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

Steven Dyer - Craig-Hallum Capital Group LLC Richard Nelson - Stephens Inc. Mircea Dobre - Robert W. Baird & Co., Inc. Brett Wong - Piper Jaffray Lawrence De Maria - William Blair & Company, LLC

Good day and welcome to the Titan Machinery Incorporated Third Quarter 2018 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Mills. Please go ahead, sir.

Thank you. Good morning, ladies and gentlemen and welcome to the Titan Machinery third quarter fiscal 2018 earnings conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer; and Mark Kalvoda, Chief Financial Officer. By now everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2017, 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 page of Titan's website at ir.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. You may access the presentation now by going to the IR page of our website as well. The presentation is directly below the webcast information in the middle of the page. You will see on Slide 2 of the presentation our Safe Harbor Statement. 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. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risk and uncertainties, including those identified in the risk factors section of Titan's most recently filed Annual Report on Form 10-K. These risk factors contain more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we'll discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titans ongoing financial performance, particularly, when comparing underlying results from period-to-period. We’ve included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in today’s release. The call will last approximately 45 minutes and at the conclusion of the prepared remarks, we will open the call to take your questions. 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 for follow-up 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 third quarter fiscal 2018 earnings conference call. On today's call, I’ll provide a brief summary of our results and then an overview for each of our business segments. Mark will then review our financial results for the third quarter of fiscal 2018 and conclude with a review of our updated modeling assumptions. If you turn to Slide 3, you will see an overview of our third quarter financial results. Our third quarter revenue was $330 million, with an adjusted pretax income of $7.5 million and adjusted income per diluted share of $0.20. Our overall revenues are slightly up, the same quarter revenues last year with significant improvement to net income, which was generated through increase the equipment margins and decrease in operating and interest expenses. I’m pleased that the primary driver of this net income improvement has been structural and in particular, our determined focus on improving our inventory position – our recent, but difficult efforts to restructure our operations. This will drive profitability even during down cycles, while positioning us for increasing profit pull through as markets rebound. Taken together, our Domestic Agriculture and Construction segments combined to earn $2.5 million of pretax income in our third quarter versus the $2 million pretax loss last year. On combined sales of those segments, they were down over 9% on a year-over-year basis. Our 92% absorption rate in the third quarter indicates that our recurring and higher margin parts, services, and rental revenues are improving relative to our fixed cost. This reflects our optimized footprint and expert team structure, driving improved customer experience and operational efficiencies. Internationally, we are pleased with better-than-expected revenue growth and improved margins on new equipment sales. Both domestically and abroad, we are focused on more aggressively growing machine [field] [ph] population where we see pockets of demand, while continuing to invest in capturing the downstream, higher margin, product support opportunities this creates. I will now provide additional detail for the three operating segments, including our Domestic Agriculture and Construction segments and our International segment. On Slide 4 is an overview of our Domestic Agriculture segment. After spring and early summer dry weather, we saw growing conditions improved considerably and resulted in better-than-expected yields in most of our territory. Overall business conditions remained slightly down year-over-year as expected with continuing stability in used equipment pricing. In the fourth quarter, we see conditions as favorable for new equipment demand based on relatively strong yields and ongoing indications that customers are reaching their point of replacement demand, particularly for high horsepower tractors and combines. As Mark will share further, we've increased our near-term inventory of core products to meet this anticipated demand and we will continue to aggressively market used equipment to keep the pipeline for trade-ins flowing. Another key focus, especially as we head into the winter months, is enrolling customers in our popular up-time program, a proactive preventive maintenance program that increases equipment reliability and resulting in customer loyalty while further strengthening our absorption rate. Turning to Slide 5, you will see an overview of our Domestic Construction segment. Altogether, our 11 state construction equipment market has been flat to slightly down, with our major metros like Phoenix and Denver faring better than mid-markets and rural areas. We are not completely satisfied with our results and we are diligently completing required structural changes to improve efficiency and reduced costs, which will allow us to achieve improved profitability even at low levels of demand. We are also increasing focus on our core [Indiscernible] market and driving growth on our higher margin parts, service and rental businesses. We did see modest gains in our equipment revenues and profit margins in the third quarter at a more significant jump to rent-to-own rental contracts, which should favorably impact near-term sales. The outlook for our construction footprint is better for fiscal year 2019 with expected growth in GDP and oil prices above the $50 barrel mark. We expect to complete our operational improvements and continue to optimize our inventory mix, sales coverage and rentals to take advantage of growth where it is occurring. On Slide 6, we have an overview of our International segment, including Ukraine and the Balkan countries of Bulgaria, Romania and Serbia. We are continuing to see a stable business environment in Eastern Europe, which together with increasing broader productivity and ready financing is creating healthy demand for agriculture equipments. This is particularly true in Romania, which is also benefiting from the availability of EU subvention funds and Ukraine where overall grower sentiment is very strong. We have increased our new equipment inventory levels to meet this demand, along with expanding our sales and aftermarket support coverage. In Bulgaria, subvention funds are unlikely to be released this fiscal year and equipment demand has remained soft. However, across the rest of our Eastern European footprint, we are seeing continued demand growth and are expanding to successfully meet it. To summarize the top level market conditions across all three of our segments, we are seeing market demand in our Domestic Agriculture and Construction segments closely in line with our expectations with Agriculture slightly better and Construction slightly worse as our International segment continues to experience demand ahead of our expectations. Across Titan’s wide range of geographies, segments and market conditions, we remain committed to ongoing operational excellence that will drive profitability and improved customer experience across our network of stores. This has been particularly challenging for our Company as we’ve closed stores, changed management and team structures, and work diligently to improve our operational efficiencies. We are not through our desired level of operational effectiveness yet, but this quarter demonstrates to me that our hard work is paying off, and our successes will grow as we head into the fourth quarter and a new fiscal year. Thank you to team Titan across the United States and Europe for your commitment to making our customers and our Company successful. One special announcement and I will turn the call over to Mark to review our financial results and to provide you with updated modeling assumptions. On December 12, Titan will host our Investor Day in New York City at NASDAQ to commemorate our 10th year as a publicly traded company. We welcome you to access the recorded presentation via web link at ir.titanmachinery.com shortly following the event. Mark, go ahead.

