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Titan Machinery Inc (NASDAQ:TITN)
Q1 2019 Earnings Call
May 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Titan Machinery First Quarter Fiscal 2020 Earnings Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. John Mills, with ICR. Thank you. You may begin.

John Mills -- Investor Relations

Great. Thank you. Good morning, ladies and gentlemen, and welcome to the Titan Machinery first quarter fiscal 2020 earnings conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer; and Mark Kalvoda, Chief Financial Officer.

By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30th, 2019, 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 Titan's website at ir.titanmachinery.com. The presentation is available directly below the webcast information in the middle of the page.

You'll see on the slide two 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 risks and uncertainties, including those identified in the Risk Factors section of Titan's most recently filed annual report on Form 10-K. These risk factors contain 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 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 into Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We've included reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release.

The call will last approximately 45 minutes. At the conclusion of our prepared remarks, we will open the call to take your questions.

Now, I'd like to introduce the Company's Chairman and CEO, Mr. David Meyer. Go ahead, David.

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Thank you, John. Good morning, everyone. Welcome to our first quarter fiscal 2020 earnings conference call. On today's call, I'll provide a summary of results, then an overview for each of our business segments. Mark will then review financial results for the first quarter of fiscal 2020, and then, conclude by reviewing our updated modeling assumptions for our fiscal 2020.

If you turn to slide three, you'll see an overview of our first quarter financial results. Our first quarter revenue was $278 million, with adjusted pre-tax income of $600,000, and adjusted earnings per diluted share of $0.02. We generated solid top and bottom line results during the fiscal first quarter by achieving healthy growth across all segments of our business, despite challenging industry conditions that continue to persist. We are particularly pleased with strong increases in our higher margin parts and service businesses, which grew double-digits in the quarter. The solid performance in this area, combined with higher equipment sales, drove increased profitability across all our reporting segments versus the prior year period.

I will now provide additional detail for our three operating segments, consisting of our domestic agriculture and construction segments and our international segment.

On slide 4, is an overview of our domestic agricultural segment. Across most of our ag footprint, our former customers are experiencing an abnormally late cold and wet spring. This has caused the delayed planting and this prolonged wet spell has the potential to impact yields, crop selection and in some cases, fields will not be planted and growers will opt for the multi-peril crop insurance payment. Farmers' incomes continue to be negatively impacted by low commodity prices, which is partially attributable to retaliatory Chinese tariffs.

In response, last week, the USDA announced the 2019 market facilitation program, which will provide $14.5 billion in direct payments to farmers. According to a recent USDA press release, President Trump directed Secretary Perdue to craft a release strategy to support American agricultural producers, while the administration continues its work on free, fair and reciprocal trade deals to open more markets in the long run to help American farmers compete globally. While all the final details of those program are yet to be released, early indications point to a high percentage of the aid going to soybean and wheat producers.

We continue to see our growers fleet duty cycle increasing as their current fleet is becoming more aged, along with incurring a higher number of our machine hours. This aged fleet, along with the benefits of new technology is creating replacement demand for new equipment purchases. Positive yield trends and carryover from last year's excellent crop is supporting farmers' ability to maintain current, productive and reliable equipment fleets.

In addition, for the growers who are not updating their fleets, the aged and high (inaudible) equipment typically requires more parts and service repair and our customers will be looking to us for aftermarket support, which is an important part of our business model and integral to our long-term strategy and focus.

Turning to slide five, you will see an overview of our domestic construction segment. The strong economy continues to positively impact the construction equipment industry. In addition, the higher oil prices we have been experiencing spurs demand for construction equipment, for both oil production and related infrastructure. While we are seeing stronger demand in the metro areas, the rural construction equipment markets continue to be negatively impacted by the depressed farm commodity prices.

