Please ensure Javascript is enabled for purposes of website accessibility

Titan Machinery (TITN) Q3 2018 Earnings Conference Call Transcript

By Motley Fool Transcribing – Nov 29, 2018 at 4:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

TITN earnings call for the period ending October 30, 2018.

Logo of jester cap with thought bubble with words 'Fool Transcripts' below it

Image source: The Motley Fool.

Titan Machinery (TITN 4.22%)
Q3 2018 Earnings Conference Call
Nov. 29, 2018 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings, and welcome to the Titan Machinery third-quarter fiscal 2019 conference call. [Operator instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, John Mills of ICR. Please go ahead, sir.

John Mills -- Investor Relations

Thank you, Kevin. Good morning, ladies and gentlemen, and welcome to Titan Machinery third-quarter fiscal 2019 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, 2018, which went out this morning at approximately 6:45 a.m.

Eastern time. If you have not received the release, it is available on the Investor Relations page at Titan's website at 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

The presentation is directly below the webcast information in the middle of the page. You'll see on the 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 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 the most directly comparable GAAP financial measures in today's release. The call will last approximately 45 minutes, and 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 Meyer -- Chairman and Chief Executive Officer

Thank you, John. Good morning, everyone. Welcome to our third-quarter fiscal 2019 earnings conference call. On today's call, I'll provide a summary of our results and then an overview for each of our business segments.

Mark will then review financial results for the third quarter of fiscal 2019 and conclude by reviewing our updated modeling assumptions for fiscal 2019. If you turn to Slide 3, you will see an overview of our third-quarter financial results. Our third-quarter revenue was $364 million with adjusted pre-tax income of $12.9 million and adjusted earnings per diluted share of $0.49. We are pleased with revenue growth across all segments and the operating leverage we are generating in our business.

Our third quarter results are indicative of the efforts we've made over the past couple of years to position our business for improved profitability across all segments. The increase in our Agriculture segment revenue is encouraging given the continued industry challenges. Our improved inventory position is helping drive increases in equipment margins, which combined with our lower operating expenses is generating improvements in profitability. As a result of these improvements, and revenue growth in all segments, adjusted earnings per diluted share grew significantly over the prior-year period.

Given these current results and expectations for our fourth quarter, we are raising our modeling assumptions for fiscal 2019, adjusted diluted earnings per share to a range of $0.65 to $0.75. 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 Agriculture segment. To say the least, it has been a challenging harvest across most of our ag footprint.

Due to the abnormally long October wet spell, the progress of crop harvest has been trailing the five-year average all fall. In fact, there are unharvested soybeans in the fields today across our northern footprint to a level, which I have not seen in the -- my 43 years in the business. A big thank you to our parts and service teams as they continue to support our customers through some very difficult harvest conditions. What growers experience this fall accentuates the importance of reliable and productive combines and tractors.

Growers continue to be impacted by low commodity prices and we're beginning to see an increase in overall farm sales and farm consolidation. On a positive note, overall yields in our markets are average to above average. Some growers took advantage of early year crop hedging and marketing opportunities. USDA is funding the previously announced support programs, offsetting some of the impact of tariffs on our commodity prices.

The new tax bill will continue to benefit our customers tax planning. Duty cycles on grower fleets continue to lengthen and with the increased age and hours, customers will be looking to update or repair their existing equipment. Inventory levels are improving, the results being reflected in our improved margins. Year-end tax planning, technology and continued replacement demand will be the main drivers for fourth quarter equipment sales.

We continue to focus on our offseason uptime inspection program, which not only produces parts and service revenues but brings tremendous value to our customers and keeping equipment fleets in top condition. Turning to Slide 5, you'll see an overview of our domestic Construction segment. The stronger economy continues to positively impact the Construction equipment industry. Industry growth is more prevalent in the major metros in coastal areas as real Construction equipment markets are being negatively impacted by the suppressed commodity prices affecting Construction equipment purchases by farmers as well as other ag related businesses.

