John Mills - Investor Relations, ICR David Meyer - Chairman and Chief Executive Officer Mark Kalvoda - Chief Financial Officer

Steve Dyer - Craig-Hallum Tyler Etten - Piper Jaffray Neil Frohnapple - Longbow Research Mig Dobre - Robert Baird Joe Mondillo - Sidoti & Company

Good day and welcome to the Titan Machinery Incorporated Fiscal First Quarter 2017 Conference Call. Today’s conference is being recorded. At this time I would like to turn the conference over to Mr. John Mills of ICR. Please go ahead sir.

Thank you. Good morning, ladies and gentlemen and welcome to the Titan Machinery first quarter fiscal 2017 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, 2016, which went out this morning at approximately 6:45 am 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, except as maybe 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 have included reconciliations of these non-GAAP measures in today’s release and have provided information regarding these adjustments that are added back or excluded in these non-GAAP financial measures. Lastly, due to the number of participants we expect on today’s call, we ask that you keep your question period to one or two questions and then rejoin the queue. The call will last approximately 45 minutes. David Meyer will provide highlights of the company’s first quarter results and a general update on the company’s business; and then Mark Kalvoda will discuss the company’s financial results and fiscal 2017 annual modeling assumptions. At the conclusion of our prepared remarks, we will open 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 first quarter fiscal 2017 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 3, you will see an overview of our first quarter financial results, which were in line with our expectations. Revenue was $285 million, primarily reflecting the continued industry headwinds and the agriculture segment. Adjusted pretax loss was $7.5 million or $0.21 per diluted share, primarily due to the decline in revenue. As we navigate this challenging business environment, we're focused on managing our expenses and other controllable aspects of our business. We decreased our operating expenses and floorplan interest expense in the quarter and reduced our overall equipment inventory, which included a 7.8% reduction in used equipment inventory. We are ahead of schedule in the marketing of our aged inventory having sold $25 million of the $74 million targeted aged equipment inventory in the first quarter of fiscal 2017, which exceeded our first quarter target of $22 million. Also during the first quarter we bought back $30 million or 20% of total outstanding senior convertible notes using $25 million in cash resulting in the recognition of a pretax gain of $2 million during the quarter. We were able to effect this repurchase as a result of positive cash flow in fiscal 2016 from inventory reduction and improvements made to our cost structure. This debt retirement is in line with our strategy to use positive cash flow for deleveraging our balance sheet and better position our company for future opportunities. On today's call, I will provide an industry overview for each of our business segments. Mark will review the financial results for the first quarter of fiscal 2017 and update you on the status of our expanded inventory reduction plan that includes the marketing of a certain aged equipment inventory to alternative channels rather than our normal retail channels. He will then conclude with a review of our modeling assumptions for fiscal 2017. 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. Since we spoke with you only six weeks ago, there have not been a lot of new developments or changes in the industry as we operate. On Slide 4, is an overview of the agriculture industry. Spring planting for agricultural market is on schedule with timely rains required for early crop development. USDA recently reported prospective planning for this year and has reflected our combined increase of corn and soybean acres with a decrease in wheat and other crops. The May WASDE report is expecting continued pressure on commodity pricing for the 2016 2017 new crop year. However, the recent uptick in commodity prices, particularly in soybeans, offer our customers an opportunity to market some of last year's crop and to lock in prices on portion of the current crop at favorable prices compared to earlier this year. USDA report, which was updated in February, projects calendar year 2016 net farm income to be $54.8 billion, which represents a 3% decrease from projected net farm income in calendar 2015; and a 43% decrease from the five-year average. We believe the continued