Thanks, David. Turning to Slide 7, our total revenue for the fiscal 2018 third quarter was $330 million, a decrease of 0.6% compared to last year. This decrease was primarily due to store closings associated with our fiscal 2018 restructuring plan, as well as approximately $11 million of equipment revenue that was recognized in the third quarter of fiscal 2017 as a result of our expanded marketing plan. These factors were substantially offset by a significant increase in our International segment revenue. The strength in our International segment came predominantly from equipment sales, resulting in total Company increase of 1.8% quarter-over-quarter. Our parts revenue decreased 6.5% quarter-over-quarter and service revenue decreased 6.6%. These decreases occurred primarily in our Agriculture segment and were impacted by store closures. Our rental and other revenue increased 6.4% in the third quarter, primarily due to an increase in inventory rentals in our Construction segment. This improvement was partially offset by a slightly lower rental fleet dollar utilization of 27.2% for the current quarter compared to 28.4% in the same period last year. On Slide 8, gross profit for the quarter increased 5.2% versus the comparable period last year to $61 million despite lower revenue. Our gross profit margin was 18.6%, an increase of 100 basis points compared to the same quarter last year. The gross profit margin increase was primarily due to higher equipment margins as the market continues to stabilize and we continue to right size our used inventory levels. Our operating expenses decreased by $2.8 million – $50 million for the third quarter. As a percentage of revenue, operating expenses in the third quarter of fiscal 2018 were 15.2% compared to 16% for the same quarter last year. These decreases are primarily with the result of cost savings from our fiscal 2018 restructuring plan, partially offset by an increase in our International segment operating expenses resulting from the continued build out of our European footprint, particularly in Romania and Ukraine. We have completed nearly all of our restructuring efforts by the end of fiscal third quarter and believe we will still achieve an annual expense reduction of approximately $20 million. For the third quarter of fiscal 2018, restructuring costs were $2.6 million. We still anticipate incurring up to $12 million of restructuring cost in fiscal 2018. Floorplan and other interest expense decreased approximately 27% to $4 million in the third quarter of this year, compared to $5.5 million in the same quarter of last year. Our floorplan and other interest expense shows a meaningful improvement year-over-year due to the large decrease in our average interest bearing equipment inventory and reduced level of senior convertible notes. For the third quarter of fiscal 2018, we generated adjusted EBITDA of $16 million, which compares to $9.5 million in the third quarter of last year. We calculate adjusted EBITDA by adding back our floorplan interest expense and exclude non-recurring items. You can find a reconciliation of our adjusted EBITDA in the appendix to the slide presentation. In the third quarter of fiscal 2018, our adjusted net income including non-controlling interest was $4.4 million compared to a loss of $170,000 for the third quarter of fiscal 2017. Our adjusted income per diluted share was $0.20 for the third quarter of fiscal 2018, which excludes certain non-GAAP items as outlined in the reconciliation table in the appendix of the slide presentation. This compares to an adjusted loss per diluted share of $0.01 in the third quarter of last year. At the bottom of the page, you will see our absorption rate, which reflects the ability of parts, service and rental gross profits to absorb fixed operating costs. We believe this metric is a good indicator of our progress towards growing our higher margin product support business while also achieving more cost effective operations. This makes us more resilient to both the current and future market downturns and associated equipment pricing pressures and delayed equipment purchasing. Our absorption for the third quarter of fiscal 2018 was 92% compared to 90% in the same period last year as our reduction in fixed operating costs and floorplan interest expense more than offset our decrease in gross profit from parts and service. We expect continued improvement in our absorption rate for the remainder of the fiscal year. As we realize cost savings from our restructuring plan and continue to focus on our parts, service and rental business. On Slide 9, you will see an overview of our segment results for the third quarter of fiscal year 2018. Agriculture revenues were $187 million, a decrease of 9.2%, primarily due to the impact of store closings. Our Ag segment achieved an adjusted pretax income of $5.5 million compared to an adjusted pretax loss of $2.3 million in the prior-year period. Although sales were down, same-store sales increased 3% and same-store gross profit improved by 21.4% for this segment. The improvement in our adjusted Ag segment is primarily the result of two main factors. First, our fiscal 2018 restructuring plan, resulting in lower operating expenses and success in retaining customers from closed