Despite volatility in crude oil prices, we are seeing a pickup in business from oil and oil related infrastructure. Initially, new and used inventory levels are much improved. We are seeing improved rental utilization resulting from Fleet rationalization efforts and increased machine usage is driving increased parts and service revenues and similar to our Ag segment, we're putting a strong focus on the offseason uptime inspection program to provide additional product support revenues. Our third-quarter results on our Construction segment have kept us on track for improved year-over-year top and bottom-line performance in the first half of fiscal 2019.

On Slide 6, we have an overview of our International segment, including markets within the countries of Bulgaria, Germany, Romania, Serbia, and Ukraine. The early season grain crop was the best average due to drought conditions during the growing season. The drought was more prevalent through the Northern Europe including Germany. With the exception of Germany, late-season, cereal crops in our footprint were much better than the grain crops due to timely summary rains.

The business climate in our European countries is stable with increasingly available retail credit for our customers equipment purchases particularly in the Ukraine. The Russian Ukrainian conflict has been concentrated in the Crimea and far Eastern regions of Donetsk and Luhansk, our facilities are located in the Central and Western regions of Ukraine, a far distance from the conflict. We continue to mitigate the financial risk arising for potential geopolitical tensions in Ukraine. There have been recent announcements of sizable, global investment in Eastern European funds, reflecting the long-term opportunities in this highly productive agricultural region.

Our four-store acquisition of AGRAM in Germany is being successfully integrated into our organization and we are excited about the future opportunities in the German market. As we increased our park of equipment in Europe, we continue to focus on parts and service, growing the aftermarket product support area of the business. Europe continues to be a solid contributor to our bottom line. Before I turn the call over to Mark, it is great to report improved top and bottom-line results and I want to thank all of our employees and customers in the United States and Europe for a very successful third quarter.

Our balance sheet continues to be strong and our U.S. -- as U.S. farm equipment dealers are looking for a succession solution, Titan Machinery is in an excellent position to bring on additional locations. Now I'll turn the call over to Mark Kalvoda to review our financial results in more detail.

Mark Kalvoda -- Chief Financial Officer

Thanks, David. Turning to Slide 7. Revenue in each of our businesses was up in the third quarter, generating total revenue of $364 million, an increase of 10.1% compared to last year. Our revenue increase was across all segments, primarily driven by equipment revenues within our Agriculture segment.

Parts and service were up 8.3% and 6.7%, aided by the addition of our AGRAM stores in the current quarter. Excluding AGRAM, our parts and service business were still up between 4% and 5%, demonstrating continued growth in this high margin area of our business. Our rental and other revenue increased 3.9% in the third quarter due to a higher level of inventory rentals. Our dollar utilization of our designated rental fleets in our Construction segment improved to 28.8% for the current quarter compared to 27.2% in the same period last year.

On Slide 8, our gross profit of $70 million for the quarter was an increase of 13% compared to the same period last year, primarily driven by higher revenues and improved equipment margins. The higher equipment margins also increased our gross profit margin by 50 basis points, gross to the prior year to 19.1% despite a revenue shift to a higher mix of equipment revenues in the current quarter. Our equipment margins continued to benefit from stable pricing and our improved equipment inventory position. Our operating expenses increased by $2.9 million to $53 million for the third quarter of fiscal 2019, primarily as a result of increased variable expenses such as commissions due to increased levels of equipment gross profit.

Our current quarter also includes a full quarter of operating expenses from our AGRAM acquisition. Despite these increases, we were able to achieve operating leverage during the quarter due to our leaner, more efficient operating structure. As a percentage of revenue, operating expenses improved in the third quarter to 14.7% compared to 15.2% in the same quarter last year. For the third quarter of fiscal 2019, we recognized $200,000 in restructuring and impairment charges compared to $2.6 million in the same period last year.

Recall that we essentially completed our fiscal 2018 restructuring plan in the third quarter of last year. Floorplan and other interest expense decreased approximately 13% to $3.5 million in the third quarter of fiscal 2019 compared to $4 million in the same quarter last year. This reduction was primarily due to a decrease in interest expense on our senior convertible notes resulting from the $20 million repurchase of this debt earlier this year. For the third quarter of fiscal 2019, adjusted EBITDA improved to $21 million compared to $16.2 million in the third quarter of last year.