lower projected net farm income will result in a continued lower end user demand for new and used equipment. In addition, high industry supply will continue to pressure equipment prices and compress margins. For the past few years, because of the late reinstatement of Section 179 and bonus depreciation, many farmers were unable to plan their equipment purchases in order to take full advantage of these tax incentives. This year farmers know that Section 179 and bonus appreciation are in place and this will benefit many farmers and their purchasing decisions. As a reminder, Section 179 accelerated depreciation was made permanent at $500,000 per year and bonus appreciation was extended through 2019. In summary, the agriculture industry continues to face a number of headwinds and we are in the early stage of the annual production cycle. We believe that we have taken the appropriate steps to navigate through the current climate and we'll be well-positioned when the industry recovers. We will focus on managing the controlled aspects of our business, including inventory and debt levels, as well as operating expenses. We remain confident in the long-term agricultural industry as farmers continue to carry strong balance sheets and to underline the micro trends are projected to continue driving long-term demand for agricultural commodities. Now, I would like to turn to the construction segment of our business. On Slide 5, we provide an overview of the construction industry and our markets. Recently, oil prices have improved of very low levels, however despite this improvement, equipment and rental demand continues to remain at reduced levels. In addition, lower net farm income is impacting purchases of construction equipment like customers in the agriculture industry. Offsetting some of the lower energy and agriculture demand is improved residential, commercial, and transportation infrastructure activity. Our footprint is experiencing stronger demand in large metal areas and improved rental demand in these areas as partially offsetting the impact from reduced energy activity. We have seen new construction equipment inventory levels beginning to stabilize as demand and production decisions by manufacturers are enabling new inventory levels to be in line with anticipated demand. As I mentioned in our ag industry overview, the reinstatement of Section 179 on a permanent basis and the extension of bonus depreciation at the end of the calendar year 2015 should help the construction equipment customers plan their purchasing decisions throughout the year. As we stated on our previous call, we believe our construction segment revenue will be flat in fiscal 2017 with improved profitability as we benefit from the operating of inventory initiatives we have put in place. On Slide 6, we have an overview of the industry in our international segment consisting of Bulgaria, Romania, Serbia which are located in the Balkan region and Ukrainian market. Our customers have completed their spring planting and overall crop progress is on schedule with adequate moisture levels to support early crop development. Global commodity prices continue to impact customer's settlement and income in all of our international markets similar to North America. Offsetting the low commodity prices and resulting farm income, the European Union subvention funds, which support the purchase of equipment continue to be anticipated in the Romanian and Bulgarian markets. Although we expect these funds will be released this year, they are not yet available to our customers. The Ukraine market continues to experience challenging geopolitical and financial conditions. High interest rates and restricted credit availability are packaging end-user demand and purchases. Both currency is trending weaker versus U.S. dollar adding financial pressure on the end-users. We continue to see a steady demand for parts and service to repair existing equipment and expect the fact to continue for the foreseeable future. We're pleased with the operational improvement in our international segment during the first quarter of fiscal 2017 as we made significant bottom-line improvements in our seasonal weakest quarter. These improvements position us for full year profitability in fiscal 2017 in this segment of our business. Even though we continue to face headwinds in many areas of our business, first quarter financial results were in line with our expectations and we are on track to achieve our $100 million inventory reduction goal and modeling assumptions for 2017. I will now turn the call over to Mark to review our financial results, inventory reduction plan, and modeling assumptions in more detail.

