What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-06-03 compared with 2021-12-03 · 105 added, 259 removed, 163 unchanged (69% of the section changed)

3 unchanged sentences

Based upon information provided to us by CNH Industrial N.V.

subsidiary CNH Industrial America, LLC, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the U.S.

We operate our business through three reportable segments:

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new and used equipment sales, parts sales, service, and equipment rental and other activities.

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 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.

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

Based on February 2022 U.S.

Department of Agriculture publications, the estimate of net farm income for calendar year 2022 indicated an approximate 4.5% decrease as compared to calendar year 2021, and an approximate 25.1% increase in net farm income for calendar year 2021 as compared to calendar year 2020.

For the first quarter of fiscal 2023, our net income was $17.5 million, or $0.78 per diluted share, compared to a fiscal 2022 first quarter net income of $10.5 million, or $0.47 per diluted share.

Our adjusted diluted earnings per share was $0.79 for the first quarter of fiscal 2023, compared to $0.46 for the first quarter of fiscal 2022.

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 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.

• Revenue in the first quarter of fiscal 2023 increased by 23.7% compared to the first quarter of fiscal 2022.

Total company same store sales increased 22.1% compared to the prior year first quarter.

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

• Gross profit in the first quarter of fiscal 2023 increased 25.0% compared to the first quarter of fiscal 2022.

The increase in gross profit was primarily the result of strong equipment sales and equipment gross profit margins increasing to 12.9% in the first quarter of fiscal 2023 from 11.7% in the first quarter of fiscal 2022.

• Floorplan and other interest expense decreased a combined 4.7% in the first quarter of fiscal 2023, as compared to the first quarter last year, due to lower borrowings.

Russian-Ukrainian Conflict

Since the onset of the active conflict in February 2022, most of Titan Machinery Ukraine's customers have been able to continue their work, although at a reduced capacity and schedule.

The Company's websites and phone systems have continued to function but could be negatively impacted in the future.

Some of Titan Machinery Ukraine's back office employees have been able to relocate outside of Ukraine and continue to work, while the customer support and sales teams have remained in Ukraine.

The conflict could have a significant adverse effect upon the Company.

As of April 30, 2022, the Company had total assets of $35.0 million in Ukraine.

The physical assets (e.g.

inventory and fixed assets) are almost exclusively located in central and western areas of the country.

Total assets in Ukraine as of January 31, 2022, was $32.7 million.

The situation is highly complex and continues to evolve.

If the Company cannot provide efficient and uninterrupted services, this could have an adverse effect on the Company's operations and business in Ukraine.

In addition, the Company's ability to maintain adequate liquidity for our operations in Ukraine is dependent on a number of factors, including Titan Machinery Ukraine's revenue and earnings, which could be significantly impacted by the conflict in Ukraine.

Further, any additional military movement back into central and western Ukraine or any major threat to civilians or international banking disruption could materially impact the operations and liquidity of Titan Machinery Ukraine and the Company.

Impact of the COVID-19 Pandemic on the Company

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

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

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

The Company's products and services were determined to be essential in the markets we serve and accordingly operations have been allowed to continue throughout the pandemic.

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

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.

We continue to monitor the progression of COVID-19 and its impact on our business.

As this pandemic continues, we are following the directives and advice of government leaders and medical professionals and continue to attempt to mitigate its impact on our employees, customers, vendors, and other business partners, and communities in which we live and work.

While there was no material adverse impacts on the Company's results of operations for the three months ended April 30, 2022 or 2021, uncertainty remains regarding the magnitude and duration of the pandemic and the resulting potential future financial effects.

Increased infection rates and any future responses to mitigate the spread of the virus, including any potential vaccination mandates that would apply to our employees, could impact our business and our financial results of future periods.

On April 1, 2022, the Company acquired certain assets of Mark's Machinery, Inc.

The acquired business consisted of two agricultural equipment stores in Wagner and Yankton, South Dakota.

These locations are included in our Agriculture segment.

In its most recent fiscal year, Mark's Machinery, Inc.

generated revenue of approximately $34.0 million.

The total cash consideration paid for the acquired business was $7.7 million.

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.

These locations are included in our Agriculture segment.

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

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The total cash consideration paid for the acquired business was $33.6 million.

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

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

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

The three HorizonWest dealerships are included within our Agriculture segment.

ERP Transition

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The new ERP application is expected to provide data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience.