stores; and second, an improvement in our inventory position leading to an increase in equipment margins and a decrease in floorplan interest expense. Turning to our Construction segment. Our revenue was $73 million, a decrease of 9.7%. The reduction in revenue versus the prior year was primarily due to incremental revenue associated with our expanded marketing of aged equipment inventory that occurred in the third quarter of fiscal 2018 which totaled $5.3 million as well as the industry conditions David discussed earlier. Our adjusted pretax loss for our Construction segment was $700,000 compared to income of $100,000 in the same period last year. The lower results were primarily due to a decrease in segment revenues and gross profit, partially offset by a decrease in operating expenses related to cost savings from our restructuring plan. In the third quarter of fiscal 2018, our international revenue was $71 million which increased 54.2% compared to the same quarter last year. Growth in our international markets continued to exceed our expectations primarily due to availability of EU subvention funds in certain markets, positive crop conditions and build out of our distribution footprint. Our adjusted pretax income was $2.5 million compared to an adjusted pretax income of $600,000 in the same quarter last year. The increase in segment pretax income was due to increased revenue, partially offset by higher expenses. Overall, despite lower revenues in our two largest segments, we were able to achieve a meaningful improvement in adjusted pretax results on a consolidated basis. Turning to Slide 10, you see our first nine-month results. Total revenue decreased 3.6% compared to the same period last year. Year-to-date equipment sales were down 3.3%, parts were down 4.4%, service was down 5.5%, and rental and other was essentially flat. The nine-month results reflect similar trends to those in the third quarter with the notable exception being the recent lift in equipment revenue as a result of strong international equipment sales as well as improvement in rental and other revenues. Turning to Slide 11. Our first nine months gross profit was $163.2 million, a 1% decrease compared to prior year due to lower revenues, but from a margin perspective, we generated an increase of 50 basis points year-over-year. Our operating expenses decreased $6.2 million or 3.9% to $153 million due to cost savings from our restructuring plan. As a percentage of revenue in the first nine months, operating expenses were flat at 17.7% compared to the prior year reflecting the lower revenue. As I indicated earlier, we anticipate our ongoing operating expense savings for the remainder of fiscal 2018 due to our restructuring actions. Restructuring costs for the fiscal year have now totaled $11 million. We expect to complete our restructuring efforts in the fourth quarter, however, the majority of the work and expense is now behind us. Floorplan and other interest expense decreased $3.4 million or 20% to $13 million in the first nine months reflecting a decrease in our average interest-bearing inventory compared to the first nine months as well as interest expense savings resulting from repurchases of our senior convertible notes. Our adjusted diluted loss per share was $0.03 for the first nine months of fiscal 2018 compared to an adjusted diluted loss per share of $0.36 in the prior year period. On Slide 12, we provide our segment overview for the nine-month period. Overall, adjusted pretax loss improved by $12 million versus the prior year period. This improvement is primarily attributed to strengthening equipment margins and lower operating and floorplan interest expenses in our Agriculture segment as well as increased equipment revenues in our International segment. When reviewing the segment revenues, it is important to keep in mind that our agricultural revenues were impacted by store closings associated with our fiscal 2018 restructuring plan and both our Ag and Construction segment fiscal 2017 comparable amounts were impacted by the $41 million of revenue associated with our expanded marketing of aged equipment. Turning to Slide 13, here we provide an overview of our balance sheet highlights at the end of the third quarter of fiscal 2018. We add cash of $44 million as of October 31, 2017. Our equipment inventory at the end of the third quarter was $458 million, an increase of $62 million from January 31, 2017. The increase reflects additional purchases of new equipment due to the improved agriculture customer sentiment David mentioned earlier. Larger crop yields have generated improved customer sentiment and that combined with pent up replacement demand has created improved fourth quarter sales opportunities for Ag equipment. We have increased our new Ag core product equipment inventory by more than we originally planned before we capitalize on this opportunity. We continue to be very pleased with the reduction efforts and are used inventory, which is now down $46 million or 28.7% compared to January 31, 2017. In a few minutes I will provide additional color on our inventory outlook for the remainder of fiscal 2018. Our rental fleet assets at the end of this third quarter were $126 million compared to $124 million at the end of