Thanks David. Turning to Slide 7 total revenue for the fiscal 2017 first quarter was $285 million, a decrease of 19.3% compared to last year, primarily driven by a decrease in agriculture equipment revenue. As we have said before, our higher margin parts and service revenue are more stable during a challenging environment. Equipment sales declined 24.5%, compared to the same period last year. Equipment sales reflect the impact of continued industry headwinds that David discussed. Our parts revenue decreased 6.5% in the quarter and service revenue decreased 5.8%. The decline in this quarter’s parts and service revenue were primarily attributed to a decreased amount of customer preventative maintenance and continued lower warranty and pre-delivery service work, as result of lower new equipment sales. Rental and other revenue decreased 16.7% in the first quarter, primarily due to lower demand in the oil production areas and a reduction in inventory equipment rentals. Our rental fleet dollar utilization increased slightly to 19.7% for the current quarter, compared to 19.1% in the same period last year. On Slide 8, our gross profit for the quarter was $54 million, compared to $60 million in the same quarter last year, primarily reflecting the lower revenue I just discussed. Our gross profit margin was 18.8% and the increase of 117 basis points, compared to the same quarter last year. The improvement in gross margin was mainly due to a change in gross profit mix to our higher margin parts and service business, as well as an increase in equipment margin of 60 basis points due to an increase in construction and international equipment margins. Our operating expenses, as a percentage of revenue, in the first quarter of fiscal 2017 was 19.1%, compared to 16.2% for the same quarter last year. Although our operating expenses as a percentage of revenue increased due to lower revenues in the current quarter, we decreased our operating expenses by $2.6 million or 4.6% on an absolute dollar basis. In the first quarter, we had non-GAAP adjustments of $1.7 million on a pretax basis, which primarily reflects the $2.1 million gain on the repurchase of our senior convertible notes partially offset by realignment and remeasurement costs. Adjusted floorplan and other interest expense as a percent of revenue increased 20 basis points due to lower revenue in the current quarter, but decreased $1 million or 13% on an absolute dollar basis reflecting a decrease in our average interest-bearing inventory compared to the first quarter of last year. For the first quarter of fiscal 2017, we generated adjusted EBITDA of $1.7 million, which compares to $5.1 million in the first quarter of last year. We calculate adjusted EBITDA by including our floorplan interest expense and excluding nonrecurring items such as the gain on the repurchase of the senior convertible notes. Our adjusted loss per diluted share was $0.21 for the first quarter of fiscal 2017, which excludes non-GAAP adjustments as outlined in the reconciliation table in the appendix of the slide presentation. This compares to adjusted loss per diluted share of $0.13 in the first quarter of last year. On slide 9, you will see an overview of our segment results for the first quarter of fiscal year 2017. For your reference, we have included a slide in the appendix of our presentation that provides more detail on the same-store sales and same-store gross profit, which are primary factors of our segment results. Agricultural sales were $179 million, a decrease of 25.5% reflecting a 25.1% decrease in the ag same-store sales, which resulted from a decrease in equipment revenue impacted by the continued industry headwinds. Our ag segment had an adjusted pretax loss of $3.9 million, compared to an adjusted pretax loss of $0.4 million in the prior year period. Turning to our construction segment, our revenue was $78 million, a decrease of 3.9% primarily reflecting a 2.9% decrease in construction same-store sales, which were impacted by the factors discussed earlier. Adjusted pretax loss for our construction segment was $2 million compared to a $2.9 million loss in the same period last year. The construction segment results primarily reflect the reduction in operating expenses and floorplan interest expense. In the first quarter of fiscal 2017, our international revenue was $28 million, which was a 12.8% decrease. The first quarter is a seasonally low revenue quarter and we continue to anticipate achieving flat revenue on a full year basis. Our adjusted pretax loss was $0.3 million, an improvement compared to adjusted pretax loss of $2.3 million in the prior year period. Primarily reflecting reduced floorplan interest expense and improved equipment margins. Turning to slide 10, here we provide an overview of our balance sheet highlights at the end of the first quarter. As we have stated on prior calls, in light of the prolonged headwinds we face in our agriculture and construction segments, we continue to focus on improving our balance sheet. We're pleased with the progress we have made and our momentum as we proceed in fiscal 2017. We had cash of $64 million as of April 30, 2016. Our equipment inventory as of April 30 was $585 million, a decrease of $6 million from January 31, 2016, which reflects a $20.9 million or 7.8% decrease in used equipment inventory partially offset by a seasonal increase of new equipment inventory of $15 million. In a few minutes I will provide an update on our inventory reduction outlook for fiscal 2017. Our rental fleet assets at the end of the first quarter were $134 million compared to $138 million for the end of the fourth quarter of 2016. We anticipate maintaining a similar to slightly