What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-12-03 compared with 2021-09-03 · 164 added, 157 removed, 258 unchanged (55% of the section changed)

9 unchanged sentences

Demand for agricultural equipment and, to a lesser extent, parts and service support, are impacted by agricultural commodity prices and net farm income.

Based on February 2021 U.S.

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.

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.

Based on September 2021 U.S.

Department of Agriculture publications, the estimate of net farm income for calendar year 2021 indicated an approximate 19.5% increase as compared to calendar year 2020, and an approximate 19.6% increase in net farm income for calendar year 2020 as compared to calendar year 2019.

For the third quarter of fiscal 2022, our net income was $21.8 million, or $0.97 per diluted share, compared to a fiscal 2021 third quarter net income of $9.9 million, or $0.44 per diluted share.

Our adjusted diluted earnings per share was $0.96 for the third quarter of fiscal 2022, compared to $0.53 for the third 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 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 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.

• Revenue in the third quarter of fiscal 2022 increased by 25.8% compared to the third quarter of fiscal 2021.

Total company same store sales increased 29.9% compared to the prior year third quarter.

Same store sales increased in each of the three reporting segments.

• Gross profit in the third quarter of fiscal 2022 increased 27.5% compared to the third 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 12.5% in the third quarter of fiscal 2022 from 10.4% in the third quarter of fiscal 2021.

• Floorplan and other interest expense decreased a combined 21.6% in the third quarter of fiscal 2022, as compared to the third quarter last year, due to lower borrowings.

Impact of the COVID-19 Pandemic on the Company

4 unchanged sentences

Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been, and continues to be, our top concern.

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.

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.

Recently, the Department of Labor's Occupational Safety and Health Administration ("OSHA") announced an emergency temporary standard requiring all employers with at least 100 employees to ensure their employees are fully vaccinated or require weekly testing for unvaccinated employees.

In response to a court ruling, in mid-November 2021, OSHA announced that it had suspended all activities related to implementation of this new regulation pending further litigation.

The exact impact that this new regulation could have on the our Company is uncertain at this time.

However, it could result in employee attrition, difficulty in fulfilling future labor needs, additional costs related to compliance and may have an adverse effect on our future operating results.

Table of C ontents

Additionally, many of our supply vendors are facing production, supply chain and staffing challenges as they work to increase production capacity.

We have been and expect to continue to be proactive in ordering inventory, parts, and components to seek to ensure work will continue without delay;

however we have experienced price increases, disruptions and delays on delivery of certain products.

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

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

On December 1, 2021, the Company acquired certain assets of Jaycox Implement, Inc.

The acquired business consisted of three agricultural equipment stores in Worthington and Luverne, Minnesota and Lake Park, Iowa.

These locations will be included in our agriculture segment upon closing, starting in the fourth quarter of fiscal 2022.

In its most recent fiscal year, Jaycox Implement, Inc.

generated revenue of approximately $91 million.

The total cash consideration paid for the acquired business was $28.2 million.

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

9 unchanged sentences

Our critical accounting policies and estimates are included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

There have been no changes in our critical accounting policies since January 31, 2021.

There have been no changes in our critical accounting policies and estimates since January 31, 2021.

Results of Operations

6 unchanged sentences

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

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

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

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

18 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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

7 unchanged sentences

Operating Expenses 13.9 % 15.0 % 14.7 % 16.4 %

Impairment of Goodwill — % 0.4 % — % 0.1 %

Impairment of Intangible and Long-Lived Assets — % 0.3 % 0.1 % 0.1 %

4 unchanged sentences

Net Income 4.8 % 2.7 % 3.6 % 1.9 %

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

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

Consolidated Results

Three Months Ended July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

5 unchanged sentences

Total Revenue $ 453,975 $ 360,872 $ 93,103 25.8 %

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

Total revenue for the third quarter of fiscal 2022 was 25.8% or $93.1 million higher than the third quarter of fiscal 2021 driven primarily by increased demand for equipment, resulting in equipment revenue being 36.9% higher than the prior year period.

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

Company-wide same-store sales in the third quarter of fiscal 2022 increased 29.9% versus the comparable period in fiscal 2021.

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

17 unchanged sentences

Total Gross Profit Mix 100.0 % 100.0 %

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.

Gross profit for the third quarter of fiscal 2022 increased 27.5% or $19.9 million, as compared to the same period last year.

Gross profit margin also improved to 20.4% in the current quarter from 20.1% in the prior year quarter.

The increase in gross profit margin was primarily due to stronger equipment margins, which were positively impacted by a healthy inventory and favorable end market conditions.

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.

