John Mills - IR, ICR David Meyer - Chairman and CEO Mark Kalvoda - CFO

Steve Dyer - Craig-Hallum Larry De Maria - William Blair Mig Dobre - RW Baird

Good day and welcome to the Titan Machinery, Inc. First Quarter 2019 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. John Mills with ICR. Please go ahead.

Great. Thank you, Clara. Good morning, ladies and gentlemen and welcome to the Titan Machinery first quarter fiscal 2019 earnings conference call. On the call today from the Company are David Meyer, Chairman and CEO; and Mark Kalvoda, Chief Financial Officer. By now everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2018, 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 Web site at ir.titanmachinery.com. This call is being webcast and a replay will be available on the Company’s Web site as well. In addition, we are providing a presentation to accompany today’s prepared remarks. You may access the presentation now by going to Titan's Web site at ir.titanmachinery.com. 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 a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as 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 Titan’s ongoing financial performance, particularly when comparing underlying results from period-to-period. We have included reconciliations of these non-GAAP financial measures in their most directly comparable GAAP financial measures in today’s release. Today’s call will last approximately 45 minutes, and at the conclusion of our prepared remarks, we will open the call to take your questions. Lastly, due to the number of participants on the call today, we ask you to keep your question period to two questions and then rejoin the queue. 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 2019 earnings conference call. On today’s call, I will provide a summary of our results and then an overview for each of our business segments. Mark will then review the financial results for the first quarter of fiscal 2019 and conclude with a review of our updated modeling assumptions for fiscal 2019. If you turn to Slide 3, you will see an overview of our first quarter financial results. Our first quarter revenue was $246 million with a pre-tax loss of $2.2 million and a loss per diluted share of $0.07. Overall, improving equipment margins and reduced expenses continue to move us closer to profitability despite a decline in revenues as compared to the first quarter of last year. This is a good indication that our structural changes are taking hold and are positioning us for success at varying levels of market demand. Particularly, late spring has contributed to a slow start in product support and equipment rentals, however, weather disruptions are business as usual for our farming and construction customers and for Titan. We are doing our best to help them catch up in the fields and job sites and we remain committed to a profitable year. I will now provide additional detail for our 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. Despite the late spring and some dry conditions, most of our customers are experiencing favorable planting conditions in May. It is also encouraging that corn, soybean, and wheat prices have experienced a modest rebound as of late, showing resilience amidst the continuing trade discussions. We benefited in the first quarter from better-than-expected margins and new and late model used equipment as inventory -- as industry inventories continue to align with overall marketplace demand, and we see replacement demand driving new equipment purchases. We are focused on expanding online marketing and seasonal programs that highlight our products. We are also improving the foundation of our equipment inspection, preventive maintenance, and e-commerce capabilities to grow customer satisfaction and further improve our absorption rate. Finally, in the first quarter, we've partnered with Farmers Edge, Raven, and AgriSync to connect with and provide customers new levels of precision Ag value from daily satellite imagery to video enabled field support. These capabilities will augment Case IH Advanced Farming Systems and New Holland Precision Land Management platforms to make data-driven decision-making quicker and easier for farmers. We are committed to helping our customers grow their productivity, their crops, and their businesses as the most technically advanced and easy to use solutions. Turning to Slide 5, you'll see an overview of our Domestic Construction segment. In the first quarter, we’ve seen growth in our major metros and in residential infrastructure projects. Recently we’ve experienced increased rental demand in Western North Dakota, driven by a spike in Bakken oil production. However, our Upper Midwest construction equipment market continues to lag the coastal horseshoe due to the ongoing Ag cycle with limited metro area influence, late spring impacts to product support, and rental. We are seeing some positive signs as we head into the second quarter, and we're well-positioned to capitalize on construction market growth across our footprint with our new and late model used inventories and focused customer programs. We are also expanding our brand awareness and leveraging our expansion footprint to create a strong regional brand for equipment rentals, and consistent with our aftermarket focus in Ag, we are building on the basis of inspections, preventive maintenance, OEM parts, and precision to improve our customer connection, understanding, and service. On Slide 6, we’ve an overview of our international segment including territories within the Eastern European countries of Bulgaria, Romania, Serbia, and Ukraine. The overall business climate continues to be stable across our European footprint, with Ag equipment demand fueled by an aging machine population, available financing and recent favorable yields. Despite delays in spring planting, we achieved nearly 10% growth in first quarter revenue versus last year, and as previously announced, we’ve entered into a definitive purchase agreement to acquire four AGRAM-owned Case IH dealerships in Eastern Germany with the customers, experienced team, and assets to spur further growth in our international segment. In Ukraine, we continue to see steady growth, a stable geopolitical environment in our markets and ongoing demand for modern machinery and product support. We're developing key accounts, investing in targeted inventories, and building out our parts and service capacity and capabilities to meet these growing needs. In the Balkan countries of Romania, Bulgaria, and Serbia, the economic crop and financial conditions are generally favorable with Romanian demand particularly strong, [indiscernible] by economic stability and EU funds, while investing in key account development, high demand inventory, and aftermarket coverage to maximize our growth and long-term profitability. In summary, it's good to see the positive impact of improved margins and reduced expense structure to our bottom line. Crops were off to a good start, but we will need to watch moisture conditions throughout the growing season. Construction activity is picking up and we have the inventory footprint and people resources to benefit from the current improved business climate. We're excited about our AGRAM acquisition and expect the four new German locations to be a solid contributor to our international segment. Finally, I'd like to thank our expert team of employees in the U.S and Europe for your commitment and our customers and our company. I'd like to say a special welcome to our incoming team members in Germany. We're excited that you’re coming aboard and eager to achieve the next level of success together. I will now turn the call over to Mark to review our financial results and provide you with an updated modeling assumptions.