The Company integrated one pilot store on the new ERP system in the second quarter of fiscal 2021;

we anticipate the remaining domestic stores to be converted to the ERP within the next 12 months.

The Company integrated one pilot store on the new ERP system in the second quarter of fiscal 2021 and also integrated the five stores acquired through the Jaycox Implement and Mark's Machinery acquistions in December 2021 and April 2022, respectively.

We expect to begin our phased roll-out to the remaining domestic locations, beginning in the second half of fiscal 2023.

Critical Accounting Policies and Estimates

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Results of Operations

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

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

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

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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 October 31, Nine Months Ended October 31,

2021 2020 2021 2020

(dollars in thousands) (dollars in thousands)

Three Months Ended April 30,

(dollars in thousands)

Revenue $ 356,366 $ 275,980

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

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

2021 2020 2021 2020

Three Months Ended April 30,

Equipment 77.3 % 74.1 %

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Operating Expenses 13.9 % 15.1 %

Impairment of Goodwill — % 0.4 % — % 0.1 %

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

Income from Operations 5.3 % 3.9 %

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Net Income 3.8 % 2.8 %

Table of C ontents

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

Three Months Ended April 30, 2022 Compared to Three Months Ended April 30, 2021

Consolidated Results

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

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Total Revenue $ 461,007 $ 372,706 $ 88,301 23.7 %

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

Total revenue for the first quarter of fiscal 2023 was 23.7% or $88.3 million higher than the first quarter of fiscal 2022 driven primarily by an increase in Company-wide same-store sales of 22.1% and our acquistions of Jaycox Implement and Mark's Machinery, completed in December 2021 and April 2022, respectively.

The same-store sales increase was primarily driven by favorable commodity prices, higher net farm income and increased construction activity in our footprint.

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

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Total Gross Profit Mix 100.0 % 100.0 %

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 for the first quarter of fiscal 2023 increased 25.0% or $17.7 million, as compared to the same period last year.

Gross profit margin also improved to 19.2% in the current quarter from 19.0% in the prior year quarter.

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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.

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 80.3% for the first quarter of fiscal 2023 compared to 76.0% during the same period last year as the increase in gross profit from parts, rental fleet, and service in the first quarter of fiscal 2023 combined with lower floorplan interest expenses more than offset the increase in operating expenses during the period.

Operating Expenses

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

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Operating Expenses as a Percentage of Revenue 13.9 % 15.1 % (1.2) % (7.9) %

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 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 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 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.

Our operating expenses in the first quarter of fiscal 2023 increased 13.7% as compared to the first quarter of fiscal 2022.

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

Operating expenses as a percentage of revenue decreased to 13.9% in the first quarter of fiscal 2023 from 15.1% in the first quarter of fiscal 2022.

The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022, which positively affected our ability to leverage our fixed operating costs.

Other Income (Expense)

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

(dollars in thousands)

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

Interest and other income $ 492 $ 665 $ (173) (26.0) %

Floorplan interest expense (254) (418) (164) (39.2) %

Other interest expense (1,196) (1,104) 92 8.3 %

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.

Interest and other income decreased by $0.2 million in the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022, due to fluctuations in foreign currency exchange rates, primarily the Ukrainian currency.

The decrease in floorplan interest expense of 39.2% was due to lower borrowings.

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Provision for Income Taxes

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

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Provision for Income Taxes $ 6,044 $ 3,132 $ 2,912 93.0 %

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.

Table of C ontents

Our effective tax rate was 25.6 % and 22.9 % for the three months ended April 30, 2022 and April 30, 2021, respectively.

The effective tax rate for each of the three months ended April 30, 2022 and 2021 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 and recognition of a valuation allowance on certain of our foreign deferred tax assets.

Segment Results

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Revenue between segments is immaterial.

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2022 2021 (Decrease) Change

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Total $ 461,007 $ 372,706 $ 88,301 23.7 %

Income (Loss) Before Income Taxes

Income Before Income Taxes

Agriculture $ 16,449 $ 11,224 $ 5,225 46.6 %

Construction 3,564 1,448 2,116 146.1 %

International 6,260 (2,424) 8,684 n/m

Construction 3,210 138 3,072 n/m

International 4,325 2,808 1,517 54.0 %

Segment Income Before Income Taxes 23,984 14,170 9,814 69.3 %

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

Shared Resources (400) (491) 91 18.5 %

Total $ 23,584 $ 13,679 $ 9,905 72.4 %

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.