We continue to target our farmer customers as an outlet for used construction equipment. Our rental utilization is trending positively due to the steady demand and our fleet rationalization efforts. The operational improvements we have been implementing in our construction equipment stores are producing results as evidenced by our year-over-year first quarter improvements to our top and bottom lines in our construction equipment segment. In addition, with our strong first quarter and confidence in our construction equipment business for the balance of the year, we have raised our construction segment revenue modeling assumptions from up zero to 5%, to up 5% to 10%.

On slide 6, we have an overview of our international segment, including our markets within the countries of Bulgaria, Germany, Romania, Serbia and Ukraine. Crop development and growing conditions across much of our footprint is good to average. We see overall stability in these regions, continued global investment and with the aged machine population a long runway of parts and service revenue growth as the machinery part increases, along with the complexity and sophistication that comes with modern farming in these developing markets. Again, we experienced another quarter of solid performance and bottom line contribution from our international segment.

Before I turn the call over to Mark, I want to thank all our employees for their efforts in executing on a solid first quarter. As noted in our release, we paid off the remaining principal balance of our original $150 million senior convertible notes on May 1 in conjunction with the maturity of the security. Again, I want to thank our team for their operational execution that allowed us to retire this debt in the face of some very challenging industry conditions. Our balance sheet remains strong and put us in a good position as acquisition opportunities arise.

Now, I'd like to turn the call over to Mark to review our financial results in more detail.

Mark Kalvoda -- Chief Financial Officer

Thanks, David. Turning to slide seven, we achieved total revenue of $278 million for the fiscal 2020 first quarter, an increase of 14.2% compared to last year. Our revenue increase was across all our business segments and across all revenue categories. Equipment revenue was up 15.6%, parts and service was up 10.7% and 14%, respectively. All these of these revenue categories benefited from our AGRAM acquisition, which occurred in July of last year. Excluding this acquisition, our same-store sales were up 11.1% compared to the first quarter last year, that was down about 7%. Our rental and other revenue increased 6.7% in the first quarter due to a higher level of inventory rentals. Our dollar utilization of our designated rental fleet in our construction segment improved to 20.5%, for the current quarter compared to 18.3% in the same period last year.

On slide eight, our gross profit of $54 million for the quarter was an increase of 13.2% compared to the same period last year, primarily driven by higher revenues. Gross margin decreased by 10 basis points to 19.4% versus the prior year due to slightly lower equipment margins and a shift in gross profit mix.

Our operating expenses increased by $5.9 million to $53 million for the first quarter of fiscal 2020. The increase was impacted by our AGRAM acquisition in the third quarter last year, costs associated with the transition of our ERP application, as well as higher variable expenses, such as commissions on the increased revenues.

As we previously communicated, we are undergoing an ERP system implementation, which is expected to impact GAAP earnings this fiscal year by approximately $0.25 per share. We view these expenses as non-recurring in nature, and for the first quarter, these expenses were just over $1 million or $0.04 per share. Despite these increases, we were able to achieve greater operating leverage during the quarter. As a percentage of revenue, operating expenses improved in the first quarter to 18.9% compared to 19.2% in the same quarter last year.

Floorplan and other interest expense decreased 26.5% to $2.5 million in the first quarter of fiscal 2020 compared to $3.4 million in the same quarter last year. This reduction was primarily due to a lower level of interest-bearing inventory and a decrease in interest expense on our lower principal balance of senior convertible notes.

In the first quarter of fiscal 2020, our adjusted net income was $500,000 compared to an adjusted loss of $1.6 million in the prior year. Our adjusted earnings per diluted share was $0.02 compared to an adjusted loss per diluted share of $0.07 in the first quarter of last year. For the first quarter of fiscal 2020, adjusted EBITDA improved to $6.3 million compared to $5.3 million in the first quarter of last year. You can find a reconciliation of adjusted net income, adjusted EPS and adjusted EBITDA to their most directly comparable GAAP amounts in the appendix to the slide presentation.