smaller fleet size throughout fiscal 2017. The company had $446.3 million outstanding floorplan payables on 1 billion total discretionary floorplan lines of credit as of April 30, 2016, compared to $444.8 million outstanding as of January 31, 2016. In April 2016, we repurchased $30.1 million of our senior convertible notes with $25 million in cash resulting in the recognition of a pretax gain of $2.1 million in the first quarter of fiscal 2017. This gain is not considered in the modeling assumptions that I will discuss in a few minutes. That reduction improved our ratio of total liabilities to tangible net worth to 2.0 as of April 30 from 2.1 as of January 31, 2016. Slide 11 provides an overview of our cash flow statement for the first three months of fiscal 2017. The GAAP reported cash used for operating activities for the period was $24.9 million primarily reflecting a change in the mix of manufacture versus non-manufacturer floorplan financing and reduction in our inventories. As part of our adjusted operating cash flow, we include all equipment inventory financing including non-manufacturer floorplan activity. Our net change in non0manufacturer floorplan payables shows an increase of $25 million. 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 inventory decreased 1% during the three-month period and represents a $6 million source of cash. Making these adjustments, our adjusted cash flow used for operating activities was $5.8 million for the three-month period ending April 30, 2016. We anticipate generating positive cash flow in fiscal 2017 primarily due to our inventory reduction plan and plan to use a portion of this cash to reduce our floorplan payables and other debt. Slide 12 provides an update on the status of our expanded marketing plan of aged inventory that was discussed on our fourth quarter call. Given the significant decline in end-user demand for equipment inventory and a challenging market conditions in both ag and construction, we identified certain aged pieces of equipment totaling $74 million that we began marketing through alternative channels. The graph on this slide provides the beginning amount of aged inventory included in the expanded marketing plan and the remaining amount of inventory at the end of the first quarter which shows our progress of reducing this inventory. During the quarter, we sold $25 million of approximately 34% of our planned marketing of aged inventory exceeding our target of $22 million. The reduction in inventory is reflected on the chart at the top right portion of each product category. The majority of the decrease during the quarter was driven by aged used ag equipment and discontinued Terex product. We're confident we will continue to successfully market this equipment through alternative channels as planned. We will continue to provide quarterly updates on our progress throughout the year on the status of this reduction plan. Turning to slide 13, I would like to provide an update on our long term equipment inventory initiatives. Similar to what we provided in the past, you will see a chart outlining our ending equipment inventory position for five years including our ending inventory target for fiscal 2017. The chart shows that we reduced our equipment inventory in the first quarter of fiscal 2017 by $6 million, which reflects a $21 million or 7.8% decrease in used equipment inventory partially offset by a seasonal increase of new equipment inventory of $15 million. We are on track to achieve our goal of $100 million reduction of equipment inventory in fiscal 2017 and expect the quarterly inventory stocking trend to be similar to that of fiscal 2016 with most of the reduction occurring in the back half of the year and particularly in the fourth quarter. By the end of fiscal 2017, we expect to have reduced our equipment inventory by approximately $450 million or 48% compared to the end of fiscal 2014, which represents a major improvement in the strength of our balance sheet. Turning to slide 14, you will see a chart showing our total liabilities to tangible net worth ratio for five years including our ending target for fiscal 2017 and our progress through the first quarter. Given the current market conditions, particularly in the ag sector, we believe it is in our best interest to de-lever our balance sheet and reduce our interest expense, which we believe will position our company to capitalize on long term opportunities. This ratio strengthened in the first quarter compared to year end and we expect continued improvement throughout fiscal 2017. Slide 15 shows our fiscal 2017 annual modeling assumptions. We are reiterating the modeling assumptions that we previously provided on our fourth quarter call. We expect our ag same-store sales to be down 13% to 18%. This primarily reflects lower anticipated results from our equipment revenue as well as a slight decrease in our parts and service revenue. Although our first quarter results are below these modeling assumptions, we expect to be facing softer comps in the back half of this year. We expect both our construction and international same store sales to be flat. Our modeling assumption for equipment margins for the full year is projected to be in the range of 7.7% to 8.3%. This range reflects continued margin pressure from the industry headwinds we discussed earlier on the call. We expect adjusted diluted EPS to range from a slight loss to breakeven for fiscal 2017. This assumption does not include the $2.1 million pretax gain we recognized in the first quarter of fiscal 2017 from the repurchase of our senior convertible notes. 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] We'll go first to Steve Dyer with Craig-Hallum.

