January 15, 2008 Vol. 14, Issue 9 • Low-Cost Thai Tractors • Brazil Ag Sales Rising • Titan Adds 6 More Anticipating a ‘Wave of Consolidation,’ Titan Machinery Goes Public Titan Machinery, a Fargo, N.D.-based feasible to do this now. We were sit- “We are witnessing a major farm equipment dealer, took the ting in great financial shape, but want- demand shift in agricultural commod- plunge into the world of becoming a ed to position the company for long- ity pricing.At the same time, we’re on publicly traded company on term growth. the front end of major wave of dealer- December 6 when it made about 6 Continued on page 2 million of its shares available for sale. Though not entirely unheard of, it’s Titan Machinery Revenues — 2005 - 2007 rare that a retailer of farm equipment (000s dollars) has gone public. The firm, which will trade under $350,000 the NASDAQ Global Market symbol of $300,000 TITN, says it plans to use the nearly $292,598 $40 million from the IPO to fund $250,000 potential acquisitions of Case IH, Case $228,470 and New Holland farm and construc- $200,000 tion machinery dealerships, for general $150,000 $162,183 corporate purposes and to repay debt. In an interview with AEI, David $100,000 Meyer,Titan’s chairman and CEO, said, “This is something we’ve contemplat- $50,000 ed for quite a few years and our com- $0 pany is now of the size where it was 2005 2006 2007 Case’s Largest Canadian Dealer Goes ‘Public,’ Too Two weeks after Titan Machinery,the equipment dealer network, and Hi-Way ice equipment dealers.As the dealer’s largest worldwide dealer of Case IH Service Inc., the largest retailer of Case flagship brand, Case generates 65% of ag equipment, launched its initial pub- IH ag equipment. Rocky Mountain’s new equipment lic offering, Case’s largest equipment Through the combination of the sales. retailer in Canada went public on the two businesses, Rocky Mountain rep- Hammer Equipment was formed Toronto Stock Exchange as well. resents one of Alberta’s largest agricul- in 1993 in Calgary and, through con- Based in Calgary, Rocky Mountain ture and construction equipment deal- tinued expansion of its business, has Dealerships began trading on erships with 13 locations, revenues of grown to become the largest dealer December 20 under the symbol $290 million, and 400 employees in Canada of Case construction equip- “RME.TO” located throughout Alberta. ment and the largest dealer in North The company went on the mar- America of Terex and Dynapac con- ket with an offering of 6.5 million Diversified Markets struction equipment. shares at $10 (Canadian) per share. According to Rocky Mountain, While Hammer Equipment main- According to Canada NewsWire the acquisition of Hammer Equipment ly retails construction equipment, the reports,the net proceeds of the offering makes the company the largest inde- Hi-Way Service business (established were used by the Rocky Mountain, in pendent dealer of Case construction in 1949) is among the longest stand- part,to acquire all of the issued and out- equipment and Case IH agriculture ing agricultural dealers in Alberta. It standing shares of Hammer Equipment equipment in Canada and one of is also the largest ag machinery dealer Sales Ltd.,the largest Case construction Alberta’s largest multi-branch, full-serv- in Canada and is one of the three Continued on page 3 The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. Continued from page 1 ship consolidation that’s going to take Continuing Consolidation “A company needs a certain level place. of revenue to make it worthwhile. “As you look at the industry, it’s “Right now, the fundamentals of There aren’t too many dealerships obvious that it’s a fragmented industry the industry are really good, but we’re that have revenues over $200 million. and ready for consolidation,” says getting to the point where the aver- We’re probably considered a small- or Meyer.