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

Steve Dyer - Craig Hallum Rick Nelson - Stephens Joe Mondillo - Sidoti & Company Tyler Etten - Piper Jaffray Mig Dobre - Robert W. Baird

Good day everyone and welcome to the Titan Machinery’s Fiscal Second Quarter 2017 Conference Call. Today's conference is being recorded. At this time, I’d 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 second 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 second quarter ended July 31, 2016, which went out this morning at approximately 6:45 AM eastern time. If you have not received the release it is available on the investor relations portion of Titan's website at 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 on them. These statements are based on current expectations of management and involve inherent risks and uncertainty, including those identified in the risk factor section of Titan’s most recently filed annual report on Form 10-K. These risk factors contain more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by 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 will discuss non-GAAP financial measures including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titans ongoing results of operation, particularly, when comparing underlying results from period to period. We've included a reconciliation of these non-GAAP financial measures in today's release and have provided information regarding the adjustments that are added back or excluded in these non-GAAP financial measures. Lastly, due to the number of participants on the call today, we ask that you keep your question period to two questions and then rejoin the queue. The call will last about 45 minutes. David Meyer will provide highlights the company second 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 2017 annual modeling assumptions. At the conclusion of our paired remarks, we will open up the call to take your questions. Now, I would like to introduce the company's Chairman and CEO, Mr. David Meyer. Go ahead David.

