What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-09-03 compared with 2021-06-04 · 216 added, 107 removed, 199 unchanged (62% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

We own and operate a network of full service agricultural and construction equipment stores in the United States and Europe.

8 unchanged sentences

Department of Agriculture publications, the estimate of net farm income for calendar year 2021 indicated an approximate 8.1% decrease as compared to calendar year 2020, and an approximate 45.7% increase in net farm income for calendar year 2020 as compared to calendar year 2019.

For the first quarter of fiscal 2022, our net income was $10.5 million, or $0.47 per diluted share, compared to a fiscal 2021 first quarter net income of $2.3 million, or $0.10 per diluted share.

Our adjusted diluted earnings per share was $0.46 for the first quarter of fiscal 2022, compared to $0.15 for the first quarter of fiscal 2021.

Certain areas of our North American Agriculture footprint have been impacted by a drought in recent months and this may reduce demand for parts and service support in upcoming quarters.

For the second quarter of fiscal 2022, our net income was $11.2 million, or $0.50 per diluted share, compared to a fiscal 2021 second quarter net income of $6.4 million, or $0.28 per diluted share.

Our adjusted diluted earnings per share was $0.57 for the second quarter of fiscal 2022, compared to $0.29 for the second quarter of fiscal 2021.

See the Non-GAAP Financial Measures section below for a reconciliation of adjusted diluted earnings per share to diluted earnings per share, the most comparable GAAP financial measure.

Significant factors impacting the quarterly comparisons were:

• Revenue in the first quarter of fiscal 2022 increased compared to the first quarter of fiscal 2021.

• Revenue in the second quarter of fiscal 2022 increased compared to the second quarter of fiscal 2021.

All three segments recognized an increase in revenue from the prior year.

Total same store sales increased 20.4% compared to the prior year first quarter.

• Gross profit margin in the first quarter of fiscal 2022 increased to 19.0%, compared to 18.8% for the first quarter of fiscal 2021.

The increase in gross profit margin was primarily the result of strong equipment margins that increased to 11.7% in the first quarter of fiscal 2022 from 9.8% in the first quarter of fiscal 2021.

The increase in total gross profit margin was partially offset by an increased percentage of revenue coming from lower margin equipment sales.

• Floorplan and other interest expense decreased a combined 28.1% in the first quarter of fiscal 2022, as compared to the first quarter last year, due to lower borrowings on our line of credit and an overall lower interest rate environment.

Total same store sales increased 27.0% compared to the prior year second quarter.

• Gross profit in the second quarter of fiscal 2022 increased 19.7% compared to the second quarter of fiscal 2021.

The increase in gross profit was primarily the result of strong equipment sales and equipment gross profit margins that increased to 11.9% in the second quarter of fiscal 2022 from 11.1% in the second quarter of fiscal 2021.

• Intangible and long-lived asset impairments in the second quarter of fiscal 2022 were $1.5 million compared to no impairment in the second quarter of fiscal 2021.

The increase was attributable to the impairment of certain intangible and long-lived assets in one of our International reporting units.

• Floorplan and other interest expense decreased a combined 21.9% in the second quarter of fiscal 2022, as compared to the second quarter last year, due to lower borrowings.

Impact of the COVID-19 Pandemic on the Company

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency.

The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines.

The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the markets that we operate.

Risk Factors for more information on possible impacts.

As discussed in note 1 to our condensed consolidated financial statements, the COVID-19 pandemic has significantly disrupted supply chains and business around the world.

Uncertainty remains regarding the emerging variant strains of COVID-19 and regarding the length of time it will take for the COVID-19 pandemic to subside, including the time it will take for vaccines to be broadly distributed and accepted in the United States and the rest of the world, and the effectiveness of those vaccines in slowing or stopping the spread of COVID-19 and mitigating the economic effects of the pandemic.

The Company continues to effectively execute its strategy while managing the ongoing effects of the COVID-19 pandemic.

2 unchanged sentences

At the onset of the pandemic, we organized a COVID Task Force to implement safety protocols and to quickly respond to matters related to the pandemic at our locations.

Although there have been logistical and other challenges as a result of COVID-19 , there were no material adverse impacts on the Company's results of operations for the three months ended April 30, 2021 and 2020.

Some of the Company's supply vendors are facing production, supply chain and staffing challenges as they work to achieve production capacity and lead times consistent with pre-pandemic levels.

As a result, the Company has experienced some disruptions and delays on delivery of certain materials.

Although there have been logistical and other challenges as a result of COVID-19, there were no material adverse impacts on the Company's results of operations for the three and six months ended July 31, 2021 and 2020.

However, due to the uncertainty of the economic outlook resulting from the COVID-19 pandemic, the Company continues to monitor the situation closely.

