Titan Machinery Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS TITAN MACHINERY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data) April 30, 2023 January 31, 2023 Assets Current Assets Cash $ 38,357 $ 43,913 Receivables, net of allowance for expected credit losses 131,284 95,844 Inventories, net 854,154 703,939 Prepaid expenses and other 19,792 25,554 Total current assets 1,043,587 869,250 Noncurrent Assets Property and equipment, net of accumulated depreciation 233,830 217,782 Operating lease assets 47,684 50,206 Deferred income taxes 2,169 1,246 Goodwill 30,691 30,622 Intangible assets, net of accumulated amortization 18,330 18,411 Other 1,814 1,178 Total noncurrent assets 334,518 319,445 Total Assets $ 1,378,105 $ 1,188,695 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 43,195 $ 40,834 Floorplan payable 442,950 258,372 Current maturities of long-term debt 7,481 7,241 Current operating lease liabilities 9,888 9,855 Deferred revenue 97,532 119,845 Accrued expenses and other 48,042 58,159 Income taxes payable 11,151 3,845 Total current liabilities 660,239 498,151 Long-Term Liabilities Long-term debt, less current maturities 93,445 89,950 Operating lease liabilities 45,770 48,513 Deferred income taxes 9,567 9,563 Other long-term liabilities 5,051 6,212 Total long-term liabilities 153,833 154,238 Commitments and Contingencies (Note 15) Stockholders' Equity Common stock, par value $ .00001 per share, 45,000 shares authorized; 22,669 shares issued and outstanding at April 30, 2023; 22,698 shares issued and outstanding at January 31, 2023 — — Additional paid-in-capital 256,207 256,541 Retained earnings 311,749 284,784 Accumulated other comprehensive loss ( 3,923 ) ( 5,019 ) Total stockholders' equity 564,033 536,306 Total Liabilities and Stockholders' Equity $ 1,378,105 $ 1,188,695 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 April 30, 2023 2022 Revenue Equipment $ 429,376 $ 356,366 Parts 96,606 68,562 Service 34,933 29,523 Rental and other 8,716 6,556 Total Revenue 569,631 461,007 Cost of Revenue Equipment 368,262 310,234 Parts 65,103 47,310 Service 12,409 10,760 Rental and other 5,277 4,009 Total Cost of Revenue 451,051 372,313 Gross Profit 118,580 88,694 Operating Expenses 81,315 64,152 Income from Operations 37,265 24,542 Other Income (Expense) Interest and other income 720 492 Floorplan interest expense ( 1,272 ) ( 254 ) Other interest expense ( 1,274 ) ( 1,196 ) Income Before Income Taxes 35,439 23,584 Provision for Income Taxes 8,474 6,044 Net Income $ 26,965 $ 17,540 Earnings per Share: Basic $ 1.19 $ 0.78 Diluted $ 1.19 $ 0.78 Weighted Average Common Shares: Basic 22,441 22,312 Diluted 22,448 22,321 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 April 30, 2023 2022 Net Income $ 26,965 $ 17,540 Other Comprehensive Income (Loss) Foreign currency translation adjustments 1,096 ( 1,191 ) Comprehensive Income $ 28,061 $ 16,349 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, 2023 22,698 $ — $ 256,541 $ 284,784 $ ( 5,019 ) $ 536,306 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 29 ) ( 993 ) ( 993 ) Stock-based compensation expense 659 659 Net income 26,965 26,965 Other comprehensive income 1,096 1,096 BALANCE, April 30, 2023 22,669 $ — $ 256,207 $ 311,749 $ ( 3,923 ) $ 564,033 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 and exercise of stock options, 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 See Notes to Condensed Consolidated Financial Statements 6 TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Three Months Ended April 30, 2023 2022 Operating Activities Net income $ 26,965 $ 17,540 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 6,948 5,224 Deferred income taxes ( 904 ) ( 998 ) Stock-based compensation expense 659 620 Noncash interest expense 64 58 Other, net 1,663 2,059 Changes in assets and liabilities, net of effects of acquisitions Receivables ( 32,307 ) 9,846 Prepaid expenses and other assets 1,274 3,600 Inventories ( 140,107 ) ( 69,321 ) Manufacturer floorplan payable 86,259 51,069 Deferred revenue ( 23,987 ) ( 6,413 ) Accounts payable, accrued expenses and other and other long-term liabilities ( 4,231 ) ( 7,963 ) Net Cash Provided by (Used for) Operating Activities ( 77,704 ) 5,321 Investing Activities Rental fleet purchases ( 1,329 ) ( 1,046 ) Property and equipment purchases (excluding rental fleet) ( 9,599 ) ( 4,065 ) Proceeds