Thank you, John. Good morning everyone. Welcome to our second 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 second quarter financial results. Revenue was $278 million, primarily reflecting the continued industry headwinds in the agriculture segment. Adjusted pretax loss was $4.5 million and our adjusted loss per diluted share was $0.12. The second quarter was impacted by the challenging agricultural market conditions that we have discussed on prior calls. In addition, recently projected record corn and soybean yields are driving commodity prices lower, which is resulting on our customers’ continued cautious spending patterns, particularly in equipment. We remain focused on managing the controllable aspects of our business, including reducing our inventory, improving our balance sheet, achieving positive operating cash flow for fiscal 2017, and managing our expenses. On today's call, I'll provide an industry overview for each of our business segments. Mark will review financial results on the second quarter for fiscal 2017, and update you on the status of our expanded inventory reduction plan. We will then conclude with the review of our revised modeling assumptions for fiscal 2017. Now I'd like to provide color for you on the agriculture and construction industries in the international markets in which we operate. On slide 4 is an overview of the agriculture industry. Regarding current market production conditions, fall row crop progress is on schedule and the majority of our customers are experiencing favorable growing conditions in our foot print with above average yields anticipated. Although, earlier weather predictions this year indicated the possibility of El Niño weather pattern negatively impacting crop yields and improved commodity prices. As the growing season progressed, most of our country's major corn and soybean growing areas received timely rains and favorable growing conditions. This improved yield was reflected in the August 22, 2016 WASDE report which projected increased yields in corn and soybeans with a record crop anticipated, which is leading to large increases and expected crop carryovers, adding pressure to commodity pricing and creating weaker customer settlement. The chart at the bottom of the page will provide some additional insights into the current US agriculture market. Current corn, soybeans, and wheat prices are well below the five year averages and projected net farm income for this year is 43% below the five-year average. We're managing through this environment by focusing on our cash flow, reducing our inventory levels, and deleveraging our balance sheet. As I mentioned on our previous call, 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 agriculture equipment plan -- customers plan their purchasing decisions throughout the year. Now, I'd like to turn to the construction segment of our business. On slide 5, we provide an overview of the construction industry in our market. Unlike many geographic markets in the U.S., the Titans Midwest footprint energy and agriculture are important contributing factors to construction activity in addition to residential, commercial, and transportation infrastructure. Equipment and rental demand remained low in energy markets due to continued depressed oil prices. Rental equipment continued to be relocated to the surrounding regions, which is creating a competitive rental market and keeping rental rates low in many of our locations in the upper Midwest. Lower net farm income continues to reduce demand for construction equipment by customers in the agriculture industry. Activity in residential, commercial, and transportation infrastructure is maintaining current levels in metro markets. The competitive rental market is pressuring rental rates on our footprint, however, we continue to believe our construction segment revenue will be flat in fiscal 2017 with improved operating results compared to last year as we benefit from the operating and inventory initiatives we have put in place. The reinstatement of Section 179 on a permanent basis and the extensional bonus depreciation at the end of the calendar year 2015 should help the construction equipment customers plan their purchasing decisions throughout the year. On slide 6, we have an overview of the industry in our international segments consisting of Bulgaria, Romania, Serbia, which are located in the Bakken region and the Ukrainian market. Our customers have completed the cereal grain harvest with above average yields and they are experiencing overall favorable fall crop conditions with anticipated good yields. Low global commodity prices continued to impact customer settlement and income in our international markets. The European Union’s subvention funds which support the purchase of equipment in Romania and Bulgaria are not anticipated to release until fiscal 2018. This is a multiyear program, and in some years, the timing of the release of funds may not occur until beginning of the next year. The Ukraine market remains challenging, but is stabilizing with high interest rates and restricted credit continues, but the local currency is stabilized against the US dollar. There have not been any major changes in the geopolitical landscape and customers are adjusting to the current market dynamics. This is slowly improving equipment demand as purchases have been delayed over the previous 2.5 years. We continue to see steady demand for parts and service to repair existing equipment. In summary, even though we continue to face challenges in industries we do business in, over the past couple of years we have made significant improvements to our cost structure and balance sheet, including the repurchase of senior convertible notes in the first quarter of this year. We are confident we will achieve positive cash flow for the year and are on track to achieve our $100 million inventory reduction goal. We continue to take the necessary steps to weather the current environment and improve our balance sheet to position us for long-term financial performance and capitalize on future opportunities. 