In the third quarter of fiscal 2019, our adjusted net income was $10.9 million compared to $4.4 million in the prior year. Our effective tax rate for the quarter was 15.6%. This quarter, benefited from certain discrete items, a favorable mix of income in our various tax jurisdictions as well as a positive impact from certain tax planning strategies. I'll provide more color on our effective tax rate expectations for the remainder of the year in a few minutes.

Our adjusted earnings per diluted share was $0.49 compared to $0.20 in the third quarter of last year. You can find a reconciliation of adjusted EBITDA, adjusted net income and adjusted diluted EPS in the appendix to the slide presentation. On Slide 9, you'll see an overview of our segment results for the third quarter of fiscal 2019. Agriculture revenues were $211 million, an increase of 13%.

As David mentioned earlier, Ag Equipment revenue was supported by customer replacement demand despite difficult industry conditions as well as improved parts and service performance. Our Ag segment achieved adjusted pre-tax income of $9.9 million compared to adjusted pre-tax income of $5.5 million in the prior-year period. The improvement in our adjusted Ag segment profitability was primarily the result of increased revenues and equipment margins. Turning to our Construction segment.

Our revenue was $79 million, which was an increase of 8% compared to the same period last year. Our adjusted pre-tax income for our Construction segment was $800,000 compared to an adjusted pre-tax loss of $700,000 in the same period last year. The improvement in segment results was primarily the result of increased revenue as well as reduced floorplan interest expense. In the third quarter of fiscal 2019, our International segment revenue was $74 million, an increase of 4.7% compared to the same quarter last year.

The revenue increase was driven by our AGRAM acquisition, which was completed early in the third quarter of fiscal 2019. The impact of increased revenue from AGRAM was partially offset by lower equipment revenue in certain of our other European markets, which faced a difficult year-over-year comparison against the third quarter of fiscal 2018, in which revenues were up over 50%. Our International segment adjusted pre-tax income was $2.6 million compared to $2.5 million in the same quarter last year. Turning to Slide 10.

You see our revenue results for the first nine months of fiscal year. In contrast to our third quarter results, our revenue for the first nine months of fiscal 2019 and in particular our parts and service revenue was impacted by our store closure -- closings associated with our fiscal 2018 restructuring plan. During the first half of fiscal 2018, we closed 13 Agriculture stores. Despite the decrease store count, our total revenue increased 5.3% compared to the same period last year.

Turning to Slide 11. Our gross profit for the first nine months was $176 million, a 7.8% increase compared to the same period last year. Our gross profit margin increased by 50 basis points year over year to 19.4% for the first nine months of fiscal 2019. We realized an improvement in gross profit margin due to increased equipment margin.

Our operating expenses declined by $5.2 million or 3.4% for the year-to-date period to $147.7 million due to cost savings from last year's restructuring plan. As a percentage of revenue in the first nine months, operating expenses decreased 150 basis points to 16.2%, compared to 17.7% in the same period last year, reflecting the leveraging of our lower cost structure coupled with higher revenues in the first nine months of fiscal 2019. Restructuring and impairment charges were $900,000 for the first nine months of fiscal 2019 compared to $10.5 million in the same period last year. Floorplan and other interest expense decreased $2.3 million or 17.2% to $11.1 million in the first nine months of fiscal 2019, reflecting a decrease in our average interest-bearing inventory compared to the first nine months of fiscal 2018, as well as interest expense savings resulting from our repurchases of our senior convertible notes.

Our adjusted diluted earnings per share was $0.71 for the first nine months of fiscal 2019 compared to an adjusted diluted loss per share of $0.03 in the prior-year period. On Slide 12, we provide our segment overview for the nine-month period. Overall, our adjusted pre-tax income was $19.9 million for the first nine months of fiscal 2019 compared to an adjusted pre-tax loss of $200,000 in the same period last year. This improvement is primarily the result of strengthening equipment margins on higher sales volumes combined with lower operating and floorplan expenses in our Agriculture segment as well as overall revenue growth in our International segment.

