Titan Machinery Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS TITAN MACHINERY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data) October 31, 2022 January 31, 2022 Assets Current Assets Cash $ 45,852 $ 146,149 Receivables, net of allowance for expected credit losses 111,849 94,287 Inventories, net 630,377 421,758 Prepaid expenses and other 15,625 28,135 Total current assets 803,703 690,329 Noncurrent Assets Property and equipment, net of accumulated depreciation 215,954 178,243 Operating lease assets 52,091 56,150 Deferred income taxes 2,937 1,328 Goodwill 32,022 8,952 Intangible assets, net of accumulated amortization 16,852 10,624 Other 1,211 1,041 Total noncurrent assets 321,067 256,338 Total Assets $ 1,124,770 $ 946,667 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 43,338 $ 25,644 Floorplan payable 273,083 135,415 Current maturities of long-term debt 6,895 5,876 Current operating lease liabilities 9,671 9,601 Deferred revenue 56,812 134,146 Accrued expenses and other 56,980 59,339 Income taxes payable 15,918 4,700 Total current liabilities 462,697 374,721 Long-Term Liabilities Long-term debt, less current maturities 91,055 74,772 Operating lease liabilities 50,737 55,595 Deferred income taxes 1,974 2,006 Other long-term liabilities 7,020 4,374 Total long-term liabilities 150,786 136,747 Commitments and Contingencies (Note 15) Stockholders' Equity Common stock, par value $ .00001 per share, 45,000 shares authorized; 22,707 shares issued and outstanding at October 31, 2022; 22,588 shares issued and outstanding at January 31, 2022 — — Additional paid-in-capital 256,073 254,455 Retained earnings 266,672 182,916 Accumulated other comprehensive loss ( 11,458 ) ( 2,172 ) Total stockholders' equity 511,287 435,199 Total Liabilities and Stockholders' Equity $ 1,124,770 $ 946,667 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Revenue Equipment $ 508,996 $ 329,814 $ 1,240,579 $ 878,528 Parts 108,719 80,521 254,974 208,464 Service 38,960 32,026 101,847 89,405 Rental and other 12,098 11,614 28,923 27,914 Total Revenue 668,773 453,975 1,626,323 1,204,311 Cost of Revenue Equipment 436,156 288,576 1,070,378 772,584 Parts 72,146 55,654 172,162 146,184 Service 13,456 10,249 35,288 29,314 Rental and other 7,435 7,016 17,522 17,754 Total Cost of Revenue 529,193 361,495 1,295,350 965,836 Gross Profit 139,580 92,480 330,973 238,475 Operating Expenses 84,861 62,943 217,841 176,460 Impairment of Intangible and Long-Lived Assets — — — 1,498 Income from Operations 54,719 29,537 113,132 60,517 Other Income (Expense) Interest and other income 1,804 616 3,169 1,935 Floorplan interest expense ( 588 ) ( 259 ) ( 1,087 ) ( 1,027 ) Other interest expense ( 1,257 ) ( 1,071 ) ( 3,802 ) ( 3,292 ) Income Before Income Taxes 54,678 28,823 111,412 58,133 Provision for Income Taxes 13,421 7,007 27,656 14,521 Net Income $ 41,257 $ 21,816 $ 83,756 $ 43,612 Earnings per Share: Basic $ 1.82 $ 0.97 $ 3.70 $ 1.93 Diluted $ 1.82 $ 0.97 $ 3.70 $ 1.93 Weighted Average Common Shares: Basic 22,393 22,213 22,365 22,228 Diluted 22,399 22,222 22,372 22,238 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (in thousands) Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 Net Income $ 41,257 $ 21,816 $ 83,756 $ 43,612 Other Comprehensive Income (Loss) Foreign currency translation adjustments ( 5,132 ) ( 744 ) ( 9,285 ) ( 2,185 ) Comprehensive Income $ 36,125 $ 21,072 $ 74,471 $ 41,427 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount BALANCE, January 31, 2022 22,588 $ — $ 254,455 $ 182,916 $ ( 2,172 ) $ 435,199 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 19 ) — ( 685 ) — — ( 685 ) Stock-based compensation expense — — 620 — — 620 Net income — — — 17,540 — 17,540 Other comprehensive loss — — — — ( 1,191 ) ( 1,191 ) BALANCE, April 30, 2022 22,569 $ — $ 254,390 $ 200,456 $ ( 3,363 ) $ 451,483 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 126 — ( 5 ) — — ( 5 ) Stock-based compensation expense — — 803 — — 803 Net income — — — 24,959 — 24,959 Other comprehensive loss — — — — ( 2,963 ) ( 2,963 ) BALANCE, July 31, 2022 22,695 — 255,188 225,415 ( 6,326 ) 474,277 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 12 — — — — — Stock-based compensation expense — — 885 — — 885 Net income — — — 41,257 — 41,257 Other comprehensive loss — — — — ( 5,132 ) ( 5,132 ) BALANCE, October 31, 2022 22,707 $ — $ 256,073 $ 266,672 $ ( 11,458 ) $ 511,287 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount BALANCE, January 31, 2021 22,553 $ — $ 252,913 $ 116,869 $ 1,499 $ 371,281 Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 33 ) — ( 975 ) — — ( 975 ) Stock-based compensation expense — — 609 — — 609 Net income — — — 10,547 — 10,547 Other comprehensive loss — — — — ( 2,379 ) ( 2,379 ) BALANCE, April 30, 2021 22,520 $ — $ 252,547 $ 127,416 $ ( 880 ) $ 379,083 Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 76 — ( 2 ) — — ( 2 ) Stock-based compensation expense — — 584 — — 584 Net income — — — 11,249 — 11,249 Other comprehensive income — — — — 938 938 BALANCE, July 31, 2021 22,596 — 253,129 138,665 58 391,852 Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 4 ) — ( 4 ) — — ( 4 ) Stock-based compensation expense — — 657 — — 657 Net income — — — 21,816 — 21,816 Other comprehensive income — — — — ( 744 ) ( 744 ) BALANCE, October 31, 2021 22,592 $ — $ 253,782 $ 160,482 $ ( 686 ) $ 413,578 See Notes to Condensed Consolidated Financial Statements 6 TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended October 31, 2022 2021 Operating Activities Net income $ 83,756 $ 43,612 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 18,356 16,336 Impairment of intangible and long-lived assets — 1,498 Deferred income taxes ( 1,835 ) ( 3,116 ) Stock-based compensation expense 2,308 1,850 Noncash interest expense 182 163 Other, net 7,072 8,248 Changes in assets and liabilities, net of effects of acquisitions Receivables, prepaid expenses and other assets 168 ( 18,463 ) Inventories ( 115,734 ) 3,181 Manufacturer floorplan payable 78,972 45,801 Deferred revenue ( 83,029 ) ( 35,894 ) Accounts payable, accrued expenses and other and other long-term liabilities 2,650 9,059 Net Cash Provided by (Used for) Operating Activities ( 7,134 ) 72,275 Investing Activities Rental fleet purchases ( 8,601 ) ( 12,159 ) Property and equipment purchases (excluding rental fleet) ( 16,829 ) ( 17,534 ) Proceeds from sale of property and equipment 2,110 667 Acquisition consideration, net of cash acquired ( 100,471 ) — Other, net ( 176 ) 20 Net Cash Used for Investing Activities ( 123,967 ) ( 29,006 ) Financing Activities Net change in non-manufacturer floorplan payable 32,212 ( 30,104 ) Proceeds from long-term debt borrowings 8,415 6,380 Principal payments on long-term debt and finance leases ( 5,596 ) ( 6,593 ) Payment of debt issuance costs — — Other, net ( 698 ) ( 998 ) Net Cash Provided by (Used for) Financing Activities 34,333 ( 31,315 ) Effect of Exchange Rate Changes on Cash ( 3,529 ) ( 404 ) Net Change in Cash ( 100,297 ) 11,550 Cash at Beginning of Period 146,149 78,990 Cash at End of Period $ 45,852 $ 90,540 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 15,711 $ 22,130 Interest $ 4,595 $ 4,091 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 5,436 $ 15,795 Long-term debt to acquire finance leases $ 7,119 $ 7,761 Net transfer of assets from (to) property and equipment to (from) inventories $ ( 4,686 ) $ 2,168 See Notes to Condensed Consolidated Financial Statements 7 Table of Contents TITAN MACHINERY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s agriculture, construction and international customers. Therefore, operating results for the nine-months ended October 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2023. The information contained in the consolidated balance sheet as of January 31, 2022 was derived from the audited consolidated financial statements of the Company for the fiscal year then ended. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 as filed with the SEC. Nature of Business The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe. The Company’s North American stores are located in Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming and its European stores are located in Bulgaria, Germany, Romania, and Ukraine. Russia/Ukraine Geopolitical Conflict In February, 2022, the ongoing Russia/Ukraine conflict significantly intensified, and the sustained conflict and disruption in the region is ongoing. Titan Machinery Ukraine, LLC ("Titan Machinery Ukraine"), the Company's wholly owned Ukrainian subsidiary, has ten locations throughout Ukraine primarily in western and central Ukraine. The conflict has caused disruptions in our Ukrainian operations, with our revenues for the three months and nine months ended October 31, 2022 down 40.7% and 38.8%, respectively, from the prior year periods. These disruptions have not been material to the Company's consolidated financial statements. However, if the conflict intensifies in western and central Ukraine, it could significantly increase the adverse effect on the Company in future periods. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, goodwill, or indefinite lived intangible assets, collectability of receivables, and income taxes. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation. 