Heartland AG Systems, Inc. (TITN) Earnings Call Transcript & Summary

Greetings. Welcome to the conference call to discuss Titan Machinery's acquisition of Heartland AG Systems. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeff Sonnek of ICR. Thank you. You may now begin.

Thank you. Good morning, and welcome to Titan Machinery special conference call announcing the acquisition of Heartland AG Systems. On the call today from the company are David Meyer, Chairman and Chief Executive Officer; Bryan Knutson, Chief Operating Officer; and Mark Kalvoda, Chief Financial Officer. We've issued a press release this morning at approximately 7:30 a.m. Eastern Time. If you have not received the release, it's available on the IR page of Titan's website, ir.titanmachinery.com. This call is being webcast, and a replay will be available on the company's website as well. In addition, we've provided a supplemental presentation to accompany today's prepared remarks. You may access the presentation by going to Titan's website, again at ir.titanmachinery.com. The presentation is available directly below the webcast information in the middle of the page. You'll see on Slide 2 of the presentation our safe harbor. We'd 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 as updated and subsequently filed quarterly reports on Form 10-Q. 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 provide greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measure in today's release. Now with that, I'd like to introduce the company's Chairman and CEO, Mr. David Meyer. Go ahead, David.

Thank you, Jeff, and good morning to everyone on the call with us today. I'll start by sharing some summary remarks about this transaction, and Bryan Knutson will share some insights around the strategic rationale. Then we'll wrap up with Mark Kalvoda, providing his financial commentary, including forecasted synergies and how this impacts our modeling assumptions for fiscal 2023. Following our prepared remarks, we will open up the call for Q&A. We are very excited to announce our definitive agreement to acquire Heartland AG Systems today. Heartland is the largest Case IH application equipment distributorship in North America, providing application-focused solutions for commercial applicators, such as co-ops, elevators, crop input retailers and other specialized commercial applicators. This transaction is significant both in size and strategic fit. For the full year ended December 2021, Heartland generated revenues of $214 million and EBITDA of $15.3 million. Strategically, Heartland provides us access to the commercial application segment of the market, which we previously weren't able to participate in due to OEM distribution agreements. The commercial application customer accounts for approximately 40% of the self-propelled sprayer industry today. For added perspective, note that the North America self-propelled sprayer industry is slightly larger than the 4-wheel drive tractor industry on a unit basis. And due to the capital investment of self-propelled sprayers and floaters, regulations and licensing around crop protection products and fertilizer application and labor expertise, demand for custom, commercial, chemical and fertile application continues to grow. Simply put, this transaction creates full alignment across all sales channels and end markets for Titan Machinery to participate within our current ag footprint and allows us to leverage our expansive store network. With this acquisition, Titan Machinery now has the distribution rights for the entire North American Case IH, New Holland and Case Construction product portfolio, which Bryan will discuss in further detail in his commentary. Additionally, Heartland brings shortline manufacturing expertise through its vertical integration of proprietary specialized equipment for the commercial customer. This covers equipment such as fertilizer toolbars, spreaders, tenders, tanks and various application-specific trailers. Currently, this portfolio represents about 11% of their total equipment sales and has a margin profile similar to our existing business. While we don't intend to stray from our core competencies, the manufacturing business reflects the unique needs of the commercial applicator, and we look forward to supporting its growth as this product is well accepted by the commercial application customer and increasingly utilized by our farmer/rancher customer. In terms of consideration, we are paying approximately $110 million for the Heartland business, which we intend to fund predominantly from our balance sheet cash. We expect the transaction to close in August of 2022. We're excited to add Heartland's experienced leadership team and look forward to a bright future together as we welcome the entire Heartland organization to the Titan Machinery family. With that, I'll turn the call over to Bryan Knutson.