On Slide 13, you'll see the progress that we have made in our expense structure and a corresponding improvement in our absorption rate. As you recall, absorption is a metric that reflects the ability of parts, service and rental gross profits to cover fixed operating costs. We have reduced our annual operating expenses from fiscal 2014 to the trailing 12 months ended October 31, 2018 by $91 million or 31%. And over the same time period, increased our absorption rate from 71% to approximately 83%.

Operating at this expense level near the trough of 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 rate for the third quarter of fiscal 2019 improved to 94% compared to 92% in the same period last year due to the strength in our parts and service businesses. Turning to Slide 14. We provide an overview of our balance sheet highlights at the end of the third quarter of fiscal 2019.

We had cash of $52 million as of October 31, 2018. Our equipment inventory at the end of the third quarter was $451 million, an increase of $51 million from January 31, 2018, reflecting a $74 million increase in new equipment, partially offset by a $23 million decrease in used equipment. Our third quarter equipment inventory turns were flat versus the prior year comparable period at 1.7 times. Our equipment inventory level reduced sequentially from the prior quarter and we expect further reduction in our fourth quarter and should end the year relatively flat as compared to the prior year, when excluding inventory associated with our AGRAM acquisition.

Included in the appendix to this slide deck is our equipment inventory chart with inventory levels and turns for the past five years. Our rental fleet assets at the end of the third quarter decreased to $114 million compared to $123 million at the end of the fourth quarter of fiscal 2018. We have reduced the size of our fleet to focus on improving our utilization rates and have seen some success in the current quarter. We expect our fleet size to decrease to around $110 million as we finish fiscal 2019.

We had $333 million of outstanding floorplan payables on $653 million of total discretionary floorplan lines of credit as of October 31, 2018. We continue to have ample capacity in our credit lines to handle our equipment finance needs. Our total liabilities of tangible net worth ratio is a healthy 1.5. The current outstanding balance of our senior convertible notes remains at $46 million.

We have retired $104 million or approximately 70% of the original $150 million face value of our senior convertible notes with $95 million in cash. The remaining balance of our convertible notes are due on May 1, 2019 and we are confident in our ability to fully satisfy these notes at maturity. Slide 15 provides an overview of our cash flows from operating activities for the first nine months of fiscal 2019. The GAAP reported cash flow provided by operating activities for the period was $12 million.

As part of our adjusted cash flow used for operating activities, we include all equipment inventory financing, including nonmanufacturer floorplan activity. Our adjustment for nonmanufacturer floorplan payables was $44 million for the first nine months of fiscal 2019. We also adjusted our cash flow to reflect a constant equity in our equipment inventory, which enables us to evaluate operating cash flows, exclusive of changes in equipment inventory financing decisions. The equity in our equipment inventory decreased to 26.2% during the nine-month period ended October 31, 2018, and represents a $54 million adjustment to our cash flow used for operating activities.

We reduced our equity in equipment inventory during the nine-month period ended October 31, 2018, as we drew on our floorplan lines to reduce debt, increase our equipment inventory and fund the AGRAM acquisition. After all adjustments, our adjusted cash flow provided by operating activities was $2 million for the nine-month period ended October 31, 2018 compared to an $11 million used for the same period last year. We expect to generate cash in the fourth quarter as we further reduce equipment inventories. Slide 16 shows our updated fiscal 2019 annual modeling assumptions.

We are leaving all segment revenue growth assumptions constant with Agriculture up 0% to 5%, Construction up 0% to 5%, and International up 10% to 15%. Recall that our range for International includes the revenue contribution from the AGRAM acquisition, which closed early in the third quarter of fiscal 2019. We continue to see strength in our equipment margins particularly in our Ag segment. We are now forecasting equipment margins to be in the range of 9.1% to 9.4% versus prior expectations for the full year in the range of 8.7% to 9.2%.