from sale of property and equipment 2,850 836 Acquisition consideration, net of cash acquired ( 17,463 ) ( 7,675 ) Other, net ( 759 ) 6 Net Cash Used for Investing Activities ( 26,300 ) ( 11,944 ) Financing Activities Net change in non-manufacturer floorplan payable 97,266 2,000 Proceeds from long-term debt borrowings 5,131 8,415 Principal payments on long-term debt and finance leases ( 3,207 ) ( 1,743 ) Other, net ( 994 ) ( 683 ) Net Cash Provided by Financing Activities 98,196 7,989 Effect of Exchange Rate Changes on Cash 252 ( 420 ) Net Change in Cash ( 5,556 ) 946 Cash at Beginning of Period 43,913 146,149 Cash at End of Period $ 38,357 $ 147,095 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 84 $ 102 Interest $ 2,090 $ 1,386 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 1,473 $ 1,247 Net transfer of assets to property and equipment from inventories $ ( 935 ) $ ( 891 ) 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 three-months ended April 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2024. The information contained in the consolidated balance sheet as of January 31, 2023 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, 2023 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 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 nine 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 ended April 30, 2023 down 10.7% from the prior year period. 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. Recently Adopted Accounting Guidance In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2022-04, Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This new standard requires that the buyer in a supplier finance program discloses information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption of this ASU is permitted. Entities must apply the amendments of this ASU retrospectively to all periods in which a balance sheet is presented, with the exception of the amendment on disclosure of rollforward information, which entities only need to apply prospectively. 8 Table of Contents The Company has agreements with financial institutions to facilitate the purchase of inventory from designated suppliers under certain terms and conditions. Under these agreements, the Company receives extended payment terms and agrees to pay the financial institution a stated amount of confirmed invoices from its designated suppliers. The Company may incur interest in accordance with the terms of the agreements. Additionally, the Company has no involvement in establishing the terms or conditions of the arrangements between its suppliers and the financial institution. The amounts outstanding under these agreements as of April 30, 2023 and January 31, 2023 were $26.3 million and $13.0 million, respectively, and are presented as Floorplan payable on the Condensed Consolidated Balance Sheet. NOTE 2 - EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share (EPS): Three Months Ended April 30, 2023 2022 (in thousands, except per share data) Numerator: Net income $ 26,965 $ 17,540 Allocation to participating securities ( 295 ) ( 210 ) Net income attributable to Titan Machinery Inc. common stockholders $ 26,670 $ 17,330 Denominator: Basic weighted-average common shares outstanding 22,441 22,312 Plus: incremental shares from vesting of restricted stock units 7 9 Diluted weighted-average common shares outstanding 22,448 22,321 Earnings Per Share: Basic $ 1.19 $ 0.78 Diluted $ 1.19 $ 0.78 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 April 30, 2023 Agriculture Construction International Total (in thousands) Equipment $ 325,660 $ 45,458 $ 58,258 $ 429,376 Parts 69,547 13,664 13,395 96,606 Service 26,266 6,336 2,331 34,933 Other 1,167 360 359 1,886 Revenue from contracts with customers 422,640 65,818 74,343 562,801 Rental 555 6,178 97 6,830 Total revenues $ 423,195 $ 71,996 $ 74,440 $ 569,631 9 Table of Contents Three Months Ended April 30, 2022 Agriculture Construction International Total (in thousands) Equipment $ 251,093 $ 43,819 $ 61,454 $ 356,366 Parts 44,506 12,063 11,993 68,562 Service 21,953 5,823 1,747 29,523 Other 799 303 205 1,307 Revenue from contracts with customers 318,351 62,008 75,399 455,758 Rental 197 4,956 96 5,249 Total revenues $ 318,548 $ 66,964 $ 75,495 $ 461,007 Unbilled Receivables and Deferred Revenue Unbilled receivables from contracts with customers amounted to $ 29.5 million and $ 19.8 million as of April 30, 2023 and January 31, 2023, 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 $ 96.2 million and $ 118.1 million as of April 30, 2023 and January 31, 2023, 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 three months ended April 30, 2023 and 2022, the Company recognized $ 66.4 million and $ 64.6 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2023 and January 31, 2022, respectively. No material amount of revenue was recognized during the three months ended April 30, 2023 or 2022 from performance obligations satisfied in previous periods. 