Thank you, David. Heartland AG Systems is a great business, is one that we are very familiar with and is an ideal fit for Titan Machinery. Additionally, we believe we are the only Case IH dealership network in the country capable of integrating this business and customer base. Heartland has been focused on the commercial application business since 1966. And through their own growth and consolidation, they expanded to 12 store locations with distribution covering 17 Midwestern and Northwestern states from the Pacific Northwest to the Great Lakes. Most importantly, Heartland's core Upper Midwest markets overlap very nicely with our existing Titan footprint. Beyond the footprint, we also have similarly strong parts and service businesses with comparable margin profiles. Heartland's gross margins were 23.5% and pretax margins were 4.2% for the 12-month period ended December 2021. The parts and service business has long been a key element of our strategy as it is theirs, comprising approximately 30% of Heartland sales mix and is anchored by the quite consistent application cycle, largely independent of commodity prices, which minimizes the cyclicality that lies within the broader farm economy. We expect this will be an area we can further leverage in the future as we bring our larger service network to their commercial application customer base, especially within our core ag footprint in the Upper Midwest. This transaction creates several opportunities for us. David mentioned the channel alignment in his remarks, and I'll emphasize that again here. The ability for us to package a full line of equipment within our current footprint, both agriculture and construction across all facets of the commercial customers' enterprise is a step change in our ability to compete with other OEMs and their respective dealership networks, and this cannot be stressed enough. The application market has evolved over the last several decades as farmers have consolidated and grown more sophisticated. Yet the commercial application business continues to grow as we see continued environmental regulations, an increasing amount of environmentally conscientious minimum till and no-till planting practices, hybrid seed technology and increased farmer demand for custom tillage services as well as custom crop protection and crop nutrient applications. There is a significant amount of product and service expertise within the traditional dealer channels such as ours, making now the time to integrate these 2 channels. The outcome of this integration is the creation of a distribution model for Titan Machinery that is more competitive with other industry players within our Upper Midwest footprint who currently have the distribution rights to sell to both customer segments. We believe customer service and distribution are maximized at the local level via leveraging existing relationships within our communities while also allowing us to build new relationships through this expanded set of capabilities. It is estimated that there are currently more than 400 commercial application customers within our legacy Titan footprint, which represents an attractive opportunity for us to aggressively target. Additionally, this acquisition now allows us access to the full product portfolio of Case IH application equipment to sell to our current farmer and rancher customers through our existing network of dealership locations. Furthermore, our existing Titan locations are also a natural outlet for the commercial customers used application and equipment trade-ins to market to our current farmer and rancher customers. We already have the farmer and rancher customer base as well as the demand for these late-model used application equipment trade-ins, which creates an efficient channel where our collective interests are now aligned. Beyond the operational synergy opportunities and the immediate positive impact that we see for parts and service within our existing footprint, we believe this transaction can also expand our M&A strategy. With this new channel alignment, our competitive position is further enhanced, which we believe may result in additional full-line dealership acquisition opportunities for us in newly acquired Heartland markets. While this transaction expands our footprint beyond our current Upper Midwest operations, we will be working collaboratively with Case IH and select Case IH dealership groups outside of Titan's core footprint on joint retail transactions for these multiunit sales opportunities along with ongoing distribution optimization to drive growth and maintain the pretax momentum we produced as our operations have become more efficient while we comply with the terms of our forthcoming agreements with Case IH regarding the commercial application business. With that, I will turn the call over to Mark to review the synergies we see from this transaction and how this impacts our modeling assumptions for fiscal 2023. Mark?