Earlier in the year, I indicated that our adjusted diluted EPS range included in the -- an annual effective tax rate of 28%, which included assumptions regarding the new tax law, an estimated mix of domestic and foreign income as well as income or loss by country within our International segment. Variances in our effective tax rate can occur with a changing mix of income and losses among our various tax jurisdictions, particularly when we have valuation allowances within some of these jurisdictions. Now that there is more visibility to these variables, we are expecting a full year effective tax rate of approximately 25%. This effective tax rate is a few percentage points lower than what we would expect into the future as we anticipate fewer valuation allowances will impact our rate.

Given the lower anticipated effective tax rate and improvement in equipment margins, we are raising our adjusted diluted earnings per share expectations for fiscal 2019 to a range of $0.65 to $0.75 from the previous range of $0.45 to $0.65. Operator, we are now ready for the question-and-answer session of our call. 

Questions and Answers:


Thank you. [Operator instructions] Our first question is coming from Steve Dyer from Craig-Hallum. Your line is now live.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Hi, guys. Ryan Sigdahl on for Steve Dyer. You mentioned a replacement demand helping the Ag segment. Do you think it's a normal replacement demand going on right now? Or is there some of that occurring, but farmers are hunkering down with the low corn and soybean prices trade uncertainty etc.?

David Meyer -- Chairman and Chief Executive Officer

Yes. There are hunkering down but the replacement demand is real. I mean we're getting the aids, we're getting the hours on machinery and when you look at the importance of uptime and reliability you feel especially during the peak planting season or harvest season, the growers need updated equipment. So they are going to make those purchase decisions whether it's a new piece or a late-model used and if they don't, what they're higher usage safe, there is also that -- if you decide to keep it and really want to get that top and set, that parts and service business to keep it.

But at the fleet stage, they are agile, those level right now since say 2013. So they're definitely getting some age on some of this equipment.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Maybe just said differently, I'll follow up on that, so the ages of fleets is call it five-year lows since 2013, is that continuing to trend down? Or is that kind of at a stable point now where replacement demand is offsetting that?

David Meyer -- Chairman and Chief Executive Officer

I would say it's flat to maybe extending longer. It seemed flat to a little bit longer. It's not improving. It's getting more hours and more age on the equipment.

And one more comment that too is from a depreciation standpoint, with all the accelerated depreciation and the length of the fleet, typically growers like to have some of depreciation basis in their fleet and they are at some of the lowest level they have ever been, so from a tax standpoint and the advice they get from their banks and their tax people is try to have as much depreciation basis in their fleet as possible. So that's another motivating factor for that equipment purchase.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Great. Switching gears to Construction, have you seen any impact from the recent declines in oil in -- talking mainly October, November here?

David Meyer -- Chairman and Chief Executive Officer

The oil had -- there has been some volatility but we're seeing -- we've got the front rate in the Colorado also probably more supportive of the Bakken and in the Western North Dakota that it's the infrastructures build, there's still fracking going on, there is oil -- there is not only the wells themselves but then there is new wells going in and -- but it's the infrastructure behind them, it's the roles, it's the communities, it's the pipelines are going in, some refineries going in and just building out some of the infrastructures to support that area. So we can send you to see some business even though there has been some volatility in oil prices. It's improved for us in our -- in those markets.

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

OK. Last one for me, then I'll hop back in the queue. Equipment margins have been steadily improving with guidance being raised. Without getting too much in the leads for next year, do you think there is room for continued improvement? Or we kind of at a normal level here at that kind of low 9% range? Thanks.

Mark Kalvoda -- Chief Financial Officer

Yes. We've kind of talked about it, if you go back and look at it -- our historical averages there, it's right around that 9.5%. May be a little bit north of that. So we're nearing those, I think the midpoint of our guidance here is around 9.25% now.

So I think there is some level for -- some level of improvement there, but certainly not to the level that we've experienced year over year here. So I think we're reaching those historical averages there.


Thank you. And our next question is coming from Mig Dobre from Robert W. Baird. Your line is now live.

Joe Grabowski -- Robert W. Baird & Co. -- Analyst

Hey, good morning. David and Mark, it's Joe Grabowski on for Mig this morning. Good morning. So congratulations on a good quarter.