Thanks. Good morning, guys.

Good morning, Steve.

Just as it relates to commodity prices, beans have obviously been extremely strong, corn kind of popping up above $4, which I know you said is always sort of a little bit of a psychological level. Do you feel like, I guess anecdotally that that’s putting – helping sentiment at all or just kind of too early and not enough yet?

Well, I think we’re a little bit early, but definitely, you know, soybeans, what we see despite you know anywhere from $1.5, probably $2 range here in the last few months. I think that's definitely been a positive, it allowed some of our growers to sell last year's crop, also to lock maybe some prices for the current year. So I think that's all positive. But at the end of the day, I believe it's – you know what the farmers profits are going to be this year, it's going to be a combination of yield – some of their expenses, what they end up the marketing at the final end of the year and what all – it look like it’s going to change. Probably the direction they are going to be getting from lot of other vendors, it’s going to drive a lot of the purchase decisions. But definitely where we are today in commodity prices compared to where we were a few months ago, definitely much better shape.

Great. And then you touched on the lenders, what sort of – I think historically lenders were willing to lend more based on net worth and balance sheet and now it seems more like it's sort of based on near-term income statement and maybe that's causing a little bit of an impediment. Would you agree and are you still seeing that? Is it pretty tight?

I think the bankers are sitting down and they are during their pro forma of projections for the year, and if they are somewhere around breakeven, slight loss, slight gain, I think the recommendation to the banker to say, once you kind of sit back and wait, you will get more cautious. I know they only need to purchase fertilizer, chemical, fuel and some of those things. But maybe not equipment purchase can wait a year or maybe they buy a used piece instead of a new piece and some of those decisions. There's a group of customers out there that – I think a big part of these projections are involved with are you paying cash? You own your land? What your land cost? That's a big variable between different farms out there. But there are a certain group of farmers’ with really strong balance sheets, maybe they don’t own their land, maybe they've got really good rental arrangements involved out there. And under this environment, you know, it might take – keep interest if they buy some machinery right now. And so you kind of got both pieces, but I think both basically from the bankers standpoint, the recommendation is hunker down a little bit, be careful, be cautious and see how your year turns all of those, that’s the story I’m hearing most of the time.

Yeah, okay. And then just a quick modeling question, operating expenses were I think a touch higher than I would have – than I was modeling this quarter. How do you sort of directionally anticipate that number to kind of track throughout the year?

I think, you know what we’ve talked about earlier is that, we had some big initiative last year, which brought down last year's operating expenses in our fiscal 2016. So overall we’re not expecting any kind of big decline, we do expect it to come down some during the year compared to last year, but not significantly. So I think if you kind of look at last year's numbers, it’s going to be pretty close in line to maybe down a little bit from the quarters of last year. Similar to what we saw here in first quarter. Actually the first quarter will probably have a little more of the decline because some of those initiatives went into place part way through the quarter last year. So we had a little bit more of a bump there.

Got it. Okay. Thanks, guys.

And we'll go next to Tyler Etten with Piper Jaffray.

Good morning, guys.

Good morning, Tyler.

I was wondering if we can talk about the used equipment that’s been moving in the first – through the spring. We've heard that it's been actually doing a little bit better than expected specifically in combines. Is that kind of what you guys were seeing is you guys work down your used equipment, I guess, any color around that would be great.

Well, I think what you’re seeing is some of the first-generation traced away model, or it will be four-wheel-drives or high house power tractors, combines, you know that's the market that is the most challenged. Some of that, third and fourth generation, some of the 10-year, 15-year older tractors have actually probably seen some updates, some shortage in certain models and they've actually been pretty resilient. But I'd say overall you're seeing a decreased demand for equipment and you’re seeing a fairly large supply out there, which tended to have a negative impact on pricing. So even though you see little spots here, you might see something that we sold pretty well. I think overall it's a challenging environment out there and probably more inventory than there are buyers. So I would it’s not totally as optimistic as what everybody is talking about.

And is the auction activity slowdown a bit or is it still up above normal and making it more difficult to market your guy’s equipment?

No I think that's – it staying relatively stable. You're seeing some retirement sales and you're seeing a few more of those pop-up. Actually we’re doing pretty well in some of these real large – then this whole – all these online auctions, which is a fairly, you know, new go-to-market strategy. I think there's a plenty of inventory on that. But it all comes down to, you know, what the action standpoint, what type of risk the seller and how big they really are, and trying to move the equipment. So I think you know as far as – if you look at all the equipment dealers, you know there's some pretty good staying power out there. And I think there's an incentive for all dealers to try to maintain their equity and equipment to get the value-add and get it moved at a relatively good level of margins. So I think that's a sentiment amongst dealers out there.

Okay, great. That's helpful. Switching gears a little bit, if you can talk about your international guidance or kind of what you're seeing in that market a little bit. We're down double-digits at the start of the year and is there something that you're saying in that market that gives you confidence that that market will improve? As we progress through the year?

Yeah, I think the thing to kind of keep with the international is that first quarter is the seasonal low quarter from a revenue standpoint. So to gauge the year after the first-quarter, I think is not the right thing to do. So we talked a little bit about some of the subvention funds. We expect those to kick in for the couple of other countries during the year. They weren’t in place for the first quarter. So if for whatever reason if they don't kick in, we'd probably – it will be a struggle to hit that flat revenue. But we do anticipate those coming in and the critical quarters for that international segment is going to be in that Q2, Q3 timeframe.

Got it. Yeah, this is definitely a low quarter and hard to get the year off of that. And then just one more if I can, you guys talk about strong balance sheets as many companies have throughout the years. Do you think that those strong balance sheets have been compromised a bit with the tightening credit throughout the ag lenders and other forms of financing and just to kind of gauge what that impact is to those balance sheets and if they are actually as strong as a year ago?

