits if not double digits? Are you starting to put those plans in place right now, or is it a wait and see?

I think regardless -- so, obviously, our same-store for the quarter in the last grow, I mean for a few quarters in a row, same stores has been going down. So, I don’t know -- not sure what you mean by waiting for something. But we continue to look that….

Further deterioration. I’m just saying waiting for further deterioration as opposed to. It seems like you are sort of expecting sort of flattish sales next year and if things deteriorate next year and another year, then we will begin to move to go ahead like charter?

Yeah. I think what you are thinking about, some kind of big announcement or something like that. That realignment plan that we communicated indicated about $20 million in savings as we talked about. We are down $42 million in the nine months period. So it doesn’t stop at just kind of a realignment plan. We continue to adjust or operating expenses daily and we don’t announce all of big adjustments or anything like. We continue to bring down expenses daily. And we’re not waiting for anything to happen to do that.

Okay. Okay. And then just lastly, in terms of sort of Deere’s expectation of equipment being down 15% to 20% in North America. Do you guys have any different view of that just given your sort of your defined concentration and sort of the Northern Midwest area as oppose to the entire North America area? Does it change -- is your environment or your geographic region better, more well positioned or less well positioned in regard to the 15% to 20% down on equipment?

Our footprint probably tends to mirror other than -- we've got some really small tractors there on the east coast and west coast and the south. And so we’re probably not when you talk about total tractor sales, maybe don’t participate in that much. But as far as the role crop type area where corn and bean types farmers in upper Midwest which is I think a big part of all the OEM business, I think we are fairly well distributed to that and if you look at the western part of our Ag market, we’ve got some diversified crop lifestyle for participating in that type of business too. I just have to repeat the fact though that when you look at our business and to some extent, parts were really a biggest sense on our ability to have that but service -- high margin service business, that is not going to be reflected in what they are talking about.

Okay. All right. Thank you.

[Operator Instructions] We go to Larry De Maria with William Blair.

Thanks. Good morning. Related to Construction is two questions, when you think about the highway bill, could that have an impact for you guys in your territory? And secondly, as far as reallocation equipment in the oil basins, is this an overhang in your territory for Construction equipment that needs to be moved around or is that largely complete?

Well, first of all, highway bill that maintenance through the federal spending is definitely going to have a positive impact on the key business for the whole industry. Hard to say right now how much but I think we’re well positioned to benefit from that. I read something this morning too. I think they are going to add some crop insurance, which will probably help us on the Ag side a little bit too on the part of that bill. Yeah, if you go up into Balkan area, all [indiscernible] colors, I think you’re going to see some overhang, Larry, as if we’ve been trying to move that stuff around ourselves. And there is a little bit of an overhang left up there, if you drive around and take a look, I don’t think there is any one color or another color. They all have some equipment but it’s also been moving out of there, but it’s also been moving into some adjacent markets, Minneapolis, St. Paul, Des Moines and Omaha. Denver is going to be going. Very building is going to be going every, which direction too, which is going to impact like we said earlier, the whole industry with a little bit of overhang.

Okay. That’s really good. Thank you. And certainly the outside, I don’t know if you could, just a few quick ones. Maybe you can discuss, specifically your order boards year-over-year. Also the Precision Planting Acquisition by Deere, how that might impact you guys given that you integrated with those guys now? And then finally on pricing. Obviously, Deere said plus 2% next year, seems hard for that to hold up. So what are you seeing on new equipment pricing that would give us confidence, if that would be good for you guys and others?

I will try to answer. First of all, on pricing, I think for our business, you will see that type of discipline from the OEMs. I think it’s good because it helps speak the value of used equipment up. And I think that benefit those long-term talks. I think I’m fine with that and I think that’s good for the industry. It’s not a big price increase you talked about. But I think there is still some stability in the new placements and discipline in that and that just falls through on the whole unit market which is good. As far as the planer business and the Precision, I think you aware that our supplier have an arrangement with Precision over a year ago, which is reflected in some of new planer models being introduced and stuff. So, I think you are going to see from a technology standpoint, industry wide, I think some commonality in some and it is just positive for some of that technology development you are seeing that planer business. So, I think we are in good shape with that, with our planer models that we have to sell.

So you wouldn’t expect that to change given that Deere is going to own that business?

It’s pretty hard to comment. But I think there is agreement out there and I think a lot of things in place. And if you look at little closer, you are probably going to find some other OEMs also have some arrangements with the Precision also. So, I think it looks to be fairly industry wide.

Great. Thanks. Then the final thing was just, specifically your year-over-year order boards, I’m curious how they are looking, if you look at them year-over-year?

From a competitive standpoint on that, Larry, I don’t think we want to talk about that right now.

Okay. All right. Thanks. Good luck.

Okay. That's the end of the question. So, I want to thank everyone for your interest in Titan and look forward to updating you on our progress on our next call. Have a good day.

This doe conclude today's conference. We thank you for your participation. You may now disconnect.