We believe that each of our business segments, has been and will continue to be, impacted by the COVID-19 pandemic to varying degrees, although the ultimate impact will continue to be subject to many variables and uncertainties many of which are currently unknown or outside of our control.

Uncertainties include delays in manufacturing and shipping as well as increased cost of materials and freight.

We believe the COVID-19 pandemic has created challenging industry conditions resulting in supply chain disruptions affecting areas such as ethanol, livestock, and international trade.

These conditions have been more than offset by increased customer sentiment due to increased commodity prices as well as government support programs for our farm customers, such as the Coronavirus Food Assistance Program (CFAP).

We believe all revenue categories of equipment, parts, service and rental have been negatively impacted in this segment as a result of COVID-19, with such effects expected to continue as long as pandemic related macroeconomic stress and uncertainties persist.

Examples of such macroeconomic stressors include:

lower oil prices, higher unemployment, lower GDP, and reduced government spending on infrastructure projects.

Many of the construction projects that were delayed or cancelled last year due the pandemic have been or are planned to resume this construction season.

International

In addition to the industry challenges indicated for our Agriculture segment, our International segment is also being negatively impacted by border shutdowns, timing of equipment shipments and, from time to time, more stringent in-country pandemic regulations.

We believe all revenue categories in this segment have been more negatively impacted than our Agriculture segment because of these additional challenges and the general lack of government support programs for our International farm customers.

On May 4, 2020, the Company acquired certain assets of HorizonWest Inc.

This acquired Case IH agriculture dealership complex consisted of three agriculture equipment stores in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming, which expanded the Company's agriculture presence in Nebraska and into Wyoming.

The total consideration transferred for the acquired business was $ 6.8 million paid in cash, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities.

The total consideration paid for the acquired business was $ 6.8 million in cash, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities.

The three HorizonWest dealerships are included within our Agriculture segment.

8 unchanged sentences

Results of Operations

The results presented below include the operating results of any acquisition made during these periods as well as the operating results of any stores closed during these periods, up to the date of the store closure.

The results presented below include the operating results of any acquisition made during these periods as well as the operating results of any stores closed or divested during these periods, up to the date of the store closure.

The period-to-period comparisons included below are not necessarily indicative of future results.

3 unchanged sentences

Closed stores are excluded from the same-store analysis.

Stores that do not meet the criteria for same-store classification are described as excluded stores throughout the Results of Operations section in this Quarterly Report on Form 10-Q.

Stores that do not meet the criteria for same-store classification are described as excluded stores throughout this Results of Operations section.

Comparative financial data for each of our four sources of revenue are expressed below.

Three Months Ended April 30,

(dollars in thousands)

Three Months Ended July 31, Six Months Ended July 31,

2021 2020 2021 2020

(dollars in thousands) (dollars in thousands)

Revenue $ 272,733 $ 202,654 $ 548,713 $ 421,159

16 unchanged sentences

The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

2021 2020 2021 2020

Equipment 72.2 % 66.8 % 73.1 % 68.6 %

12 unchanged sentences

Net Income 3.0 % 2.1 % 2.9 % 1.4 %

Three Months Ended April 30, 2021 Compared to Three Months Ended April 30, 2020

Three Months Ended July 31, 2021 Compared to Three Months Ended July 31, 2020

Consolidated Results

Three Months Ended April 30, Increase/ Percent

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

5 unchanged sentences

Total Revenue $ 377,630 $ 303,465 $ 74,165 24.4 %

Total revenue for the first quarter of fiscal 2022 was 20.1% or $62.5 million higher than the first quarter of fiscal 2021 driven primarily by increased demand for equipment, which increased equipment sales 26.3% from the prior year period.

Company-wide same-store sales in the first quarter of fiscal 2022 increased 20.4% versus the comparable period in fiscal 2021.

Three Months Ended April 30, Increase/ Percent

Total revenue for the second quarter of fiscal 2022 was 24.4% or $74.2 million higher than the second quarter of fiscal 2021 driven primarily by increased demand for equipment, which increased equipment sales 34.6% from the prior year period.

The increased equipment demand was due to higher commodity prices, higher recent net farm income, and good growing conditions in our international footprint.

Company-wide same-store sales in the second quarter of fiscal 2022 increased 27.0% versus the comparable period in fiscal 2021.

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

17 unchanged sentences

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit for the first quarter of fiscal 2022 increased 21.5% or $12.6 million, as compared to the same period last year.

Gross profit margin also improved to 19.0% in the current quarter from 18.8% in the prior year quarter.

The increase in gross profit margins was primarily due to stronger equipment margins, which were positively impacted by the current industry conditions of a lower supply and higher demand environment.