This was the second quarter in a row of nice growth in the parts and service. Looks like maybe we've turned the corner there. What are kind of the drivers of improvement in growth rates and what's the outlook going forward?

Mark Kalvoda -- Chief Financial Officer

Yes. We were happy. So parts and service up nearly 8.3%, 6.7% respectively. Part of that growth that's in there is the addition of AGRAM in there for the quarter.

But despite that, still up around that 4% to 5%. As far as -- going forward, I think that aging fleet that David mentioned earlier, that's certainly something that's providing some opportunity for us here that there continues to be some more parts and service opportunity on that. I think as we move forward, that 4%, 5% is probably a little bit stronger than what we expect but it's kind of in the ballpark there. Certainly, our International business has -- had some good opportunity for parts and service growth as that's a less mature business over there and we continue to maximize the parts and service opportunities over there.

Also, just with our new structure that we've had here with the expert team, there is a heavy focus on that parts and service business as you -- as well, as you know.

Joe Grabowski -- Robert W. Baird & Co. -- Analyst

Got it, yes. OK. Thanks for the color on that. And you talked about the drivers of the uptick in SG&A, is this perhaps like a new run rate going forward? Or maybe it was -- there were some unusual drivers in the quarter?

Mark Kalvoda -- Chief Financial Officer

Well, I think, anytime you have a higher level of equipment gross profit, some of those variable expenses such as the commissions are going to write up with that. And I think for the year, I think we've been talking just over that $200 million, I don't think that's changed. I think we're still around that level. So certainly with Q3 and Q4, we expect it a little higher level of operating expenses here because of that higher contribution of equipment gross profits.

Joe Grabowski -- Robert W. Baird & Co. -- Analyst

Got it. All right. And if I could maybe just sneak in one more quick one. You mentioned the outlook for inventory at the end of the year being sort of flattish versus prior year, ex-AGRAM.

How much inventory is coming from AGRAM?

Mark Kalvoda -- Chief Financial Officer

AGRAM inventory, I think it's right around -- I think in the acquisition right around $20 million, maybe just shy of $20 million.

Joe Grabowski -- Robert W. Baird & Co. -- Analyst

Got it. OK. Thanks for taking my questions.


[Operator instructions] Our next question is coming from Larry De Maria from William Blair. Your line is now live.

Larry De Maria -- William Blair -- Analyst

Thanks. Good morning. You guys obviously know as you discussed this replacement of demand. Maybe can you put some numbers around it -- David around maybe the average hours that farmers or your customers are going to put on equipment? And where they are now? To give us a sense of the level of replacement that's going on and the need?

David Meyer -- Chairman and Chief Executive Officer

Well, historically, if I look at this, break this segment, there's probably that 20% of that, farmers out there that are buying 80% of that new equipment. For a combine for example, once those combines get to say be two to three years old, hours and hours on, they like to have those replaced. That seems to be historically, and I talked to a grower the other day that there has been a financially very solid, been a long time new buyer, he had -- he had combines that were seven years old and approaching 3,000 hours on them. So to put it in context and you see a lot of those similar situations out there where the lights to these combines and the hours on them were way further than where they feel comfortable from a reliability standpoint.

Then couple that with some of the newer technology out there, some of the precision, some of the -- some of that's in the newer equipment, so that coupled on the higher age and hours is really driving some of these new equipment purchases.

Larry De Maria -- William Blair -- Analyst

And it's the same for tractors? Or the combine is more egregious?

David Meyer -- Chairman and Chief Executive Officer

Yes. I think the combines is definitely something they want fairly updated, sell propellers is greater, it's a little bit the same way, but then tractors as they start approaching that 5,000 hour, 4,500 hours, five years old, runs into that same, we need to upgrade that. And there again a tremendous amount of technology, fuel efficiency, higher horsepowers, some of the track technology and some of the newer four-wheel drive. So again, driving those purchases.

Larry De Maria -- William Blair -- Analyst

Now you mentioned technology, can you give maybe some further examples of where customers are upgrading around technology? I mean, maybe [Inaudible] some of it, but are you getting the same level that some of the other companies are talking about? Is that leading to a better mix and better revenue opportunities for you?