On slide nine, you will see an overview of our segment results for the first quarter of fiscal year 2020. Agriculture revenues were $154 million, an increase of 8.3%. We experienced a good start to the year despite ongoing industry headwinds, with healthy increases in equipment parts and service revenue compared to an ag segment that was down 12.5% in the first quarter last year. The increased revenue generated the improved adjusted pre-tax income of $1.9 million compared to $1.3 million in the prior year period.

Turning to our construction segment, revenue increased 15.9% to $71 million compared to the prior year period. The segment's adjusted pre-tax loss improved by $800,000 to a first quarter loss of $2.1 million. The improvement in segment results was primarily the result of increased revenue. This marks the third consecutive quarter of increased quarter-over-quarter top and bottom line results in this segment, as we continue to drive this segment to profitability.

In the first quarter of fiscal 2020, our international segment revenue was $54 million, an increase of 32.2% compared to the same quarter last year. The revenue increase was driven by contributions from our AGRAM acquisition, which was completed early in the third quarter of fiscal 2019, as well as revenue increases throughout the rest of our European footprint.

Our international segment adjusted pre-tax income was $200,000 compared to an adjusted pre-tax loss of $100,000 in the same quarter last year. On slide 10, we provide an overview of our balance sheet highlights at the end of the first quarter of fiscal 2020. We had cash of $63 million as of April 30, 2019. Our equipment inventory at the end of the first quarter was $490 million, an increase of $73 million from January 31, 2019, reflecting a $94 million increase in new equipment, partially offset by a $22 million decrease in used equipment. The equipment Inventory turns increased to 1.8 in the current year compared to 1.7 in the prior year. I'll provide a little more color on our inventory on the next slide.

Our rental fleet assets at the end of the first quarter increased to $114 million compared to $111 million at the end of fiscal 2019. We continue to anticipate that our fleet size will be around the $110 million level by the end of fiscal 2020. As of April 30, 2019, we had $374 million of outstanding floorplan payables on $640 million of total floorplan lines of credit. We continue to have ample capacity in our credit lines to handle our equipment financing needs.

Our total liabilities to tangible net worth ratio is a healthy 2.1. This ratio was impacted by the current quarter adoption of the new lease accounting standard, which require the recording of lease liabilities have an approximate impact of 0.4 on this metric. The ratio of 2.1 is well below the ratio of 3.5, which is the leverage covenant required of our larger bank facilities.

At the end of the first quarter, we had $46 million of outstanding senior convertible notes. On May 1, 2019, the maturity date of this security, we repaid the outstanding principal balance using cash on hand and our existing lines of credit. Significant cash generation over the past few years allowed us to repay these notes in full without having to replace them with another long-term debt facility. With the retirement of this debt behind us, and our expectation of another good year of generating cash from operations, we are in a solid liquidity position during a period of volatility and uncertainty, particularly within our ag segment.

Turning to slide 11, I would like to provide additional information on our equipment inventory. As I just mentioned a few minutes ago, in the current quarter, we experienced seasonal stocking of new equipment inventory and saw a nice reduction in used inventory levels. These changes are reflected in the size of the red and blue bars in the current quarter on this slide.

We are maximizing our non-interest-bearing terms from our manufacturers. The dollar amount of non-interest bearing inventory is reflected in the grey bars next to the inventory levels. As an example, in the current quarter, we had total equipment inventory of $490 million, of which, $232 million, or 47.4%, was non-interest bearing.

Since fiscal 2017, the chart clearly demonstrates increasing levels of non-interest bearing inventory on relatively flat total equipment inventory levels. The primary driver of this improvement is the reduced aging of our inventory as a result of our ongoing life cycle management efforts, as more of our inventory remains under interest free terms with our manufacturers.

This improvement has been the primary reason for the reduction in floorplan interest expense over the past few years. We expect that equipment inventories will increase in the second quarter of fiscal 2020 and then reduce in the back half of the year. Non-interest bearing inventory levels will follow that seasonal trending as well.