Thanks, Bryan. Beyond the strategic merits of the transaction, there's a lot to like here from a financial perspective. As David and Bryan discussed, the channel alignment creates a very clear revenue synergy for us to capitalize on as we will now be able to package other products such as tractors, skid steers, forklift, telehandlers and wheel loaders with sprayers and fertilizer applicators to these commercial customers within our existing footprint. We believe there's approximately $60 million of incremental annual run rate revenue synergies in our first full fiscal year of ownership that we will realize through our new access to this commercial application customer, along with our new access to the complete line of application equipment to sell to our existing farmer and rancher customers. This incremental equipment revenue has a similar gross margin profile to what we experienced in our ag segment today. But given our ability to leverage this revenue over our existing cost structure that's already in place, the contribution to pretax earnings is rather significant. The $60 million in incremental revenue translates to approximately $0.13 per diluted share or about $4.2 million in EBITDA. Building this on to Heartland's base business, which in 2021, had a solid pretax margin of 4.2%, equates to approximately $274 million of revenue, $0.43 of diluted earnings per share and approximately $19.5 million of EBITDA. Using this as the basis for valuation and estimating a purchase price of $110 million, we will pay a multiple of approximately 5.6x synergized EBITDA, which we believe is attractive for a highly accretive and strategically important business such as Heartland. Additionally, we believe that there are other synergies to be realized with this transaction that have not been quantified here. Some will be in the near term, such as an increase in parts and service revenue due to the added convenience of our existing Titan stores' proximity to many of these commercial customers. Longer term, we expect to see some expense opportunities and asset consolidation and organizational structure. These expense opportunities, combined with growing market share in equipment sales and additional focus on parts and service, provide us a pathway to achieve 5% pretax margin for Heartland before considering synergies and approach 6% margin with synergies. In terms of its impact on fiscal 2023 and our existing modeling assumptions, I would note a couple of important considerations. First, seasonality is different than what you would traditionally expect from us. And this comes back to the types of customers that exist on the commercial side. These are larger organizations who tend to operate on a more formal budget planning process to deploy capital on an annual basis before the growing season and have less late-season tax buying than what we see in the individual farmer and rancher level. Second is the seasonal nature of the application season, which is primarily spring and summer focused. Thus, commercial application customers want equipment such as sprayers early in the year prior to the spring and summer application seasons. The parts and service business for Heartland also corresponds with the spring and summer high usage periods and complements Titan's seasonally high [ fall ] parts and service business, which is driven by harvesting activities. Due to the seasonality, however, the accretion to our fiscal 2023 results is correspondingly lower, which at this stage really reflects the second half of the fiscal year, given our estimated closing in August. We also do not expect to capitalize on the synergies I just mentioned until fiscal 2024 as we do not have the inventory to supply this opportunity in the current year. Therefore, we expect that we will only capture approximately $0.05 of earnings per share in the balance of fiscal 2023. As a result of this acquisition, we are raising our fiscal '23 agriculture segment revenue assumption by 10 percentage points to a new range of up 37% to 42% and raising our diluted EPS to a new range of $2.90 to $3.20. Beyond these explicit updates associated with the transaction, our underlying assumptions for the agriculture segment remain intact, and we are not updating any of our other modeling assumptions at this time. As we always do, we will provide a fresh update on the complete business and our outlook when we provide our first -- our fiscal second quarter earnings results in August. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session of our call.

[Operator Instructions] And our first question will be coming from the line of Larry De Maria with William Blair.

A couple of questions. First of all, can you talk about, obviously, this -- like you noted the seasonality of the business. But probably, presumably, early order programs are open for this kind of equipment for next year. Can you talk about or let us know what the early indications are for this kind of equipment into next year?

Okay. I can start with the -- this is Dave. I'll start with the allocation of the equipment and then I'll probably let -- pass on to Mark here for some modeling. So right now, as we look into the equipment availability, Heartland AG Systems, similar to how Titan was with our order bank and having the orders in place to meet the customer demand, I think we've been doing a really good job at that. They are the largest retailer of the Case IH self-propelled sprayers in the fertilizer equipment, some applicators, which some people call floaters. So they've got orders in place. And also, as we're looking at the allocation into calendar year 2023, have a good number of orders coming at them. So that's going to be a real positive. And Mark, you can maybe talk about how you're modeling this.

Yes. Again, I think just on the seasonality, it's very much different than our existing business very much more. So first half focused both on the equipment side and on the parts and service side and even heavier kind of in -- what falls into our first quarter as opposed to the second quarter even. But just with the nature of that business, where the usage of the equipment is, the type of customers with wanting that equipment prior to the annual usage of that equipment lends itself and actually complements the rest of our business well for that first half and particularly, first quarter.

Okay. And then 2 other quick things. You talked about the reduced cyclicality. Can you guys maybe talk through cycle? Or how has the equipment played out? We feel obviously attractive volumes, but this is presumably less cyclical. So can you talk about that? And secondly, does this get you more into the contractor market? And are there any implications for that?

So you're talking about the cyclicality. Okay, if you look at our normal business, a lot of that's dependent on the farmer work cycle. You're looking at yields, you're looking at commodity prices, and some things like that really impacts the cyclicality of our business. If you have a late spring or early spring or early fall, late fall with tough harvesting conditions or even the timing of harvest, right? Well, if you look at this, we're doing business with some really large commercial application companies, multi-state, very mature, sophisticated companies who work with a CapEx budgets. They're going to lay out their sprayer needs for a long period of time. And whether you've got $2 corn or $8 corn, all the corn still gets sprayed. All the fertilizer still gets applied. So that takes out that cyclical piece of that, Larry? The second part of your question...