Table of C ontents

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 97.8% for the third quarter of fiscal 2022 compared to 94.2% during the same period last year as the increase in gross profit from parts and service in the third 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 July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

2 unchanged sentences

Operating Expenses as a Percentage of Revenue 13.9 % 15.0 % (1.1) % (7.3) %

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

Our operating expenses in the third quarter of fiscal 2022 increased 16.3% as compared to the third 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.

Operating expenses as a percentage of revenue decreased to 13.9% in the third quarter of fiscal 2022 from 15.0% in the third quarter of fiscal 2021.

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

Impairment Charges

Three Months Ended July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Impairment of Goodwill $ — $ 1,453 $ (1,453) (100.0) %

Impairment of Intangible and Long-Lived Assets — 1,102 (1,102) (100.0) %

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.

The Company did not recognize any impairment expense in the third quarter of fiscal 2022.

In the third quarter of fiscal 2021, the Company recognized $1.5 million in impairment expense related to certain goodwill assets in our International segment.

An additional $1.1 million in impairment expense was also recognized related to other intangible assets and long-lived assets primarily in our International segment in the third quarter of fiscal 2021.

Other Income (Expense)

Three Months Ended July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

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

Interest and other income (expense) $ 616 $ (361) $ 977 n/m

Floorplan interest expense (259) (757) (498) (65.8) %

Other interest expense (1,071) (940) 131 13.9 %

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.

Interest and other income (expense) increased by $1.0 million in the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021, due to fluctuations in foreign currency exchange rates, primarily the Ukrainian currency.

The decrease in floorplan interest expense of 65.8% was 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 fiscal 2022.

Provision for Income Taxes

Three Months Ended July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

1 unchanged sentence

Provision for Income Taxes $ 7,007 $ 3,912 $ 3,095 79.1 %

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.

Our effective tax rate was 24.3 % and 28.3 % for the three months ended October 31, 2021 and October 31, 2020.

The effective tax rate for each of the three months ended October 31, 2021 and 2020 is subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income, recognition of a valuation allowance on certain of our foreign deferred tax assets and foreign currency gains and losses.

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Segment Results

2 unchanged sentences

Revenue between segments is immaterial.

Three Months Ended July 31, Increase/ Percent

Three Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

9 unchanged sentences

Segment Income Before Income Taxes 29,442 12,599 16,843 133.7 %

Shared Resources 320 597 (277) (46.4) %

Shared Resources (619) 1,225 (1,844) n/m

Total $ 28,823 $ 13,824 $ 14,999 108.5 %

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.

Agriculture segment revenue for the third quarter of fiscal 2022 increased 27.6% compared to the third quarter of fiscal 2021.

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

Agriculture segment income before income taxes was $19.6 million for the third quarter of fiscal 2022 compared to $13.6 million for the third quarter of fiscal 2021.

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

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

Construction segment revenue for the third quarter of fiscal 2022 was flat compared to the third quarter of fiscal 2021.

However, after taking into account the divestiture of the Phoenix and Tucson, Arizona stores in the fourth quarter of fiscal 2021, same-store sales in our Construction segment increased 11.1% for the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021.

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

Our Construction segment income before taxes was $3.6 million for the third quarter of fiscal 2022 compared to $1.4 million in the third quarter of fiscal 2021.

The improvement in segment results was primarily due to increased equipment gross profit margin and decreased inventory levels which resulted in lower floorplan interest expense for the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021.

An increase in rental fleet utilization, led to an increase in rental gross profit margin, which also contributed to the improvement in segment results.

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 25.7% in the third quarter of fiscal 2021 to 31.4% in the third 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.

International segment revenue, for the third quarter of fiscal 2022 increased 51.5% compared to the third 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 conditions throughout most of the farming footprint we serve, which has improved customer sentiment and has had a positive impact on equipment sales.

The increase was partially offset by the divestiture of our Novi Sad, Serbia location in the third quarter of fiscal 2022.

Same-store sales in our International segment increased 62.5% for the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021, primarily driven by an increase in equipment sales.

Table of C ontents

Our International segment income before income taxes was $6.3 million for the third quarter of fiscal 2022 compared to segment loss before income taxes of $2.4 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.

The segment did not recognize any impairment in the third quarter of fiscal 2022 compared to $2.3 million of goodwill and other intangible asset impairment related charges in the third quarter of fiscal 2021.

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 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

Shared Resources loss before income taxes was $0.6 million for the third quarter of fiscal 2022 compared to income before income taxes of $1.2 million for the same period last year.

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Nine Months Ended October 31, 2021 Compared to Nine Months Ended October 31, 2020

Consolidated Results

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

5 unchanged sentences

Total Revenue $ 1,204,311 $ 974,545 $ 229,766 23.6 %

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.

Total revenue for the first nine months of fiscal 2022 was up 23.6% or $229.8 million compared to the first nine months of fiscal 2021, with increases in revenue from our equipment, parts and service businesses.