Slide 12 provides an overview of our cash flows from operating activities for the first three months of fiscal 2020. The GAAP reported cash flow provided by operating activities for the period was $3 million. As part of our adjusted cash flow used for operating activities, we include all equipment inventory financing, including non-manufacturer floorplan activity. Our adjustments for non-manufacturer floorplan payables was $13 million for the first three months of fiscal 2020.

We also adjust our cash flow to reflect the constant equity in our equipment inventory, which enables us to evaluate operating cash flows exclusive of changes in our equipment inventory financing decisions. The equity and our equipment inventory decreased 10.8 points to 23.6% during the three months period ended April 30, 2019, and the adjustment for constant equity in equipment inventory represents a $53 million use of cash.

The decrease in equipment -- or the decrease in equity in our inventory is primarily due to the seasonal stocking of new equipment inventories in the current quarter and the higher level of floorplan financing available on such inventories, as well as borrowing more on our floorplan lines in preparation for the repayment of the outstanding balance of our convertible notes, which occurred on May 1, 2019. After all the adjustments, our adjusted cash flow used for operating activities was $37 million for the three months period ended April 30, 2019, compared to $26 million for the same period last year.

Slide 13 shows our updated fiscal 2020 annual modeling assumptions. We are increasing our revenue modeling assumptions for construction to reflect the relative strength we experienced during the first quarter and our expectations for the balance of fiscal 2020. Our updated construction segment assumption is for growth of 5% to 10% versus flat to up 5% previously. We are maintaining the assumptions for agriculture at flat and international at up 10% to 15%. Recall that our range for international includes the revenue contribution from the AGRAM acquisition, which closed in July 2018.

Despite the solid first quarter performance, we remain cautious due to the uncertainty in the ag industry. Therefore, we are maintaining our expectation for adjusted diluted earnings per share in the range of $0.75 to $0.95 for fiscal 2020.

Operator, we are now ready for the question-and-answer session of our call.

Questions and Answers:

Operator

Thank you. At this time, we'll be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Steve Dyer with Craig-Hallum Capital Group. Please proceed with your question.

Steven Lee Dyer -- Craig-Hallum Capital Group -- Analyst

Thank you. Good morning. Question on ag in the quarter. Obviously, a really strong resilient quarter given a pretty tough backdrop for your footprint. What do you attribute that to? Is that just upgrade cycle or maybe a little bit more color as to what drove that strength?

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Steve, good morning. This is Dave. If you look at last year, I think there was some carryover there and we had actually yields pretty much across our whole footprint and some of that typically carries over into the following year. Definitely a replacement demand is real out there and the age and the hours on the equipment has started increasing. And then another -- at the end of the year last year, the soybean growers -- they -- from this 2018 market facilitation program picked up another $1.65 for our every bushel of their soybeans they had.

If you look at the last year -- this time of the year last year, a lot of the growers, they were able to contract their soybeans up over that $10 level. I think there were some pretty good corn contracts at that time. So with that good yield last year, with some pretty good contracting, that $1.65 market facilitation shot in the arm, put lot of our growers in some pretty good position here to really take care of their equipment needs as they go into this year's planting season. So that's what we'd attribute that to.

Steven Lee Dyer -- Craig-Hallum Capital Group -- Analyst

Great. Got it . Helpful. And then, corn, which you guys have always been fairly correlated to, despite nicely north of $4 a bushel here in the last few weeks, I guess one, do you have any view on the sustainability of that? And then, two, is that something that can change sentiment in your view? And if so, how long does it need to stay that way before farmers start viewing things differently? Thank you.

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Yeah. Over the last couple of days, yeah, definitely, that's put a little more bounce in some of the farmers' steps seeing this movement on the corn price and I would say, a lot of that's attributed to the potential for a lot less acres going in. Fortunately, in most of our footprint, with the exception of South Dakota, our farmers are -- they are making progress and I think with this week, most of their corn will be in the ground. But if you look at Indiana, or you look at Ohio, or you look at Illinois, they are way behind in their corn planting and it continues to be very, very wet. So there could be -- on the all supply side with shot in the arm, really, less supply typically that corn might go up.