Well, just on the contractor, is this moving more into the contractor business? Do you underperform there...

Okay. So when you talk about contractors, so these are commercial applicators, right? So they do -- they go across custom tillage. A lot of them are crop inputs companies or chemical and the fertilizer, some of this in bulk. So from a contractor standpoint, I think we mentioned we are going to have some synergies with adding construction equipment to them. So they're looking at having wheel loaders, forklifts, skid steer loaders, so we think that's going to be an opportunity. But they are actually -- our contractors for the fact that they're doing custom work, commercial work for the farmers and the farmer is going to pay them so much an acre or they're going to pay them to apply that fertilizer chemical and stuff on their field. So in a sense, they are contractors that way, and they need material handling, construction equipment to handle that. So hopefully, that answers your question there.

Yes, I talk about the contracts is on the ag side yes, that's helpful.

Our next question is from the line of Mig Dobre with Baird.

Congrats on this deal. I actually have quite a few questions here, if you'll humor me. And I want to start where kind of Larry left off with the cyclicality of this business. It's not entirely obvious to me as to why this business would be less cyclical than your base business. And I understand that you spray, whether corn is at $2 or $8, but you also plant and harvest, whether it's $2 or $8. So why is it that sprays are different than tractors or combines or any other piece of ag equipment in that regard?

Well, I think some of your farmer purchases are probably a little bit more shorter term, depending maybe what's our tax -- they may make a purchase decision, say, in August for a December purchase depending on their tax situation, right, depending on their yield, depending what the commodity prices are. And then you're probably looking at, what, 3, 4, 5 months windows a lot of times when farmers are making that purchase decision sometimes a little more spontaneous where you're looking at these really large commercial crop input companies, companies like [ Sentex Harbor State ], some of these things, they're working on 5-year plans, they're working on their CapEx budgets, they're looking at -- they're taking these sprayers, they go out and service for their customers. So the uptime is so important. So they're going to do more, we don't want one of these self-propelled sprayers to get over 1,000 hours or $1,500 or they need to be less than 5 years old and things like that. So they're planning these purchases over a period of time. They're doing their budgets and their -- and they pretty much know what their capital needs are for these -- for this equipment to really help them in their operations, right? So that's why if we look at these shorter windows, it becomes a little more cyclical, we're at these longer terms. Now from a macro environment yes, granted we go into a 5-year down cycle in ag, probably all the crop -- all the ag-related businesses might pull back a little bit, but probably not near as much as what you're going to see the farmer -- the grower pull back.

Okay. That makes sense. Then maybe sort of clarification for me here since this is kind of new territory for me. The harvest folks are entirely exposed to commercial applications. Is that how am I supposed to understand this? Or do they also sell product to farmer, ranchers and the like?