the fourth quarter of fiscal 2017 and $128 million at the end of the second quarter of fiscal 2018. We continue to expect the size of our rental fleet to remain relatively flat for the remainder of fiscal 2018. We had $322 million of outstanding floorplan payables and $727 million total discretionary floorplan lines of credit as of October 31, 2017. We continue to have ample capacity in our credit lines to handle our equipment finance needs. We also continue to maintain a healthy total liabilities to tangible net worth ratio of 1.6 and have now retired $84 million or 56% of our senior convertible notes since the beginning of fiscal 2017. Slide 14, provides an overview of our cash flow statement for the first nine months of fiscal 2018. The GAAP reported cash flow provided by operating activities for the period was $56 million, primarily attributable to a changing mix of manufacturer versus non-manufacturer floorplan financing. As part of our adjusted cash flow provided by operating activities, we include all equipment inventory financing including non-manufacturer floorplan activity. Our adjustment for non-manufacturer floorplan payables amounted to a reduction of cash of $14 million. We also adjust our cash flow to reflect a constant equity in our equipment inventory. This enables us to show cash flow provided by operating activities exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory decreased 11.5% during the nine-month period and represents a $52 million adjustment to our cash flow provided by operating activities. Making these adjustments, our adjusted cash flow used for operating activities was $11 million for the nine-month period ending October 31, 2017 compared to $34 million of adjusted cash flow provided by operating activities for the same period last year. The decrease in adjusted cash flow from operating activities is a result of new equipment inventory stocking in fiscal 2018 and the positive impact of cash generated from the sale of no-trade equipment sold as part of our expanded marketing of aged equipment inventory in fiscal 2017. Turning to Slide 15, I would like to provide an update on our equipment inventory. This chart outlines our ending equipment inventory position for five years, including our ending inventory target for fiscal 2018. As of the end of the third quarter of 2018, our equipment inventory had increased $62 million from January 31, 2017 consisting of $108 million increase in new inventory and a decrease in used inventory of $46 million. As discussed earlier based upon the recent improvements in Ag customer sentiment combined with the pent-up replacement demand in this area, we have opportunistically positioned ourselves with additional new core product inventory allowing us to capitalize on this positive momentum in the fourth quarter. This strategy shifts our near-term inventory reduction target from the original $50 million by fiscal year-end to a new target of approximately $20 million down. If we do not utilize all of this core product in the fourth quarter, we will adjust our purchases of new equipment for the first half of fiscal 2019. These additional purchases were the primary factors impacting our change in expected ending inventories. Also impacting our inventories, but to a lesser extent were higher levels of livestock related equipment resulting from lower demand in drought impacted areas of our Ag footprint as well as higher international inventory values resulting from a stronger euro. By the end of fiscal 2018, we expect to have reduced our equipment inventory by approximately 60% compared to the end of fiscal 2014 representing an improvement in our balance sheet despite challenging market conditions. The improvement in our inventory level is generating improved equipment inventory turns as we have now moved up to a 1.7 times turn in the current quarter despite lower revenues. This is reflected in the black line on the chart. Slide 16 shows our updated fiscal 2018 annual modeling assumptions. We are updating some of the modeling assumptions to reflect our current forecast for agriculture and international sales, our equipment margin and our diluted EPS. Our updated revenue forecast offer improvements in both our Agriculture and International segments. We now expect our Ag segment revenues to be down 5% to 10% and our International segment revenues to be up 30% to 35%. We are not making any changes to our Construction segment forecast, which calls for revenues down 5% to 10%. As a reminder, the expected declines in the Ag and Construction segments include the impact of closed stores. From a margin standpoint based on our third quarter results and increased confidence in the near-term environment, we are now forecasting equipment margins to be in the range of 7.5% to 7.9% versus prior expectations for the full-year in the range of 7% to 7.5%. The improved sales prospects coupled with better equipment margins are enabling us to raise the low end of our diluted earnings per share estimate to a new range of a loss of $0.15 to $0.25, which compares to the prior expectation for a loss of $0.15 to $0.35. As a reminder, this range excludes any charges associated with our restructuring. 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 of Craig-Hallum.