The 32.7% increase in equipment sales was the primary factor in the total sales increase from the prior year period with all three segments recognizing increases, compared to the prior year period.

Company-wide same-store sales increased 25.8% over the comparable prior year period.

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

17 unchanged sentences

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.

Gross profit increased 23.1% or $44.8 million for the first nine 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 and stronger equipment margins for the first nine months of fiscal 2022.

These higher equipment sales and margins were driven by a healthy inventory and favorable end market conditions.

The overall gross profit margin decreased slightly from 19.9% to 19.8% 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 nine months of fiscal 2022 increased to 86.7%, as compared to 82.7% 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 nine month period compared to that of the prior year nine month period.

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Operating Expenses

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

2 unchanged sentences

Operating Expenses as a Percentage of Revenue 14.7 % 16.4 % (1.7) % (10.4) %

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.

Our operating expenses for the first nine months of fiscal 2022 increased $16.2 million as compared to the first nine 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.

Operating expenses as a percentage of revenue decreased to 14.7% in the first nine months of fiscal 2022 from 16.4% in the first nine 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 nine months of fiscal 2022, as compared to the first nine months of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 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.

Impairment of Goodwill $ — $ 1,453 $ (1,453) (100.0) %

Impairment of Intangible and Long-Lived Assets 1,498 1,318 180 13.7 %

We recognized $1.5 million in impairment charges in our International segment related to certain intangible and long-lived assets and $1.3 million of impairment charges on certain long-lived assets primarily in our International segment during the first nine months of fiscal 2022 and 2021, respectively.

In addition, in the first nine months of fiscal 2021, we recognized $1.5 million in impairment charges related to certain goodwill assets in the International segment, but had no such impairment charges in the first nine months of fiscal 2022.

Other Income (Expense)

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

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

Interest and other income (expense) $ 1,936 $ 332 $ 1,604 n/m

Floorplan interest expense (1,027) (2,811) (1,784) (63.5) %

Other interest expense (3,292) (2,884) 408 14.1 %

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.

Floorplan interest expense decreased 63.5% for the first nine 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 nine months of fiscal 2022, as compared to the first nine months of fiscal 2021, is the result of increased long term debt on real estate purchased during fiscal 2022.

The increase in interest and other income in the first nine months of fiscal 2022 as compared to the same period of fiscal 2021 is primarily due to foreign currency gains in fiscal 2022 due to the strengthening of the Ukrainian currency compared to losses in fiscal 2021 due to the devaluation of the Ukranian currency.

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Provision for Income Taxes

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 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 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.

Provision for Income Taxes $ 14,521 $ 6,691 $ 7,830 117.0 %

Our effective tax rate was 25.0% for the first nine months of fiscal 2022 and 26.5% for the same period last year.

The effective tax rate for the nine months ended October 31, 2021 and 2020 is subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income, recognition of a valuation allowance on certain of our foreign deferred tax assets and foreign currency gains and losses.

Segment Results

2 unchanged sentences

Revenue between segments is immaterial.

Six Months Ended July 31, Increase/ Percent

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

10 unchanged sentences

Shared Resources (793) 1,961 (2,754) n/m

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

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

Total $ 58,133 $ 25,265 $ 32,868 130.1 %

Agriculture segment revenue for the first nine months of fiscal 2022 increased 25.2% 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.

Equipment sales were driven by increased equipment demand due to higher commodity prices and higher net farm income.

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 nine-month period.

Same-store sales increased 23.8% for the first nine months of fiscal 2022, as compared to the same period last year.

Agriculture segment income before income taxes was $42.9 million for the first nine months of fiscal 2022 compared to $26.5 million over the first nine 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 increased demand and healthy inventory.

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

Construction segment revenue for the first nine months of fiscal 2022 increased 5.7% compared to the same period last year, due to a same-store sales increase of 16.3%, 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.

Our Construction segment income before income taxes was $6.5 million for the first nine months of fiscal 2022 compared to a loss before income taxes of $0.1 million for the first nine months of fiscal 2021.

The increase in segment results

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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 nine months ended October 31, 2021.

The dollar utilization of our rental fleet increased from 22.2% in the first nine months of fiscal 2021 to 25.8% in the first nine months of fiscal 2022.

International

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

International segment revenue for the first nine months of fiscal 2022 increased 40.3% 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.

Our International segment income before income taxes was $9.5 million for the first nine months of fiscal 2022 compared to a loss before income taxes of $3.1 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.

Impairment charges of $1.5 million were recognized in the first nine months of fiscal 2022 compared to $2.3 million in the first nine months of fiscal 2021, related to the impairment of certain goodwill, other intangible and long-lived assets of our German reporting unit.

Shared Resources/Eliminations

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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 $0.2 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.