Well, probably the biggest asset you're seeing on a farmer’s balance sheet is their land and on that, I think, any decrease, so you are really going to watch land value, so think any decrease in land values is probably going to have the biggest impact on that. I think it's pretty well documented, pretty well on track [ph], just you are seeing some pressure on the land prices, but not to the extent where – I think overall the balance sheets are still, you know, pretty good shape. But I'd say that's one area we have to continue to watch and monitor -- the land prices.

All right. I'll pass it along. Thanks guys.

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

Hi, good morning, guys. Could you just talk more about the year-over-year improvement in equipment gross margins in the quarter in light of the excess supply you are alluding to earlier David, was the improvement primarily driven on the used side or maybe did not have as many write down this quarter following the actions you took in Q4?

I think the bigger thing is looking at it by segments. The construction, we had more strength in the construction equipment margin compared to the first quarter of last year and then as well as international. International, we did have some – some lower equipment margins in that first quarter, so the comp was easier that drug down last year's a little bit. But it was more so I would say by segment where we saw the differences there rather than buy new versus used.

And then, Mark, would it be fair to say that ag margins were down year-over-year then?

Yeah, I would say the – ag is still kind of on that downward slope given the demand out there. The level of demand out there, but the other segments more than offset that in the first quarter.

All right. And then could you talk about the outlook for parts and service revenue for this year, I mean would you expect to see these mid-single-digit declines due to the less customer preventative of maintenance program spending and lower pre-delivery service work you called out again or is there any more color you can provide there, it would be helpful on what you would expect for these businesses for the remainder of the year.

Yeah, I think overall, I think of the year, you know, that percent down is probably close. We talked about on the ag side that we expect some level of decline. I think when you talk quarters, I think we could see maybe a little bit more positive in that Q3. If you recall last year with some of the favorable harvest conditions that happened, I think we did miss out on some – some parts and service opportunities there, so if we have more of a normal harvest that third quarter could be something a little bit less than favorable than that. But for the most part, I think of the year, you know the first quarter here was probably – it was in line with what we were expecting and probably a good indication for the year.

Great. Thanks very much. I'll pass it on.

[Operator Instructions] And we will go next to Mig Dobre with Robert Baird.

Yes, good morning, everyone. So sort of sticking with that gross rather equipment margin question. I'm trying to figure out if you can provide us any perspective on how used equipment prices have been trending through the quarter – first quarter versus fourth quarter. Have things to some extent stabilized somewhat? Are they continuing to erode because again you are up 60 basis points on a year-over-year basis?

Right. I think that 60 basis points, so if you look at our quarters, the unusual one was kind of that first-quarter last year where it was relatively low. But as far as, you know certainly that fourth quarter that we had last year was impacted by a number of different things primarily that write down we had. But also we had some, what I would call, some alternative channels selling that we did with in the fourth quarter as well. That kind of brought that down. So that one is a hard one to kind of look at. So if you look at the numbers, certainly there's improvement quarter-over-quarter, but I think going back to like the third quarter of last year, it's relatively – relatively stable compared to that. You know as the year progresses, we still, like we said, anticipate in that range. So we’re kind of at the bottom end of that range right now with the first quarter. Though we would expect to hang around that maybe strengthen just a little bit towards the end of the year.

All right. I appreciate that. I mean, you know, the thing that I'm wondering about is whether or not at this point you really have your used equipment on the books that sort of at the right valuation. And when I'm looking as to the $25 million worth of items that you marketed this quarter, aged inventory, I'm wondering what sort of margin have you made on that – on those products specifically? Is it in line with the segment or is a below?

Yeah, I would say for the most part, it was in-line. We kind of marked it down to achieve some level of, you know, reasonable margin on it. And I think it hasn't materially affected it one way or the other. It – wasn't a big factor in that margin improvement that you're looking at year-over-year. The bigger factor is that the quarter of last year, the first quarter last year was unusually low.

I see. And then maybe the last question for me, can you give us any perspective on how incentives, OEM incentives have changed out there. I mean we’ve certainly heard the OEMs discussed this on their earnings calls, but from your perspective, leasing versus other types of incentives or financing out there, anything you can provide is helpful.