“Deere has also been very visi- age age of the dealer-principal is get- micro-cap stock. But when you look at ting up there.Take a look at the aver- ble with its consolidation efforts.The it closely,we’re really a growth stock. age age of a lot of dealer-principals major equipment manufacturers are There aren’t too many [farm equip- today.” driving consolidation and at the same ment retailers] of our size that are The lack of succession planning time we, as a company, want to be a capable of making this kind of move.” with many dealership owners presents consolidator, so we’ve got some But he points to other industries an opportunity for Titan. Meyer adds aligned interests here.” where consolidation is taking place that dealers ready to retire have initi- According to CNH, Titan is the and bigger retailers have gone pub- ated many of the firm’s acquisitions. world’s largest retail dealer of Case IH lic. “There are some public compa- Agriculture equipment. nies on the construction equipment As an early adopter of the large- side and there have been successful Titan’s Revenues Rise multiple store model in the ag equip- consolidators in the auto and truck 67% in Third Quarter ment industry, Meyer says that Titan industry.We’ve also seen both bank- was in a better position to become a ing and salvage industries successful- In its third quarter conference call on publicly traded company. ly consolidate.” January 11, Titan Machinery Continued on page 4 announced that its revenue for the period ending October 31, increased Titan Not the First Publicly Held Dealership 67% to $132 million from revenue of $79 million. All three of the compa- While Titan’s move to become a publicly held entity is rare, it’s not the first dealer- ny’s main revenue sources — equip- ship group to offer its stock for public ownership. ment, parts and services — con- RDO, another Fargo, N.D.-based dealership network and John Deere’s largest tributed to this period-over-period rev- equipment retailer of ag and CE equipment made the move in 1997. In an interview enue growth. in Farm Equipment (April/May 2007), Ron Offutt, RDO’s CEO, called the time Equipment sales were $103 mil- between 1997 and 2003 the “most difficult” of his career. lion, up 78% from $58 million in the Despite having Deere’s initial blessing to become a publicly held corporation, same period last year. Parts sales RDO found that it remained at the whim of its principal equipment supplier. “John increased 42% to $18 million for third Deere corporate became fearful thinking they had created a monster,” said Offutt. quarter, from $13 million in the prior- “So, they shut the gate and wouldn’t let us buy anything.” year period. Revenue generated from With its growth model heavily dependent on acquisitions and unable to make services was $8 million in the quarter any, RDO’s stock fell from a high of $29.50 per share to between $2-3 before compared to $6 million in the third Offutt took the company back into the private sector. quarter of last year. David Meyer, Titan’s chairman and CEO, says that the company worked closely Gross profit for the fiscal third quar- with its supplier, CNH, prior to making the decision to go public and intends to work ter increased 54% to $20 million, com- openly with the them to assure future expansion opportunities. “This is a mutually pared to $13 million in the third quarter beneficial relationship for both,” says Meyer. of the prior year. The company’s gross profit margin was 15.4% in the fiscal third quarter vs. 16.7% in the third quarter of the prior year. This expected decrease in gross margin was the Titan Machinery’s Growing Revenues result of a higher percentage of rev- Year ended January 31 enue being generated from equipment sales compared to the higher margin 2005 2006 2007 parts and service business. (As Restated) (As Restated) (As Restated) Nine Month Results. For the 9 (in 000s dollars) months ended October 31, 2007, rev- Statement of Operations Data: enue increased $89.2 million, or Revenue 42.8%, to $297.8 million from revenue Equipment $ 119,850 $ 175,549 $ 220,958 of $208.6 million in the same period Parts 25,058 31,099 42,619 last year. Net income was $4.9 mil- Service 13,141 16,572 21,965 lion compared to net income of $2.3 Other 4,134 5,250 7,056 million in the same period last year. 162,183 228,470 292,598 AG EQUIPMENT INTELLIGENCE (ISSN: 1934-3272) is published U.S., Canada and Mexico print subscriptions are $349 per year. monthly for the farm equipment industry by Lessiter Publications Save $50 by receiving Ag Equipment Intelligence each month via Inc., P.O. Box 624, Brookfield, WI 53008-0624. © 2008 by Lessiter E-mail Internet access at only $299 per year. International print Publications Inc. All rights reserved.