Thanks. Good morning, guys. If I could start with International – that obviously really a nice area of strength right now. How do you kind of think about your game plan there? I mean is that something where you feel like you have your footprint where you want it and now you can really leverage that? Or is that an area where you feel like you could really expand and grow more than you have?

Well, we feel pretty good about the footprint. We've built both Romania and Ukraine markets, and we continue to look at I guess growth – not only the international market, but all our markets Steve. So I guess we look at opportunistic growth, but we do feel pretty comfortable with our current footprint over there.

Okay. Mark, I guess I'm trying to sort of reconcile the EPS guidance for the remainder of the fiscal year sort of everything is better-than-expected and guided up revenue equipment margins et cetera. I almost can't get to that EPS range, so I’m kind of wondering is your floorplan is little bit higher than we were anticipating or tax rate or maybe what I am missing there?

Yes. I think part of it is – so we did beat what was out there for consensus by a good margin. But as far as our expectations, we didn't beat it by near as much. And there was a little bit of an offset there and that's – what's causing the higher revenues is – it's pretty much what’s all coming from the equipment revenue side, which generates lower margins as you know in the parts and service. And there's some incremental expenses associated with that with variable commissions that are attached to that. And actually our parts and service was a little bit below what we were expecting in the third quarter and even a little bit reduced expectations there in the fourth quarter versus some of our original assumption. So even with revenue being up caused by that high or lower margin equipment, there is some offset there because of a little bit lower expectations on the parts and service side of things.

Right, but your equipment gross margins you guided up 500 basis points at the midpoint, so I guess, I mean should we read into it that OpEx might be a little higher? I don't know where you guys put your sales commissions, but is that kind of what we should think about or maybe it’s just conservatism and that’s just fine?

Well, I think it’s – so first of all, our commissions are part of our operating expenses. And we talked about before around 200 that we expect operating expenses last quarter to be around $200 million, and yes, it could creep just a little bit higher than that because of some of these commission that are going to be booked on these higher equipment revenue and margins. But, again the other thing is I think really looking at your assumptions on parts and service revenues because that blend – that mix of revenue is obviously very critical to the bottom line number.

So I guess, that would imply a mix that’s very different from previous Q4 is where I mean historically equipment in the fourth quarter has been around 71%, 72% and I guess the guidance would imply that that's quite a bit more than that this year you sort of thinking?

Well relative to last year, the mix will be higher for equipment than in this year than what it was last year.

Okay. Thank you.

Thank you. We'll take our next question from Rick Nelson of Stephens.

Thanks. Good morning. Ag – starting to turn the corner here from a profit standpoint. Do you think it’s time now to get more aggressive on the acquisition front and I'm curious if you're starting to see improved financials from some of the acquisition candidates are they turning the corner as well?

Well, yes, we're starting to see the M&A – well, we are starting to see that pick up out there. We’re receiving phone calls and stuff. I would say maybe some of the pricing isn't exactly where we're totally comfortable with it right now, but I think there is activity out there and I think we'll definitely look at growth opportunities like I said earlier in all our segments, Rick. So there's definitely something we've done in the past and we're good at it and something we’ll continue to look forward in the future. But just for confidentiality reasons, it’s tough to get into a lot of details on the specific acquisition opportunities.

Okay, got you. Thanks, I appreciate that. So qualitatively as we look into next year, and I realize, you are not in position to provide guidance, but any commentary on the outlook as – what’s your crystal ball shows for next fiscal year?