David Meyer -- Chairman and Chief Executive Officer

Well, we've had the auto guidance systems for a while. So we're seeing pretty -- it has pretty become mainstream in the tractors and combines where they steer themselves. So on the combine front, you've got the harvest command, the combine automation, on the planner side, high-speed precision planners. You've got the variable seed prescription capabilities, something that's industry-leading up from the Case IH as this AFS Soil Command with the centers to provide even the seedbed for the tillage equipment.

On the self-propelled sprayers, the AIMs Command and that the Raven Hawkeye technology to provide precision sprays application. If you look at that -- the whole AFS connectivity providing that telematic to be able to access that machine's connectivity with the whole AFS platform. And I think you're aware that we recently announced a digital agreement with Farmers Edge, that's really exciting, Larry, that's offering their Case IH New Holland customers, it's an integrated digital platform for both, not only their current machine but their legacy equipment. The Farmers Edge has that CAN bus functionality which is not only for the new equipment, but they can put it all into that commonly that mix fleet.

Another thing that does too, is that with open architecture is that you can have a mix fleet, you can have the older equipment and you get all that on that whole software platform with that CAN bus technology. So those are a few things I think are really exciting and that's -- and definitely the growers have seen the return on investment on all that technology out there. Higher yields, more efficiency, more prevalent productivity, and some times more fuel savings and all of those things are really driving that. Then better agronomic decisions in season from what they see from all that data collection and that data software.

Larry De Maria -- William Blair -- Analyst

Sure, that's pretty helpful. That's really helpful. Thank you. So in other words, that some of the stuff that your green competitor talks about with their social platforms.

You're able to mitigate that with the Farmers Edge it sounds like, if you can kind of confirm that, it would be helpful. And then just from a top line and then I'll leave it here, high level perspective, sounds like replacement and technology are obviously driving things. We know this. But does that imply that despite the low commodity prices and some of the trade concerns that all off being equal, we can consider that the replacement cycle and technology lead to further let's say moderate growth in ag over the next couple of years unless something bad happens with trade? Is that fair or no? How do you think about it?

David Meyer -- Chairman and Chief Executive Officer

Well, I think that we're working off awful load numbers, right? If you look where these industry numbers are right now, we're working off some really low numbers, so to be able to sustain that, it's not going to take a lot of units in order to stay at the same numbers. So we've experienced these low commodity prices and at this level right now, and we feel that these levels of unit sales are fairly sustainable and that's really what's driving that business is the replacement demand. And we saw some uptick in commodity prices than we could probably see some improvement. So getting back to the precision, Titan Machinery has always been a -- the leading edge in the technology, I don't know if the early days are built to our network.

And what we have right now from Case IH and definitely leading edge technology and the other thing is that it is open architecture. It accommodates mix fleets, leading edge stocks and if you take some of the partnerships, they have with Tremble, the partnership with Raven, the partnerships with Farmers Edge, I definitely think we've got a very formal precision platform to go to the marketplace with. Definitely at/or as good as anything that Deere has out there.

Larry De Maria -- William Blair -- Analyst

That's very good, and thanks for the color. Good luck, David.


Thank you. We reach the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Meyer for any further or closing comments.

David Meyer -- Chairman and Chief Executive Officer

Well, I want to thank everybody for participation on the call and looking forward to a good fourth quarter. So thank you.


[Operator signoff]

Duration: 44 minutes

Call Participants:

John Mills -- Investor Relations

David Meyer -- Chairman and Chief Executive Officer

Mark Kalvoda -- Chief Financial Officer

Ryan Sigdahl -- Craig-Hallum Capital Group -- Analyst

Joe Grabowski -- Robert W. Baird & Co. -- Analyst

Larry De Maria -- William Blair -- Analyst

More TITN analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

10 stocks we like better than Titan Machinery
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Titan Machinery wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 14, 2018

Motley Fool Transcribing has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Titan Machinery Inc. Stock Quote
Titan Machinery Inc.
$27.63 (4.22%) $1.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.