Well, it's definitely an interest by some of the growers for leasing. It's off balance sheet, it's a shorter commitment. So we are seeing some from the OEM, some leasing they programs or offerings out there. At the same time, you know I think if you talk about incentives, I think some things are really common out there, you know lower interest rates, interest-free type programs. But I think you’re see a lot of these programs from OEMs attributed to the leasing or the financing side which tends to hold up the used equipment value. So, I think that's the direction we're seeing from an incentive standpoint towards the financing side of business whether it's a retail installment contract or whether it's a lease and we're seeing some of each.

And just to be clear Dave, are you seeing OEMs are more willing to participate in used equipment leasing providing support for that to kind of clear the channel?

Well. I think the OEMs, they know that the dealers need to clear out their existing use. So that they can take more use if they want to continue to sell more new machinery. So, they're very interested and they track very closely the level of used and the age of the used on the dealer’s lot. So, yes they are definitely, I think we've hand-in-hand, the manufacturers and dealers need to focus on moving the used out of the channel, so we can turn around and sell more new and trade in more used.

Thank you.

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

Hi, good morning guys. I was wondering if you could address the competitive landscape just how distressed do you think your competition is and in addition to that, do think there is opportunity in this year at all in terms of acquisitions?

You know as far as our competitive landscape, you know I think if you look at most of the OEMs and what they talk about, you know we are looking at this positive price realization and I think that's a good situation because it tends to hold up, you know the new pricing in that and the used tends to follow that. So I think that's good. But from a competitive standpoint, you know the different OEMs may look at how they deal with the lease business and the residuals and the level of residuals and the amount of guarantees and residuals. The one thing we’re very careful about on our end of it, you know from a dealer standpoint is that, we don't have exposure to residual guarantees and type II right now. So, we’re really clean from that aspect, so I feel good about that. So that's just a little bit of color on the competitive landscape. I know that there is two main basically market players in North America and we’re competing every day and I think both the OEMs are trying to go out and help the dealers move used to the system. So with that talking about the acquisition landscape out there, you know I think there is starting to be some discussions I know, you know amongst dealers what’s their succession plans are, what their strategy is, what’s their exit strategies are and all that. There's ongoing discussions with that right now, we’re opportunistic I think, our acquisitions like right now, our main focus is on business at hand, our inventory reduction, profitability in our leasing locations, our expense management. So I think that's our primary focus right now, but with that two we still stay engaged in the net worth development working with, talking to our dealer peers out there and what's going on the long-term succession exit strategies for some of these existing dealerships out there.

So, just to sort of reply to that, what is your high level sort of thinking regarding the transition from sort of this defensive strategy within this downturn? We’re now in the third year, so into this downturn managing the inventory to more of a growth sort of strategy given the massive improvement in the balance sheet, stabilization in crop prices. By the end of this year, the ag revenue declines should have slowed significantly barring any sort of fallout again in the industry overall. How are you thinking about transitioning into more of a growth strategy and what is sort of your timing and thinking about all that?

Well. First of all, I think time is on our side. You know, I think as time goes on, I think acquisition opportunities will become more attractive. You know with that said, I guess, you know we want to see that three times turn on new and used inventory and get to that level, you know get the profitability in our existing locations and all three of our segments to, you know a level that we think that we are comfortable and we've got our sites and I think we've got the plans in place to get there. So, I think it's all going to tie in together. The timing of the acquisitions, our inventory, reduction targets and some of the things we've done on the expense. So, I think it will all work together and I think long-term there's some great opportunities out there for Titan Machinery.

So just lastly, related to the same topic, what kind of metrics do you sort of look at for that transition? Do you want to see agriculture, the revenue declines the transition to more of a stable environment, which potentially could be later this year, early next year or are you looking at it industry metrics? How do you base your inventory management regarding all of this? What kind of things are you actually looking for that we can sort of think about to think about this transition to more of a growth strategy?

Well as far as, I think we’re going to focus on things we can control. We can control our inventory. We can control our expenses. You know if you look at the macro, Agro economy where our current commodity prices are in there. I don't think we’re sitting here being optimist there that we may not see much change in that for the foreseeable future. So, I think we have to manage our business under the different climate, and if I do that, I believe that we are going to have growth opportunities both from our organic side and acquisition side, but I think that we need to manage the elements that are under our control and that's inventory, that's expenses, its growing that high-margin parts and service business and I think those are what’s important to our success.

Okay. Thanks. I appreciate for taking my questions.

At this time, I would like turn the call back to David Meyer, CEO of Titan Machinery.

It looks like that's the end of the questions. Thank you for your interest in Titan and we look forward to updating you on our progress on our next call. Have a good day.

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