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, our total revenue for the fiscal 2017 second quarter was $278 million, a decrease of 16.7% compared to last year, primarily driven by a decrease in agriculture equipment revenue. We have said before, our higher margin parts and service revenue are more stable than our equipment revenue during a challenging environment. Equipment sales declined 21.6%, compared to the same period last year. Equipment sales reflect the impact of continued industry headwinds that David discussed. Our parts revenue decreased 6% in the quarter and service revenue decreased 4.7%. The decline in this quarter's parts and service revenue were primarily attributable to a decreased amount of customer preventative maintenance and continued lower warranty and pre-delivery service work as a result of lower new equipment sales. Our rental and other revenue decreased 15.6% in the second quarter, primarily due to lower demand in the oil production areas in a reduction in inventory equipment rentals. Our rental fleet dollar utilization decreased slightly to 25.3% for the current quarter, compared to 26% in the same period last year. On slide 8, our gross profit for the quarter was $53 million, compared to $62 million in the same quarter last year, primarily reflecting the lower revenue I just discussed. Our gross profit margin was 19%, an increase of 40 basis points compared to the same quarter last year. The improvement in gross margin was due to a change in gross profit mix through our higher margin parts and service business, partially offset by a decrease in equipment margins of 90 basis points. We remain focused on reducing our used inventory despite difficult market conditions and believe this disciplined approach to the used inventory reduction although pressuring our equipment margins will create positive cash flow in fiscal 2017 and better positions us for the current environment. Our operating expenses decreased by $3.9 million or 7% at $51.5 million for the second quarter. As a percentage of revenue, operating expenses in the second quarter of fiscal 2017 were 18.5%, compared to 16.6% for the same quarter last year, reflecting the impact of lower revenue this year. Floorplan and other interest expense decreased $1.5 million or 18.8% to $6.6 million in the second quarter of this year, reflecting a decrease in our average interest-bearing inventory, compared to the second quarter of last year, as well as interest expense savings, resulting from the repurchase of senior convertible notes in the first quarter of this year. For the second quarter of fiscal 2017, we generated adjusted EBITDA of $4.7 million, which compares to $9.8 million in the second quarter of last year. We calculate adjusted EBITDA by including our floorplan interest expense and excluding nonrecurring items. Our adjusted loss per diluted share was $0.12 for the second quarter of fiscal 2017. This compares to breakeven results in the second quarter of last year. On slide 9, you will see an overview of our segment results for the second quarter of fiscal year 2017. 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 were $154 million, a decrease of 26.6% reflecting a 26.4% decrease in Ag same-store sales, which primarily resulted from a decrease in equipment revenue impacted by the factors David discussed earlier. Our ag segment had an adjusted pretax loss of $4.3 million, compared to an adjusted pretax loss of $2.5 million in the prior-year period. Turning to our construction segment, our revenue was $83 million, an increase of 2.1% primarily reflecting a 2.2% increase in construction same-store sales. We generated adjusted pretax income for our construction segment of $0.6 million, compared to $1 million loss in the same period last year. The improvements in our construction segment results reflect the reduction in operating expenses and lower floorplan interest expense as a result of our reduced inventory level. We are especially pleased with our improvements given the fact that the industry conditions remain challenging particularly for our stores in the oil production area. In the second quarter of fiscal 2017, our international revenue was $41 million, which was a 4.3% decrease reflecting lower equipment revenue primarily due to lower commodity prices in our markets. Our adjusted pretax loss was $0.2 million, compared to adjusted pretax income of $1 million in the prior-year period. Turning to slide 10, you see our first six months results. Total revenue decreased 18.1% compared to the same period last year primarily due to lower equipment sales of 23.1%. Year-to-date parts were down 6.3%, service was down 5.3%, and rental and other was down 16.1%. The six-month results reflect similar trends to those of our second quarter. Turning to slide 11, our first six-month gross profit was $106.5 million, a 13.1% decrease compared to the prior year primarily reflecting lower revenue. A gross margin increase of 110 basis points is due to a change in gross profit mix through our higher margin parts and service that I previously discussed. Our operating expenses decreased $6.5 million or 5.8% to $106 million. As a percentage of revenue in the first six months, operating expenses were 18.8%, compared to 16.4% reflecting the lower revenue. Adjusted floorplan and other interest expense decreased $2.6 million or 16.1% to $13.4 million in the first six months reflecting a decrease in our average interest-bearing inventory compared to the first six months of last year as well as interest expense savings resulting from the repurchase of senior convertible notes in the first quarter of this year. Our non-GAAP adjustments in the first six months of fiscal 2017 primarily reflect the gain on the repurchase of our senior convertible notes and in fiscal 2016 primarily reflect remeasurement and realignment costs. Year-to-date, we generated adjusted EBITDA of $6.4 million and adjusted loss per diluted share of $0.33. On slide 12, we provide our segment overview for the six-month period. Overall, revenue decreased 18.1% and adjusted pretax income was down 132%. At the segment level, lower ag revenue led to reduced adjusted pretax income. We were able to more than offset lower revenue in the construction and