Thanks, David. Turning to Slide 7, our total revenue for the fiscal 2019 first quarter was $246 million, a decrease of 7% compared to last year. Revenue was negatively impacted by a lower store count resulting from our fiscal 2018 restructuring plan and a late spring planting season that negatively affected our first quarter agriculture parts and service business. This decrease was partially offset by an increase in international equipment revenue. Similarly, our rental and other revenue decreased 8.9% in the first quarter, resulting from lower inventory rentals as well as lower dollar utilization of our designated rental fleet in our Construction segment, which came in at 18.3% for the current quarter compared to 19.3% in the same period last year. Both forms of rental were negatively impacted by the prolonged winter season in much of our footprint, which delayed construction activity and therefore the use of many of our product offerings. On Slide 8, our gross profit for the quarter decreased 2.8% versus the comparable period last year to $48 million on lower revenue. Our gross profit margin increased 90 basis points to 19.4% compared to the same quarter last year. Gross profit margin increase was due to higher equipment margins, which benefited from product mix in Ag, improved segment mix as a larger percentage of revenue was coming from our International segment as well as a better positioned inventory for our company and the industry. Our operating expenses decreased by $5.3 million to $47 million for the first quarter. As a percentage of revenue, operating expenses in the first quarter of fiscal 2019 were 19.1% compared to 19.6% for the same quarter last year. Despite the lower sales volumes, we were able to generate operating expense leverage in the quarter, largely the result of cost savings from our fiscal 2018 restructuring plan that was completed in the third quarter of fiscal 2018. This was partially offset by an increase in our international segment operating expenses resulting from continued build out of our footprint and presence in European markets. For the first quarter of fiscal 2019, we had no restructuring costs compared to $2.3 million in the same period last year. Floorplan and other interest expense decreased approximately 29% to $3.4 million in the first quarter of this year compared to $4.8 million in the same quarter last year. This decrease was primarily due to a decrease in the level of interest-bearing inventory as well as the $600,000 expense recognized in the first quarter of fiscal 2018 related to the unwinding of our interest rate swap instrument. For the first quarter of fiscal 2019, we generated adjusted EBITDA of $5 million compared to $1.6 million in the first quarter of last year. In the first quarter of fiscal 2019, our adjusted net loss was $1.6 million compared to an adjusted net loss of $4.2 million for the first quarter of fiscal 2018. Our adjusted loss per diluted share was $0.07 compared to an adjusted loss per diluted share of $0.19 in the first quarter of last year. You can find a reconciliation of adjusted EBITDA and adjusted net loss and EPS in the appendix to the slide presentation. You will note that there are no adjustments to our current quarter GAAP reported amounts as all activities associated with our fiscal 2018 restructuring plan were completed last year and no other adjustments were present in the current quarter. On Slide 9, you'll see an overview of our segment results for the first quarter of fiscal year 2019. Agriculture revenues were $143 million, a decrease of 12.7% partially due to the decrease in store count, resulting from our fiscal 2018 restructuring plan. Results were also affected by a prolonged winter season in much of our markets that contributed to decreased demand for parts and service. Our Ag segment achieved an adjusted pre-tax income of $1.3 million compared to an adjusted pre-tax loss of $2.4 million in the prior year period. The improvement in our adjusted Ag segment profitability is primarily the result of increased gross profit margins and equipment revenues and operating expense savings as a result of our fiscal 2018 restructuring plan. Turning to our Construction segment. Our revenue was $62 million, which was a decrease of 2.1% compared to the same period last year. Our adjusted pre-tax loss for our Construction segment was $2.9 million compared to an adjusted pre-tax loss of $2.6 million in the same period last year. The slight decrease in revenues and segment results were primarily due to the decrease in rental activity I mentioned earlier. In the first quarter of fiscal 2019, our international revenue was $41 million, which increased 9.8% compared to the same quarter last year. The increase in our international revenue was primarily due to increased equipment revenue as a result of the build out of the company's distribution footprint, partially offset by a slow start to the spring planting season that negatively impacted our parts and service business. Our pre-tax loss was $100,000 compared to pre-tax income of $600,000 in the same quarter last year. The decrease in segment pre-tax income was due to the increase in operating expenses resulting from the continued build out of our footprint in our European markets. As a reminder, on April 30, 2018, we entered into a definitive purchase agreement to acquire all ownership interest of AGRAM which consists of four case IH agriculture dealership locations in Germany. In its most recent fiscal year, AGRAM generated revenue of approximately $30 million. The acquisition is expected to close on July 2018. Overall, despite lower revenues in our two largest segments, we were able to achieve a $4.3 million or 67% improvement in adjusted pre-tax results on a consolidated basis for the first quarter of fiscal 2019. On Slide 10, you will see the progress we have made in our expense structure and corresponding improvement in our absorption rate over the same period. As you recall, absorption is a metric that reflects the ability of our parts, service and rental gross profit to absorb fixed operating costs. We’ve reduced our annual operating expenses from fiscal 2014 to the trailing 12 months ended April 30, 2018 by $91 million or 31%. And over the same time period increased our absorption rate from 71% to 80%. Operating at this expense level near the trough of the Ag cycle positions us to be profitable during challenging times, while enabling us to significantly leverage our operating expenses when industry conditions recover and revenues increase. Our absorption for the first