Titan Machinery Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS TITAN MACHINERY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data) July 31, 2023 January 31, 2023 Assets Current Assets Cash $ 52,765 $ 43,913 Receivables, net of allowance for expected credit losses 119,753 95,844 Inventories, net 979,427 703,939 Prepaid expenses and other 13,543 25,554 Total current assets 1,165,488 869,250 Noncurrent Assets Property and equipment, net of accumulated depreciation 252,187 217,782 Operating lease assets 44,241 50,206 Deferred income taxes 3,769 1,246 Goodwill 31,157 30,622 Intangible assets, net of accumulated amortization 18,354 18,411 Other 1,820 1,178 Total noncurrent assets 351,528 319,445 Total Assets $ 1,517,016 $ 1,188,695 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 41,254 $ 40,834 Floorplan payable 595,728 258,372 Current maturities of long-term debt 11,174 7,241 Current operating lease liabilities 9,533 9,855 Deferred revenue 63,083 119,845 Accrued expenses and other 49,360 58,159 Income taxes payable 7,871 3,845 Total current liabilities 778,003 498,151 Long-Term Liabilities Long-term debt, less current maturities 87,052 89,950 Operating lease liabilities 42,168 48,513 Deferred income taxes 9,569 9,563 Other long-term liabilities 3,543 6,212 Total long-term liabilities 142,332 154,238 Commitments and Contingencies (Note 15) Stockholders' Equity Common stock, par value $ .00001 per share, 45,000,000 shares authorized; 22,863,628 shares issued and outstanding at July 31, 2023; 22,697,761 shares issued and outstanding at January 31, 2023 — — Additional paid-in-capital 256,984 256,541 Retained earnings 343,070 284,784 Accumulated other comprehensive loss ( 3,373 ) ( 5,019 ) Total stockholders' equity 596,681 536,306 Total Liabilities and Stockholders' Equity $ 1,517,016 $ 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 July 31, Six Months Ended July 31, 2023 2022 2023 2022 Revenue Equipment $ 480,122 $ 375,216 $ 909,498 $ 731,582 Parts 108,510 77,693 205,116 146,255 Service 42,478 33,365 77,411 62,887 Rental and other 11,458 10,269 20,174 16,825 Total Revenue 642,568 496,543 1,212,199 957,549 Cost of Revenue Equipment 414,800 323,988 783,062 634,222 Parts 73,086 52,706 138,190 100,015 Service 14,208 11,072 26,617 21,832 Rental and other 7,075 6,078 12,351 10,087 Total Cost of Revenue 509,169 393,844 960,220 766,156 Gross Profit 133,399 102,699 251,979 191,393 Operating Expenses 88,751 68,828 170,066 132,980 Income from Operations 44,648 33,871 81,913 58,413 Other Income (Expense) Interest and other income 641 873 1,362 1,365 Floorplan interest expense ( 2,457 ) ( 245 ) ( 3,729 ) ( 499 ) Other interest expense ( 1,241 ) ( 1,349 ) ( 2,514 ) ( 2,545 ) Income Before Income Taxes 41,591 33,150 77,032 56,734 Provision for Income Taxes 10,270 8,191 18,745 14,235 Net Income $ 31,321 $ 24,959 $ 58,287 $ 42,499 Earnings per Share: Basic $ 1.38 $ 1.10 $ 2.56 $ 1.88 Diluted $ 1.38 $ 1.10 $ 2.56 $ 1.88 Weighted Average Common Shares: Basic 22,476 22,387 22,474 22,350 Diluted 22,484 22,392 22,480 22,357 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 July 31, Six Months Ended July 31, 2023 2022 2023 2022 Net Income $ 31,321 $ 24,959 $ 58,287 $ 42,499 Other Comprehensive Income (Loss) Foreign currency translation adjustments 550 ( 2,963 ) 1,646 ( 4,153 ) Comprehensive Income $ 31,871 $ 21,996 $ 59,933 $ 38,346 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 issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 195 ( 7 ) ( 7 ) Stock-based compensation expense 784 784 Net income 31,321 31,321 Other comprehensive income 550 550 BALANCE, July 31, 2023 22,864 — $ 256,984 $ 343,070 $ ( 3,373 ) $ 596,681 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 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 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 See Notes to Condensed Consolidated Financial Statements 6 TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended July 31, 2023 2022 Operating Activities Net income $ 58,287 $ 42,499 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 14,637 10,987 Deferred income taxes ( 2,495 ) ( 1,005 ) Stock-based compensation expense 1,443 1,423 Noncash interest expense 129 121 Other, net 3,250 4,583 Changes in assets and liabilities, net of effects of acquisitions Receivables ( 20,623 ) ( 2,913 ) Prepaid expenses and other assets 7,540 8,357 Inventories ( 263,121 ) ( 137,708 ) Manufacturer floorplan payable 150,906 105,415 Deferred revenue ( 58,482 ) ( 43,530 ) Accounts payable, accrued expenses and other and other long-term liabilities ( 14,166 ) ( 9,182 ) Net Cash Used for Operating Activities ( 122,695 ) ( 20,953 ) Investing Activities Rental fleet purchases ( 2,690 ) ( 6,020 ) Property and equipment purchases (excluding rental fleet) ( 25,347 ) ( 8,487 ) Proceeds from sale of property and equipment 6,029 1,628 Acquisition consideration, net of cash acquired ( 27,935 ) ( 7,675 ) Other, net ( 795 ) ( 182 ) Net Cash Used for Investing Activities ( 50,738 ) ( 20,736 ) Financing Activities Net change in non-manufacturer floorplan payable 185,026 35,716 Proceeds from long-term debt borrowings 6,503 8,415 Principal payments on long-term debt and finance leases ( 8,701 ) ( 3,879 ) Other, net ( 1,009 ) ( 689 ) Net Cash Provided by Financing Activities 181,819 39,563 Effect of Exchange Rate Changes on Cash 466 ( 1,966 ) Net Change in Cash 8,852 ( 4,092 ) Cash at Beginning of Period 43,913 146,149 Cash at End of Period $ 52,765 $ 142,057 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 15,215 $ 11,116 Interest $ 5,377 $ 2,851 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 5,175 $ 2,667 Net transfer of assets to property and equipment from inventories $ ( 1,232 ) $ ( 2,849 ) 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 six-months ended July 31, 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. 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. On February 1st, 2023 we adopted ASU No. 2022-04 with no impact to our consolidated financial statements. 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. 8 Table of Contents The amounts outstanding under these agreements as of July 31, 2023 and January 31, 2023 were $ 42.1 million and $ 13.0 million, respectively, and are presented as Floorplan payable on the Company's 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 July 31, Six Months Ended July 31, 2023 2022 2023 2022 (in thousands, except per share data) Numerator: Net income $ 31,321 $ 24,959 $ 58,287 $ 42,499 Allocation to participating securities ( 400 ) ( 291 ) ( 689 ) ( 502 ) Net income attributable to Titan Machinery Inc. common stockholders $ 30,921 $ 24,668 $ 57,598 $ 41,997 Denominator: Basic weighted-average common shares outstanding 22,476 22,387 22,474 22,350 Plus: incremental shares from vesting of restricted stock units 8 5 6 7 Diluted weighted-average common shares outstanding 22,484 22,392 22,480 22,357 Earnings Per Share: Basic $ 1.38 $ 1.10 $ 2.56 $ 1.88 Diluted $ 1.38 $ 1.10 $ 2.56 $ 1.88 NOTE 3 - REVENUE Revenue is 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 July 31, 2023 Six Months Ended July 31, 2023 Agriculture Construction International Total Agriculture Construction International Total (in thousands) (in thousands) Equipment $ 352,533 $ 53,697 $ 73,892 $ 480,122 $ 678,193 $ 99,155 $ 132,150 $ 909,498 Parts 82,246 12,537 13,727 108,510 151,793 26,202 27,121 205,116 Service 32,526 7,347 2,605 42,478 58,793 13,683 4,935 77,411 Other 1,235 588 193 2,016 2,402 948 552 3,902 Revenue from contracts with customers 468,540 74,169 90,417 633,126 891,181 139,988 164,758 1,195,927 Rental 529 8,694 219 9,442 1,085 14,872 315 16,272 Total revenue $ 469,069 $ 82,863 $ 90,636 $ 642,568 $ 892,266 $ 154,860 $ 165,073 $ 1,212,199 9 Table of Contents Three Months Ended July 