international segments primarily with lower floorplan and operating expenses resulting in improved adjusted pretax loss in these segments. Turning to slide 13, here we provide an overview of our balance sheet highlights at the end of the second quarter. We have stated on prior calls in light of the prolonged headwinds we face in our agriculture and construction segments, one of our key areas of focus is improving our balance sheet. We're pleased with the progress we have made to date. We had cash of $51 million as of July 31 as of July 31, 2016. Our equipment inventory as of July 31, 2016 was $583 million, a decrease of $8.5 million from January 31, 2016, which reflects a $39.2 million or 14.6% decrease in used equipment inventory partially offset by a seasonal increase of new equipment inventory of $30.6 million. In a few minutes, I will provide a progress update on our inventory reduction outlook for fiscal 2017. Our rental fleet assets at the end of the second quarter were $135 million, compared to $138 million at the end of our fourth period of fiscal 2016. We plan to reduce our fleet size throughout the remainder of fiscal 2017 to approximately $125 million based on the lower rental demand we are experiencing in our footprint. We had $430.8 million outstanding floorplan payables on $1 billion total discretionary floorplan lines of credit as of July 31, 2016. Subsequent to the end of our second quarter, we reduced our discretionary floorplan lines of credit by $85 million to reflect our lower inventory levels. We improved our ratio of total liabilities to tangible network to 2.0 as of July 31, 2016 from 2.1 as of January 31, 2016. Slide 14 provides an overview of our cash flow statement for the first six months of fiscal 2017. The GAAP reported cash flow provided by operating activities for the period was $60.4 million primarily reflecting a change in the mix of manufacturer versus non-manufacturer floorplan financing. As part of our adjusted cash flow provided by operating activities, we include all equipment inventory financing including non-manufacturer floorplan activity. Our net change in non-manufacturer floorplan payable shows a decrease of $67 million. To accurately reflect cash flow provided by 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 flow provided by operating activities exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory increased 1.3% during the six-month period and represents a $7.5 million source of cash. Making these adjustments, our adjusted cash flow provided by operating activities was $1.1 million for the six-month period ending July 31, 2016. We anticipate increased positive cash flow in the last six months of fiscal 2017 primarily due to our inventory reduction plan and we expect to use a portion of this cash to reduce our floorplan payables or other debt. Slide 15 provides an update on the status of our expanded marketing plan of $74 million of aged inventory that we previously discussed. The graph on this slide provides the beginning amount of aged inventory to be marketed through alternative channels and the remaining amount of unsold inventory, which shows our progress of reducing this inventory. During the first six months of fiscal 2017, we sold $45 million or approximately 61% of our planned marketing of aged inventory exceeding our target by $13 million or 40%. The reduction in inventory is reflected on the chart as the top white portion of each product category. We are confident we will continue to successfully market this equipment through alternative channels within the original timeline. We will continue to provide quarterly updates on our progress throughout the year on the status of this reduction plan. Turning to slide 16, I’d like to provide an update on our long-term equipment inventory initiative. 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 six months of fiscal 2017 by $9 million, which reflects a $39 million or 14.6% decrease in used equipment inventory partially offset by a seasonal increase of new equipment inventory of $31 million. The second quarter reflects the sixth consecutive quarter of reduction in our used inventory. 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 continue to 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 17, 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 second 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 half of the year and we expect continued improvement throughout fiscal 2017. Slide 18 shows our fiscal 2017 annual modeling assumptions. We're updating the modeling assumptions that we previously provided based on our increased visibility to current market conditions. We are changing our ag same-store sales to be down 17% to 22% compared to our previous range of 13% to 18%. The change reflects a more conservative customer sentiment in the markets due to lower commodity prices as a result of projected record crops. Although our first six months results are below this range of modeling assumptions, we are facing softer comps in the back half of this year. We continue to expect our construction same-store sales to be flat despite a very competitive rental markets, which we anticipate will negatively impact rental revenue and margins, which is a higher-margin revenue stream. We're updating our international same-store sales modeling assumptions to be down 7% to 12% compared to our previous assumption of flat same-store sales. This change primarily reflects the EU subvention funds no longer being anticipated this year. We now expect these funds to be available in fiscal 2018. Our modeling assumption for equipment margins for the full year is projected to be in the range of 7.2% to 7.8%, compared to the previous range of 7.7% to 8.3%. This new range reflects continued margin pressure from the industry headwinds we discussed and our focus on reducing used equipment inventory in this environment. We expect adjusted diluted EPS loss in the second half of fiscal 2017 to be less than the loss we experienced during the first half of the year. This assumption does not include the $2.1 million of 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 will go to Steve Dyer of Craig Hallum.