Agriculture segment revenue for the first quarter of fiscal 2023 increased 38.8% compared to the first quarter of fiscal 2022.

The higher revenue was driven primarily by an increase in same-store sales of 26.3% and our acquistions of Jaycox Implement and Mark's Machinery, completed in December 2021 and April 2022, respectively.

The same-store sales increase was primarily driven by favorable commodity prices and higher net farm income.

Agriculture segment income before income taxes was $16.4 million for the first quarter of fiscal 2023 compared to $11.2 million for the first quarter of fiscal 2022.

Higher equipment revenue along with increased gross profit margin on equipment were the primary drivers of the increase in income before income taxes.

Construction segment revenue for the first quarter of fiscal 2023 decreased 2.4% compared to the first quarter of fiscal 2022.

However, after taking into account the divestiture of the Billings, Great Falls, and Missoula, Montana, and Gillette, Wyoming stores in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023 divestiture of our consumer products store in North Dakota, same-store sales in our Construction segment increased 24.9% for the first quarter of fiscal 2023, as compared to the first quarter of fiscal 2022.

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

Our Construction segment income before taxes was $3.2 million for the first quarter of fiscal 2023 compared to $0.1 million in the first quarter of fiscal 2022.

The improvement in segment results was primarily due to an increase in same store sales, as described above, the sale of our consumer products store, in the first quarter of fiscal 2023, resulting in a gain of $1.4 million and increased equipment gross profit margin.

An increase in rental fleet utilization, led to an increase in rental gross profit margin, 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 19.2% in the first quarter of fiscal 2022 to 24.5% in the first quarter of fiscal 2023.

International

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.

International segment revenue, for the first quarter of fiscal 2023 increased 1.3% compared to the first quarter of fiscal 2022.

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

The increase in revenue was partially offset by lower revenues in our Ukrainian subsidiary, which was impacted by the Russia-Ukraine conflict in the first quarter of fiscal

Same-store sales in our International segment increased 6.2% for the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022, primarily driven by an increase in equipment sales.

Our International segment income before income taxes was $4.3 million for the first quarter of fiscal 2023 compared to segment income before income taxes of $2.8 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

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

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

Shared Resources 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

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 878,528 $ 662,060 $ 216,468 32.7 %

Parts 208,464 194,846 13,618 7.0 %

Service 89,405 84,282 5,123 6.1 %

Rental and other 27,914 33,357 (5,443) (16.3) %

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

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.

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 105,944 $ 69,012 $ 36,932 53.5 %

Parts 62,280 58,641 3,639 6.2 %

Service 60,091 56,019 4,072 7.3 %

Rental and other 10,160 9,978 182 1.8 %

Total Gross Profit $ 238,475 $ 193,650 $ 44,825 23.1 %

Gross Profit Margin

Equipment 12.1 % 10.4 % 1.7 % 16.3 %

Parts 29.9 % 30.1 % (0.2) % (0.7) %

Service 67.2 % 66.5 % 0.7 % 1.1 %

Rental and other 36.4 % 29.9 % 6.5 % 21.7 %

Total Gross Profit Margin 19.8 % 19.9 % (0.1) % (0.5) %

Gross Profit Mix

Equipment 44.4 % 35.6 % 8.8 % 24.7 %

Parts 26.1 % 30.3 % (4.2) % (13.9) %

Service 25.2 % 28.9 % (3.7) % (12.8) %

Rental and other 4.3 % 5.2 % (0.9) % (17.3) %

Total Gross Profit Mix 100.0 % 100.0 %

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.

Table of C ontents

Operating Expenses

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Operating Expenses $ 176,460 $ 160,252 $ 16,208 10.1 %

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

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 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

Nine 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 1,498 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)

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

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 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.

Table of C ontents

Provision for Income Taxes

Nine Months Ended October 31, Increase/ Percent

2021 2020 Decrease Change

(dollars in thousands)

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

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

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

Revenue between segments is immaterial.

Nine Months Ended October 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Agriculture $ 730,422 $ 583,326 $ 147,096 25.2 %

Construction 229,286 216,862 12,424 5.7 %

International 244,603 174,357 70,246 40.3 %

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

Income (Loss) Before Income Taxes

Agriculture $ 42,910 $ 26,490 $ 16,420 62.0 %

Construction 6,518 (50) 6,568 n/m

International 9,498 (3,136) 12,634 n/m

Segment Income Before Income Taxes 58,926 23,304 35,622 n/m

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

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 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 $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 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 $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 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.