The increase in equipment margins, was partially offset by the gross profit mix shift, to lower margin equipment sales relative to parts, service, and rental sales.

Our Company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — increased to 76.0% for the first quarter of fiscal 2022 compared to 73.2% during the same period last year as the increase in gross profit from parts and service in the first quarter of fiscal 2022 combined with lower floorplan interest expenses more than offset the increase in operating expenses during the period.

Gross profit for the second quarter of fiscal 2022 increased 19.7% or $12.3 million, as compared to the same period last year.

The increase in gross profit was driven by equipment sales and equipment margin which increased from 11.1% in the prior year quarter to 11.9% in the current year quarter.

The decline in total gross profit margin to 19.9% in the current quarter from 20.7% in the prior year quarter was primarily due to the shift of the gross profit mix to lower margin equipment sales relative to parts, service, and rental sales.

Our Company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — increased to 86.2% for the second quarter of fiscal 2022 compared to 80.9% during the same period last year as the increase in gross profit from parts and service in the second quarter of fiscal 2022 combined with lower floorplan interest expenses more than offset the increase in operating expenses during the period.

Operating Expenses

Three Months Ended April 30, Increase/ Percent

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

2 unchanged sentences

Operating Expenses as a Percentage of Revenue 15.1 % 17.5 % (2.4) % (13.7) %

Our operating expenses in the first quarter of fiscal 2022 increased 6.4% as compared to the first quarter of fiscal 2021.

The increase in operating expenses was primarily due to variable expenses associated with increased sales as well as increased costs due to inflation in areas such as fuel and insurance.

Operating expenses as a percentage of revenue decreased to 15.1% in the first quarter of fiscal 2022 from 17.1% in the first quarter of fiscal 2021.

The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.

Our operating expenses in the second quarter of fiscal 2022 increased 7.5% as compared to the second quarter of fiscal 2021.

The increase in operating expenses was primarily due to variable expenses associated with increased sales.

Operating expenses as a percentage of revenue decreased to 15.1% in the second quarter of fiscal 2022 from 17.5% in the second quarter of fiscal 2021.

The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges

Three Months Ended April 30, Increase/ Percent

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

1 unchanged sentence

Impairment of Intangible and Long-Lived Assets $ 1,498 $ — $ 1,498 100.0 %

We did not recognized any impairment expense in the first quarter of fiscal 2022.

Total impairment expense recognized in the first quarter of fiscal 2021 was $0.2 million.

The Company recognized impairment expense of $1.5 million related to certain intangible assets and and long-lived assets in its International segment in the second quarter of fiscal 2022.

The Company did not recognize any impairment expense in the second quarter of fiscal 2021.

Other Income (Expense)

Three Months Ended April 30, Increase/ Percent

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Interest and other income $ 665 $ 130 $ 535 n/m

Interest and other income $ 654 $ 562 $ 92 16.4 %

Floorplan interest expense (350) (901) (551) (61.2) %

Other interest expense (1,118) (978) 140 14.3 %

The increase in interest and other income was primarily due to the foreign currency remeasurement losses in Ukraine, resulting from a devaluation of the Ukrainian hryvnia in the first quarter of the prior year (fiscal 2021).

Floorplan interest expense decreased 63.7% in the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021, due to lower borrowings on our line of credit and an overall lower interest rate environment.

Floorplan interest expense decreased 61.2% in the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021, due to lower borrowings.

The increase in other interest expense was primarily due to increased fixed rate long term debt from real estate purchases throughout the year.

Provision for Income Taxes

Three Months Ended April 30, Increase/ Percent

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Provision for Income Taxes $ 4,383 $ 1,892 $ 2,491 131.7 %

Our effective tax rate was 28.0 % and 22.8 % for the three months ended July 31, 2021 and July 31, 2020.

The effective tax rate for the three months ended July 31, 2021 benefited from vesting of share-based compensation but was offset by the recognition of a valuation allowance on certain of our foreign deferred tax assets including recording a valuation allowance on the remaining deferred tax assets of our Germany entity.

For the three months ending July 31, 2020, the effective tax rate benefited from a weakening Ukrainian currency but was offset by increased tax expense on the vesting of share-based compensation.

Segment Results

Certain financial information for our Agriculture, Construction and International business segments is presented below.

“Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level.

Revenue between segments is immaterial.