Good morning. Thanks for taking my question.

Good morning, Steve.

Question on gross margin parts and services. I noticed it was down quarter over quarter, is that just based on a lower revenue base or is that a trend that for whatever reason you’d expect to see going through the rest of the year?

The actual margin percentage was pretty much in line with historical – little bit softer, but for the most part, the decreased amount in gross profit from those areas is from the lower revenue. And I would say what happened in the second quarter was very similar to what happened as far as the revenue amount being off, very similar to what happened in the first quarter and is probably representative for the full-year.

Okay. And then I noticed in the release you talked about 19 – or you listed 19 European dealerships, and I think previously it was always sort of 17. Is that – did that read that right and is that an area in which you are investing or sort of what's your thought on strategy there?

Yeah, what we did – in some stronger markets we had – for Ukraine, we opened up a facility in the Zhytomyr region. See originally we were assigned four Oblast, we had Vinnytsa and Kyiv Oblast, and then because of some of those geopolitical situations, we didn’t put brick-and-mortar in the Zhitomyr region and we did that also in Romania in a pretty strong agriculture area in the southwest part of the country in Craiova [ph] just a couple of plan – clearly, not real material that I think to add value to our customers from a location standpoint.

Okay. Got it. And then Mark, I noticed floorplan was up a little bit quarter-over-quarter despite inventory being down, is that just based on the mix of equity or would you expect it to continue ticking down throughout the year or is this kind of a good level?

We would expect it to come down. It really didn't come down in the second quarter because we did use some of our cash and we went into our floorplan lines a little bit because of the convertible debt that we repurchased during the quarter. So for that 25 million that we used, for that we did go into our lines a little bit, but we would expect that to come down as we progress through the back half of the year where we will have the majority of our inventory reduction for the year.

Got it. Okay. Thanks I will hop back in queue.

We will go next to Rick Nelson with Stephens. Please go ahead.

Thanks. Good morning. What are the signposts that we should be looking for the demand environment here to bottom out, and is there a commodities pricing level with corn or soybeans that you think farmers would come back into the stores?

So, I guess the prices we should be looking at, I think, it’s probably similar to what we saw probably in late May and early June where we saw some spikes for some of the weather threshold of El Niño. At those levels, we started to see a resurgence of activity, but I’d say at the elevated standpoint, you’re probably around that – $4 on a futures price, but it’s elevated price around that $4 in corn and somewhere about $12, little north of $12 in soybean range seems to be – sparks increased interest.

Thanks for that color. Also, the inventory reduction, you made some progress this quarter down to 7 million, I know it's a back half inventory reduction plan, but as we look to third quarter, what sort of inventory levels do you think you'll have?

Well, the trend would be down, and we should be able to continue to move down particularly in the used inventory, but of that full target of $100 million, the majority of it will come in the fourth quarter, but definitely you'll see some inventory reduction in our third-quarter.

Similar magnitude as what we found in 2Q or --?

I would say if you look back to the trending that we had last year where Q2 went down than Q3, it would be similar to that, maybe even a little bit better than that in the current year.

Thanks and good luck.

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

Hi, good morning, guys.

Hi, Joe.

In terms of the adjustments made to the gross margins, I’m just wondering how much of that is related to the pricing on the aged inventory reduction plan? If you take that out, where would your sort of I guess maybe more normalized type gross margins be?

The units that were in the identified aged equipment group, it continues to be in line with what our expectations were. So that isn't materially impacting our equipment margins for the quarter or any reason for us changing the overall guidance that we are providing an modeling assumption on equipment margins. The big change both for the quarter and for the year is really particularly in the ag segment as we remain diligent in moving our used in the face of more difficult environment out there with commodity prices coming down. So it's more driven by the ag retail units than it is on those remarketing items – those remarketing – that bucket of inventory.

Okay. And regarding the aged inventory plan, you are ahead of schedule in terms of the plan and you put in your slide 15 what the plan was for the third, fourth, and first quarter of next year. Are we expecting $74 million still or if you use what you’ve already done and then add those next three quarters in terms of your plan, you'd be above that closer to $90 million?

Right. So the plan would be that we would still hit that $74 million. I mean we always have some level of where we might take some items to an alternative marketing channel, but as far as this initiative, the $74 million is what it is. So essentially in Q3 and Q4, we expect to have something lower than what we're showing out there for the plan because we are ahead of schedule. But in the end, we will still plan on going through Q1 of next year because there is some seasonal items in there and we anticipate showing that full $74 million in this plan by the end of Q1 next year.

Okay. And then just lastly, in terms of your cost structure, particularly, SG&A line, I noticed that it declined sequentially, but that's occurred in the last couple of years. I don't know if there's a seasonality aspect of that or could you just talk about what you're doing with cost and how you're thinking about that regarding where we are in the cycle and the challenges that you're seeing?

Yeah, I think, so last year what caused the sequential decrease was the large initiative that we had that we announced at the beginning of the year that really took place toward the end of Q1 that you saw as a sequential improvement in Q2 last year. This year I would say it's just more of – kind of – I think, I started the year talking about smaller initiatives not big hitter type initiatives out there, but a number of smaller ones that continue to bring down operating expense to a smaller degree. So last year was the large initiative that took place that helped out Q2 over Q1, this year it's just smaller initiatives, and somewhat with lower – we’ve got some variable costs and then particularly with commissions that also came down in Q2 with some lower revenue.

Okay. Great thanks a lot.

We will go next to Tyler Etten with Piper Jaffray.