I think we're going to be a lot smarter after we get through this year and we typically will give our modeling assumptions and guidance when we do our fourth quarter call, Rick, and stuff. But I guess for the most part is that I think we're seeing the conditions where the farmer net income and what’s the average forecast and I think we have to be somewhat in line with that with the trends we are seeing there.

Okay.

And fairly flat year-over-year.

Yes. Construction – you mentioned ag is tracking better than your expectations and construction a little light of your expectations. Curious what you’re seeing in the Construction segment as we push forward?

Well, first of all, as we said we’re not completely satisfied with the results there. But if you look at our 11 state footprint that overall our construction has been basically flat in our specific territory this year, whereas naturally, it’s moving about 4%. So most metros have done far better than this and we’ve seen some strength in Denver and Phoenix, while Minneapolis has been down. So what that pretty much tells you is that the mid-market and rural areas have been less positively impacted by that residential construction growth and there's been some delay in the state local spending and probably the major thing is with the ongoing lag in ag demand, so it’s soft basically in the central part of the country. So we’re really being focused on completing the structural changes that we started and that's going to get us a sustainable profitability in both the up and down markets and really focus on that high margin parts, service and rental business in that segment.

Very good. Thanks and good luck.

Thank you. We'll take our next question from Mig Dobre of Baird.

Yes, thank you. Good morning, guys. So obviously something changed here for the better. You’re obviously raising guidance. You’re also essentially adding new equipment inventory. And I guess, my question to you is, when did you actually start seeing this inflection in demand on the new equipment side? And I know you're talking about replacement, but I'm trying to figure out exactly what the catalyst was this year to have potentially generated this uptick in overall activity? What's your sense for that?

Well, if you’re specifically talking about U.S. ag, as you recall, we started the year out and it was – there were some pretty severe drought conditions around much of our footprint and it is really some of these late season rains is also on the growing conditions got much better and pretty soon as we started get into that in August, September timeframe. We're starting to see potentials, so for some pretty good yields that we’re hearing across our footprint. At the same time some of the coding and some of the customers and some of the customers come in and the hours and the age and some of the technology improvements and just a lot of coding going on and at the same time that all of a little – we’re seeing the production schedule starting to fill up and where the lead times were, so – and we're pretty conservative with the weather was on some of the core products and we probably didn't have the level of core products that really meet this potential demand for that end of the year buying. So pretty simple decision is to stock up on some of the really popular, some of the high horsepower equipment that we typically forward drives, combines and be ready for the end of the year season. And then if that didn’t – doesn't come to the fruition, then basically we can adjust our orders in the first quarter or even the second quarter. So that's kind of what drove some of that and there is definitely some coding going on and a lot of it because of yields and some of this because of the replacement demand.

Okay. That's helpful. So if I look for instance John Deere is out publicly with their outlook for next year and if we take their view at face value up 5% to 10% in retail demand in North America and we look at your business would you say that you have the right amount of inventory to be able to satisfy that going forward or should we expect a more than normal seasonal build in new equipment inventory into next year?

No, I would say we – I think geared up, I’ve said earlier to take advantage of the year and buying. I think we're fine and I'd say we're fine going ahead. I think we're still focused on long-term. We’re not totally satisfied where our turns are yet and I think we're going to see continued inventory reduction and so I think we're fine right now. I would say we got the inventory and we got the ability to get the inventory to satisfy demand, not only through the Q4, but as we get into next year.

I just want to make sure I understand as you're saying that even if demand improves next year and we see growth, you're still aiming for additional inventory decline in your book of business?

What I'm saying is we want to increase our turns and move – like I can say we are at 1.7 right now and we are targeting this 2.5 to 3. So that's going to happen with less inventory and more sales and more revenues, so – and combination of both.

Okay, understood. Lastly for me. You mentioned the uptime program. I love to hear a little bit more about that and as you're talking about replacement demand coming in and equipment being a little bit older. I guess I'm wondering isn’t it fair to assume that the parts and service business should see pretty good growth due to this older fleet. How are you thinking about opportunity here going forward? And what's going on with this uptime program? How does it flow through service revenue?