This increase was partially offset by a $0.7 million estimated bad debt provision on our accounts receivables with customers of Titan Machinery Ukraine.

Shared Resources/Eliminations

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

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

Shared Resources 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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Since these allocations are set early in the year, unallocated balances may occur.

Shared Resources loss before income taxes was $0.4 million for the first quarter of fiscal 2023 compared to a loss before income taxes of $0.5 million for the same period last year.

Non-GAAP Financial Measures

To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include adjustments for items such as 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 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 October 31, Nine Months Ended October 31,

2021 2020 2021 2020

Three Months Ended April 30,

(dollars in thousands, except per share data)

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Net Income $ 17,540 $ 10,547

ERP transition costs — 766 — 2,250

Impairment charges — 2,555 1,498 2,771

Ukraine remeasurement (gain) / loss (1) 294 (129)

Total Pre-Tax Adjustments 294 (129)

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

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

Adjusted Net Income $ 17,834 $ 10,418

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Adjustments (2)

ERP transition costs — 0.03 — 0.10

Impairment charges — 0.11 0.07 0.12

Ukraine remeasurement (gain) / loss (1) 0.01 (0.01)

Total Pre-Tax Adjustments 0.01 (0.01)

Tax Effect of Adjustments (1) — 0.07 — 0.12

Total Adjustments (0.01) 0.09 0.05 0.14

Adjusted Diluted EPS $ 0.79 $ 0.46

(1) The tax effect of U.S.

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 $0.7 million for the three months ended October 31, 2020 and $1.3 million for the nine months ended October 31, 2020.

(1) Due to the income tax valuation allowance on the Ukrainian subsidiary, there are no tax adjustments of the Ukraine remeasurement (gain)/loss for the quarters ending April 30, 2022 and 2021.

(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.

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.

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 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.

As of April 30, 2022, the Company had floorplan payable lines of credit for equipment purchases totaling $751.0 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 2.3 times for the rolling 12 month period ended April 30, 2021 to 3.5 times for the rolling 12 month period ended April 30, 2022.

The increase in equipment turnover was attributable to an increase in equipment sales and a decrease in average equipment inventory over the rolling 12 month period ended April 30, 2022 as compared to the same period ended April 30, 2021.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 51.2% as of April 30, 2022 from 58.2% as of January 31, 2022.

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 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.

As of April 30, 2022, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of April 30, 2022.

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 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.

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 nine months of fiscal 2022.

Net cash provided by operating activities was $5.3 million for the first three months of fiscal 2023, compared to net cash provided by operating activities of $27.0 million for the first three months of fiscal 2022.

The change in net cash provided by operating activities is primarily the result of an increase in inventories partially offset by an increase in non-interest bearing floorplan lines of credit from manufacturers and higher net income for the first three months of fiscal 2023.

Cash Flow Used for Investing Activities

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.

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 nine months of fiscal 2022 .

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.

Net cash used for investing activities was $11.9 million for the first three months of fiscal 2023, compared to $9.0 million for the first three months of fiscal 2022.

The increase in cash used for investing activities was primarily the result of the business acquisition of Mark's Machinery in the first three months of fiscal 2023.

Cash Flow Provided by (Used for) Financing Activities

Net cash provided by financing activities was $8.0 million for the first three months of fiscal 2023 compared to cash used for financing activities of $6.8 million for the first three months of fiscal 2022 .

The increase in cash provided by financing activities was primarily the result of proceeds from the financing of real estate, owned by the Company, and increased non-manufactured floorplan payables in the first three months of fiscal 2023 compared to the same period last year.

Information Concerning Off-Balance Sheet Arrangements

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.

As of April 30, 2022, 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, 2022, 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, 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.

Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding the performance of our Ukrainian subsidiary within our International segment, 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 effectiveness of the new ERP system and the timing of the phased roll-out of the ERP system to the Company's domestic locations, the general market conditions of the agricultural and construction industries, equipment inventory levels, 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, 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.

These risks and uncertainties include, but are not limited to, the impact of the Russia -Ukraine conflict on our Ukrainian subsidiary, 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