Three Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Agriculture $ 219,364 $ 169,072 $ 50,292 29.8 %

Construction 80,943 77,719 3,224 4.1 %

International 77,323 56,674 20,649 36.4 %

Total $ 377,630 $ 303,465 $ 74,165 24.4 %

Income (Loss) Before Income Taxes

Agriculture $ 12,067 $ 6,752 $ 5,315 78.7 %

Construction 2,815 1,375 1,440 104.7 %

International 430 (432) 862 n/m

Segment income before income taxes 15,312 7,695 7,617 99.0 %

Shared Resources 320 597 (277) (46.4) %

Total $ 15,632 $ 8,292 $ 7,340 88.5 %

Agriculture segment revenue for the second quarter of fiscal 2022 increased 29.8% compared to the second quarter of fiscal 2021.

The higher revenue was driven primarily by increased equipment demand due to higher commodity prices, higher recent net farm income.

Same-store sales in our Agriculture segment increased 29.3% for the second quarter of fiscal 2022 as compared to the second quarter of fiscal 2021, primarily driven by an increase in equipment sales.

Agriculture segment income before income taxes was $12.1 million for the second quarter of fiscal 2022 compared to $6.8 million for the second quarter of fiscal 2021.

Higher equipment revenue along with increased gross profit margin on equipment drove the increase in gross profit.

Decreased inventory levels resulted in lower floorplan and other interest expense for the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021, which also contributed to the improvement in segment results.

Construction segment revenue for the second quarter of fiscal 2022 increased 4.1% compared to the second quarter of fiscal 2021.

The higher revenue was driven by increases in our equipment sales, as compared to the prior year’s second quarter.

This increase was partially offset by the divestiture of our Phoenix and Tucson, Arizona stores in the fourth quarter of fiscal 2021 as well as lower rental and other revenue due to a smaller rental fleet.

Same-store sales in our Construction segment increased 14.1% for the second quarter of fiscal 2022, as compared to the second quarter of fiscal 2021.

Our Construction segment income before taxes was $2.8 million for the second quarter of fiscal 2022 compared to $1.4 million in the second quarter of fiscal 2021.

The improvement in segment results was primarily due to increased construction activity as well as operational improvements within the segment.

The dollar utilization — which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period — of our rental fleet increased from 22.2% in the second quarter of fiscal 2021 to 26.6% in the second quarter of fiscal 2022.

International

International segment revenue, for the second quarter of fiscal 2022 increased 36.4% compared to the second quarter of fiscal 2021.

Higher segment revenue was driven by many of the same macroeconomic factors as the Agriculture segment, as well as favorable growing condition throughout most of the farming footprint we serve, which has improved customer sentiment and has had a positive impact on equipment sales.

Our International segment income before income taxes was $0.4 million for the second quarter of fiscal 2022 compared to segment loss of $0.4 million for the same period last year.

The increase in segment pre-tax income was primarily the result of increased equipment sales and equipment gross profit margin and was partially offset by an impairment of certain intangible and fixed assets in our German reporting unit.

Shared Resources/Eliminations

We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments.

Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur.

Shared Resources income before income taxes was $0.3 million for the second quarter of fiscal 2022 compared to income before income taxes of $0.6 million for the same period last year.

Six Months Ended July 31, 2021 Compared to Six Months Ended July 31, 2020

Consolidated Results

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 548,713 $ 421,159 $ 127,554 30.3 %

Parts 127,942 118,068 9,874 8.4 %

Service 57,379 53,586 3,793 7.1 %

Rental and other 16,300 20,860 (4,560) (21.9) %

Total Revenue $ 750,334 $ 613,673 $ 136,661 22.3 %

Total revenue for the first six months of fiscal 2022 was up 22.3% or $136.7 million compared to the first six months of fiscal 2021, and was driven by increases in revenue from our equipment, parts and service businesses.

The 30.3% increase in equipment sales was the driving factor in the total sales increase from prior year and all three segments saw increases, compared to the prior year period, in equipment sales.

Company-wide same-store sales increased 23.6% over the comparable prior year period.

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 64,705 $ 43,881 $ 20,824 47.5 %

Parts 37,413 35,419 1,994 5.6 %

Service 38,314 35,576 2,738 7.7 %

Rental and other 5,563 6,224 (661) (10.6) %

Total Gross Profit $ 145,995 $ 121,100 $ 24,895 20.6 %

Gross Profit Margin

Equipment 11.8 % 10.4 % 1.4 % 13.5 %

Parts 29.2 % 30.0 % (0.8) % (2.7) %

Service 66.8 % 66.4 % 0.4 % 0.6 %

Rental and other 34.1 % 29.8 % 4.3 % 14.4 %

Total Gross Profit Margin 19.5 % 19.7 % (0.2) % (1.0) %

Gross Profit Mix

Equipment 44.3 % 36.2 % 8.1 % 22.4 %

Parts 25.6 % 29.2 % (3.6) % (12.3) %

Service 26.2 % 29.4 % (3.2) % (10.9) %

Rental and other 3.9 % 5.2 % (1.3) % (25.0) %

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit increased 20.6% or $24.9 million for the first six months of fiscal 2022, as compared to the same period last year.