So -- and some of our growers are locking in some at today's price and they are just going to keep selling more if it keeps going up a little bit. So, yeah, I'd say, that definitely has the potential for a real positive and it could be a real nice side in the pan. And how much corn gets planted and really what happens to the yield as we get later in the year like that, typically that -- your yield potential starts diminishing too. So, if you take less acres and then less yield across the US, there are -- people are already speculating here of what that supply side could do for a potential corn price.

Steven Lee Dyer -- Craig-Hallum Capital Group -- Analyst

Got it. Thank you

.

Operator

Thank you. Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.

Mircea Dobre -- Robert W. Baird -- Analyst

Thank you. Good morning, guys. I maybe want to start at construction. Obviously, you're raising the guidance there and you had a really nice strong start to the year. So I'm looking for a little more color in terms of what's driving all of this and especially, what's different versus your initial expectations that you had embedded in your outlook?

Mark Kalvoda -- Chief Financial Officer

Yeah. I think with the construction now, I think, as we mentioned in our prepared remarks, it's three quarters now -- three consecutive quarters of that improved top and bottom line results, and it's really, we call it, blocking and tackling and just focus on all the fundamentals out there. One of the areas of improvement is in the inventory improvement that we've had there. That's driving better margins and lower floorplan interest expense in that area. Particularly, within this quarter, you saw some of this parts and service, our focus in that expert team on driving that parts and service business really came through in the first quarter. Some of that may had to do maybe to with our late start to the construction season. Our customers really wanted to make sure out there (inaudible) is ready to go out there on the construction side as they've got a compressed season here to get their jobs done.

I think the last thing is, on the rental, we talked about the rental utilization being up 2 percentage points. Again, I think some of that fleet rationalization that we've done showing some benefits here, as well as just better execution on that side of the business and getting those rental deals in place. So I don't know that it's any one particular thing. It's a combination, I think, of a lot of things that will continue -- we are expecting to continue to happen and get us to profitability in this segment this year.

Mircea Dobre -- Robert W. Baird -- Analyst

To be clear, I'm mostly wondering what's going on with the top line, right? I mean you're going from zero to 5% to 5% to 10%. And I mean, correct me if I'm wrong, but parts and service and rentals are not enough to generate this change of guidance, it seems like equipment demand has to be part of it.

Mark Kalvoda -- Chief Financial Officer

Yeah. I think some of the same things is -- it's happening on the equipment side, just going out and getting that business. I think Dave indicated in some of his remarks, just with the strength of oil, some of the sustained strength in oil that's happening. Particularly, up here in the Bakken, we're seeing some better activity, but that's flowing through to some of the other areas and the strength in our metro markets and it is -- it came through better than what we anticipated, particularly late in the quarter here in April, where we saw some good positive results there on the equipment sales side.

Mircea Dobre -- Robert W. Baird -- Analyst

I see. Okay. And then, maybe we can talk a little bit about your guidance in ag. You're still calling for flat, that implies in the subsequent quarters, call it, slight decline, but I'm wondering how you're thinking the second quarter versus the second half, what is the progression here because your comparisons obviously are varied. So how do you think about it from a modeling perspective?

Mark Kalvoda -- Chief Financial Officer

Yeah. I think from -- as far as sequentially in the quarters here, I think, Q2 will still see some positive. I think, Q2, Q3, and then, once you get out to Q4, where we had a very strong Q4 this last year, you will see some of that come off a little bit. So, I'd say, some level of growth in Q2, Q3, and then, going negative to a small degree in Q4, which is our highest equipment revenue quarter.