31, 2022 Six Months Ended July 31, 2022 Agriculture Construction International Total Agriculture Construction International Total (in thousands) (in thousands) Equipment $ 270,472 $ 43,184 $ 61,560 $ 375,216 $ 521,565 $ 87,002 $ 123,015 $ 731,582 Parts 52,548 11,816 13,329 77,693 97,054 23,879 25,322 146,255 Service 24,730 6,302 2,333 33,365 46,683 12,125 4,079 62,887 Other 880 500 246 1,626 1,679 803 451 2,933 Revenue from contracts with customers 348,630 61,802 77,468 487,900 666,981 123,809 152,867 943,657 Rental 326 8,220 97 8,643 522 13,177 193 13,892 Total revenue $ 348,956 $ 70,022 $ 77,565 $ 496,543 $ 667,503 $ 136,986 $ 153,060 $ 957,549 Unbilled Receivables and Deferred Revenue Unbilled receivables from contracts with customers amounted to $ 32.1 million and $ 19.8 million as of July 31, 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 $ 62.0 million and $ 118.1 million as of July 31, 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 six months ended July 31, 2023 and 2022, the Company recognized $ 107.7 million and $ 105.1 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 six months ended July 31, 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 July 31, 2023 January 31, 2023 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 57,220 $ 47,298 Unbilled receivables 32,110 19,764 Less allowance for expected credit losses 3,251 3,080 86,079 63,982 Trade receivables due from finance companies 17,556 11,212 Trade and unbilled receivables from rental contracts Trade receivables 3,804 3,629 Unbilled receivables 1,076 776 Less allowance for expected credit losses 436 360 4,444 4,045 Other receivables Due from manufacturers 10,766 15,007 Other 908 1,598 11,674 16,605 Receivables, net of allowance for expected credit losses $ 119,753 $ 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 (benefit) provision ( 15 ) 123 244 352 Write-offs charged against allowance 143 56 53 252 Credit loss recoveries collected 13 1 42 56 Foreign exchange impact — — 15 15 Balance at July 31, 2023 $ 222 $ 192 $ 2,837 $ 3,251 Agriculture Construction International Total (in thousands) Balance at January 31, 2022 $ 244 $ 193 $ 1,542 $ 1,979 Current expected credit loss provision 79 35 846 960 Write-offs (recoveries) charged against allowance 30 97 61 188 Credit loss recoveries collected 16 4 — 20 Foreign exchange impact — — ( 49 ) ( 49 ) Balance at July 31, 2022 $ 309 $ 135 $ 2,278 $ 2,722 The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts reflected in Operating Expenses in the Condensed Consolidated Statements of 11 Table of Contents Operations: Three Months Ended July 31, Six Months Ended July 31, 2023 2022 2023 2022 (in thousands) Impairment losses on: Receivables from sales contracts $ 69 $ 186 $ 351 $ 999 Receivables from rental contracts 71 43 123 32 $ 140 $ 229 $ 474 $ 1,031 NOTE 5 - INVENTORIES July 31, 2023 January 31, 2023 (in thousands) New equipment $ 598,926 $ 369,828 Used equipment 194,730 164,761 Parts and attachments 179,527 164,553 Work in process 6,244 4,797 $ 979,427 $ 703,939 NOTE 6 - PROPERTY AND EQUIPMENT July 31, 2023 January 31, 2023 (in thousands) Rental fleet equipment $ 77,848 $ 75,386 Machinery and equipment 31,241 27,220 Vehicles 87,816 80,122 Furniture and fixtures 56,069 53,937 Land, buildings, and leasehold improvements 169,601 140,773 422,575 377,438 Less accumulated depreciation 170,388 159,656 $ 252,187 $ 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 $ 2.2 million and $ 2.0 million for the three months ended July 31, 2023 and 2022, and $ 3.9 million and $ 3.5 million for the six months ended July 31, 2023 and 2022, respectively. All other depreciation expense is included in Operating Expenses, which was $ 5.2 million and $ 3.6 million for the three months ended July 31, 2023 and 2022, and $ 10.0 million and $ 7.1 million for the six months ended July 31, 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 