The increase in gross profit was primarily the result of increased equipment sales on stronger equipment margins for the first six months of fiscal 2022, These higher sales and margins are driven by current industry conditions of lower supply and higher demand.

The overall gross profit margin decreased from 19.7% to 19.5% was primarily due to a shift in gross profit mix to lower margin equipment sales relative to parts, service, and rental sales.

Our Company-wide absorption rate for the first six months of fiscal 2022 increased to 81.0% as compared to 77.0% during the same period last year as the increase in gross profit from parts and service combined with lower floorplan interest expense more than offset the increase in operating expenses during the six month period compared to that of the prior year six month period.

Operating Expenses

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Operating Expenses $ 113,516 $ 106,137 $ 7,379 7.0 %

Operating Expenses as a Percentage of Revenue 15.1 % 17.3 % (2.2) % (12.7) %

Our operating expenses for the first six months of fiscal 2022 increased $7.4 million as compared to the first six months of fiscal 2021.

The increase in operating expenses was primarily due to variable expenses associated with increased sales.

Operating expenses as a percentage of revenue decreased to 15.1% in the first six months of fiscal 2022 from 17.3% in the first six months of fiscal 2021.

The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in the first six months of fiscal 2022, as compared to the first six months of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Impairment of Intangible and Long-Lived Assets 1,498 216 1,282 n/m

We recognized $1.5 million in impairment charges in our International segment related to certain intangible and long-lived assets and $0.2 million of impairment charges on certain long-lived assets in our Construction segment during the first six months of fiscal 2022 and 2021, respectively.

Other Income (Expense)

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Interest and other income $ 1,320 $ 692 $ 628 90.8 %

Floorplan interest expense (768) (2,054) (1,286) (62.6) %

Other interest expense (2,222) (1,944) 278 14.3 %

Floorplan interest expense decreased 62.6% for the first six months of fiscal 2022, as compared to the same period last year, primarily due to lower borrowings and a lower interest rate environment.

The increase in other interest expense in the first six months of fiscal 2022, as compared to the first six months of fiscal 2021, is the result of increased long term debt on real estate purchased in the past year.

The increase in Interest and other income in the first six months of fiscal 2022 as compared to the same period of fiscal 2021 is primarily due to the foreign currency remeasurement losses in Ukraine, resulting from a devaluation of the Ukrainian hryvnia in the first quarter of fiscal 2021.

Provision for Income Taxes

Six Months Ended July 31, Increase/ Percent

2021 2020 Decrease Change

(dollars in thousands)

Provision for Income Taxes $ 7,515 $ 2,779 $ 4,736 n/m

Our effective tax rate was 22.9 % and 28.1 % for the three months ended April 30, 2021 and April 30, 2020.

The effective tax rate for the three months ending April 30, 2021 was benefited by the vesting of share-based compensation.

For the three months ending April 30, 2020, the effective tax rate benefited from a weakening hryvnia in our Ukrainian business but was offset by increased tax expense on the vesting of share-based compensation.

Our effective tax rate was 25.6% for the first six months of fiscal 2022 and 24.3% for the same period last year.

The effective tax rate for the six months ended July 31, 2021 benefited from vesting of share-based compensation but was offset by the recognition of a valuation allowance on certain of our foreign deferred tax assets including recording a valuation allowance on the remaining deferred tax assets of our Germany entity.

For the six months ended July 31, 2020, the effective tax rate benefited from a weakening Ukrainian currency but was offset by increased tax expense on the vesting of share-based compensation.

Segment Results

2 unchanged sentences

Revenue between segments is immaterial.

Three Months Ended April 30, Increase/ Percent

Six Months Ended July 31, Increase/ Percent

2021 2020 (Decrease) Change

11 unchanged sentences

Total $ 29,311 $ 11,441 $ 17,870 n/m

Agriculture segment revenue for the first quarter of fiscal 2022 increased 18.6% compared to the first quarter of fiscal 2021.

The higher revenue was driven primarily by increased equipment demand due to higher commodity prices, higher recent net farm income, as well as current and prior year government support payments.

Same-store sales of our Agriculture segment increased 15.3% for the first quarter of fiscal 2022 as compared to the first quarter of fiscal 2021.

Additionally, our revenues were favorably impacted by the second quarter fiscal 2021 acquisition of the three HorizonWest locations.

Agriculture segment income before income taxes was $11.2 million for the first quarter of fiscal 2022 compared to $6.2 million for the first quarter of fiscal 2021.

Higher equipment revenue along with increased gross profit margin on equipment drove the increase in gross profit.