quarter of fiscal 2019 was 74.3% compared to 73.1% in the same period last year, as a reduction in fixed operating costs and floorplan interest expense more than offset our decrease in gross profit from parts and service. Important to remember that our first quarter is historically a seasonally low quarter for absorption. We expect continued improvement in our expense -- in our absorption rate throughout fiscal 2019. Turning to Slide 11, here we provide an overview of our balance sheet highlights at the end of the first quarter of fiscal 2019. We had cash of $57 million as of April 30, 2018. Our equipment inventory at the end of the first quarter was $444 million, an increase of $44 million from January 31, 2018, made up of a $49 million increase in new equipment slightly offset by a $4.2 million decrease in used equipment. The increase in new is a result of seasonal equipment stocking as well as earlier equipment purchases due to longer manufacturer lead times and purchasing equipment ahead of potential steel surcharges later in the year. In a few minutes, I will provide additional color on our equipment inventory position. Our rental fleet assets at the end of the first quarter were $121 million compared to $123 million at the end of the fourth quarter of fiscal 2018. We continue to expect the size of our rental fleet to reduce to approximately $115 million as we focus on improving our utilization results in fiscal 2019. We had $321 million of outstanding floorplan payables on $629 million total discretionary floorplan lines of credit as of April 30, 2018. We continue to have ample capacity in our credit lines to handle our equipment financing needs. Our total liabilities tangible net worth ratio is a healthy 1.5. The current outstanding balance of our senior convertible notes is $65 million. As a reminder, our convertible notes are due on May 1, 2019. Over the past two years, we have repurchased and retired over 55% of the original $150 million amount of this note. We're confident in our ability to satisfy -- to fully satisfy these notes at maturity. Slide 12 provides an overview of our cash flows from operating activities for the first three months of fiscal 2019. The GAAP reported cash flow used for operating activities for the period was $27 million, primarily attributable to the inventory investment we made during the quarter net of related changes in manufacturer floorplan payable balances. As part of our adjusted cash flow used for operating activities, we include all equipment inventory financing including non-manufacturer floorplan activity, our adjustment for non-manufacturer floorplan payables amounted to a reduction in cash flow of $47 million. We also adjust our cash flow to reflect the constant equity in our equipment inventory. This enables us to show operating cash flows exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory decreased 10.3% during the 3-month period ended April 30, 2018 and represents a $46 million adjustment to our cash flow used for operating activities. Making these adjustments, our adjusted cash flow used for operating activities was $26 million for the 3-month period ended April 30, 2018 compared to $7 million for the same period last year. The increase in adjusted cash flow used for operating activities is the result of the new equipment inventory stocking in the first quarter of fiscal 2019. Although our equipment inventory has increased and has caused our overall equity in our equipment inventory to decrease, our interest-bearing floorplan as a percent of total floorplan has decreased from 61% to 48% compared to the same period last year. This reflects the fresher inventory position as more of our inventory remains under manufacturer non-interest-bearing terms. Turning to Slide 13, I’d like to provide an update on our equipment inventory. This chart outlines our ending equipment inventory position for the prior five years and includes our ending equipment inventory for the first quarter of fiscal 2019 of $444 million. As of the end of the first quarter of 2019, our equipment inventory increased $44 million from January 1 -- from January 31, 2018 consisting of a $49 million increase in new inventory and a decrease in used inventory of $4 million. As I discussed earlier, we did accelerate some of our new equipment purchases into the first quarter of fiscal '19 due to the increased lead times and potential steel surcharges. This trend will continue somewhat into our second quarter as we expect to experience higher inventory levels before beginning to come down in our third-quarter and further reduction expected in Q4. Since fiscal 2014, we've reduced our total inventory by over 50% which significantly improved our balance sheet. We are now focusing more of our attention on driving higher inventory turns through a prudent approach to inventory management and driving higher sales through our expert team model. As the black line depicts on the chart, despite these incremental inventory investments, we maintained our 1.7x turn through the first quarter of fiscal 2019, which is an improvement from the 1.5x turn in the prior year first quarter. As we look towards the balance of fiscal 2019, we continue to expect inventory turns to improve and ending equipment inventory to be flat to down versus the prior year period, excluding the incremental inventory associated with our AGRAM acquisition in Germany. Slide 14 shows an updated fiscal 2019 annual modeling assumptions. We're updating some of the modeling assumptions to reflect our current forecast for all segments in our equipment margin. We're leaving our segment revenue growth assumptions constant for agriculture have up 0% to 5% and for construction at up 3 to 8%. We now expect our International segment revenues to be up 10% to 15% versus our prior expectations for up 0% to 5%. Our base assumptions for the International segment growth are unchanged, but our revised forecast now includes the revenue contribution from the AGRAM acquisition, which is expected to close in July 2018. As a reminder, AGRAM produced $30 million in revenue during the prior fiscal year and we expect it to be accretive to fiscal 2019 earnings. From a margin standpoint, based on our first quarter results, we are now forecasting equipment margins be in the range of 8.2% to 8.7% versus prior expectations for the full-year in the range of 7.8% to 8.3%. We're maintaining our diluted earnings per share expectations in the range of $0.35 to $0.55 for fiscal 2019. Operator, we are now ready for the question-and-answer session of our call.