and six months ended July 31, 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 July 31, 2023 and January 31, 2023. July 31, 2023 January 31, 2023 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Customer relationships $ 538 $ (234) $ 304 $ 538 $ (180) $ 358 Covenants not to compete 1,133 (333) 800 1,025 (222) 803 $ 1,671 $ (567) $ 1,104 $ 1,563 $ (402) $ 1,161 Future amortization expense, as of July 31, 2023, is expected to be as follows: Fiscal Year Ended January 31, Amount (in thousands) 2024 (remainder) $ 173 2025 325 2026 282 2027 232 2028 92 Thereafter — $ 1,104 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 six months ended July 31, 2023: Agriculture Construction Total (in thousands) January 31, 2023 $ 17,178 $ 72 $ 17,250 July 31, 2023 $ 17,178 $ 72 $ 17,250 Goodwill The following presents changes in the carrying amount of goodwill, by segment, for the six months ended July 31, 2023: Agriculture International Total (in thousands) January 31, 2023 $ 30,622 $ — $ 30,622 Arising from business combinations 69 471 540 Foreign currency translation — ( 5 ) ( 5 ) July 31, 2023 $ 30,691 $ 466 $ 31,157 13 Table of Contents NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT As of July 31, 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 Third Amended and Restated Credit Agreement (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 July 31, 2023 and January 31, 2023, consisted of the following: July 31, 2023 January 31, 2023 (in thousands) CNH Industrial $ 318,447 $ 177,337 Bank Syndicate Agreement Floorplan Loan 185,000 35,550 DLL Finance 37,739 9,914 Other outstanding balances with manufacturers and non-manufacturers 54,542 35,571 $ 595,728 $ 258,372 As of July 31, 2023, the interest-bearing U.S. floorplan payables carried a variable interest rate with a range of 6.72 % to 11.00 % compared to a range of 5.94 % to 10.25 % as of January 31, 2023. As of July 31, 2023, foreign floorplan payables carried a variable interest rate with a range of 5.36 % to 6.17 %, 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 $ 360.4 million and $ 213.0 million, as of July 31, 2023 and January 31, 2023, respectively. NOTE 9 - LONG TERM DEBT The following is a summary of long-term debt as of July 31, 2023 and January 31, 2023: Description Maturity Dates Interest Rates July 31, 2023 January 31, 2023 (in thousands) Mortgage loans, secured Various through May 2039 2.1% to 7.3% $ 69,682 $ 68,689 Sale-leaseback financing obligations Various through December 2030 3.4% to 10.3% 10,658 11,252 Vehicle loans, secured Various through May 2029 2.1% to 6.8% 13,295 12,659 Other Various through July 2039 3.6% 4,591 4,591 Total debt 98,226 97,191 Less: current maturities 11,174 7,241 Long-term debt, net $ 87,052 $ 89,950 NOTE 10 - DERIVATIVE INSTRUMENTS The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations. From time to time, the Company uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net income. The Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter. The notional value of outstanding foreign currency contracts as of July 31, 2023 was $ 5.1 million. There were no outstanding foreign currency contracts as of January 31, 2023. As of July 31, 2023 and January 31, 2023, the fair value of the Company's outstanding derivative instruments was not material. Derivative instruments recognized as assets are recorded in prepaid expenses and other in the condensed consolidated balance sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the condensed consolidated balance sheets. The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the three and six months ended July 31, 2023 and 2022. Gains and losses are recognized in Interest and other income in the condensed consolidated statements of operations: Three Months Ended July 31, Six Months Ended July 31, 2023 2022 2023 2022 (in thousands) Foreign currency contract gain (loss) $ 21 $ — $ ( 