Decreased inventory levels resulted in lower floorplan and other interest expense for the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021, which also contributed to the improvement in segment results.

Construction segment revenue for the first quarter of fiscal 2022 increased 14.1% compared to the first quarter of fiscal 2021.

The higher revenue was driven by increases in our equipment sales, as compared to the prior year’s first quarter.

Same-store sales of our Construction segment increased 26.2% for the first quarter of fiscal 2022, as compared to the first quarter of fiscal 2021.

Our Construction segment income before taxes was $0.1 million for the first quarter of fiscal 2022 compared to a loss of $2.9 million in the first quarter of fiscal 2021.

The improvement in segment results was primarily due to increased construction activity as well as operational improvements within the segment.

The segment also benefited from managed floorplan interest expense reductions in the first quarter of fiscal 2022 over the same quarter last year.

The dollar utilization — which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period — of our rental fleet increased from 18.9% in the first quarter of fiscal 2021 to 19.2% in the first quarter of fiscal 2022.

Agriculture segment revenue for the first six months of fiscal 2022 increased 23.8% compared to the same period last year.

We experienced increases across our equipment, parts and service businesses.

Equipment sales were driven by increased equipment demand due to higher commodity prices, higher recent net farm income, as well as current and prior year government support payments.

All sources of revenue in this segment benefited from the addition of the three HorizonWest locations (acquired in May 2020) that were not in the full prior year six-month period.

Same-store sales increased 21.7% for the first six months of fiscal 2022, as compared to the same period last year.

Agriculture segment income before income taxes was $23.3 million for the first six months of fiscal 2022 compared to $12.9 million over the first six months of fiscal 2021.

The improvement in segment results was the result of higher equipment revenue along with higher gross profit margin on equipment driven by an industry environment of high demand and lower supply.

Decreased inventory levels resulted in lower floorplan and other interest expense for the six months ended July 31, 2021, which also contributed to the improvement in segment results.

Construction segment revenue for the first six months of fiscal 2022 increased 8.5% compared to the same period last year, due to a same-store sales increase of 19.3% which more than offset our divestiture of the Phoenix and Tucson, Arizona stores in the fourth quarter of fiscal year 2021.

Higher equipment sales were driven by increased construction activity throughout the footprint.

Our Construction segment income before income taxes was $3.0 million for the first six months of fiscal 2022 compared to a loss of $1.5 million for the first six months of fiscal 2021.

The increase in segment results was primarily due to increased construction activity as well as operational improvements within the segment.

The segment also benefited from decreased inventory levels which resulted in lower floorplan and other interest expense for the six months ended July 31, 2021.

The dollar utilization of our rental fleet increased from 20.5% in the first six months of fiscal 2021 to 22.9% in the first six months of fiscal 2022.

International

International segment revenue, for the first quarter of fiscal 2022 increased 32.0% compared to the first quarter of fiscal 2021.

Higher segment revenue was driven by many of the same macroeconomic factors as the Agriculture segment, which have had a positive impact on equipment sales.

Much of the farming footprint we serve is experiencing favorable growing conditions which has improved customer sentiment.

Our International segment income before income taxes was $2.8 million for the first quarter of fiscal 2022 compared to segment loss of $0.3 million for the same period last year.

The increase in segment pre-tax income was primarily the result of increased equipment sales and equipment gross profit margin.

International segment revenue for the first six months of fiscal 2022 increased 34.2% compared to the same period last year.

Higher segment revenue is being driven by many of the same macroeconomic factors as the Agriculture segment as well as favorable growing conditions for much of our farming footprint which has had a positive impact on all sources of sales, but primarily equipment sales.

Our International segment income before income taxes was $3.2 million for the first six months of fiscal 2022 compared to a loss before income taxes of $0.7 million for the same period last year.

The higher segment results were the result of increased equipment sales and equipment gross profit margin.

Impairment charges of $1.5 million were recognized in the first six months of fiscal 2022, related to the impairment of certain intangible and long-lived assets of our German reporting unit.

Shared Resources/Eliminations

1 unchanged sentence

Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur.

Shared Resources loss before income taxes was $0.5 million for the first quarter of fiscal 2022 compared to income before income taxes of $0.1 million for the same period last year.

Shared Resources loss before income taxes was $0.2 million for the first six months of fiscal 2022 compared to income before income taxes of $0.7 million for the same period last year.

Non-GAAP Financial Measures

To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include ERP transition costs for fiscal year 2021, impairment charges and foreign currency remeasurement in Ukraine resulting from valuation changes of the Ukrainian hryvnia.

To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include adjustments for items such as valuation allowances for income tax, ERP transition costs for fiscal year 2021, impairment charges and foreign currency remeasurement gains/losses in Ukraine.