Thank you very much. [Operator Instructions] And our first question today comes from Steve Dyer from Craig-Hallum. Please go ahead.

Thanks. Good morning. Thank you for taking my questions. Just a quick one for me. Your Ag revenue growth modeling assumptions this year of 0% to 5% are a little bit light of Deere, for example and I know you often sort of point to them, but I think they have sort of talked about 10% North American Ag growth. Just wondering if that’s conservatism on your part, just kind of given the slow spring and the late spring or if you feel like there's something maybe different about your footprint vis-à-vis what some of the others are saying? Thanks.

Good morning, Steve. Well, it's not really comparing apples to apples. Deere includes Canada into their numbers, and that’s been tracking a little bit stronger than the United States. Then also Deere, you know they recognize their revenue on shipments to dealers from a wholesale standpoint where we recognize our revenue on deliveries of customers who are actually the check writers. So there are some differences, not apples-to-apples, but I think we are both guiding up, but there is a little bit difference because of Canada there.

Got it. Thank you.

Our next question today comes from Larry De Maria from William Blair. Please go ahead.

Hi, thanks. Good morning, everybody. First question, just curious on pricing, specifically what you’re seeing in terms of order of magnitude, increases or not from your OEM partner? And what are you able to pass on for the new equipment in both Ag and construction? Thank you.

So typically, there's a lot of talk about steel surcharges, but we haven't seen anything yet, a little bit from the short line companies. I would say they are probably a little quicker to implement some things like that. And Larry, we do pass that on, we always have on -- typically even with annual model changes and pricing. So I would say if we’re going to see any increases as surcharges, it's going to be announced in conjunction with new model year production. It will depend on the models, probably some -- happen sometime in September to October time frame. And again we just -- we do pass that on.