39 ) $ — NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the six month periods ended July 31, 2023 and July 31, 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 ) Other comprehensive income (loss) 550 550 Balance, July 31, 2023 $ ( 6,084 ) $ 2,711 $ ( 3,373 ) 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 ) Other comprehensive income (loss) ( 2,963 ) — ( 2,963 ) Balance, July 31, 2022 $ ( 9,037 ) $ 2,711 $ ( 6,326 ) NOTE 12 - 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 July 31, 2023 and January 31, 2023: July 31, 2023 January 31, 2023 (in thousands) Rental fleet equipment $ 77,848 $ 75,386 Less accumulated depreciation 28,494 26,959 $ 49,354 $ 48,427 NOTE 13 - FAIR VALUE MEASUREMENTS As of July 31, 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 July 31, 2023 and January 31, 2023. The fair value of these financial instruments was estimated based on 14 Table of Contents 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: July 31, 2023 January 31, 2023 (in thousands) Carrying amount $ 82,977 $ 81,349 Fair value $ 72,939 $ 70,434 NOTE 14 - INCOME TAXES Our effective tax rate was 24.7 % for each of the three months ended July 31, 2023 and 2022 and was 24.3 % and 25.1 % for the six months ended July 31, 2023 and 2022, respectively. The effective tax rate for the three and six months ended July 31, 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. 15 Table of Contents NOTE 15 - BUSINESS COMBINATIONS Fiscal 2024 On June 1, 2023, the Company acquired certain assets of Midwest Truck Parts Inc., ("Midwest Truck"). The acquired business consists of one location in Dawson, Minnesota. This location is included in the Company's Agriculture segment. The total consideration transferred for the acquired business was $4.0 million paid in cash, which includes the purchase of the real estate. On May 1, 2023, the Company, through its German subsidiary, Titan Machinery Deutschland GmbH, acquired certain assets of MAREP GmbH ("MAREP") related to its full-service agriculture dealership business located in Mühlengeez and Radelübbe, Germany. Our acquisition of these assets from MAREP further expands our presence in the German market. The total consideration transferred for the acquired business was $4.4 million paid in cash, which includes the real estate of the Mühlengeez location. These locations are included in the Company's international segment. On February 1, 2023, the Company acquired certain assets of Pioneer Farm Equipment Co., ("Pioneer Farm Equipment"). The acquired business consists of five agriculture equipment stores in American Falls, Blackfoot, Idaho Falls, Rexburg, and Rupert, Idaho. These locations are included in the Company's Agriculture segment. The total consideration transferred for the acquired business was $19.5 million paid in cash, which includes $9.4 million for the purchase of the real estate. 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 these inventories, the Company was 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 outstanding equity 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 recently 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 these 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. The purchase price allocation for all business combinations completed in the six months ended July 31, 2023 are preliminary as we finalize the valuation of our intangible assets acquired. The purchase price allocations 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 six months ended July 31, 2023: 16 Table of Contents July 31, 2023 January 31, 2023 (in thousands) Assets acquired: Cash $ 4 $ 1,584 Receivables 885 9,485 Inventories 11,237 106,890 Prepaid expenses and other — 668 Property and equipment 16,659 24,292 Operating lease assets 148 3,928 Intangible assets — 8,017 Goodwill 540 21,670 Other $ 110 — 29,583 176,534 Liabilities assumed: Accounts payable — 18,547 Floorplan