8 Table of Contents NOTE 2 - EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share (EPS): Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands, except per share data) Numerator: Net income $ 41,257 $ 21,816 $ 83,756 $ 43,612 Allocation to participating securities ( 563 ) ( 309 ) ( 1,039 ) ( 655 ) Net income attributable to Titan Machinery Inc. common stockholders $ 40,694 $ 21,507 $ 82,717 $ 42,957 Denominator: Basic weighted-average common shares outstanding 22,393 22,213 22,365 22,228 Plus: incremental shares from vesting of restricted stock units 6 9 7 10 Diluted weighted-average common shares outstanding 22,399 22,222 22,372 22,238 Earnings Per Share: Basic $ 1.82 $ 0.97 $ 3.70 $ 1.93 Diluted $ 1.82 $ 0.97 $ 3.70 $ 1.93 NOTE 3 - REVENUE Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services. Sales, value added and other taxes collected from our customers concurrent with our revenue activities are excluded from revenue. The following tables present our revenue disaggregated by revenue source and segment: Three Months Ended October 31, 2022 Nine Months Ended October 31, 2022 Agriculture Construction International Total Agriculture Construction International Total (in thousands) (in thousands) Equipment $ 380,007 $ 56,534 $ 72,455 $ 508,996 $ 901,574 $ 143,536 $ 195,469 $ 1,240,579 Parts 81,420 13,350 13,949 108,719 178,474 37,229 39,271 254,974 Service 29,831 6,807 2,322 38,960 76,514 18,932 6,401 101,847 Other 1,201 639 89 1,929 2,881 1,441 540 4,862 Revenue from contracts with customers 492,459 77,330 88,815 658,604 1,159,443 201,138 241,681 1,602,262 Rental 865 9,073 231 10,169 1,386 22,251 424 24,061 Total revenues $ 493,324 $ 86,403 $ 89,046 $ 668,773 $ 1,160,829 $ 223,389 $ 242,105 $ 1,626,323 Three Months Ended October 31, 2021 Nine Months Ended October 31, 2021 Agriculture Construction International Total Agriculture Construction International Total (in thousands) (in thousands) Equipment $ 205,230 $ 49,679 $ 74,905 $ 329,814 $ 530,895 $ 148,511 $ 199,122 $ 878,528 Parts 52,090 13,413 15,018 80,521 132,515 37,449 38,500 208,464 Service 23,003 6,819 2,204 32,026 63,908 19,773 5,724 89,405 Other 824 622 132 1,578 2,301 1,477 413 4,191 Revenue from contracts with customers 281,147 70,533 92,259 443,939 729,619 207,210 243,759 1,180,588 Rental 359 9,202 475 10,036 803 22,076 844 23,723 Total revenues $ 281,506 $ 79,735 $ 92,734 $ 453,975 $ 730,422 $ 229,286 $ 244,603 $ 1,204,311 9 Table of Contents Unbilled Receivables and Deferred Revenue Unbilled receivables from contracts with customers amounted to $ 26.8 million and $ 17.1 million as of October 31, 2022 and January 31, 2022, respectively. This increase in unbilled receivables is primarily the result of a seasonal increase in the volume of our service transactions in which we recognize revenue as our work is performed and prior to customer invoicing. Deferred revenue from contracts with customers amounted to $ 55.8 million and $ 132.2 million as of October 31, 2022 and January 31, 2022, respectively. Our deferred revenue most often increases in the fourth quarter of each fiscal year due to a higher level of customer down payments or prepayments and longer time periods between customer payment and delivery of the equipment asset, and the related recognition of equipment revenue, prior to its seasonal use. During the nine months ended October 31, 2022 and 2021, the Company recognized $ 126.3 million and $ 55.8 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2022 and January 31, 2021, respectively. No material amount of revenue was recognized during the nine months ended October 31, 2022 or 2021 from performance obligations satisfied in previous periods. The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for parts installed and services performed. The contracts for which the practical expedient has been applied include (i) equipment revenue transactions, which do not have a stated contractual term but are short-term in nature, and (ii) service revenue transactions, which also do not have a stated contractual term but are generally completed within 30 days. For such service contracts, we recognize revenue at the time we perform the work, in the amount for which we have the right to invoice for services completed to date. NOTE 4 - RECEIVABLES The Company provides an allowance for expected credit losses on its nonrental receivables. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics as shown in the table below. Trade and unbilled receivables from contracts with customers have credit risk and the allowance is determined by applying expected credit loss percentages to aging categories based on historical experience that are updated each quarter. The rates may also be adjusted to the extent future events are expected to differ from historical results. In addition, the allowance is adjusted based on information obtained by continued monitoring of individual customer credit. Trade receivables from finance companies, other receivables due from manufacturers, and other receivables have not historically resulted in any credit losses to the Company. These receivables are short-term in nature and deemed to be of good credit quality