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 April 30, 2023 January 31, 2023 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 69,409 $ 47,298 Unbilled receivables 29,549 19,764 Less allowance for expected credit losses 3,288 3,080 95,670 63,982 Trade receivables due from finance companies 20,275 11,212 Trade and unbilled receivables from rental contracts Trade receivables 3,228 3,629 Unbilled receivables 839 776 Less allowance for expected credit losses 363 360 3,704 4,045 Other receivables Due from manufacturers 10,242 15,007 Other 1,393 1,598 11,635 16,605 Receivables, net of allowance for expected credit losses $ 131,284 $ 95,844 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, 2023 $ 367 $ 124 $ 2,589 $ 3,080 Current expected credit loss provision 30 62 191 283 Write-offs charged against allowance 44 42 15 101 Credit loss recoveries collected 12 1 2 15 Foreign exchange impact — — 11 11 Balance at April 31, 2023 $ 365 $ 145 $ 2,778 $ 3,288 Agriculture Construction International Total (in thousands) Balance at January 31, 2022 $ 232 $ 166 $ 1,502 $ 1,900 Current expected credit loss provision 3 43 768 814 Write-offs (recoveries) charged against allowance ( 4 ) 45 39 80 Credit loss recoveries collected 16 2 — 18 Foreign exchange impact — — ( 15 ) ( 15 ) Balance at April 30, 2022 $ 255 $ 166 $ 2,216 $ 2,637 The increase in the credit loss provision in the International segment, during the three months ended April 30, 2023, was driven by a $ 0.2 million bad debt provision placed on the accounts receivables due from customers of Titan Machinery Ukraine, primarily due to the ongoing Russia-Ukraine conflict. 11 Table of Contents The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts: Three Months Ended April 30, 2023 2022 (in thousands) Impairment losses (recoveries) on: Receivables from sales contracts $ 282 $ 813 Receivables from rental contracts 52 ( 11 ) $ 334 $ 802 NOTE 5 - INVENTORIES April 30, 2023 January 31, 2023 (in thousands) New equipment $ 497,655 $ 369,828 Used equipment 181,558 164,761 Parts and attachments 168,695 164,553 Work in process 6,246 4,797 $ 854,154 $ 703,939 NOTE 6 - PROPERTY AND EQUIPMENT April 30, 2023 January 31, 2023 (in thousands) Rental fleet equipment $ 76,928 $ 75,386 Machinery and equipment 28,605 27,220 Vehicles 85,039 80,122 Furniture and fixtures 55,154 53,937 Land, buildings, and leasehold improvements 153,284 140,773 399,010 377,438 Less accumulated depreciation 165,180 159,656 $ 233,830 $ 217,782 The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in Cost of Revenue, which was $ 1.8 million and $ 1.5 million for the three months ended April 30, 2023 and 2022, respectively. All other depreciation expense is included in Operating Expenses, which was $ 4.8 million and $ 3.5 million for the three months ended April 30, 2023 and 2022, 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. Due to the results of the analyses, the Company concluded no impairments were necessary, thus no impairment was recognized for the three months ended April 30, 2023 and 2022. 12 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 April 30, 2023 and January 31, 2023. April 30, 2023 January 31, 2023 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Customer relationships $ 538 $ (207) $ 331 $ 538 $ (180) $ 358 Covenants not to compete 1,025 (276) 749 1,025 (222) 803 $ 1,563 $ (483) $ 1,080 $ 1,563 $ (402) $ 1,161 Future amortization expense, as of April 30, 2023, is expected to be as follows: Fiscal Year Ended January 31, Amount (in thousands) 2024 (remainder) $ 232 2025 288 2026 246 2027 220 2028 94 Thereafter — $ 1,080 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 three months ended April 30, 2023: Agriculture Construction Total (in thousands) January 31, 2023 $ 17,178 $ 72 $ 17,250 April 30, 2023 $ 17,178 $ 72 $ 17,250 Goodwill The following presents changes in the carrying amount of goodwill, by segment, for the three months ended April 30, 2023: Agriculture Total (in thousands) January 31, 2023 $ 30,622 $ 30,622 Arising from business combinations 69 69 April 30, 2023 $ 30,691 $ 30,691 13 Table of Contents NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT As of April 30, 2023, the Company had floorplan lines of credit totaling $ 781.0 million, which is primarily comprised of three floorplan lines of credit: (i) a $ 500.0 million credit facility with CNH Industrial, (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 April 30, 2023 and January 31, 2023, consisted of the following: April 30, 2023 January 31, 2023 (in thousands) CNH Industrial $ 245,668 $ 177,337 Bank Syndicate Agreement Floorplan Loan 120,050 35,550 DLL Finance 22,411 9,914 Other outstanding balances with manufacturers and non-manufacturers 54,821 35,571 $ 442,950 $ 258,372 As of April 30, 2023, the interest bearing U.S. floorplan payables carried a variable interest rate of 6.42% compared to 5.94% as of January 31, 2023. As of April 30, 2023, foreign floorplan payables carried a variable interest rate with a range of 5.37 % to 5.72 %, compared to a range of 4.16 % to 4.96 % as of January 31, 2023 on multiple lines of credit. The Company had non-interest bearing floorplan payables of $ 303.8 million and $ 213.0 million, on April 30, 2023 and January 31, 2023, respectively. NOTE 9 - LONG TERM DEBT The following is a summary of long-term debt as of April 30, 2023 and January 31, 2023: Description Maturity Dates Interest Rates April 30, 2023 January 31, 2023 (in thousands) Mortgage loans, secured Various through May 2039 2.1% to 6.0% $ 72,432 $ 68,689 Sale-leaseback financing obligations Various through December 2030 3.4% to 10.3% 10,957 11,252 Vehicle loans, secured Various through November 2028 2.1% to 6.2% 12,946 12,659 Other Various through July 2039 3.6% 4,591 4,591 Total debt 100,926 97,191 Less: current maturities 7,481 7,241 Long-term debt, net $ 93,445 $ 89,950 14 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 three month periods ended April 30, 2023 and April 30, 2022: Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2023 $ ( 7,730 ) $ 2,711 $ ( 5,019 ) Other comprehensive income (loss) 1,096 — 1,096 Balance, April 30, 2023 ( 6,634 ) 2,711 ( 3,923 ) 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 income (loss) ( 1,191 ) — ( 1,191 ) Balance, April 30, 2022 ( 6,074 ) 2,711 ( 3,363 ) NOTE 11 - LEASES As Lessor 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 April 30, 2023 and January 31, 2023: April 30, 2023 January 31, 2023 (in thousands) Rental fleet equipment $ 76,928 $ 75,386 Less accumulated depreciation 27,694 26,959 $ 49,234 $ 48,427 NOTE 12 - FAIR VALUE MEASUREMENTS As of April 30, 2023, 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 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 April 30, 2023 and January 31, 2023. 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: April 30, 2023 January 31, 2023 (in thousands) Carrying amount $ 86,576 $ 81,349 Fair value $ 75,426 $ 70,434 15 Table of Contents NOTE 13 - INCOME TAXES Our effective tax rate was 23.9 % and 25.6 % for the three months ended April 30, 2023 and 2022, respectively. The effective tax rates for the three months ended April 30, 2023 and 2022 were subject to various other factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income , and the change of valuation allowances in certain foreign jurisdictions. NOTE 14 - BUSINESS COMBINATIONS Fiscal 2024 On February 1, 2023, the Company acquired certain assets of Pioneer Farm Equipment Co. The acquired business consists of five agriculture equipment stores in American Falls, Blackfoot, Idaho Falls, Rexburg, and Rupert, Idaho. These locations will be included in the Company's Agriculture segment. The total consideration transferred for the acquired business was $10.1 million paid in cash. The Company has agreed to acquire the real estate of Pioneer Farm Equipment Co., subject to customary closing conditions, for a purchase price of $9.4 million. The Company anticipates completing the one remaining real estate acquisition by July 31, 2023. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers, equipment and parts inventory previously owned by Pioneer Farm Equipment Co. Upon acquiring such inventories, the Company has been offered floorplan financing by the manufacturer. In total, the Company acquired inventory and recognized a corresponding liability of $12.7 million. The recognition of these inventories and associated financing liabilities are not included as part of the accounting for the business combination. 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 prior to the acquisition, the Heartland Companies generated revenue of approximately $214 million. 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. Purchase Price Allocation Each of the above acquisitions have 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 April 30, 2023, the purchase price allocation for all business combinations completed in fiscal year 2024 are preliminary as we finalize the valuation of our intangible assets acquired. The purchase price allocation for all business combinations completed in fiscal year 2023 are complete. The following table presents the purchase price allocations for all acquisitions completed during the fiscal year ended January 31, 2023 and the three months ended April 30, 2023: 16 Table of Contents April 30, 2023 January 31, 2023 Assets acquired: Cash $ 3 $ 1,584 Receivables 885 9,485 Inventories 9,294 106,890 Prepaid expenses and other — 668 Property and equipment 8,711 24,292 Operating lease assets — 3,928 Intangible assets — 8,017 Goodwill 69 21,670 18,962 176,534 Liabilities assumed: Accounts payable — 18,547 Floorplan payable — 31,699 Current operating lease liabilities — 541 Deferred revenue 1,499 7,039 Accrued expenses and other — 3,523 Long-term debt — 4,591 Operating lease liabilities — 3,387 Other long-term liabilities — 5,152 1,499 74,479 Net assets acquired $ 17,463 $ 102,055 Goodwill recognized by segment: Agriculture $ 69 $ 21,670 Goodwill expected to be deductible for tax purposes $ 69 $ 21,670 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 business combinations occurring during the year ended January 31, 2023, the Company recognized a non-competition intangible asset of $0.8 million and a customer relationship intangible asset of $0.2 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 January 31, 2023, and acquisition related costs for the period ended April 30, 2023, 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 months ended April 30, 2023 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. Three Months Ended April 30, 2023 2022 (in thousands) Total Revenues $ 569,631 $ 556,410 Net Income $ 26,965 $ 24,059 17 Table of Contents 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 April 30, 2023 2022 (in thousands) Revenue Agriculture $ 423,195 $ 318,548 Construction 71,996 66,964 International 74,440 75,495 Total $ 569,631 $ 461,007 Income (Loss) Before Income Taxes Agriculture $ 24,152 $ 16,449 Construction 4,533 3,210 International 6,384 4,325 Segment income before income taxes 35,069 23,984 Shared Resources 370 ( 400 ) Total $ 35,439 $ 23,584 April 30, 2023 January 31, 2023 (in thousands) Total Assets Agriculture $ 918,600 $ 788,265 Construction 214,298 187,739 International 205,975 170,647 Segment assets 1,338,873 1,146,651 Shared Resources 39,232 42,044 Total $ 1,378,105 $ 1,188,695 18 Table of Contents NOTE 17 - SUBSEQUENT EVENTS On May 1, 2023, the Company, through its German Subsidiary, Titan Machinery Deutschland GmbH, acquired certain assets of MAREP GmbH "MAREP" related to full-service agriculture dealership businesses located in the following cities of Germany: Mühlengeez and Radelübbe. Our acquisitions of MAREP further expands our presence in the German market. The total consideration transferred for the acquired business was $2.1 million paid in cash. The business assets acquired consisted of $0.5 million of inventory and $1.6 million of other tangible assets. The real estate of the Mühlengeez location was also purchased for $2.3 million. Due to the limited time since the acquisition, the estimated fair values of acquired assets are provisional estimates but are based on the best information currently available. These provisional estimates are subject to changes as the Company completes all remaining steps in finalizing the purchase price allocation. Acquisition-related transaction costs were not material. These locations will be included in the Company's international segment. 19 Table of Contents