Okay. So that’s interesting. So are you actually -- is there a simple number you could point to towards 1% or 2% or just year-over-year price increases you guys are able to pass through on kind of a net basis on your equipment in Ag and construction or – and is one easier than the other?

No, I think they’re pretty consistent and really go back Larry and look at the price of a 300 horsepower tractor, 15 years ago compared to today, and significant changes, and through that whole time period, that’s been passed on and we just work on the smaller spread in the middle. So, yes, we typically always pass that on. And then, like the OEMs, all want to be competitive with each other out there, and depending what marketing programs and things to be competitive, we tend to be in the middle of it and just work on a consistent spread in the middle.

Okay, got you. I know how much you used [indiscernible] too. So second question, I guess, the publicly traded dealer to the north of you guys, it's looking to expand into the U.S. I’m curious if you expect to be in competition with them, any kind of conflict or if it is going to be complementary to what you guys do or just what are your overall thoughts about that strategic development?

Well, we really can't control what happens there. You know we've done a lot of acquisitions over the years, and I think in many case there's a lot of competition on the acquisitions from neighboring dealers, other consolidators in the Ag industry. So we feel really good about our relationship with Case IH and our relationship, really important to other U.S Case IH dealers. And I think if you looked at our acquisition strategy, we’ve demonstrated our ability to be really disciplined in our acquisition pricing and we continue to be the same. And so there is a lot of consolidations going to happen and I believe we are probably on the front end of another wave of consolidation out there, and I guess we don’t look at this as really any direct competition.

Okay. So do you think that in light of this, the next wave is going to come in the North America or are you guys more focused in Europe? And I will leave it there. Thank you.

I think right now we're interested in North America. There is an aging group of dealer principals. We think there's going to be opportunities in U.S Ag, and we like U.S Ag and as dealers look to Titan Machinery for succession solutions.

Okay. Thanks. Good luck.

Thank you. [Operator Instructions] And our next question comes from Mig Dobre from Baird. Please go ahead.

Good morning, everyone. Maybe a quick clarification on guidance. So, Mark, you essentially are reiterating all your core assumptions if you would at segment level from -- for revenues. You're adding this AGRAM acquisition to the top line, you’re saying it's going to be accretive in fiscal '19. You're raising your equipment margin, gross margin 40 basis points, yet your earnings range is unchanged. So kind of what gives your -- how do we think about the moving pieces?

Yes. So I think one of the things that we saw in the quarter here was specifically in parts and service. It was below our expectations. It came in lower, and I think some of that due to the late start to the plan. We will move into Q2, but there will be some lower level of parts and service that we are expecting here that’s going to offset some of that improvement in the equipment margins. Another area that will provide some level of offset to that equipment margin is just overall, even though it's going to staying within the range, lower level of rental associated, it came in below our expectations in Q1. Our rental activity did. And just overall equipment revenues as well came in a little bit lower. So I think some of those adjustments, and I think the other thing with the -- with international and AGRAM, yes, it will be accretive. We believe it to be accretive in the current year, but with only a half year of operations and startup and that type of things, it's not going to be a significant provider to the bottom line in the current 6-month period. So I think with all of that, it’s offsetting some of that positive that we're seeing on the modeling assumption improvement on equipment margins.

Okay. So you know if we look at SG&A in Q1 at least, that was kind of a big positive variance versus what we're thinking. How do we think about the full-year? Was there anything unusual that happen in Q1 with that line item?

No, nothing unusual. It really came into where we had expected it. Maybe a little bit less on commissions because of some the lower level of equipment revenue that happened. But for the most part SG&A came in as expected and I think we -- as we indicated on prior calls, if we take out the AGRAM acquisition, we are still kind of a little bit below that $200 million mark for the year. With AGRAM in there, we are talking pretty close to $200 million. So everything is really on plan for us in the first quarter in regards to our SG&A.

Right. I mean, the way you’re talking about it and the way I remember it from prior calls, we’re talking roughly $50 million or so per quarter, and I don’t want to press this too much, but you came in at below 47 in Q1. Is this primarily a factor of commissions? Is that what it is here?

Yes, yes. The other quarters, especially when you get out into Q3 and Q4, you’re going to have higher level of operating expenses due to commissions, the higher level of equipment revenue that’s going to happen in those quarters.