Hey guys thanks for taking my questions I appreciate it. With continued overhang in used inventory and new inventory in your guys this case has there been any pressure from CNH to take on new equipment like the 2017 models?

What we do as we operate within a long-term plan based on what we anticipate kind of a joint agreement where we see the industry doing, what type of level of inventory is going take – we remain a certain level of share within the forecasted industry, so we continue to work hand and hand with them and review that ongoing basis and match incoming shipments with forecasted sales on a very planned method.

All right thanks for that. And I guess some dealers and even some of the other OEMs have talked about used pricing kind of bottoming through the summer with the outlook of the crop being above-average yields and potentially grading prices, moving lower staying lower for another your, do believe that used pricing is still at risk going forward over the next 12 months?

There has been good discipline on the new pricing, so some of this is steer step down. There is decreased demand for the used equipment out there, and there is an oversupply, it's overhang out there which is starting to come down and getting line with that, so I believe as long as we continue to see the discipline on the new side of the business, we see these good yields that we are going to see. We've got, I think most people are pretty smart about their inventories. My belief is we are going to see some stabilization of that, but we have to realize all of that that there is going to be some leisure trends going back in the other marketplace. There is an overhang now but I believe as an industry everybody's focused on moving those levels down to get to a more stable market, which we're going to see somewhere in the near future. I think a lot of the heavy lifting has been done and we're getting close to where we are going to get to that stabilization point.

Okay great. That's helpful and just one more if I may and then I will jump back in queue, switching gears to the construction. With oil improving from - or bouncing up a little and hanging between $40 to $50 band has there been an improvement in customer demand or just in customer sediment given that somewhat rebound or I guess any sort of color around what your thinking is great. Thanks.

There is some activity, but it's just basically fairly stable you're not seeing big improvements. A lot of the oil services companies they’ve got equipment, the own equipment, they're now are starting to utilize what they have, but it's nothing really triggers some big demand and we're seeing decreased demand for rental in those markets and we're continuing to move - rental inventory out of those markets in the other markets.

Got it. Thank you.

[Operator Instructions] We'll go next to Mig Dobre with Robert W. Baird.

Good morning everyone, it's Joe Grabowski on today for MIg. I wanted to ask about the quality of the new and used inventory that you currently have that wasn't part of the write-down probably in the fourth quarter and when you kind of look at the quality of that inventory are you still confident that you won't need to take an inventory write-down in the fourth quarter this year?

Right, so yeah, I would say it continues to get better. We're focused on moving the edge piece of that what we have for that retail inventory. We don't expect another write-down such as the one that we did in the fourth quarter. Of course in our regular margin and the margin assumption that we provided there is always some level of lower cost to market, especially in an environment where revenues are decreasing, so there is some pricing pressure, particularly on the used, but no, we wouldn't expect unless there's anything drastic some other drastic thing that we've not seeing right now, we wouldn't expect another large right down to occur.

Okay great thanks. And then can you give us any update on some of the initial reads on the early order programs, how they are progressing?

Right now we're - from a seasonal standpoint pre-harvest right there, I'd say we are very early in the game and I think the biggest focus is the retail, existing inventory in on hand at this point in time.

Okay. And then last question, you gave guidance for second-half EPS being better than first half, but the last couple of years Q3 has been pretty solidly profitable, so I was wondering if you could give any guidance on progression of EPS Q3 versus Q4.

Q3, especially in recent years, Q3 benefits by the harvest that goes on and more construction activity, also for international it's higher activity quarter than what you have at the end of the year. But what used to happen, you go back to be very strong retail years of equipment that really buoyed the fourth quarter, obviously we don't have that as much anymore. So all that being said, we would definitely expect third quarter to be more profitable, so because of that mix difference where you've got the parts service and rental that’s stronger in that third quarter, so we would anticipate third quarter being better than that fourth-quarter.

Okay. Great, thanks for taking my questions.

That does conclude our question-and-answer session. At this time, I’ll turn the call back over to David Meyer, CEO of Titan Machinery for any additional or closing remarks.

I want to thank everyone for your interest in Titan. I look forward to updating you on our progress on our next call. Have a good day.

And that does conclude today's conference. Thank you for your participation.