payable — 31,699 Current operating lease liabilities 58 541 Deferred revenue 1,499 7,039 Accrued expenses and other — 3,523 Long-term debt — 4,591 Operating lease liabilities 91 3,387 Other long-term liabilities — 5,152 1,648 74,479 Net assets acquired $ 27,935 $ 102,055 Goodwill recognized by segment: Agriculture $ 69 $ 21,670 International $ 471 $ — Goodwill expected to be deductible for tax purposes $ 540 $ 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 completed during the six months ended July 31, 2023, the Company recognized a non-competition intangible asset of $0.1 million in its International segment, which will be amortized over a three year period. For the business combinations completed during the fiscal 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 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 for the six month period ended July 31, 2023 amounted to $0.5 million, primarily related to the O'Connors, see Subsequent Event Note 18, acquisition. Acquisition related costs amounted to $1.1 million for the fiscal year ended January 31, 2023. All acquisition-related costs have been expensed as incurred and recognized as Operating Expenses in the condensed consolidated statements of operations. 17 Table of Contents Pro Forma Information The following summarized unaudited pro forma condensed statement of operations information for the three months ended July 31, 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 July 31, Six Months Ended July 31, 2023 2022 2023 2022 (in thousands) Total Revenues $ 642,568 $ 561,194 $ 1,212,199 $ 1,117,622 Net Income $ 31,321 $ 27,523 $ 58,287 $ 51,904 NOTE 16 - 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 17 - 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. 18 Table of Contents Certain financial information for each of the Company’s business segments is set forth below. Three Months Ended July 31, Six Months Ended July 31, 2023 2022 2023 2022 (in thousands) (in thousands) Revenue Agriculture $ 469,069 $ 348,956 $ 892,266 $ 667,503 Construction 82,863 70,022 154,860 136,986 International 90,636 77,565 165,073 153,060 Total $ 642,568 $ 496,543 $ 1,212,199 $ 957,549 Income (Loss) Before Income Taxes Agriculture $ 33,029 $ 24,895 $ 57,181 $ 41,344 Construction 5,156 3,923 9,689 7,132 International 5,568 5,870 11,952 10,195 Segment income before income taxes 43,753 34,688 78,822 58,671 Shared Resources ( 2,162 ) ( 1,538 ) ( 1,790 ) ( 1,937 ) Total $ 41,591 $ 33,150 $ 77,032 $ 56,734 July 31, 2023 January 31, 2023 (in thousands) Total Assets Agriculture $ 985,419 $ 788,265 Construction 224,478 187,739 International 242,177 170,647 Segment assets 1,452,074 1,146,651 Shared Resources 64,942 42,044 Total $ 1,517,016 $ 1,188,695 NOTE 18 - SUBSEQUENT EVENTS On August 29, 2023, the Company entered into a definitive purchase agreement to acquire J.J. O’Connor & Sons Pty. Ltd. ("O’Connors"), which operates 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia. In its most recently completed fiscal year ended June 30, 2023, O’Connors generated revenue of approximately $258 million. The Company plans to close on the acquisition in the fourth quarter of calendar 2023. The consideration paid is estimated to be $63 million, subject to final working capital and other purchase price closing adjustments. The acquisition will be accounted for in accordance with Accounting Standards Codification ("ASC") Topic 805, "Business Combinations". The Company plans to fund the acquisition with cash on hand and additional indebtedness under the floorplan and working capital loans of the Bank Syndicate. On September 1, 2023, the Company entered into Amendment No. 3 to the Third Amended and Restated Credit Agreement with the Bank Syndicate, the amendment increased the Floorplan loan capacity from $185 million to $250 million and the Revolver loan capacity from $65 million to $75 million. 19 Table of Contents