Probably need to do a little bit of education here. So what happened -- so this is all -- if you take the self-propelled sprayers, you take the application equipment, as you look at your farm equipment OEMs, right, you're looking at tractors, combines. So this is a fairly new -- this is probably a fairly new product line that you're seeing, all of a sudden, the OEMs start adapting. So I'll give you an example. Case IH they acquired Tyler back in 1996. Ag-Chem, they acquired -- AGCO acquired Ag-Chem. I'd say that probably happened right around that 2001. Deere introduced their 4,700 self-propelled sprayer '96. So it's all relative time fairly new. New Holland acquired Miller in 2014. And again, Deere acquired Hagie again in 2016. So fairly new product line. So as you look at the dealer agreements, I know back when the Ag-Chem days when AGCO acquired Ag-Chem, everything was being sold direct right from the manufacturer. There were no dealer groups. When Case IH acquired Tyler, what they did is they set up -- the time that Case IH acquired Tyler, very few farmers out of self-propelled sprayer. Very few farmers had a fertilizer applicator or floater. So basically 100% of that business was done through your commercial applicators. So Case IH set up basically parallel distribution channels or contracts. So you had your regular full-line dealers that had tractors, combines, tillage equipment and so on, planners, cedars, air cedars and all that. And then your commercial application equipment contracts were really just limited to self-propelled sprayers and fertilizer applicators, right? So as the industry stood out, like Titan Machinery, for example, we can sell self-propelled sprayers to farmers but we don't have the fertilizer applicator or the floaters in our product lines. So we're pretty much limited to selling self-propelled sprayers for farmers. And we've done a really good job with that, but that's to the extent of the business. So if you -- that then now the commercial application contract, that's pretty much exclusive to be sold to the commercial application customers. So as the industry has evolved a little bit, what's happened, if you look over the last 20 years is that with the farming practices, you look at a minimum till/no till, you're looking at the seed hybrids, you're looking that all the farmers have started to buy self-propelled sprayers. So if you look across the footprint, especially in the coaters and some of the bigger farmer areas, almost every farmer has a self-propelled sprayer. It's a tool that's used a lot in the season. It starts almost every day, and it's really an important product in today's farming world, okay? And so what's happened is you're looking at very -- the industry is growing. I'd say right now, from a North American industry, it's over 4,500 units, which is actually higher than the North America 4-wheel drive industry. So it's a big industry and 40% of this business goes to the commercial applicator. So what's happening from a channel standpoint, it's kind of an inefficient thing. And we're selling the parts and the service and the spares to the farmer where the commercial contracts, selling it to the elevators of the case. And a lot of the markets, you've got independent applicators -- commercial applicators, you've got local elevator local co-ops. And a lot of times, they want to buy that equipment from a local dealer. So it's just a little bit of an inefficient channel out there right now. And what this really does is it gives us ability to put this in the one channel, one place of contact with farmers is very efficient and it's how this industry has changed and evolved over the last 20 years has really got us to this point. So this is from a strategic point, this is going to be not only good for the industry. It's going to be a good for Case IH. It's going to be good for both the farmer, rancher and also good for that commercial applicator out there because what it does right now is it takes all our existing parts and service locations we have in our core footprint, all of a sudden, you've got that many touch points then for the customer for this parts and service support. So in a nutshell, it's a little bit of history, a little background, but that's really got us to the point we are today, Mig.

No, that was hugely helpful for me because I guess I did not fully understand this nuance here. But again, it does sound like this acquisition is allowing you to access that specific channel, that commercial channel that you're simply not able to touch previously and that's where these folks revenues and...

Right, right. So if you take our existing footprint, our 5, 6 state area, you've got Minnesota, Iowa and Nebraska, North, South Dakota, the eastern part of Wyoming, just highly productive, huge farm. We've got these -- that's where our core footprint is for our Case IH locations, right? And we were not able to sell these self-propelled sprayers to the local elevators and stuff. So yes, and all of a sudden, we've got access to not only to that important customer segment, which is 40% of basically of the industry, but then it also gives us some expand our product line with the fertilizer applicator and some people call them floaters, fertilizer applicators, in addition then to the self-propelled sprayer.

Understood. When I'm looking at the margin profile and then sort of the revenue and mix profile, I mean the gross margins for Heartland, a little bit better than yours. And I'm sort of curious if this is just primarily a function of mix since you've got a little more -- they have a little more parts and service than you do? Or if there's something else in here that's kind of specific to their business that generates, call it, an extra 300 basis points or so of gross margin?

Yes, good question. There's a few dynamics of this here. I'm going to let Mark answer this. Maybe Bryan, you may want to chime in here, too.

Yes. As far as the higher gross margin, two things primarily, I would say that -- and you mentioned one of them with the mix with it being 30%. Parts and service last year was more like 25%. That's going to cause the enhancement in gross margin. And then on the equipment side, there is a little bit -- they have been able to achieve a little bit higher level of margins on the equipment side as well. So the combination of the 2 bringing in that higher gross margin percentage than -- a little bit higher than what we have.

Okay. And do you know is there anything unusual with current gross margins for this business? I mean, are they higher than norm? Or is this something that, over time, you've seen gross margins north of 20% on a pretty sustained basis?

Yes. We have seen it in their business, just as we look through their past results. It has been consistent -- consistently over that 20%. And I would say it's been growing over what we looked at over the last few years. And I think some of that is as they bring in some of these because they've been acquiring. They've been acquisitive herein the last several years. And as they've been able to go in and improve some of the operations of these acquired entities, they've been able to improve some of those, call it, on the parts and service side as they get things cleaned up, get them operating efficiently, that type of thing. So it's up, but I think it's up on a sustainable level.

Okay.

Add on to that too, Mig, a little bit, too. It's – these self-propelled sprayers are highly technical, right? And I think Heartland AG Systems had some really excellent technicians, really technical to have that type of support and that value proposition to the end commercial applicator has been really good and can drive that type of margin.