Shared Resources loss before income taxes was $0.8 million for the first nine months of fiscal 2022 compared to income before income taxes of $2.0 million for the same period last year.

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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 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.

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 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.

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In addition, other companies may calculate these non-GAAP measures in a different manner, which may hinder comparability of our adjusted results with those of other companies.

Change in Non-GAAP Financial Measures

Beginning in the third quarter of fiscal 2022, the Company discontinued the use of the adjusted cash-flow measure and revised its presentation of two non-GAAP measures, Adjusted Net Income and Adjusted Diluted EPS, to better align with SEC guidance.

The adjustment for income tax valuation allowance, a non-cash tax expense related to the use of deferred tax assets in certain jurisdictions, will no longer be included in these two non-GAAP measures.

For comparability, references to prior periods' non-GAAP measures have also been updated to show the effect of omitting the valuation allowance from Adjusted Net Income and Adjusted Diluted EPS - see table below.

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 July 31, Six Months Ended July 31,

Three Months Ended October 31, Nine Months Ended October 31,

2021 2020 2021 2020

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Tax Effect of Adjustments (1) — 1,566 — 2,613

Income Tax Valuation Allowance 278 — 278 —

Total Adjustments (113) 2,093 1,202 3,381

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Tax Effect of Adjustments (1) — 0.07 — 0.12

Income Tax Valuation Allowance 0.01 — 0.01 —

Total Adjustments (0.01) 0.09 0.05 0.14

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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 July 31, 2020 and $0.6 million for the six months ended July 31, 2020.

Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.7 million for the three months ended October 31, 2020 and $1.3 million for the nine months ended October 31, 2020.

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

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Liquidity and Capital Resources

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

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.

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.

Equipment Inventory and Floorplan Payable Credit Facilities

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.

As of October 31, 2021, the Company had floorplan payable lines of credit for equipment purchases totaling $753.0 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 $50.0 million credit facility with DLL Finance.

Our equipment inventory turnover increased from 1.6 times for the rolling 12 month period ended October 31, 2020 to 3.1 times for the rolling 12 month period ended October 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 October 31, 2021 as compared to the same period ended October 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 46.0% as of October 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.

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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 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.

As of October 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 October 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 $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 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 Provided by Operating Activities

Net cash provided by operating activities was $72.3 million for the first nine months of fiscal 2022, compared to net cash provided by operating activities of $60.8 million for the first nine months of fiscal 2021.

Cash Flow Used for Investing Activities

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 $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

We consider our cash flow from operating activities to include all equipment inventory financing activity regardless of whether we obtain the financing from a manufacturer or other source.

GAAP requires the cash flows associated with non-manufacturer floorplan payables to be recognized as financing cash flows in the consolidated statement of cash flows.

We consider equipment inventory financing with both manufacturers and other sources to be part of the normal operations of our business.

We also evaluate our cash flow from operating activities by assuming a constant level of equity in our equipment inventory.

Our equity in our equipment inventory reflects the portion of our equipment inventory balance that is not financed by floorplan payables.

Our adjustment to maintain a constant level of equity in our equipment inventory is equal to the difference between our actual level of equity in equipment inventory at each period-end as presented in the consolidated balance sheets compared to the actual level of equity in equipment inventory at the beginning of the fiscal year.

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

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.

We believe that the presentation of Adjusted Cash Flow is relevant and useful to our investors because it provides information on activities we consider to be the normal operation of our business, regardless of financing source and level of financing for our equipment inventory.

The following table reconciles net cash provided by (used for) operating activities, a GAAP measure, to adjusted net cash provided by (used for) operating activities and net cash provided by (used for) financing activities, a GAAP measure, to adjusted net cash provided by (used for) financing activities.

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

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)

Cash Flow, As Reported $ 28,561 $ 13,035 $ (22,373) $ 4,519

Adjustment for Non-Manufacturer Floorplan (22,731) 7,229 22,731 (7,229)

Adjustment for Constant Equity in Equipment Inventory (24,842) (4,191) — —

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

Net cash used for investing activities was $29.0 million for the first nine months of fiscal 2022, compared to $22.2 million for the first nine months of fiscal 2021.

Cash Flow Used for Financing Activities

Net cash used for financing activities was $31.3 million for the first nine months of fiscal 2022 compared to cash used for financing activities of $40.8 million for the first nine months of fiscal 2021 .

The decrease in cash used for financing activities was primarily the result of a decrease in repayments of non-manufacturer floorplan lines of credit partially offset by

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an increase of principal payments on long term debt in the first nine months of fiscal 2022 compared to the same period last year.

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.

As of October 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.

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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 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, including the impact of OSHA's emergency regulations regarding vaccination or weekly testing of employees, 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.

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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.

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.

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, including the disruption of supply chains and associated impacts on the Company's supply vendors, 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.

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.

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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