and have no need for any allowance for expected credit losses. Management continually monitors these receivables and should information be obtained that identifies potential credit risk, an adjustment to the allowance would be made if deemed appropriate. Trade and unbilled receivables from rental contracts are primarily in the United States and are specifically excluded from the accounting guidance in determining an allowance for expected losses. The Company provides an allowance for these receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts. 10 Table of Contents October 31, 2022 January 31, 2022 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 49,856 $ 30,041 Unbilled receivables 26,830 17,129 Less allowance for expected credit losses 2,814 1,979 73,872 45,191 Trade receivables due from finance companies 15,976 17,937 Trade and unbilled receivables from rental contracts Trade receivables 4,175 3,055 Unbilled receivables 884 538 Less allowance for expected credit losses 300 469 4,759 3,124 Other receivables Due from manufacturers 16,736 22,979 Other 506 5,056 17,242 28,035 Receivables, net of allowance for expected credit losses $ 111,849 $ 94,287 11 Table of Contents Following is a summary of allowance for credit losses on trade and unbilled accounts receivable by segment: Agriculture Construction International Total (in thousands) Balance at January 31, 2022 $ 244 $ 193 $ 1,542 $ 1,979 Current expected credit loss provision 47 74 1,036 1,157 Write-offs charged against allowance 41 147 148 336 Credit loss recoveries collected 24 9 — 33 Acquisition 94 — — 94 Foreign exchange impact — — ( 113 ) ( 113 ) Balance at October 31, 2022 $ 368 $ 129 $ 2,317 $ 2,814 Agriculture Construction International Total (in thousands) Balance at January 31, 2021 $ 228 $ 1,074 $ 1,690 $ 2,992 Current expected credit loss provision (benefit) 109 144 ( 235 ) 18 Write-offs charged against allowance 135 177 65 377 Credit loss recoveries collected 9 8 — 17 Foreign exchange impact — — ( 50 ) ( 50 ) Balance at October 31, 2021 $ 211 $ 1,049 $ 1,340 $ 2,600 The increase in the credit loss provision in the International segment, during the nine months ended October 31, 2022, was driven by a $ 0.8 million bad debt provision placed on the accounts receivables due from customers of Titan Machinery Ukraine, primarily due to the ongoing Russia-Ukraine conflict. The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts: Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) Impairment losses (recoveries) on: Receivables from sales contracts $ 197 $ 20 $ 1,196 $ 340 Receivables from rental contracts 49 54 81 24 $ 246 $ 74 $ 1,277 $ 364 NOTE 5 - INVENTORIES October 31, 2022 January 31, 2022 (in thousands) New equipment $ 345,689 $ 195,775 Used equipment 128,521 128,047 Parts and attachments 150,308 95,890 Work in process 5,859 2,046 $ 630,377 $ 421,758 12 Table of Contents NOTE 6 - PROPERTY AND EQUIPMENT October 31, 2022 January 31, 2022 (in thousands) Rental fleet equipment $ 77,676 $ 65,117 Machinery and equipment 26,221 22,819 Vehicles 74,568 58,650 Furniture and fixtures 52,864 50,228 Land, buildings, and leasehold improvements 139,688 123,323 371,017 320,137 Less accumulated depreciation 155,063 141,894 $ 215,954 $ 178,243 The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in Cost of Revenue, which was $ 2.6 million and $ 2.6 million for the three months ended October 31, 2022 and 2021, and $ 6.0 million and $ 6.4 million for the nine months ended October 31, 2022 and 2021, respectively. All other depreciation expense is included in Operating Expenses, which was $ 4.2 million and $ 2.9 million for the three months ended October 31, 2022 and 2021 and $ 11.3 million and $ 8.9 million for the nine months ended October 31, 2022 and 2021, respectively. The Company reviews its long-lived assets for potential impairment whenever events or circumstances indicate that the carrying value of the long-lived asset (or asset group) may not be recoverable. During the three months ended October 31, 2022, the Company identified one such asset group in the Construction segment, and performed an impairment test, and concluded that no impairment was present, thus the Company did not recognize any impairment for the three and nine months ended October 31, 2022. The Company recognized impairment of long-lived assets of $ 0.4 million in its International segment for the nine months ended October 31, 2021 . 