So the uptime program, we've done this for a while, but we have a really comprehensive check only bring in forward drives, combines, high horsepower tractors, even the equipment and give them a real thorough inspection in our dealerships and provide our customers with a really good checklist of recommended improvements and that drivers – parts business drive service business, but also puts our customers machine and shapes from an uptime standpoint and that’s what we call the reliability and that confidence going into the either where it’s in the harvest season or into the spring planning season. So it's been a very effective program and actually is really even moved a lot of the demand for our service work from some of your peak seasons into the off season. So it’s been very successful and our customers like that. And there should be some positives to our parts and service going into next year, but that anticipated a significant up tick, I think there's still some sensitivity to expenses from the growers. They're watching their bottom line and they're going to take care what they need to and they are going to replace the machines on replacement demand and they are going to fix what's going to take given the uptime, but I think this inspection program they really have a good idea what their machine needs, what the cost going to be, get into our parts with our really qualified technicians to go over that equipment form and it's been a real positive.

Yes. Dave, but isn't it fair to say that before I buy a new machine I actually fixed the one that I've got. Why wouldn't this business grow quite nicely next year parts and service?

Well, I think it's going to stay a somewhat lag, I mean it's not that they've had the same issues this year. They’ve had the issues last year and even went back when we had higher commodity prices maybe they want a little further. That’s hey – just maybe run two more years, they want to put it on things like that. So like I say there is still some cost consciousness out there from the grower so.

Okay. I appreciate it. Thank you.

Thank you. [Operator Instructions] We will go next to Brett Wong with Piper Jaffray.

Hey, guys. Thanks for taking my questions. I appreciate it. I wanted to first ask just on this fourth quarter demand expectation for new equipment. Are you starting to see that actually transpire?

Yes. If we really look at the amount of coding going on and then what we're anticipating and, yes, this creates a certain level of optimism.

Okay. Would you say at this point that it’s all in line with kind of the expectations you had when you built up the inventory in the third quarter?

Yes. I would say the preliminary – when we started to see the yields and we started to have some of the inquiries our customers are doing and some of the requests for quotes give us an indication of what there could be some uptick in the business towards the year end.

Okay. And then maybe a higher level question on Ag overall. Just ag fundamentals, I guess, looking at the foreseeable future, do you think we see a recovery, that kind of sustainable $4.55 a corn or do you think we're just in a different global ag environment for the next couple few years, where we’ll continue to see around kind of $4 corn, and of course, I emphasize sustainable there just because of course a weather event can always impact a given year. But just wondering how you’re going to view where the ag fundamentals are on a global basis?

Well, I guess, as we’re modeling our business, I guess we're looking at the current level of commodity prices. I don't know if there's a lot of things out there that is going to make that change. I mean we're seeing year-over-year increased yields, we’re seeing between the seed genetics and some of the farming practices and farmers are doing a pretty good job at increasing that. But at the same time, we're seeing demand, but keeping things fairly constant out there. I mean, you see some positives out there, about potential ethanol, exporting ethanol, and seems like that – those are some positive. I don't think – I think we really need to model our business on today’s level of commodity prices, and if you look at our income and the projections there, it's all in line with commodity prices somewhere in the relatively position there are today. But the positives are, we’re seeing the stabilized margins. We're starting to see stabilizing used equipment prices. So we're not calling a bottom to the ag cycle and we’ve done a very good job of maintaining our discipline regarding our inventory levels. But I don't think it's – we're going to – there's to say these stages just going to totally rebound to levels we saw back in 2012 and 2013.

Okay, that's great. Great color, David. And one last one for me just on the used equipment. Maybe you can provide a little more color there. You mentioned needing the steel work down used, just how long do you expect that will take you to get the levels your comfortable with and how long do you think kind of takes the overall industry to get back to “normal” of course given you guys did some inventory reduction before others?

We have done a good job even though we've brought in some new equipment. So we feel good about what we’ve done with our yields this year, but I’ll let Mark talk about some of the specific numbers there on the used.

Yes. I think our used has moved nicely. I think as I mentioned it's down $46 million-ish something like that for the year and that's obviously having a positive impact on the terms on used loan as far as when we're going to get to where we want to be on that which is closer to that three time turn on our used as kind of dependent on how things progressed next year for primarily from a demand standpoint. But I think we should end this year right around two-time turn on it and I would certainly expect as we move into next year that we would improve upon that and probably at least get into that mid 2.5-ish range like that as we move throughout next year. So maybe not quite to where we need to be, but certainly making some good strides as we continue into next year.

Excellent. Thanks a lot guys.

Thank you. We will go next to Larry De Maria with William Blair.