Okay. Okay, good. I got it. And then, when we're looking at your Ag guidance, right, you’re talking about 0% to 5% for the full-year in terms of growth, but we're starting the year down 12%, almost down 13%. So, I guess, how do you think about the cadence -- I don't know exactly what happened in Q1, but to my thinking this is an old just parts and service. Is there something else that’s been causing the slowness that reverses as the year progress?

I think -- no, it was more than parts and service. Our equipment was off our expectations in the first quarter. I think, some of it I think we did have a very strong fourth quarter in our Ag segment, in particular, with equipment revenue. I think there is maybe just a little bit of a hangover from that. I think maybe some of the uncertainty around some of the tariff talk and that type of thing may have dampened some of the demand there as well. But we do expect to still be within that range, maybe more towards the bottom end of that range now with the little bit lower results in Q1. But we do expect to still be within that 0% to 5% increase for the year in Ag.

So as you're thinking about this business, maybe sequentially is it that you're expecting a pretty significant lift in second half, the fourth quarter in particular, I mean back to this cadence point. Can you help us at all what you’re thinking?

Yes. Yes, I think a little bit on the cadence, I think once we end the Q2 and Q3, we will see some year-over-year improvement in Q4 -- just with the strong Q4 that we had. I think it will be difficult to get back to that level in the fourth quarter. So it's going to get us to positive territory for the full-year. It's going to be more so on Q2 and Q3 time period.

Okay. And then maybe also a little bit on parts and service. I understand the late plan, but obviously that's behind us at this point. What are you seeing in this business from farmers thus far through the quarter? Can we actually start to see a quick parts and -- parts and service return to growth say in Q2 and going forward?

Yes, so early indications for the quarter look good. It does and that’s why we’re comfortable saying that there was some level of the late plan affecting our numbers. So the early part of Q2 does look promising here in May. So it's -- I think for the full-year it will be difficult for us to get into positive territory given where we started for the year. But Q2, I would anticipate growth and then for the balance of the year, in the second half of the year kind of getting us back to more of a flattish number for the full-year.

That's really helpful. And then, finally just a clarification. You talked about steel surcharges, you're doing some free buying ahead of that, but at the same time you’re saying that for Ag equipment. You're not really expecting higher prices or you’re not seeing higher prices until model year '19. So I'm looking to clarify that statement and I’m trying to understand what exactly is it that you’re pre-buying now?

Well, so basically some of our core products right now we're ahead of the model year changes. And we typically do that and as the lead time start getting a little bit longer and these slots are starting to fill up towards calendar Q3 and the beginning of calendar Q4, we are getting equipment ahead of that. And there's some pretty strong indications that we are probably going to see some pricing effects going into the new model production, so just to get up -- get ahead of that. And -- so that’s I think good business.

Yes, I’m sorry, but sorry to press you on this, I still don't understand it. Are you saying that you’re buying more 2018 equipment to stock up maybe into 2019, and still sell this model year equipment to sort of get around price increases for '19. Is that what you’re saying or am I misinterpreting?

So, we’re looking at -- once our customers are getting better visibility of their crop, obviously, there's little bit more -- where the commodity price are going to end up, a lot of these major purchase decisions happened in starting August, September, October and November, right. So to have the equipment are going to be ahead of that. So we have seen some indications, the OEMs that they’re going to protect the shipments, they are going to happen now or up until new model year without any steel surcharges. And they say there are going to be steel surcharges that’s going to happen with the new model equipment. But we want to make sure that we have sort of our price competitive that we've got equipment on hand going into the -- all the busy harvest season in the fall [indiscernible] season with equipment in place to do that. And right now some of the order slots are filled up in the September, October, so if we want our equipment we need to get it now, we won't get it and that’s when we plan for that. Let's have a normal planning process on our inventory. So we are not here to see in huge movements on that, but I mean enough so that we feel are comfortable, and we plan on retailing that equipment in this fiscal year. Then, in addition, as we see the new model, that typically certain customers want the new models and the new model years then we will start working on those and it will get shipped in September, October, November and December as we looked at some retail benefits from that group of equipment also. But that may have some -- not only new model price increases, but potentially if there are going to be surcharges, it will be on that group of equipment also.

Perfectly understood. Thank you for the color.

Okay.

[Operator Instructions] As we’ve no further questions, I'd like to pass the conference back to Mr. David Meyer for any closing remarks. Thank you.

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

Ladies and gentlemen, that will conclude today’s conference call. Thank you for your participation today. You may now disconnect.