Okay. Two more questions, and I'm done. In the revenue mix here, the new equipment, 28% is other brands. I'm curious as to what's on there? Clear what manufactured products are, but what exactly is other brands? And how does that sort of fit or maybe open up some new opportunities for you longer term?

Bryan, can you please comment on -- from an operations side is up a few of those short line?

Yes, Mig. So very similar to us. They have short lines or non-CNH brands that they've identified and taken on over the years, just like we have in our business. So some really strong brands such as RBR and Salford, just to name a couple. And some of those, we already have relationships with it as well. But again, like the manufactured products, as Dave mentioned, this customer, very planning, very professional customer, a bit of a niche business in some of the things that they do. So they sometimes need those complementary products to fill some of the things that the major OEMs don't cover. But again, just like we do in our business, they've just got a little bit heavier or higher mix of it than we do.

Okay. Understood. Final question. Revenue synergies, I'll be candid with you, gentlemen. Whenever I see revenue synergies being presented by anyone, I'm a lot more skeptical than when it comes to cost synergies. So maybe we can dive a little deeper here in terms of what gives you the confidence that you can hit these synergies? And more importantly, how are they generated? Why is there an opportunity now versus the way you were operating previously?

So I'll give you a good example here. So right now, if you take these commercial applicators and like I said earlier, is that not only do they go out and apply fertilizer, they also spray chemical on the farmers' fields. What they do is many of them have fleets of tractors and they'll go out and do custom tillage for the farmers or they're doing the tillage or the fertilizer application or strip till that person. And it's getting to be -- it's a fairly big market for -- and a lot of this is 4-wheel drive tractors and tillage equipment, right? So right now, when we go out to the elevator, well, we can quote the tractors, but then Heartland AG Systems, they're quoting the sprayers. So all of a sudden, if you look at our competition, here in AGCO, they can go out and that dealer can package or bundle the tractors with the sprayers, get large multiple unit discounts and go is one contact where we're needing to call out part of the ag systems. They're calling us hey, you guys do the tractors. We'll do the sprayers in the fertilizer applicators, becomes a little bit inefficient out there, right now and especially when it comes into the discounting and relationships with the customers. So also, no, we've got the ability to go in -- like we're talking about our 5, 6 state really highly productive area, we're able to go out there every elevator, every co-op, every commercial applicator right now, and we can go out to them or we can bundle forward their tractors with the sprayers, with the floaters, with the construction equipment and our tillage equipment in 1 transaction deal. And that's huge. And it's a legitimate because right now, we've got -- customer will tell us, hey, we just bought these sprayers from John Deere. We want to like combine with you, but we couldn't and relate them by your tractors, but maybe we've got John Deere sprayers. We're going to get -- we're going to get the tractors to all the GPS matches rates. So it's a problem, but to be able to bundle these all these together in a one-stop shop. And we've got a lot of good customers and our Board of Directors' elevators, they want to buy our product, but the fact that we weren't able to bundle or package the sprayers with the tractors together, it's just a huge competitive disadvantage out there. Now this fixes all that. So this is huge Mig, and the guarantee there are huge synergies with this.

Mig, I'll just add to Dave mentioned, he said some of those opportunities with the bundling of the tractors or the construction equipment, the skid steers, wheel loaders as examples. But also, as he mentioned earlier, the floaters to farmers or the fertilizer applicators, we never had the opportunity to sell those before. And we've got the relationships with the farmers and ranchers. And as they get bigger and they get more sophisticated, their desire for those products is growing. So that ability for us to be able to sell those is really important here. And then finally, I'll add, the more efficient channel that Dave talked about the one point of contact, us going from -- in the Midwest and our footprint as an example, 6 service locations to 79 service locations, just the reaction time that we can have for customers and the lower downtime that we anticipate and the more service points and touch points going from 100 technicians to 700 technicians in that same footprint. So we see some opportunities there as we better serve the customer for share growth opportunities as well. And I would note, though, as Mark pointed out and as Larry had touched on in his question, there are -- tempering that a bit, both with the seasonality and with the inventory supply challenges here.

Our next question comes from the line of Daniel Imbro with Stephens.