Yes. Thanks, good morning. I wanted to check on following on the inventory – used inventory questions. If you could talk by category, I guess, I believe that combines are in relatively good shape, but some tractors are still relatively tough. So can you discuss it by category and if – by the end of the year you believe that, the calendar year, that inventory in your region, not just you guys, but your overall inventory will be close to balance assuming even just a flat market next year?

Yes. I think as far as used categories go, we did make a lot of progress on probably our category that was the most challenged, which was our used combines, so as you indicated the whole industry making some progress there that was probably our biggest success here this year and particularly in our third quarter. And I would say it's close to where we needed to be, but that could still come down some more. On Ag itself, I just really think we've done a lot of good things. As far as the used area, I don't know that there's any one particular area that I'd call out. I think it's just overall. We've got some – we just have a little bit too much kind of across the board that we're going to continue to work down and focus on. So that was the category. Was there another question there?

Well, that was helpful. Maybe just move on to the next, curious about particular products like planters and sprayers and how you're thinking about those? Obviously, they have come down probably more so than a lot of other categories. And is that – you might be able to see some more recovery? Just curious if that's turning materially better as we turn the corn to next year?

Yes. We think long-term a lot of growth potential in the self-propelled sprayer business. I think a lot of the farming practices, as you get into more no-till and minimum-till and that's one machine that gets almost started up everyday on the farm now and then that self-propelled sprayer. And so we definitely think that lot of the growers are going to go to those – that and if you look at some of the concerns about application, some of the testing, some of the drift and stuff too that makes it even more important that whether it's going through the commercial application or the grower that some of technologies our there and put those sprayers and dropout size and the amount of drift in some of the variable rate and all of that. So, yes, that's definitely a big part of our business and we've did a good job and we've had good successes in the self-propelled sprayer. And also on the planter, that’s the machine that puts the crop in the ground and I think there's a lot of technology on the – there again not only on the variable rate component of the tool, but the seed placement, your seeds placing, seed ground contact and I think that – if you look at customers and what they're really looking at purchasing, definitely the sprayers and the planners are on that list because a lot of it driven by technology and what it does for productivity and also the yield enhancements comes into play.

Got it. Given how far they're down probably 80% or something like that from peak. Is that something that maybe tractors and combines don’t move the same direction, but these can move up double-digits now for the next couple years is that – or farmers likely extend the lives of these?

I think you're going to see – if you look at the pricing of some of the planners right now, it’s getting in there with the same level some of your tractors and combines the large planters and stuff. And I think some of the precision out there right now, I think you are seeing some of the exciting planters being rebuilt with some of the precision stuff, at the same time you’re seeing new planter purchases. So I think both are happening, Larry. But because of the cost and where you’re at in the farmer income right now, that they can make that planter in one more year. I’d say they will and the same with the sprayer. So I think you put it in the same league combines and forward drives, I think you’re going to want to move – I think you’re going to see some consistent movement on all four of those projects.

Okay, helpful. If I could seems one more last one and thank you for that, but the potential for tax reform obviously moving forward. Our gross looking at this and potentially waiting or would have any material impact on how they excess capital purchase in your view next year?

Well, that's a good question and I think there are going to be some growers that have some tax all problems this year could be have some higher tax rates and then to anticipate our lower tax rate with the tax reform. Yes, I think definitely going to want to use whatever kind of expenses they want to. I’d say lot of our growers because of the four or five years of accelerated depreciation they've used, they don't have a lot of depreciation basis and their fleet. So you take all together and I think typically there is some year-end tax plan takes place. So but they also need income, which is down right. So but I think there could be some sentiment to try to minimize any tax exposure they have as we’ve getting any year and I think some of the contractors the same time of had a successful this year too and maybe looking at some purchases to get some tax breaks and some of that Section 179 bonus depreciation on the equipment purchases.

But I guess with the changes that are being talked about for expensing are they really changes or are they very much farmers view we have the same at Section 179, so no major changes to the expensing?

I would say there's so much speculation out there and so much change in – that’s going on a daily basis right now, where it is hard to comment on that. But again I think if you're person stuff and I think you're going to lot try to minimize your taxes at the year-end as much as you can whether it’s a farmer, grower or contractor.

Okay. Thank you and good luck gentlemen. End of Q&A

Thank you. With no further questions holding, I'd like to turn the conference back over to Mr. David Meyer for any additional or closing remarks.

Well, I want to thank everybody for your participation today and look forward on our future calls. Thank you.

Thank you for your participation. That does conclude today’s conference. You may now disconnect.