Today, Titan Machinery is North America’s largest farm equipment dealership group. In 2006, the group was selected as Farm Equipment’s Dealership of the Year. At that point, Titan owned and operated 29 dealer locations.
During the time of its rapid expansion, starting on Jan. 1, 2003, Titan completed 52 acquisitions that included 110 stores operating in 11 states and 3 in European countries. Since becoming a publicly held company on Dec. 11, 2007, Titan Machinery has made 37 acquisitions consisting of 79 stores.
On Dec. 12, 2017, Titan Machinery marked the 10th anniversary of becoming a public company by hosting an Investors Day meeting at the NASDAQ headquarters in New York, N.Y. Following the meeting Farm Equipment Executive Editor Dave Kanicki had the opportunity to interview Titan’s Chairman & CEO David Meyer.
Farm Equipment: What are the big changes that have taken place first in the industry and then with your business in the last 10 years?
David Meyer: Well, we can start with the industry. First of all, we had unprecedented growth in the business, a lot of it due to $7 corn and $15 soybeans. We saw our customers bring in great net farm income. That combined with Sec. 179 and the bonus depreciation added some tax incentives at the same time they were making a lot of money. Then we also had the ethanol impact. It was the perfect storm. Then some of the new products — precision, GPS — and all of these combined drove the business. As I look back over the last 10 years, we had that, and then all of a sudden the cycle started to go downward with commodity prices dropping off.
Additional, in-depth coverage, including video interviews, of Titan Machinery’s Investor Day on Wall Street can be found at www.Farm-Equipment.com/0218.
Now, at the elevator we’re seeing $2.50-$2.75 corn in a lot of our markets, compared to $7. With a decreased farm income, we’re seeing industry numbers down over 60% in the last 4 years for some of the high horsepower equipment, 4WDs, combines. It’s been a huge change for the industry. We’ve had to not only look at how to accelerate and grow the business during the upswing, but during the downswing how do we take some structural costs out of the business? How do we right-size our expenses in line with revenue. It was interesting dynamics in both of those cycles in the last 10 years.
As far as our businesses, we went public 10 years ago. At that time we had 34 stores. Our revenue was around $300 million. Now, we have 95 stores and we’re in Europe. We have 20 stores internationally. We’ve got a huge construction company footprint, all the way from the Canadian border down to the Mexican border in the west central U.S., a commodity rich area. Not only oil and natural gas and coal, but also ag commodities in some of our construction markets. We definitely have a much bigger footprint.
As a public company, what does that mean? All of a sudden there’s a lot of pressure. Every quarter we release our numbers and everybody sees those. Our customers see them. Our employees see them. Our shareholders and our stakeholders see them. There’s some pressure to do that quarter after quarter. At the same time, I’ve always had a long-term view of the business. I want to do things that are going to benefit us not only today but 5 years from now and 10 years from now.
On Dec. 12, 2017, Titan Machinery marked the 10th anniversary of becoming a public company by hosting an Investors Day meeting at the NASDAQ headquarters in New York, N.Y., and rang the closing bell.
At the same time we’re trying to get quarter after quarter improvement. We want to continue to invest and look at strategic markets and markets important to us, but how do we invest in those and really ensure for long term growth? Fortunately, I think we have some long term shareholders that really see the benefits of some of that long term thinking, but there is that continued pressure for quarter after quarter improved EPS. Trying to balance those though is the big difference. I think there’s a real seriousness when you’re a public company. First of all, what’s your guidance in reporting what you’re going to do? Then the fact, can you do it? People take money seriously. They want to be able to trust management. They want to be able to trust our numbers.
I feel good about that and Mark Kalvoda, our CFO, B.J. Knutson, our chief operating office and Jeff Bowman our chief experience officer, provide that leadership and that credibility we have with the numbers. A lot of that comes from Mark and his accounting team. They give me the confidence as CEO that we are telling the markets what’s happening. We have that credibility so they have that confidence when they invest in Titan Machinery.
FE: It’s really good to see your young management team coming into place, because you and Peter Christianson have been the heart and soul of Titan for so long.
Meyer: I think as we look at leadership and strengthening the leadership in our organization, we need to have these type of leaders that really can take our company into the next generation. That’s important. It takes a lot of time, and it’s good to see that we can build our company internally and bring in this type of talent. In addition to this is teamwork and that people get along. They’re trying to help each other out. I think it’s not only from the top that we have that teamwork, we also look at how our ag and construction stores work together. How we support international. How the parts and service departments work with our sales departments and all the way through our organization. We think that teamwork is so important.
FE: Now during this whole restructuring period you’ve had to also change your operating model, where you went from the strong store manager model to the expert team specialist type of approach. How has that worked so far?
Titan Machinery’s executive team (l-r) David Meyer, CEO., B.J. Knutson, chief operating officer, Jeff Bowman, chief experience officer, and Mark Kalvoda, CFO, speak with investors during Titan’s Investor Day at NASDAQ.