Congrats on the acquisition. Dave, I want to follow up on one of your last comments during the last Q&A around the technical aspect of parts and service. Mark, I think you mentioned that longer term, there is an opportunity to leverage your existing Titan locations to provide parts and service. But just curious, can the existing stores provide that service today given the highly technical nature, just thinking through if there's any necessary investments to capture that long-term parts and service synergy you talked about?

Yes. So right now, if you look at that self-propelled sprayer that our stores are selling it successfully, selling the Case IH self-propelled sprayer to the local farmers, right? So with that, we need all the technical expertise and the training to do that. And in addition, with the Raven product, which is a lot of their products are included in these sprayer. So we've got the training and the background and -- to do this. Likewise, the Heartland AG System, same thing. They're highly technical, and they've been doing that job and providing that back to service. But this is why this is such a nice fit right now because since the farmers have started to buy these new self-propelled sprayers and we're selling them, and we're the largest, I'd say, full line ag, king-size ag, group we're selling spray. We've really done a good job of that. So we've got fully capable stores and then parts stocks, parts for the self-propelled sprayers and our technicians are trained on them and do a good job with that. So it's just really a nice fit.

Got it. That's helpful. Second kind of just a follow-up question. On the seasonality of the business, you guys have mentioned it's obviously first half weighted. How should we think about the working capital demand there and cash flow impacts of the seasonality? And then what's it going to mean for inventory turns and efficiency is something you guys have talked a lot about in recent quarters? Just kind of understand the impact this acquisition will have on that.

Mark, can you touch -- yes, this one?

Sure, sure. I think from a working capital standpoint, cash flow, I think other than the timing of this, the seasonality being a little bit different. I think from a turn standpoint, working capital levels, it's very similar. I think the times that we're in today. It's higher turns, it's quick movement on it. One thing I would say that's maybe a little bit different in this business compared to ours, the level of used is down somewhat from our business to the farmer, rancher customer. There's not as much used in this business. But from a working capital requirement standpoint on the new side, on the parts side, very similar, except the timing, just kind of shifted a little bit earlier in the year as opposed to later in the year.

Got it. That's helpful. And then last one, in the slides, you mentioned the transaction opened up additional M&A opportunities. I'm curious, one, how many other assets of scale are there out there in this market that you would potentially look to acquire? And then two, with the deal set to close in August, how long do you anticipate integration will take before you'd be back in the market for another acquisition?

So let's start on the M&A side. So really, as we're looking at the -- all of a sudden, within our footprint, there's a number of full line Case IH dealerships that we have discussions with that now all of a sudden, we're in this market with the commercial application equipment contract in some of their markets and all of a sudden, we can come and acquire them. So you've got some immediate synergies there, right? And then some -- I think, some potentially motivated sellers to say, hey, how does that work? So -- and then some of this footprint that's outside of our current footprint, then right, all of a sudden, we're going to have this contract and that's going to open up some new -- some adjacent markets to our current footprint, where you've got existing full line Case IH dealerships where we'll have the -- this commercial application equipment contract and then some other dealer will have the combines and tractors and the full line dealership that -- and those are really attractive acquisitions for us to do like that. So when you're talking about the timing of this is the negotiations on this transaction has been going on some time and -- but at the same time, I can see the concurring of that, we continue to work through the acquisition pipeline. We acquired the Jaycox Group in December. At the same time, we were in discussions with the Heartland AG Systems. Just most recently, Mark's Machinery. So I think we've got the ability to integrate this group and I think to start with, this is a really well-run good acquisition. It's going to be a division up through our ag segment that let them kind of business as usual. And also, it is like -- it's a totally full integration right now. We're going to let this in the relationships with the commercial application customer that the Heartland AG System has some excellent relationships there. So I think you're going to look at this as a little bit longer over time for a full integration and really let this -- the business, do what it does really low right now. Then -- so at the same time, we've got the ability to do acquisitions as we get through this. And I can say just like what we just did with Jaycox, this Jaycox Group, that's 3-star group and the 2-star group in Yankton with Mark's Machinery, so if that makes sense.

Yes. No, it does. Congrats again on the closing -- or announcing the deal and best of luck.

We've reached the end of the question-and-answer session. I'll hand the call over to Mr. Meyer for closing remarks.

Okay. Thank you, everyone, for your time being on the call today. And we look forward to talking you more and we're going to have our Q2 earnings release sometime in August. So we'll, again, catch up with you at that point in time. So thank you, and have a great day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.