We believe that the presentation of adjusted net income and adjusted Diluted EPS is relevant and useful to our management and investors because it provides a measurement of earnings on activities that we consider to occur in the ordinary course of our business.

2 unchanged sentences

The following tables reconcile (i) net income, a GAAP measure, to adjusted net income and (ii) Diluted EPS, a GAAP measure, to adjusted Diluted EPS:

Three Months Ended April 30,

Three Months Ended July 31, Six Months Ended July 31,

2021 2020 2021 2020

(dollars in thousands, except per share data)

2 unchanged sentences

ERP transition costs — 763 — 1,484

Impairment of long-lived assets — 216

Impairment charges 1,498 — 1,498 216

Ukraine remeasurement (gain) / loss (53) (130) (183) 635

1 unchanged sentence

Tax Effect of Adjustments (1) — 466 — 1,047

Income Tax Valuation Allowance 278 — 278 —

Total Adjustments 1,723 167 1,593 1,288

8 unchanged sentences

Tax Effect of Adjustments (1) — 0.02 — 0.05

Income Tax Valuation Allowance 0.01 — 0.01 —

Total Adjustments 0.07 0.01 0.07 0.05

2 unchanged sentences

related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate.

Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.3 million for the three months ended April 30, 2020.

Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.3 million for the three months ended July 31, 2020 and $0.6 million for the six months ended July 31, 2020.

(2) Adjustments are net of amounts allocated to participating securities where applicable.

2 unchanged sentences

Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan and other credit facilities.

We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided that our borrowing capacity under our credit agreements is dependent on compliance with various covenants as further described in the "Risk Factors" section of our Annual Report on Form 10-K.

obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided that our borrowing capacity under our credit agreements is dependent on compliance with various covenants as further described in the "Risk Factors" section of our Annual Report on Form 10-K.

Equipment Inventory and Floorplan Payable Credit Facilities

As of April 30, 2021, the Company had floorplan payable lines of credit for equipment purchases totaling $770.0 million, which is primarily comprised of a $450.0 million credit facility with CNH Industrial, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, and a $60.0 million credit facility with DLL Finance.

Our equipment inventory turnover increased from 1.6 times for the rolling 12 month period ended April 30, 2020 to 2.3 times for the rolling 12 month period ended April 30, 2021.

The increase in equipment turnover was attributable to an increase in equipment sales and a decrease in average equipment inventory over the rolling 12 month period ended April 30, 2021 as compared to the same period ended April 30, 2020.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 48.8% as of April 30, 2021 from 52.1% as of January 31, 2021.

As of July 31, 2021, the Company had floorplan payable lines of credit for equipment purchases totaling $771.0 million, which is primarily comprised of a $450.0 million credit facility with CNH Industrial, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, and a $60.0 million credit facility with DLL Finance.

Our equipment inventory turnover increased from 1.6 times for the rolling 12 month period ended July 31, 2020 to 2.7 times for the rolling 12 month period ended July 31, 2021.

The increase in equipment turnover was attributable to an increase in equipment sales and a decrease in average equipment inventory over the rolling 12 month period ended July 31, 2021 as compared to the same period ended July 31, 2020.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 44.7% as of July 31, 2021 from 52.1% as of January 31, 2021.

The decrease was due to more inventory being financed with non-interest bearing floorplan lines of credit.

2 unchanged sentences

Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.

As of April 30, 2021, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of April 30, 2021.

As of July 31, 2021, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of July 31, 2021.

While not expected to occur, if anticipated operating results were to create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.

Cash Flow Provided by (Used for) Operating Activities

Net cash provided by operating activities was $27.0 million for the first three months of fiscal 2022, compared to net cash used for operating activities of $5.4 million for the first three months of fiscal 2021.

The change in net cash provided by (used for) operating activities is primarily the result of an increase in net income and an increase in the amount of inventory financed with non-interest bearing floorplan lines of credit from manufacturers for the first three months of fiscal 2022.

Net cash provided by operating activities was $28.6 million for the first six months of fiscal 2022, compared to net cash provided by operating activities of $13.0 million for the first six months of fiscal 2021.

The change in net cash provided by operating activities is primarily the result of an increase in net income and an increase in the amount of inventory financed with non-interest bearing floorplan lines of credit from manufacturers which was partially offset by an increase in receivables and prepaid expenses for the first six months of fiscal 2022.

We evaluate our cash flow from operating activities net of all floorplan activity and maintaining a constant level of equity in our equipment inventory.

Taking these adjustments into account, our adjusted cash flow provided by operating activities was $7.0 million for the first three months of fiscal 2022 compared to an adjusted cash flow used for operating activities of $3.6 million for the first three months of fiscal 2021.