Meyer: I think it works really well. If I look back, when I started this business back in the 1970s and then as we were early pioneers in consolidation when I put together a 3-store group, 4-store group, we really ran that as a complex. I was really interested in sales, so I had all the salespeople report to me even when we had 6 locations.
We were working in a fairly significant organization. Danny Carter, my parts manager at our core store, really helped all the other stores in the parts department. We combined orders together to maximize our discounts. We did a lot of things, and we were actually running out of that complex at that point in time.
I think the strong store model really served us well. When we had some of that rapid growth we went into these markets and turned some of these markets around and gave autonomy to the store managers and they really did a good job. But to leverage our best people across two or three-store complexes makes a lot of sense. We’re putting our best people to head up the sales. A lot of our customers, they’re doing business in two or three of our markets right now. They’re getting large. In the construction equipment industry they really operated out of the complexes or regional trade centers for a long time now.
The most important thing is the parts and service business, which is so important to our customers. Historically, if you’re going to move up in the organization, you did it through sales, store manager, but there really wasn’t a career path for the product support type of business. You have to be maybe a parts manager or a service manager, but how did you really move up through the organization?
When you look at the product support business — and this is what our customers appreciate the most — it gives us the repeat business, the loyalty, right? And to actually have a career path where you could be a parts manager or service manager and move up to product support manager or a regional product support manager, or up to some of the highest levels in our company with that product support background, that reinforces not only how important it is to our customers, but the importance of parts and service business, what it is to our bottom line. It’s important to really get that group of people as intimately involved all the way up to the senior levels of our company. I think that’s a real plus.
FE: Let’s talk about how your customer base has changed. What are their characteristics today vs. 10 years ago?
Meyer: Well, some things haven’t changed. They want to get their crop in fast and on time, and then they want to get it off on time. And they want the up-time with the machinery.
What has changed is they’re looking at their businesses as a business. They’re looking at all of their investments, they’re looking at what they’re going to do with their capital, what they do with return on their assets and their investments, and what kind of return they’re getting.
They’re saying there are only so many dollars to go around, so how are we going to allocate that in our organization? They’re more efficient with the money they’re spending. And I know they’re pretty smart. I think we’re seeing this next group of farmers coming up, many of them are college graduates. Some of them majored in accounting, a lot of agronomy background, but they’re coming with a very sophisticated background. In fact, I think they’re even diversifying their portfolios. They’re investing in stocks or investing in other businesses, real estate, things like that.
So, it’s a much more sophisticated business-like approach than maybe they did two generations or a generation ago.
FE: You’ve been one of the biggest consolidators in the industry when it comes to dealerships. How far would you go away from your base now, the regions you cover now? Previously, you used to tell me they have to be contiguous. Is that still the case today?
Meyer: As we grow, and obviously we’re growing Case IH and New Holland and Case Construction dealerships, that’s our main supplier. We need to do this hand-in-hand with them. We like the footprint we’re in right now, we like the upper Midwest. I think we’ve got really good growers, we’ve got good ground, we’ve got good yields, we’ve got smart farmers. A lot of them have good equity in their land ownership and also strong balance sheets.
We’re in a good spot and so as we look on the current market to expand contiguously it makes a lot of sense to say at some point in time, are there other strong ag pockets on both sides of the Mississippi River, other good ag producing areas, not only in the U.S. but also internationally? Will we look at those? I’d say, sure. I think it makes a lot of sense from an efficiency standpoint and for our people.
Everything’s out there, but I think we’ve got to be very smart about it, really analyze acquisitions, but also see what else makes a lot of sense. I think we’re going to find, contiguous acquisitions in our current 5 state footprint or tuck-ins probably makes the most sense.
FE: Do you believe consolidation within the dealership networks is going to continue?
Meyer: Yeah. I think that’s going to continue. The pressures on capital are going to drive a lot of this. Not every family is going to have the next generation that’s going to want to be in the farm equipment or construction equipment business, or take phone calls on a Sunday afternoon. “Hey, my combine’s broken down. What are you going to do about it?” And so I think succession is going to drive some of this. I think an aging dealer-principal and capital, as well as the complexity of the equipment is also going to drive it. There are a lot of the 65-year-old, 70-year-old dealer-principals who can replace a water pump, or understand if the engine was knocking, or you had a bad injector, or some things like that.
Today, you’ve got this equipment stuck at the end of the field because of an electronic or sophisticated hydraulic problem having to do with GPS or something like that. All this complexity is really challenging some of the older dealer-principals. To be able to provide that kind of support to your customers like we used to in this highly technological age, this is going to drive some more people interested in succession solutions, and potentially selling their business. And there are already barriers to entry both from a capital side, but also expertise in buying and selling off-road equipment. It’s a pretty unique business-to-business out there, and there is a level of expertise that it takes to operate one of these dealerships.