Mircea Dobre -- Robert W. Baird -- Analyst

Okay. And then, obviously, you're not guiding any more to equipment margins and I understand that. But when I'm looking at Q1, you came pretty close to what you've described as the new normal of 11%. Is there any variability that you would call out for the rest of the year directionally for us?

Mark Kalvoda -- Chief Financial Officer

I think, overall, yes, we kind of alluded to last year getting to that normal. We've came a little bit short in the first quarter here, but I don't see -- I mean, there's always some risk in all of this, but I think 11% for the year is certainly still attainable, even though we started out a little bit low here in the first quarter. So, no, I think Q2, Q3 tends to be a little bit stronger as well, and then, when we get out to Q4, it will come off a little bit. I think we will be higher than where we were last year in Q4, but Q4 will be a little bit lower than the other quarters of the year.

Mircea Dobre -- Robert W. Baird -- Analyst

That's helpful. And then maybe last question for me. I remember having this discussion on parts and service last quarter, because things were already looking like we're going to have maybe a challenging plant season and that proves to be the case, yet, your performance was really, really good here. So, it looks to me like it surprised you positively, correct me if I'm wrong? I'm wondering what was different than what you were initially contemplating? And then, as you look at the rest of the year, with comparisons getting tougher in both parts and service, how do you think about growth going forward?

Mark Kalvoda -- Chief Financial Officer

Yeah. I think it did surprise us a little bit, it was higher than what we expected. We did expect some nice growth. Last year in the first quarter it was off a decent amount versus the prior year. I think another thing (Multiple Speakers). Yes. The comp will be tougher, like you said, later in the year. And the other reason why it's going to be tougher is because of the AGRAM acquisition. So we're benefiting from that AGRAM acquisition to the tune of 2 to 3 percentage points here in the first quarter. Second quarter, it will be similar to that and then, that goes away.

I think -- just similar to what I said, maybe on construction, we saw more strength in April, late in the quarter in parts and service, were it really came on. And again, some of that may have been just due to our customers wanted to make sure that they are prepared for getting out into the field in this case, to minimize the break-downs that occur, and I think that's partially to do with that.

I think the other thing we're learning is, this parts and service tends to be somewhat lumpy and it's hard to predict between quarter-to-quarter. As you mentioned, last quarter, we were a little disappointed, particularly in the service results last quarter and that did come back strong. So it tends to be a little bit lumpy at times. But as far as to the full year, we still expect I think what we mentioned before, kind of that mid-single digit growth for the full year. The biggest quarter is -- Q2 is going to be bigger, but Q3 is the largest quarter there, of course, with the harvest. So that will kind of make it or break it I think as far as attaining that mid-single digits in our parts and service growth for the year.

Mircea Dobre -- Robert W. Baird -- Analyst

Right. So, Mark, to be clear, when you're saying Q3 the largest, you're talking about dollars and revenue, not growth, correct?

Mark Kalvoda -- Chief Financial Officer

That's correct , yes.

Mircea Dobre -- Robert W. Baird -- Analyst

Okay. Good job, guys. And thanks for the color.

Mark Kalvoda -- Chief Financial Officer

Thanks, Mig.

Operator

Thank you. Our next question comes from the line of Rick Nelson with Stephens, Inc. Please proceed with your questions.

Rick Nelson -- Stephens, Inc. -- Analyst

Thanks. Good morning. I'd like to drill down into the equipment margins. We did see some pressure this quarter. Is that on the new side or the used side? And if you could comment on inventory in the channel, are other dealers taking advantage of these interest free deals and where you see channel inventory?