The change in adjusted cash flow provided by (used for) operating activities is primarily the result of an increase in net income and an increase in the amount of inventory financed with non-interest bearing floorplan lines of credit from manufacturers for the first three months of fiscal 2022.

Taking these adjustments into account, our adjusted cash flow used for operating activities was $19.0 million for the first six months of fiscal 2022 compared to an adjusted cash flow provided by operating activities of $16.1 million for the first six months of fiscal 2021.

The change in adjusted cash flow provided by (used for) operating activities is primarily the result of the amount of inventory financed with non-interest bearing floorplan lines of credit from manufacturers and a decrease in non-manufacturing floor plan payables for the first six months of fiscal 2022.

See the Adjusted Cash Flow Reconciliation below for a reconciliation of adjusted cash flow provided by (used for) operating activities to the GAAP measure of cash flow provided by (used for) operating activities.

Cash Flow Used for Investing Activities

Net cash used for investing activities was $9.0 million for the first three months of fiscal 2022, compared to $5.1 million for the first three months of fiscal 2021.

The increase in cash used for investing activities was primarily the result of an increase in property and equipment purchases as the Company bought out leased buildings and vehicles in the first three months of fiscal 2022 .

Net cash used for investing activities was $19.4 million for the first six months of fiscal 2022, compared to $16.8 million for the first six months of fiscal 2021.

The increase in cash used for investing activities was primarily the result of an increase in property and equipment purchases as the Company purchased formerly leased buildings and bought out vehicle leases in the first six months of fiscal 2022 .

Cash Flow Provided by (Used for) Financing Activities

Net cash used for financing activities was $6.8 million for the first three months of fiscal 2022 compared to cash provided by financing activities of $17.7 million for the first three months of fiscal 2021 .

The decrease in cash provided by financing activities was primarily the result of a decrease in proceeds from non-manufacturer floorplan lines of credit partially offset by proceeds from long term debt borrowings in the first three months of fiscal 2022 compared to the same period last year.

Net cash used for financing activities was $22.4 million for the first six months of fiscal 2022 compared to cash provided by financing activities of $4.5 million for the first six months of fiscal 2021 .

The decrease in cash provided by

financing activities was primarily the result of an increase in repayments of non-manufacturer floorplan lines of credit partially offset by proceeds from long term debt borrowings in the first six months of fiscal 2022 compared to the same period last year.

Adjusted Cash Flow Reconciliation

6 unchanged sentences

We refer to this measure of cash flow as Adjusted Cash Flow.

Our equity in equipment inventory decreased to 48.8% as of April 30, 2021 from 52.1% as of January 31, 2021, and decreased to 24.5% as of April 30, 2020 from 27.9% as of January 31, 2020.

Our equity in equipment inventory decreased to 44.7% as of July 31, 2021 from 52.1% as of January 31, 2021, and decreased to 27.0% as of July 31, 2020 from 27.9% as of January 31, 2020.

Adjusted Cash Flow is a non-GAAP financial measure.

2 unchanged sentences

Net Cash Provided by (Used for) Operating Activities Net Cash Provided by (Used for) Financing Activities

Three Months Ended April 30, 2021 Three Months Ended April 30, 2020 Three Months Ended April 30, 2021 Three Months Ended April 30, 2020

Six Months Ended July 31, 2021 Six Months Ended July 31, 2020 Six Months Ended July 31, 2021 Six Months Ended July 31, 2020

(in thousands) (in thousands)

3 unchanged sentences

Adjusted Cash Flow $ (19,012) $ 16,073 $ 358 $ (2,710)

Certain Information Concerning Off-Balance Sheet Arrangements

As of April 30, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

Information Concerning Off-Balance Sheet Arrangements

As of July 31, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Therefore, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

FORWARD-LOOKING STATEMENTS

1 unchanged sentence

Forward-looking statements are contained in this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our Annual Report on Form 10-K for the year ended January 31, 2021, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made or to be made by the Company).

Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of oil prices on market demand for equipment and services, the impact of the COVID-19 pandemic on our business, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, and the adequacy of our capital resources.

Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of the COVID-19 pandemic on our business, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, and the adequacy of our capital resources.

Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements.

The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements.

Such statements are based upon the current beliefs and expectations of our management.

Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company.

These risks and uncertainties include, but are not limited to, the duration, scope and impact of the COVID-19 pandemic on the Company's operations and business, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

Although we are not aware of any other factors, aside from those discussed in our Form 10-K, that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results.

These statements are based upon the current beliefs and expectations of our management.

These forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results or outcomes in the future and, accordingly, actual results or outcomes may differ from those expressed in any forward-looking statements made by or on behalf of the Company.

In addition to those matters, there may exist additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may materially adversely affect our business, financial condition or results of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis