What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-04-01 compared with 2021-03-31 · 155 added, 169 removed, 431 unchanged (43% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties.

You should review the "Information Regarding Forward-Looking Statement" in this Item 7 and "Risk Factors" presented under Item 1A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis in this annual report.

A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2019 to fiscal year 2020 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on April 7, 2020.

You should review the "Information Regarding Forward-Looking Statements" in this Item 7 and "Risk Factors" presented under Item 1A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis in this annual report.

A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2020 to fiscal year 2021 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on March 31, 2021.

BUSINESS DESCRIPTION

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According to its public reports, CNH Industrial is a leading manufacturer and supplier of agricultural and construction equipment based on the number of units sold, primarily through the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands.

Sales of new CNH Industrial products accounted for approximately 72% of our new equipment revenue in fiscal 2021, with our single largest manufacturer other than CNH Industrial representing approximately 2% of our total new equipment sales.

Sales of new CNH Industrial products accounted for approximately 73% of our new equipment revenue in fiscal 2022, with our single largest manufacturer other than CNH Industrial representing approximately 2% of our total new equipment sales in fiscal 2022.

We acquire used equipment for resale primarily through trade-ins from our customers and in some cases through selective purchases.

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We are subject to a number of factors that affect our business including those factors discussed in the sections in this annual report entitled "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following:

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Russia/Ukraine Geopolitical Conflict

As discussed in Risk Factors and Note 22, to the consolidated Financial Statements, our Ukrainian operations closed for a period of time.

While some have reopened others may remain closed indefinitely or perhaps permanently.

To the extent the conflict continues, our International revenues and profits will be adversely affected.

Impact of 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 has been highly fluid 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.

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.

Even though we are considered an essential business, in response to the COVID-19 pandemic, the Company closed its U.S.

stores to the public in March 2020 but continued operations through social distancing means in all areas:

equipment, parts, service and rental.

Beginning in May 2020, we began to fully reopen our stores to the public, following pandemic safety protocols, and, by June 2020, all of our locations were once again open to the public.

Additionally, our international stores have also been following pandemic safety protocols set forth by each country and local government authority, which at times have included border shutdowns and curfew regulations.

As vaccine distributions begin, we continue to follow the requirements of the local authorities for each of our locations to determine mandates and social distancing policies.

Practices and policies we have put in place at the beginning of the pandemic, such as physical barriers, additional cleaning services, social distancing, and mask mandates, will continue until such time COVID-19 does not appear to be a threat.

Each of our segments has been, and will continue to be, impacted differently and to a varying degree.

The complete impact of the pandemic will continue to be subject to many variables and uncertainties many of which are currently unknown or outside of our control.

A brief overview of the impact COVID-19 has had on each of our business segments is listed below.

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

These conditions impacted agricultural commodities early in fiscal 2021, but were more than offset by positive macro conditions later in fiscal 2021, such as U.S.

crop production, increased commodity exports and government support programs for our farm customers, such as the $16 billion Coronavirus Food Assistance Program (CFAP).

We believe all revenue categories of equipment, parts, service and rental have been negatively impacted in our Construction 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.

We believe that all of these factors have led to lower overall U.S.

construction spending.

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 our International 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.

The outbreak and global spread of COVID-19, which was declared a pandemic by the World Health Organization and a national emergency by the President of the United States in March 2020, continues to have an impact on society, economies, financial markets, and businesses.

While the Company's products and services were determined to be an essential business, the pandemic has had an impact on our business operations, existing employees and ability to find new employees, customers, and suppliers.

Uncertainty remains regarding the magnitude and duration of the pandemic and the resulting financial effects and will depend on future developments including the efficacy of vaccines, the spread of COVID-19 variants, and the extent of governmental responses, including potential vaccine or testing mandates.

On November 5, 2021, the Department of Labor's Occupational Safety and Health Administration ("OSHA") announced an Emergency Temporary Standard ("ETS") requiring all employers with at least 100 employees to ensure their employees are fully vaccinated or require weekly testing of unvaccinated employees.

On January 13, 2022, the US Supreme Court granted emergency relief to stay the implementation of the ETS and on January 26, 2022, OSHA withdrew the standard.

Although OSHA withdrew the vaccination and testing ETS as an enforceable emergency temporary standard, the agency is not withdrawing the ETS as a proposed rule.

The agency is prioritizing resources and is focusing on finalizing a permanent COVID-19 Healthcare Standard.

The ultimate impact of a permanent standard on the Company, if one were to be adopted, is currently unknown and difficult to predict.

The Company has assessed the impacts of the COVID-19 pandemic on its results of operations for the fiscal year ended January 31, 2022, and although there have been challenges, no material adverse impacts were identified.

We continue to monitor developments involving our workforce, customers, and suppliers and continue to take steps to mitigate against additional impacts.

Supply Chain Disruptions

In recent months, we have seen increasing supply chain disruptions, including country of origin production and port delays.

Additionally, trucker, dockworker, and labor shortages, a surge of consumer demand, and other factors have led to industry-wide delays.

In response, we have been, and expect to continue to be, proactive in ordering inventory, parts, and components to ensure our operations can continue without significant delay;

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

Macroeconomic and Industry Factors

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Based on U.S.

Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2020 increased 46% compared to calendar year 2019 due to the U.S.

Federal government's direct farm program payments, U.S.

crop production, and increased commodity exports.

Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2021 increased 25.1% compared to calendar year 20 20 due to U.S.

crop production and increased commodity exports and partially offset by a reduction in U.S.

Federal government's direct farm program payments.

Based on its February 2022 report, the USDA projected net farm income for calendar year 2022 to decrease 4.5%, as compared to calendar year 2021.

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Likewise, any decline in federal allocations to public infrastructure spending over the next few years should negatively impact our future results of operations.

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Seasonality & Weather

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We cannot predict what future changes will occur in credit markets or how these changes will impact our business.

Inflation has not had a material impact on our operating results and we do not expect it to have a material impact in the future.

To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset such increases.

Inflationary pressures have led to rising inventory and supply costs as well as increased labor costs.

To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset much of the increases and expect to continue to do so in the future.

Significant Items Impacting Our Financial Position and Results of Operations

Jaycox Acquisition

On December 1, 2021, we continued our strategy of acquiring dealerships in desired market areas with our acquisition of Jaycox Implement ("Jaycox").

Jaycox consists of three CaseIH agriculture dealership locations in Worthington and Luverne,

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Minnesota and Lake Park, Iowa.

Total cash consideration paid for the business was $28.2 million which was financed through available cash resources.

In conjunction with the acquisition, we purchased the real estate for $5.5 million which was financed with available cash and long term debt.

The three Jaycox locations are included within our Agriculture segment.

Montana and Wyoming Divestiture

On January 24, 2022, we divested four dealership locations in Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming.

The sale of these locations resulted in a $5.7 million gain which is included in fiscal 2022 consolidated operating expenses.

The gain on the sale is included in the Construction segment.

HorizonWest Acquisition

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 expands 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 three HorizonWest dealerships are included within our Agriculture segment.

Critical Accounting Policies and Use of Estimates

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We estimate net realizable value of our parts inventories based on various factors including aging and sales history of each type of parts inventory.

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Impairment of Long-Lived Assets

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Long-lived assets deployed and used by individual store locations are reviewed for impairment at the individual store level.

long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.

Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.

During our 2022 fiscal year, we determined that events or circumstances were present that may indicate that the carrying amount of certain of our store long-lived assets might not be recoverable.

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Based on this conclusion, we performed step two of the impairment analysis and estimated the fair value of these assets using an income approach that incorporated unobservable inputs including estimated forecasted net cash flows generated from the use and disposition of these assets.

Step two of the analysis indicated that an impairment charge in the amount of $0.9 million was necessary, of which $0.3 million related to the Agriculture segment and $0.6 million related to the Construction segment.

Step two of the analysis indicated that an impairment charge in the amount of $0.4 million was necessary, which related to the International segment.

In all other cases, in which the aggregate carrying value of such assets totaled $20.6 million, our analyses indicated that the carrying values are recoverable based on our estimates of future undiscounted cash flows under step one of the impairment analysis.

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These assumptions require significant judgment and estimation.

In reviewing our deferred tax assets as of January 31, 2021, we concluded that a full valuation allowance continued to be warranted in certain jurisdictions.

It was also concluded that a full valuation allowance for the Company's Ukrainian subsidiary was warranted and a partial valuation allowance for the Company's German subsidiary was warranted, as such the Company recorded an additional $3.8 million valuation allowance for these two subsidiaries.

In reviewing our deferred tax assets as of January 31, 2022, we concluded that a full valuation allowance continued to be warranted on our Ukrainian subsidiary.

It was also concluded that a full valuation allowance was warranted on our German subsidiary which was previously only a partial valuation allowance.

We also recorded a full valuation allowance on our Luxembourg holding company.

Due to improved performance, a partial release of a valuation allowance for the Company's Bulgarian subsidiary was recorded.

In total, valuation allowances of $6.0 million exist for our international entities as of January 31, 2022.

At the end of fiscal year ended January 31, 2020, the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

As a result, the Company released the $4.6 million valuation allowance associated with deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended January 31, 2020.

The Company's conclusion regarding the realizability of such deferred tax assets was based on recent profitable domestic operations resulting in a cumulative profit over the three-year period ending January 31, 2020 and our projections of future profitability in the U.S.

In reviewing our foreign deferred tax assets as of January 31, 2020, we concluded that a full valuation allowance was warranted in certain jurisdiction locations.

At the end of fiscal year ended January 31, 2021, the Company concluded, a full valuation allowance continued to be warranted in certain jurisdictions.

In total, valuation allowances of $6.1 million existed for certain of our international entities as of January 31, 2021.

The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate.

Our assessment of the need for and magnitude of valuation allowances for our deferred tax assets may be impacted by changes in tax laws, our assumptions regarding the ability to generate future taxable income and the availability of tax-planning strategies.

Our assessment of the need for and magnitude of valuation allowances for

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our deferred tax assets may be impacted by changes in tax laws, our assumptions regarding the ability to generate future taxable income and the availability of tax-planning strategies.

Changes in any of these factors could lead to a change in the recognized valuation allowance which may impact our future results of operations and financial position.

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Inventory turnover measures the rate at which inventory is sold during the year.

We calculate it by dividing cost of sales on equipment and parts for the last twelve months by the average of the month-end balances of our equipment and parts inventories for the same twelve-month period.

We calculate it by dividing cost of sales on equipment for the last twelve months by the average of the month-end balances of our equipment and parts inventories for the same twelve-month period.

We believe that inventory turnover is an important management metric in evaluating the efficiency at which we are managing and selling our inventories.

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In addition, other companies may calculate Adjusted EBITDA in a different manner, which may hinder comparability with other companies.

The Company's Adjusted EBITDA for the fiscal years ended January 31, 2021 and 2020 was $65.4 million and $52.5 million, respectively.

Refer to the Non-GAAP Financial Measures section for a reconciliation of Adjusted EBITDA to net income.

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Key Financial Statement Components

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• Rental and other:

Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, fuel costs, shipping costs and our costs related to damage waiver policies.

Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies.

Operating Expenses

Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and related benefit costs, insurance expenses, professional fees, property rental and related costs, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental equipment).

Floorplan Interest

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Other Interest Expense

Interest expense represents the interest on our debt instruments, including on our previously outstanding Senior Convertible Notes, other than floorplan payable financing facilities.

Non-cash interest expense from amortization of the debt discount associated with our previously outstanding Senior Convertible Notes is also included in this balance.

Interest expense represents the interest on our debt instruments, other than floorplan payable financing facilities.

This includes long-term debt used to finance the purchase of real estate and vehicles.

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Results of Operations

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Additional information regarding our segments is included in Note 21 of our consolidated financial statements.

The comparative financial data for fiscal 2019 and the comparison of fiscal 2020 to fiscal 2019 have been omitted from this Form 10-K but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020, filed with the SEC on April 7, 2020.

Year Ended January 31,

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Gross profit margin 36.6 % 30.3 %

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The following table sets forth our statements of operations data expressed as a percentage of revenue for the fiscal years indicated.

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Total Revenue $ 1,711,906 $ 1,411,222 $ 300,684 21.3 %

The increase in total revenue for fiscal 2021, as compared to fiscal 2020, was primarily the result of strong agriculture equipment sales due to U.S.

crop production and increased commodity exports, which increased net farm income.

Our total revenue increase over the prior year was also impacted by our acquisitions of Northwood and HorizonWest.

Company-wide same-store sales increased 6.9% over the prior fiscal year, which was driven by equipment sales within our Agriculture segment.

The increase in total revenue for fiscal 2022, as compared to fiscal 2021, was primarily the result of Company-wide same-store sales increase of 23.5% over the prior fiscal year and our acquisitions of HorizonWest and Jaycox, completed in May 2020 and December 2021, respectively.

The strong same store sales increase was primarily driven by strong agriculture equipment sales due to higher commodity prices, higher net farm income, and good growing conditions in our international footprint.

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Year Ended January 31, Increase/ Percent

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Total Gross Profit Mix 100.0 % 100.0 %

Gross profit increased 4.2% or $10.5 million from fiscal 2020 to fiscal 2021, primarily due to higher revenue and gross profit from our equipment, parts, and service business partially offset by lower rental gross profit.

Gross profit margin decreased from 19.2% in fiscal 2020 to 18.5% in fiscal 2021.

The decrease in overall gross profit margin was primarily the result of a change in sales mix, with a greater proportion of revenue earned from equipment during fiscal 2021 as compared to the higher margin parts and service revenue during fiscal 2020 .

Additionally, rental and other gross profit was negatively impacted by a decrease in the size of the total rental fleet as well as a decrease in fleet dollar utilization to 22.2% in fiscal 2021 compared to 25.4% in fiscal 2020.

Our company-wide absorption rate improved to 77.7% for fiscal 2021 as compared to 72.0% during fiscal 2020 as the increase in gross profit from parts and service combined with lower operating expenses and lower floorplan interest expense generated the improved absorption rate compared to that of fiscal 2020.

Gross profit increased 27.3% or $71.4 million from fiscal 2021 to fiscal 2022, primarily due to higher revenue and gross profit from our equipment, parts, and service business.

Gross profit margin increased from 18.5% in fiscal 2021 to 19.4% in fiscal 2022.

The increase in overall gross profit margin was primarily due to stronger equipment margins, which were positively impacted by favorable end market conditions, healthy inventory, and a $6.4 million increase in the amount earned under manufacturer incentive programs.

Our company-wide absorption rate improved to 84.6% for fiscal 2022 as compared to 77.7% during fiscal 2021 as the increase in gross profit from parts and service combined with lower floorplan interest expenses more than offset the increase in operating expenses compared to that of fiscal 2021.

The overall absorption rate in fiscal 2022 was positively impacted by a one-time gain of $5.7 million on the fourth quarter divestiture of three Montana and one Wyoming stores in our Construction segment.

Operating Expenses

Year Ended January 31, Percent

Year Ended January 31, Increase/ Percent

2022 2021 (Decrease) Change

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Operating Expenses as a Percentage of Revenue 14.1 % 15.6 % (1.5) % (9.6) %

Operating expenses for fiscal 2021 decreased $4.9 million, as compared to fiscal 2020.

The increased operating expenses of four acquired locations, were more than offset by managed expense reductions in our Construction and International segments and various lower operating expenses caused by COVID-19 such as reduced travel and fuel costs.

Fiscal 2020 also included additional depreciation expense for the ERP transition as the estimated useful life of our current ERP was adjusted to coincide with the estimated go-live date of the new ERP.

Operating expenses for fiscal 2022 increased $20.3 million, as compared to fiscal 2021.

The increase in operating expenses was primarily due to variable expenses associated with increased sales, which was partially offset by a one-time gain of $5.7 million on the fourth quarter fiscal 2022 divestiture of three Montana and one Wyoming stores in our Construction segment.

In fiscal 2022, operating expenses as a percentage of revenue decreased to 14.1% from 15.6% in fiscal 2021.

The decrease in operating expenses as a percentage of total revenue was due to lower expenses combined with the increase in total revenue in fiscal 2021 compared to fiscal 2020, which positively affected our ability to leverage our fixed operating costs.

Impairment and Restructuring Costs

Year Ended January 31, Increase/ Percent

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

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Year Ended January 31, Percent

2022 2021 Decrease Change

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Impairment of Goodwill $ — $ 1,453 $ (1,453) n/m

Impairment of Long-Lived Assets 1,727 3,764 (2,037) (54.1) %

During fiscal 2021, we recognized a total of $3.2 million of impairment expenses related to certain goodwill, other intangible assets, and long-lived assets, as compared to $3.8 million in fiscal 2020.

The fiscal 2021 impairment expenses were primarily related to the impairment of goodwill and certain other intangible assets in our International segment.

Impairment of Intangible and Long-Lived Assets 1,498 1,727 (229) (13.3) %

During fiscal 2022, the Company did not recognize any goodwill impairment charges and recognized a total of $1.5 million of impairment charges related to certain intangible and long-lived assets.

In fiscal 2021, the Company recognized $1.5 million of impairment charges related to goodwill and $1.7 million of impairment charges related to other intangible and long lived assets.

The fiscal 2022 and 2021 impairment expenses were primarily related to the impairment of goodwill and certain other intangible assets in our International segment.

Other Income (Expense)

Year Ended January 31, Percent

Year Ended January 31, Increase/ Percent

2022 2021 (Decrease) Change

(dollars in thousands)

Interest and other income (expense) $ 527 $ 3,126 $ (2,599) (83.1) %

Interest and other income (expense) $ 2,431 $ 527 $ 1,904 n/m

Floorplan interest expense (1,175) (3,339) (2,164) (64.8) %

Other interest expense (4,537) (3,843) 694 18.1 %

The decrease in Interest and other income (expense) compared to fiscal 2020 is primarily the result of differences in foreign currency gains and losses recognized during the periods.

dollar strengthened relative to the Euro and the Ukrainian hyrvia strengthened relative to the U.S.

dollar in fiscal 2020 creating foreign currency gains in fiscal 2020.

The decrease in floorplan interest expense for fiscal 2021, as compared to fiscal 2020, was due to an overall lower interest rate environment as well as a decrease in our interest-bearing inventory in fiscal 2021.

The increase in Interest and other income (expense) compared to fiscal 2021 is primarily the result of fluctuations in foreign currency exchange rates, primarily the Ukrainian currency.

The decrease in floorplan interest expense for fiscal 2022, as compared to fiscal 2021, was due to an overall lower interest rate environment as well as lower borrowings.

The increase in other interest expense in fiscal 2022 is the result of an increased amount of long term debt resulting from real estate purchased in fiscal 2022.

Provision for Income Taxes

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(dollars in thousands)

Provision for Income Taxes $ 11,397 $ 699 $ 10,698 n/m

Our effective tax rate increased from 4.8% in fiscal 2020 to 37.1% in fiscal 2021.

The Company's effective tax rate increased due to changes in valuation allowances recognized for deferred tax assets.

In fiscal 2020, the Company concluded that a release of its domestic valuation allowance of $4.6 million for U.S.

federal and state deferred tax assets was warranted.

In fiscal 2021, the Company concluded that a full valuation allowance was warranted for the Company's Ukrainian subsidiary and a partial valuation allowance for the Company's German subsidiary.

The Company recorded an additional $3.8 million valuation allowance from the Ukraine and Germany subsidiaries.

Provision for Income Taxes $ 20,854 $ 11,397 $ 9,457 83.0 %

Our effective tax rate decreased from 37.1% in fiscal 2021 to 24.0% in fiscal 2022.

The Company's effective tax rate decreased due to changes in valuation allowances recognized for deferred tax assets.

In fiscal 2021, the Company added a full valuation allowance for the Company's Ukrainian subsidiary as well as a partial valuation allowance for the Company's German subsidiary.

In fiscal 2022, the Company released a portion of the valuation allowance on its Bulgarian subsidiary's deferred tax assets, which was offset by a valuation allowance on its Luxembourg holding company.

See Note 14 to our consolidated financial statements for further details on our effective tax rate.

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Segment Results

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Agriculture same-store sales increased 19.3% for fiscal 2022, as compared to fiscal 2021.

Total segment revenue and same-store sales were primarily driven by increased equipment sales.

The Northwood and HorizonWest acquisitions, which were completed in October 2019 and May 2020, respectively, also contributed to the total sales growth for the segment.

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

The HorizonWest and Jaycox acquisitions, which were completed in May 2020 and December 2021, respectively, also contributed to the total sales growth for the segment.

Agriculture segment income before income taxes for fiscal 2022 improved by $26.1 million or 76.0% compared to fiscal 2021.

The improvement in segment performance was largely the result of increased gross profit, partially offset by an increase in operating expenses.

Construction segment revenue for fiscal 2021 decreased 4.5% or $14.3 million compared to fiscal 2020 due to a same-store sales decrease of 1.4% and our divestiture of the Albuquerque, New Mexico store in the fourth quarter of fiscal 2020.

Our Construction segment experienced decreased revenues across all revenue categories:

equipment, parts, service, and rental and other.

The decrease in revenue in the segment was driven by more difficult industry conditions such as lower oil prices and a general slow down in the economy due to COVID-19.

The Construction segment income before income taxes was $0.2 million for fiscal 2021 compared to a loss of $2.3 million for the prior year.

The improvement in segment results was primarily due to decreased operating and interest expenses partially offset by lower revenues compared to the prior year.

The improvement in segment results was the result of stronger equipment margins which were positively impacted by favorable end market conditions, healthy inventory, and a $5.1 million increase in the amount earned under manufacturer incentive programs.

Decreased inventory levels resulted in lower floorplan interest expense which also contributed to the improvement in segment results.

Construction segment revenue for fiscal 2022 increased 3.7% or $11.4 million compared to fiscal 2021 due to a same-store sales increase of 14.8% which more than offset our divestiture of the Phoenix and Tucson stores in the fourth quarter of fiscal 2021.

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

The Construction segment income before income taxes was $15.5 million for fiscal 2022 compared to income of $0.2 million for the prior year.

The improvement in segment results was the result of improved equipment margins and lower floorplan and other interest expense.

The segment also benefited from a $5.7 million gain on the divestiture of our Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming locations.

International

International segment revenue for fiscal 2021 decreased 7.2% or $17.1 million compared to fiscal 2020.

Lower segment revenue was driven by decreased customer demand due to below average yields in certain areas of our international footprint as well as overall challenging economic and business conditions due to COVID-19.

Our International segment loss before income taxes was $6.0 million for fiscal 2021, compared to income before income taxes of $0.5 million for fiscal 2020.

The lower segment results were primarily due to impairment charges, decreased equipment gross profits from reduced customer demand resulting from below average crop yields in certain areas of our footprint, as well as overall challenging economic and business conditions due to COVID-19.

Impairment charges of $2.3 million were recognized in fiscal 2021, relating to the impairment of the goodwill balance and a portion of the distribution rights of our Germany reporting unit.

International segment revenue for fiscal 2022 increased 45.2% or $99.0 million compared to fiscal 2021.

Higher segment revenue is being driven by higher commodity prices as well as favorable growing conditions for much of our farming footprint, which had a positive impact on all sources of sales, but primarily equipment sales.

Our International segment income before income taxes was $12.6 million for fiscal 2022, compared to loss before income taxes of $6.0 million for fiscal 2021.

The higher segment results were primarily the result of increased equipment sales and equipment gross profit margin including a $1.3 million increase in manufacturer incentive programs.

Impairment charges of $1.5 million were recognized in fiscal 2022, compared to impairment charges of $2.3 million in fiscal 2021.

Shared Resources/Eliminations

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Since these allocations are set early in the year, and a portion is

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planned to be unallocated, unallocated balances may occur.

Shared Resource income before income taxes was $2.2 million for fiscal 2021 compared to a loss of $1.6 million for fiscal 2020.

The increase in Shared Resources income was the result of operating expense reductions due to COVID-19 as well as interest expense reductions due to a lower interest rate environment, lower interest rates under the new credit facility, and a lower level of borrowings.

Shared Resource loss before income taxes was $1.8 million for fiscal 2022 compared to income before income taxes of $2.2 million for fiscal 2021.

Non-GAAP Financial Measures

To supplement our net income and diluted earnings per share ("diluted EPS"), both GAAP measures, we present and our management utilizes adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.

Generally, these non-GAAP financial measures include adjustments for items such as valuation allowances for income tax, costs associated with impairment charges, Ukraine remeasurement gains/losses and charges associated with our Enterprise Resource Planning (ERP) system transition.

We believe that the presentation of adjusted net income, adjusted diluted EPS and adjusted EBITDA 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.

Generally, these non-GAAP financial measures include adjustments for items such as ERP transition costs for fiscal year 2021, impairment charges, and foreign currency remeasurement gains/losses in Ukraine.

Furthermore, we calculate adjusted EBITDA as our net income (loss), adjusted for net interest (excluding floorplan interest expense), income taxes, depreciation, amortization, and the adjustments included in our non-GAAP reconciliation as described above, for each of the respective periods.

We believe that the presentation of adjusted net income, adjusted diluted EPS and adjusted EBITDA is relevant and useful to our management and investors because they each provide a measurement of earnings on activities that we consider to occur in the ordinary course of our business.

In addition, our management uses adjusted EBITDA, as a supplemental measure of financial performance, to evaluate the Company's overall operating performance and believes it provides a useful metric for comparability between periods and across entities within our industry by excluding differences in capital structure, income taxes, non-cash charges and certain activities that occur outside of the ordinary course of our business.

Adjusted net income, adjusted diluted EPS, and adjusted EBITDA should be evaluated in addition to, and not considered a substitute for, or superior to, the most comparable GAAP financial measure.

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

Changes in Presentation of 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 financials 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 an adjustment included in these two non-GAAP financial measures.

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

The following tables reconcile net income and diluted EPS, GAAP financial measures, to adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.

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Tax Effect of Adjustments (1) — 2,227

Adjustment for Tax Valuation Allowance 3,759 (4,611)

Total Adjustments 1,235 5,117

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$ 67,282 $ 24,473

Year Ended January 31,

(dollars in thousands, except per share data)

Adjusted Diluted EPS

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Tax Effect of Adjustments (1) — 0.09

Adjustment for Tax Valuation Allowance 0.18 (0.21)

Total Adjustments 0.06 0.23

Adjusted Diluted EPS $ 2.98 $ 1.09

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Year Ended January 31,

(dollars in thousands, except per share data)

Adjusted EBITDA

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

For a discussion of other non-GAAP financial measures, see our discussion of Adjusted Cash Flow in the Cash Flow section elsewhere within this Item 7 of our Form 10-K.

Liquidity and Capital Resources

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As of January 31, 2022, the Company was in compliance with the financial covenants under its credit agreements.

Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this annual report.

The maturity date for the Wells Fargo Credit Agreement previously was October 28, 2020.

Effective April 3, 2020, we entered into an amended and restated credit agreement with the Bank Syndicate, which has a maturity date of April 3, 2025.

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details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this annual report.

As of January 31, 2022, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility.

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Our equipment inventories amount decreased 4.2% from January 31, 2021 to January 31, 2022.

The equipment turnover improved due to the combination of the increase in equipment sales volume in fiscal 2021 as compared to fiscal 2020 and a decrease in our average equipment inventory over these time periods.

The improvement in equipment turnover was due to the combination of the increase in equipment sales volume in fiscal 2022 as compared to fiscal 2021 and a decrease in our average equipment inventory over these time periods.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, increased to 58.2% as of January 31, 2022, from 52.1% as of January 31, 2021.

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As of January 31, 2022, the Company did not have a need to utilize any of the Revolver Loan, as such the outstanding balance was zero.

The Company works with various lenders to finance the purchase of real estate we currently lease or are acquiring through an acquisition.

The Company may also decide in the future to finance a portion of our rental fleet as well as our capital expenditures using long-term debt from various lenders.

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In addition, if we pursue strategic acquisitions, we may require additional equity or debt financing to consummate the transactions, and we cannot assure you that we will succeed in obtaining this financing on favorable terms or at all.

If we incur additional indebtedness to finance any of these transactions, this may place increased demands on our cash flow from operations to service the resulting increased debt.

If we incur additional indebtedness to finance any of these transactions, this may place increased

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demands on our cash flow from operations to service the resulting increased debt.

Our existing debt agreements contain restrictive covenants that may restrict our ability to adopt any of these alternatives.

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Cash Flow Provided By Operating Activities

Net cash provided by operating activities in fiscal 2021 was a record $173.0 million compared to $1.0 million in fiscal 2020.

The increase in net cash provided by operating activities of $172.0 million from fiscal 2020 to fiscal 2021 was primarily the result of a reduction in inventory and increase in net income.

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

Taking these adjustments into account, our adjusted cash flow provided by operating activities was $148.5 million for fiscal 2021 compared to $17.8 million for fiscal 2020.

For a reconciliation of this adjusted cash flow provided by operating activities to the comparative GAAP financial measure, refer to the Adjusted Cash Flow Reconciliation below.

Net cash provided by operating activities in fiscal 2022 was $158.9 million compared to $173.0 million in fiscal 2021.

The decrease in net cash provided by operating activities of $14.1 million from fiscal 2021 to fiscal 2022 is primarily the result of a consistent inventory balance and manufacturer floorplan payable balance during fiscal 2022 compared to a reduction in inventories in fiscal 2021, this was partially offset by an increase in receivables and prepaid expenses for fiscal 2022.

Cash Flow Used For Investing Activities

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Net cash used for investing activities was $55.2 million in fiscal 2022, compared to $20.3 million in fiscal 2021.

In fiscal 2021, the Company used $20.1 million of cash, compared to $25.0 million in fiscal 2020, for additional investment in our rental fleet, vehicles, capital improvements, and purchases of real estate.

In addition, the Company utilized $6.8 million of cash in fiscal 2021, compared to $13.9 million in the prior fiscal year, for acquisitions.

In fiscal 2022, the Company used $37.6 million of cash, compared to use of $20.1 million in fiscal 2021, for additional investment in our rental fleet, vehicles, capital improvements, and purchases of real estate.

In addition, the Company utilized $33.6 million of cash in fiscal 2022, compared to use of $6.8 million in the prior fiscal year, for acquisitions.

Cash Flow Provided By (Used For) Financing Activities

Net cash used for financing activities was $117.9 million in fiscal 2021, compared to net cash provided by financing activities of $22.9 million in fiscal 2020.

In fiscal 2021, net cash used for financing activities was the result of decreased non-manufacturer floorplan payables, which we were able to reduce with the additional cash generated from operating activities.

Additionally, in fiscal 2020, long-term financing proceeds of $18.9 million were utilized to purchase previously leased assets, vehicles and real estate.

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 sources.

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 presented on the consolidated statements of cash flows 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 was 52.1% and 27.9% as of January 31, 2021 and 2020, respectively.

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 normal operations of our business, regardless of financing source and level of financing for our equipment inventory.

The following table reconciles net cash provided by operating activities, a GAAP financial measure, to adjusted cash flow provided by operating activities;

and net cash used for financing activities, a GAAP financial measure, to adjusted cash flow used for financing activities.

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

Year Ended January 31, Year Ended January 31,

2021 2020 2021 2020

(in thousands) (in thousands)

Cash Flow, As Reported $ 172,996 $ 955 $ (117,939) $ 22,869

Adjustment for Non-Manufacturer Floorplan Net Payments (106,414) 50,158 106,414 (50,158)

Adjustment for Constant Equity in Equipment Inventory 81,900 (33,359) — —

Adjusted Cash Flow $ 148,482 $ 17,754 $ (11,525) $ (27,289)

Certain Information Concerning Off-Balance Sheet Arrangements

As of January 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.

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

In the normal course of our business activities, we lease real estate, vehicles and equipment under operating leases.

Contractual and Commercial Commitment Summary

Our contractual obligations and commercial commitments as of January 31, 2021 are summarized below:

Payments Due By Period

Contractual Obligations Total Less Than

1 Year 1 to 3 Years 3 to 5 Years More Than

(in thousands)

Long-term debt obligations (1) $ 77,772 $ 17,255 $ 15,961 $ 16,591 $ 27,965

Operating lease (2) 105,518 16,521 29,757 25,987 33,253

Purchase obligations (3) 13,760 4,163 6,667 2,930 —

Total $ 197,050 $ 37,939 $ 52,385 $ 45,508 $ 61,218

(1) Includes obligations under our finance lease and financing obligations, long-term debt obligations and estimates of interest payable under all such obligations.

(2) Includes minimum lease payment obligations under operating leases.

Amounts do not include insurance or real estate taxes, which we include in our operating expenses and which we estimate will be approximately $2.6 million for the less than 1 year period, $4.9 million for the 1 to 3 year period, $4.2 million for the 3 to 5 year period, and $5.8 million for the more than 5 years period for a total of approximately $17.5 million.

See Note 16 to our consolidated financial statements for a description of our operating lease obligations.

(3) Primarily represents contracts related to information technology systems.

Net cash used for financing activities was $35.3 million in fiscal 2022, compared to net cash used for financing activities of $117.9 million in fiscal 2021.

In fiscal 2022, net cash used for financing activities was the result of decreased non-manufacturer floorplan payables, which was reduced due to use of cash provided by operating activities.

Future Cash Requirements

We enter into contractual obligations in the ordinary course of business that may require future cash payments.

Such obligations include, but are not limited to, debt arrangements, leasing arrangements, and costs related to Information Technology ("IT"), including ERP expenses.

The Notes to the Consolidated Financial Statements provide additional information in regard to Long Term Debt (Note 10) and Leases (Note 13).

Other purchase obligations consist primarily of ERP related expenses with estimated cash payments of $4.4 million for fiscal 2023, $9.1 million combined for fiscal years 2024, 2025, and 2026.

Information Regarding Forward-Looking Statements

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• our beliefs with respect to factors that will affect demand and seasonality of purchasing in the agricultural and construction industries;

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• our beliefs with respect to our primary supplier (CNH Industrial) of equipment and parts inventory;

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• our beliefs and assumptions regarding valuation reserves, equipment inventory balances, fixed operating expenses, and absorption rate;

• our beliefs and expectations regarding the effects of the political climate and economy in Ukraine;

• our beliefs and expectations regarding the impact of the Russia-Ukraine military conflict on our Ukrainian operations;

• our beliefs and assumptions with respect to our rental equipment operations;

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• our beliefs with respect to the impact of increase or decrease in applicable foreign exchange rates;

• our plans and assumptions for future capital expenditures;

• our plans and assumptions for future capital expenditures and rental fleet purchases;

• our cash needs, sources of liquidity, and the adequacy of our working capital.

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Such factors include, but are not limited to, the following:

• the scope, duration and impact of the COVID-19 pandemic on the Company's operations and business;

• incorrect assumptions regarding our cash needs and the amount of inventory we need on hand;

• the impact of the Russian-Ukraine military conflict on our operations in Ukraine;

• assumptions regarding our cash needs and the amount of inventory we need on hand;

• general economic conditions and construction activity in the markets where we operate;

• our dependence of CNH Industrial and our relationships with other equipment suppliers;

• our dependence on CNH Industrial, our primary supplier of equipment and parts inventory, and our relationships with other equipment suppliers;

• the terms of the CNH dealer agreements that subject us to restrictions that may adversely impact our business and growth;

• the risks associated with our international operations;

• risks resulting from the implementation or design of our new ERP system;

• risks resulting from the impact of the enactment of "right to repair" legislation;

• the impact of security breaches and other disruptions to our information system;

• our level of indebtedness and ability to comply with the terms of agreements governing our indebtedness;

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• the risks associated with the expansion of our business;

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Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material.

In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans

in any specified timeframe, if at all.

Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

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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-K

Item 7. Management’s Discussion and Analysis