Mark Kalvoda -- Chief Financial Officer

I think, so, I'll take it, at least, the first part here. As far as the equipment margins go, most of that pressure we saw coming from the ag side on the new. Used continues to be stable, and I think due to those industry supplies and specifically our improved inventory condition that we had. But I think that the pressure is -- there is pricing pressure on that new from competition and difficulty fully passing on some of those OEM price increases to the customer, especially in this difficult environment. As far as other others taking --

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Yeah. I can talk to inventory, Rick, a little bit slow. So, we're comfortable with our current level of new inventory right now. What we need, we have right, plus additional units in Q3 and Q4 to hit our full year revenue number. So we've got the ability to flex up and down with the Q4 orders, but we have to get a little more visibility into the -- both commodity prices and what's going on with the yields. And then, I can say, we've got that opportunity to flex up and down. So we talked a little bit earlier about corn, but if that stays on that same price trajectory due to less acres and our order slots in that fourth quarter, they could be starting to get -- they could fill up pretty fast. We always have to be kind of cognizant of that. Then like what -- like Mark explained too in his -- during our presentation that higher percentage of inventory on that non-interest-bearing, that really helps, it's helpful too. So, the whole picture, we feel pretty good. It's pretty well thought out plan, and I'd say, we're right on track right now.

Rick Nelson -- Stephens, Inc. -- Analyst

Great. So ag segment, the revenues were up 8%, you're guiding to flat. We heard some of the cautionary comments that you made that could cause a slowdown, what are the signpost, you mentioned corn prices, that we should be looking for to shift your expectations?

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Well, I think. As you look ahead -- again, if we just go back to last year a little bit, excellent yields, and in some cases record yields across our footprint, our growers had the ability to contract this time of year last year at a much higher numbers than what you are seeing today. We had a $1.65 soybean market facilitation program. So that drove a lot of last year's business. Now, this year, we don't know what the yields are going to be, we're not sure what the price is going to be. We still haven't seen the details of the market facilitation program. So, definitely, there is a level of uncertainty and volatility out there. So we need some type of resolution to all of this trade information that's out there, but -- so this year, a lot of that first quarter, I'd say is carryover from last year and then I guess that's still yet to be seen for the balance of the year. And so I'd say, stay tuned.

Rick Nelson -- Stephens, Inc. -- Analyst

Yeah. That make sense. How about capital allocation, your thoughts today. You've got that converts now off the books. You are sitting on $63 million in cash. Do you continue to build the cash or do you think you'd be putting it to work any update there?

Mark Kalvoda -- Chief Financial Officer

Yeah. I think, certainly, getting that convert behind us is big and critical. As we've talked, I think, there's a lot of opportunity. We believe there's a lot of opportunity, and particularly on the ag -- domestic ag side and the length of this being in the trough of the cycle that we've been in, there is good opportunities to go out and get some good quality acquisitions done on the ag side and we're focused on that and that's -- I think that's the top of our list from a priority standpoint in regards to capital allocation.

Rick Nelson -- Stephens, Inc. -- Analyst

Great. Thanks. And good luck.

Mark Kalvoda -- Chief Financial Officer

Thanks, Rick.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Larry De Maria with William Blair. Please proceed with your question.

Larry De Maria -- William Blair -- Analyst

Hi. Good morning, everybody. I know that maybe this is difficult, there's a lot of moving parts. But we have prevent plant dates coming up and you have the new program from the government that was mentioned. So, how are you thinking about overall, let's say, farmer income in your territory this year, because assume there is going to be maybe some less acres, and more prevent plant. So can you piece it all together and think about how you're thinking about farmer income with obviously probably less yields, et cetera, but higher prices here? So just overarching trying to understand if this is potentially a real pivot for your market or at the end of the day, we're still going to talking about trades in another months from now and it's just sorted out? Thanks.

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Okay. So I think we're pretty fortunate, Larry. Let's say, if you look at Minnesota, North Dakota, Nebraska and Iowa, they are actually not too far off from a year ago on getting their corn planted. And like I said, this week it's 80 degree and in some cases, maybe the weather is sunshine and I'd say we're going to get all that corn planted this week and some of the corn is up already. So I think South Dakota is the only thing state we have that's probably a little bit on the left side. So, I'm fairly confident that our growers are pretty resilient and pretty resourceful.

I'd say, you're going to see that corn get down and then soybeans are going to follow up right after that. So we're fortunate from that standpoint. Definitely, we've got the market facilitation program, we got the trade issues going on and all, and we need to get some closure to that to get some of this uncertainty out of the marketplace like that. So I think everybody is pushing for that. I'd say, this 2019 market facilitation program, that's a positive and that's going to help our growers. And I think it's going to be especially helpful for soybean growers. And if you look at our five states, our five ag states, we raise a lot of soybeans. So that's going to be good for that.

I think one thing that, as we start to see this corn price start improving a little bit, I'm not sure if everybody is aware of the amount of corn on hand on the farms, in the storage, there is in some cases one year's worth of crops two -- even we've got some of our growers out with three years worth of crops on hand. So any spike in that corn price, I think, is going to be a benefit, not only to this year's crop, but that grain on storage is going to get -- be able to get sold in that standpoint. Again, for some of these guys it could even be a little bit of a tax problem. So I'd say, I think some of our growers are challenged right now, the banks are become -- have a real conservative tone to them. I think that some of our growers out there are putting their crop in this year without an operating note. So that's going to be a little bit challenging for some of them. But I think when you get all of it said and done, I like our five states. I think we're going to be in pretty good shape as we get through this, and like we say, we just need to get that -- the trade issues, the tariff issues resolved and get this crop through and get it in the bin. So, hopefully that gives you a pretty good summary.

Larry De Maria -- William Blair -- Analyst

No. It does. It sounds like you guys are in net better position than a lot others. And I guess you guys kept the ag outlook, and obviously, you raised construction, but maintained the EPS guide a fairly wide range. I'm just curious about the puts and takes to that, and why not narrow it given the slightly better construction? And secondly, correct me if I am wrong, but it sounds like if there is upside to ag, and it's mostly going to come later in the year once we drove this, and then maybe orders getting better later as opposed to near term, is that right?

Mark Kalvoda -- Chief Financial Officer

Yeah. I think, so first of all, in regards to ag, just with all the different uncertainties out there that Dave mentioned with the commodity prices, trade war, weather, you mentioned prevent plant, all of these things are just a lot of uncertainty out there. And on the CE side, with the revenue increase there, that's obviously going to be the positive. A little bit of the offset here is, we did run a little bit higher in expenses than what we had anticipated. So that'll come off a little bit and I think just keeping in mind that it's a range there on that EPS and we're early in the year with a relatively seasonally low first quarter here. So there's a lot of the year left to achieve that full year EPS range.

Larry De Maria -- William Blair -- Analyst

Okay. And then last question. Thank you. You talked about obviously potentially putting some money to work in the M&A. Are there ample opportunities in your territory in the Midwest, are you looking overseas? Just curious how things are shaking out now and obviously with kind of an odd backdrop as well, so what kind of opportunities are there right now, are they there?

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

I think the opportunities are -- we like this Upper Midwest footprint we're in and I think we -- definitely there is ample opportunities, still fairly fragmented number of dealerships, your aged dealer principles, I think there some capital challenges. So, yes, I think we definitely have some good opportunities either contiguous or in this same footprint that we're in today.

Larry De Maria -- William Blair -- Analyst

Okay. Thanks and good luck guys.

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Okay. Thanks, Larry.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I will turn the floor back to Mr. Meyer for any final comments.

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Okay. Thank you everyone for being on this call today and look forward to updating you on our progress on our next call. And have a good day.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Duration: 47 minutes

Call participants:

John Mills -- Investor Relations

David Joseph Meyer -- Co-Founder, Chairman of Board and Chief Executive Officer

Mark Kalvoda -- Chief Financial Officer

Steven Lee Dyer -- Craig-Hallum Capital Group -- Analyst

Mircea Dobre -- Robert W. Baird -- Analyst

Rick Nelson -- Stephens, Inc. -- Analyst

Larry De Maria -- William Blair -- Analyst

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