13 Table of Contents NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Finite-Lived Intangible Assets The Company's finite-lived intangible assets consist of customer relationships and covenants not to compete. The following is a summary of intangible assets with finite lives as of October 31, 2022 and January 31, 2022. October 31, 2022 January 31, 2022 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Customer relationships $ 5,338 $ (393) $ 4,945 $ 497 $ (252) $ 245 Covenants not to compete 1,025 (168) 857 250 (79) 171 $ 6,363 $ (561) $ 5,802 $ 747 $ (331) $ 416 The Company acquired intangible assets with finite lives, consisting of customer relationships totaling $5.0 million with a weighted-average amortization period of 5.0 years and covenants not to compete totaling $0.8 million with a weighted-average amortization period of 5.0 years, as part of the business combinations completed during the period ended October 31, 2022. The Company acquired intangible assets with finite lives, consisting of customer relationships totaling $0.2 million and covenants not to compete totaling $0.1 million for the year ended January 31, 2022. Future amortization expense, as of October 31, 2022, is expected to be as follows: Fiscal Year Ended January 31, Amount (in thousands) 2023 (remainder) $ 321 2024 1,273 2025 1,248 2026 1,206 2027 1,180 Thereafter 574 $ 5,802 Indefinite-Lived Intangible Assets The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of the changes in indefinite-lived intangible assets, by segment, for the nine months ended October 31, 2022: Agriculture Construction Total (in thousands) January 31, 2022 $ 10,136 $ 72 $ 10,208 Arising from business combinations 842 — 842 October 31, 2022 $ 10,978 $ 72 $ 11,050 Goodwill The following presents changes in the carrying amount of goodwill, by segment, for the nine months ended October 31, 2022: Agriculture Total (in thousands) January 31, 2022 $ 8,952 $ 8,952 Arising from business combinations 23,070 23,070 October 31, 2022 $ 32,022 $ 32,022 14 Table of Contents NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT On October 31, 2022, the Company entered into Amendment No. 2 to the Third Amended and Restated Credit Agreement ("the Bank Syndicate Agreement") to replace the reference rate from LIBOR to the secured overnight financing rate (SOFR) and to add the Heartland Companies as borrowers. The Company elects at the time of any advance to choose a Base Rate Loan or a SOFR Rate Loan. The SOFR Rate is based upon one-month, three-month, or six-month SOFR, as chosen by the Company, plus an applicable margin of 11.4 basis points for one-month, 26.2 basis points for three-month, and 42.8 basis points for six-month loans. In no event shall the SOFR Rate be less than zero. The Base Rate is the greater of (a) the prime rate of interest announced, from time to time, by Bank of America plus applicable margin; (b) the Federal Funds Rate plus 50.0 basis points plus applicable margin, or one-month SOFR plus 100.0 basis points plus applicable margin plus 11.4 basis points. The applicable margin for Base Rate loans remains unchanged from prior versions of the agreement and is based on excess availability under the Bank Syndicate Agreement and ranges from .5% to 1.0%. As of October 31, 2022, the Company had floorplan lines of credit totaling $ 777.0 million, which is primarily comprised of three floorplan lines of credit: (i) a $ 500.0 million credit facility with CNH Industrial (amended as of August 1, 2022, to increase the total available domestic limit to $410 million and overall limit to $500 million), (ii) a $ 185.0 million line of credit under the Bank Syndicate Agreement, and (iii) a $ 50.0 million credit facility with DLL Finance LLC. The Company's outstanding balances of floorplan lines of credit as of October 31, 2022 and January 31, 2022, consisted of the following: October 31, 2022 January 31, 2022 (in thousands) CNH Industrial $ 161,837 $ 94,054 Bank Syndicate Agreement Floorplan Loan 45,000 — DLL Finance 9,629 8,558 Other outstanding balances with manufacturers and non-manufacturers 56,617 32,803 $ 273,083 $ 135,415 As of October 31, 2022, the interest bearing U.S. floorplan payables were primarily on the Bank Syndicate Agreement Loan with a variable interest rate of 4.62%. As of January 31, 2022, generally all U.S. floorplan payables were non-interest bearing. As of October 31, 2022, foreign floorplan payables carried various interest rates primarily ranging from 2.09 % to 4.15 %, compared to a range of 1.40 % to 6.11 % as of January 31, 2022. The Company had non-interest bearing floorplan payables of $ 211.4 million and $ 106.8 million, on October 31, 2022 and January 31, 2022, respectively. NOTE 9 - LONG TERM DEBT The following is a summary of long-term debt as of October 31, 2022 and January 31, 2022: Description Maturity Dates Interest Rates October 31, 2022 January 31, 2022 (in thousands) Mortgage loans, secured Various through May 2039 2.1% to 5.1% $ 69,144 $ 57,801 Sale-leaseback financing obligations Various through December 2030 3.4% to 10.3% 11,541 12,382 Vehicle loans, secured Various through September 2027 2.1% to 4.3% 12,674 10,465 Other Various through July 2039 3.6% 4,591 — Total debt 97,950 80,648 Less: current maturities 6,895 5,876 Long-term debt, net $ 91,055 $ 74,772 15 Table of Contents NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the nine month periods ended October 31, 2022 and October 31, 2021: Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2022 $ ( 4,883 ) $ 2,711 $ ( 2,172 ) Other comprehensive loss ( 1,191 ) — ( 1,191 ) Balance, April 30, 2022 ( 6,074 ) 2,711 ( 3,363 ) Other comprehensive loss ( 2,963 ) — ( 2,963 ) Balance, July 31, 2022 $ ( 9,037 ) $ 2,711 $ ( 6,326 ) Other comprehensive loss ( 5,132 ) ( 5,132 ) Balance, October 31, 2022 $ ( 14,169 ) $ 2,711 $ ( 11,458 ) Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2021 $ ( 1,212 ) $ 2,711 $ 1,499 Other comprehensive loss ( 2,379 ) — ( 2,379 ) Balance, April 30, 2021 ( 3,591 ) 2,711 ( 880 ) Other comprehensive income 938 — 938 Balance, July 31, 2021 $ ( 2,653 ) $ 2,711 $ 58 Other comprehensive loss ( 744 ) — ( 744 ) Balance, October 31, 2021 $ ( 3,397 ) $ 2,711 $ ( 686 ) NOTE 11 - LEASES As Lessee The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; these leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintain property insurance on each of the leased premises. These payments are deemed to be variable lease payments as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion. In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability. Most often, the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability. The Company estimates its incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. The Company's lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants. The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which it has ceased operations. All sublease arrangements are classified as operating leases. 16 Table of Contents The components of lease expense were as follows: Three Months Ended October 31, Nine Months Ended October 31, Classification 2022 2021 2022 2021 (in thousands) (in thousands) Finance lease cost: Amortization of leased assets Operating expenses $ 231 $ 227 $ 645 $ 915 Interest on lease liabilities Other interest expense 48 49 137 201 Operating lease cost Operating expenses and rental and other cost of revenue 3,424 3,632 10,062 11,132 Short-term lease cost Operating expenses — 66 71 198 Variable lease cost Operating expenses 501 502 1,519 1,755 Sublease income Interest and other income ( 358 ) ( 226 ) ( 1,087 ) ( 643 ) $ 3,846 $ 4,250 $ 11,347 $ 13,558 Right-of-use lease assets and lease liabilities consist of the following: Classification October 31, 2022 January 31, 2022 (in thousands) Assets Operating lease assets Operating lease assets $ 52,091 $ 56,150 Finance lease assets (a) Property and equipment, net of accumulated depreciation 2,440 9,045 Total leased assets $ 54,531 $ 65,195 Liabilities Current Operating Current operating lease liabilities $ 9,671 $ 9,601 Finance Accrued expenses and other 623 7,466 Noncurrent Operating Operating lease liabilities 50,737 55,595 Finance Other long-term liabilities 2,144 1,518 Total lease liabilities $ 63,175 $ 74,180 (a) Finance lease assets are recorded net of accumulated amortization of $1.3 million as of October 31, 2022 and $1.7 million as of January 31, 2022. Maturities of lease liabilities as of October 31, 2022 are as follows: Operating Finance Leases Leases Total Fiscal Year Ended January 31, (in thousands) 2023 (remainder) $ 3,285 $ 214 $ 3,499 2024 12,760 776 13,536 2025 12,393 727 13,120 2026 11,881 589 12,470 2027 11,220 458 11,678 2028 9,697 317 10,014 Thereafter 10,781 343 11,124 Total lease payments 72,017 3,424 75,441 Less: Interest 11,609 657 12,266 Present value of lease liabilities $ 60,408 $ 2,767 $ 63,175 The weighted-average lease term and discount rate as of October 31, 2022 are as follows: October 31, 2022 Weighted-average remaining lease term (years): Operating leases 5.9 Financing leases 4.8 Weighted-average discount rate: Operating leases 6.0 % Financing leases 7.9 % 17 Table of Contents As Lessor The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, we may also provide short-term rentals of certain equipment inventory assets. Some rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price. All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force. Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets, included in Property and equipment, net of accumulated depreciation in the condensed consolidated balance sheet, of our Construction segment as of October 31, 2022 and January 31, 2022: October 31, 2022 January 31, 2022 (in thousands) Rental fleet equipment $ 77,676 $ 65,117 Less accumulated depreciation 26,791 23,501 $ 50,885 $ 41,616 NOTE 12 - FAIR VALUE MEASUREMENTS As of October 31, 2022 the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, which is an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement. The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2022 as part of its long-lived asset impairment testing. The estimated fair value of such assets as of January 31, 2022 was $ 3.1 million. Fair value was estimated through an income approach incorporating both observable and unobservable inputs, and are deemed to be Level 3 fair value inputs. The most significant unobservable inputs include forecasted net cash generated from the use of the assets and the discount rate applied to such cash flows to arrive at a fair value estimate. In addition, in certain instances, in the prior year, the Company estimated the fair value of long-lived assets to approximate zero as no future cash flows were assumed to be generated from the use of such assets and the expected value to be realized upon disposition was deemed to be nominal. The Company also has financial instruments that are not recorded at fair value in the consolidated balance sheets, including cash, receivables, payables and long-term debt. The carrying amounts of these financial instruments approximated their fair values as of October 31, 2022 and January 31, 2022. Fair value of these financial instruments was estimated based on Level 2 fair value inputs. The estimated fair value of the Company's Level 2 long-term debt, which is provided for disclosure purposes only, is as follows: October 31, 2022 January 31, 2022 (in thousands) Carrying amount $ 80,182 $ 63,237 Fair value $ 70,702 $ 68,267 18 Table of Contents NOTE 13 - INCOME TAXES Our effective tax rate was 24.5 % and 24.3 % for the three months ended October 31, 2022 and 2021, respectively and was 24.8 % and 25.0 % for the nine months ended October 31, 2022 and 2021, respectively. In reviewing our foreign deferred tax assets as of October 31, 2022, it was concluded that based on recent income and sources of future income of our Bulgarian subsidiary, that the release of the remaining valuation allowance of our Bulgarian subsidiary was warranted. In the third quarter of fiscal 2023, the Company recorded a benefit of $0.3 million from the release of the valuation allowance related to the Company's Bulgarian subsidiary. The effective tax rate for the three and nine months ended October 31, 2022 and 2021 was also subject to various other factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, and the mix of domestic and foreign income . NOTE 14 - BUSINESS COMBINATIONS Fiscal 2023 On August 1, 2022, the Company acquired all interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies") for $ 94.4 million in cash consideration. The Heartland Companies consist of 12 CaseIH commercial application agriculture locations, in the states of Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, and Wisconsin. The Heartland Companies have been a successful CaseIH commercial application dealer group and our acquisition of these entities provides the Company the opportunity for synergies due to the overlap of our footprints, which will allow us to package deals that will include both commercial application equipment as well as other agricultural and construction equipment to commercial customers within our core footprint. These locations are included in the Company's Agriculture segment. In the most recent completed fiscal year, the Heartland Companies generated revenue of approximately $214 million. The results of operations from the acquisition from the August 1, 2022 closing date through October 31, 2022, represented approximately $51.2 million of revenue and $3.4 million of pre-tax income. The Company incurred $1.1 million in acquisition related expenses in connection with this acquisition, which are included in operating expenses in the condensed consolidated statement of operations. 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 the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $ 7.7 million. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Mark's Machinery, Inc. Upon acquiring such inventories, the Company was offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $3.2 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination. Fiscal 2022 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 are included in the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $28.2 million. The Company completed the real estate purchase on December 31, 2021 for a purchase price of $5.5 million, which was partially financed with long-term debt and the remainder was paid in cash. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Jaycox Implement, Inc. Upon acquiring such inventories, the Company was offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $5.3 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination. Purchase Price Allocation Each of the above acquisitions has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed. As of October 31, 2022, the purchase price allocation for all business combinations completed in fiscal year 2023 are preliminary as we finalize the valuation of our intangible assets acquired. The purchase price allocation for all business combinations completed in fiscal year 2022 are complete. The following table presents the purchase price allocations for all acquisitions completed during the fiscal year ended January 31, 2022 and the period ended October 31, 2022: 19 Table of Contents August 1, 2022 April 1, 2022 December 1, 2021 (in thousands) Heartland Companies Mark's Machinery Jaycox Implement Assets acquired: Cash $ 1,583 $ 1 $ 4 Receivables 9,007 478 1,197 Inventories 103,504 3,386 13,780 Prepaid expenses and other 602 66 47 Property and equipment 20,204 4,088 8,236 Operating lease assets 3,928 — — Intangible assets 5,700 917 4,121 Goodwill 22,487 583 7,519 167,015 9,519 34,904 Liabilities assumed: Accounts payable 18,547 — — Floorplan payable 31,699 — — Current operating lease liabilities 541 — — Deferred revenue 5,195 1,844 1,261 Accrued expenses and other 3,523 — — Long-term debt 4,591 — — Operating lease liabilities 3,387 — — Other long-term liabilities 5,152 — — 72,635 1,844 1,261 Net assets acquired $ 94,380 $ 7,675 $ 33,643 Goodwill recognized by segment: Agriculture $ 22,487 $ 583 $ 7,519 Goodwill expected to be deductible for tax purposes $ 22,487 $ 583 $ 7,519 The recognition of goodwill in the above business combinations arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. For the Heartland Companies acquisition, the Company recognized a non-competition intangible asset of $0.7 million and a customer relationship intangible asset of $5.0 million. For the Mark's Machinery acquisition the Company recognized a non-competition intangible asset of $ 0.8 million and a distribution rights intangible asset of $0.8 million. For the Jaycox acquisition the Company recognized a non-competition intangible asset of $ 0.1 million and a distribution rights intangible asset of $ 3.9 million. The non-competition and customer relationship assets will be amortized over five year periods. The distribution rights assets are indefinite-lived intangible assets not subject to amortization. The Company estimated the fair value of the intangible assets using a multi-period excess earnings model, which is an income approach. Acquisition related costs, amounted to $1.1 million for the period ended October 31, 2022, and acquisition related costs for the period ended January 31, 2022, were not material. All acquisition related costs have been expensed as incurred and recognized as operating expenses in the condensed consolidated statements of operations. Pro Forma Information The following summarized unaudited pro forma condensed statement of operations information for the three and nine months ended October 31, 2021 and 2022 assumes that the Heartland Companies acquisition occurred as of February 1, 2021. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed the acquisition as of February 1, 2021 or that will be attained in the future. 20 Table of Contents Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) Total Revenues $ 668,773 $ 497,945 $ 1,786,396 $ 1,361,574 Net Income $ 41,707 $ 23,106 $ 92,590 $ 51,041 NOTE 15 - CONTINGENCIES The Company is engaged in legal proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of these various legal actions and claims will not have a material impact on its financial position, results of operations or cash flows. These matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable. NOTE 16 - SEGMENT INFORMATION The Company has three reportable segments: Agriculture, Construction and International. Revenue between segments is immaterial. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resources assets primarily consist of cash and property and equipment. Certain financial information for each of the Company’s business segments is set forth below. Three Months Ended October 31, Nine Months Ended October 31, 2022 2021 2022 2021 (in thousands) (in thousands) Revenue Agriculture $ 493,324 $ 281,506 $ 1,160,829 $ 730,422 Construction 86,403 79,735 223,389 229,286 International 89,046 92,734 242,105 244,603 Total $ 668,773 $ 453,975 $ 1,626,323 $ 1,204,311 Income (Loss) Before Income Taxes Agriculture $ 42,044 $ 19,618 $ 83,387 $ 42,910 Construction 6,065 3,564 13,197 6,518 International 8,488 6,260 18,683 9,498 Segment income before income taxes 56,597 29,442 115,267 58,926 Shared Resources ( 1,919 ) ( 619 ) ( 3,855 ) ( 793 ) Total $ 54,678 $ 28,823 $ 111,412 $ 58,133 October 31, 2022 January 31, 2022 (in thousands) Total Assets Agriculture $ 742,975 $ 481,190 Construction 194,077 157,846 International 154,359 155,275 Segment assets 1,091,411 794,311 Shared Resources 33,359 152,356 Total $ 1,124,770 $ 946,667 21 Table of Contents