Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
TITAN MACHINERY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
October 31, 2023 January 31, 2023
Assets
Current Assets
Cash $ 69,981 $ 43,913
Receivables, net of allowance for expected credit losses 129,399 95,844
Inventories, net 1,071,088 703,939
Prepaid expenses and other 15,080 25,554
Total current assets 1,285,548 869,250
Noncurrent Assets
Property and equipment, net of accumulated depreciation 267,155 217,782
Operating lease assets 40,835 50,206
Deferred income taxes 4,969 1,246
Goodwill 31,144 30,622
Intangible assets, net of accumulated amortization 18,266 18,411
Other 1,821 1,178
Total noncurrent assets 364,190 319,445
Total Assets $ 1,649,738 $ 1,188,695
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 38,016 $ 40,834
Floorplan payable 705,610 258,372
Current maturities of long-term debt 11,586 7,241
Current operating lease liabilities 9,395 9,855
Deferred revenue 43,964 119,845
Accrued expenses and other 71,211 58,159
Income taxes payable 5,622 3,845
Total current liabilities 885,404 498,151
Long-Term Liabilities
Long-term debt, less current maturities 87,591 89,950
Operating lease liabilities 38,688 48,513
Deferred income taxes 9,561 9,563
Other long-term liabilities 2,661 6,212
Total long-term liabilities 138,501 154,238
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $ .00001 per share, 45,000,000 shares authorized; 22,862,706 shares issued and outstanding at October 31, 2023; 22,697,761 shares issued and outstanding at January 31, 2023
— —
Additional paid-in-capital 257,881 256,541
Retained earnings 373,263 284,784
Accumulated other comprehensive loss ( 5,311 ) ( 5,019 )
Total stockholders' equity 625,833 536,306
Total Liabilities and Stockholders' Equity $ 1,649,738 $ 1,188,695
See Notes to Condensed Consolidated Financial Statements
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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,
2023 2022 2023 2022
Revenue
Equipment $ 521,775 $ 508,996 $ 1,431,272 $ 1,240,579
Parts 114,962 108,719 320,077 254,974
Service 44,767 38,960 122,178 101,847
Rental and other 12,611 12,098 32,785 28,923
Total Revenue 694,115 668,773 1,906,312 1,626,323
Cost of Revenue
Equipment 454,598 436,156 1,237,660 1,070,378
Parts 78,585 72,146 216,775 172,162
Service 14,393 13,456 41,010 35,288
Rental and other 8,198 7,435 20,549 17,522
Total Cost of Revenue 555,774 529,193 1,515,994 1,295,350
Gross Profit 138,341 139,580 390,318 330,973
Operating Expenses 92,115 84,861 262,182 217,841
Income from Operations 46,226 54,719 128,136 113,132
Other Income (Expense)
Interest and other income (expense) ( 235 ) 1,804 1,129 3,169
Floorplan interest expense ( 4,045 ) ( 588 ) ( 7,774 ) ( 1,087 )
Other interest expense ( 1,494 ) ( 1,257 ) ( 4,008 ) ( 3,802 )
Income Before Income Taxes 40,452 54,678 117,483 111,412
Provision for Income Taxes 10,259 13,421 29,004 27,656
Net Income $ 30,193 $ 41,257 $ 88,479 $ 83,756
Earnings per Share:
Basic $ 1.32 $ 1.82 $ 3.88 $ 3.70
Diluted $ 1.32 $ 1.82 $ 3.88 $ 3.70
Weighted Average Common Shares:
Basic 22,512 22,393 22,487 22,365
Diluted 22,517 22,399 22,493 22,372
See Notes to Condensed Consolidated Financial Statements
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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
Three Months Ended October 31, Nine Months Ended October 31,
2023 2022 2023 2022
Net Income $ 30,193 $ 41,257 $ 88,479 $ 83,756
Other Comprehensive Income (Loss)
Foreign currency translation adjustments ( 1,938 ) ( 5,132 ) ( 292 ) ( 9,285 )
Comprehensive Income $ 28,255 $ 36,125 $ 88,187 $ 74,471
See Notes to Condensed Consolidated Financial Statements
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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 at 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 at 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 at July 31, 2023 22,864 $ — $ 256,984 $ 343,070 $ ( 3,373 ) $ 596,681
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 1 ) — 1 — — 1
Stock-based compensation expense — — 896 — — 896
Net income — — — 30,193 — 30,193
Other comprehensive loss — — — — ( 1,938 ) ( 1,938 )
Balance at October 31, 2023 22,863 $ — $ 257,881 $ 373,263 $ ( 5,311 ) $ 625,833
Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Shares Outstanding Amount
Balance at 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 at 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 at July 31, 2022 22,695 $ — $ 255,188 $ 225,415 $ ( 6,326 ) $ 474,277
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 12 — — — — —
Stock-based compensation expense — — 885 — — 885
Net income — — — 41,257 — 41,257
Other comprehensive loss — — — — ( 5,132 ) ( 5,132 )
Balance at October 31, 2022 22,707 $ — $ 256,073 $ 266,672 $ ( 11,458 ) $ 511,287
See Notes to Condensed Consolidated Financial Statements
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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended October 31,
2023 2022
Operating Activities
Net income $ 88,479 $ 83,756
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 22,871 18,356
Deferred income taxes ( 3,731 ) ( 1,835 )
Stock-based compensation expense 2,339 2,308
Noncash interest expense 206 182
Other, net 5,628 7,072
Changes in assets and liabilities, net of effects of acquisitions
Receivables ( 31,947 ) ( 10,507 )
Prepaid expenses and other assets 5,774 10,675
Inventories ( 358,837 ) ( 115,734 )
Manufacturer floorplan payable 274,968 78,972
Deferred revenue ( 77,425 ) ( 83,029 )
Accounts payable, accrued expenses and other and other long-term liabilities ( 10,386 ) 2,650
Net Cash Used for Operating Activities ( 82,061 ) ( 7,134 )
Investing Activities
Rental fleet purchases ( 5,154 ) ( 8,601 )
Property and equipment purchases (excluding rental fleet) ( 36,770 ) ( 16,829 )
Proceeds from sale of property and equipment 6,451 2,110
Acquisition consideration, net of cash acquired ( 27,935 ) ( 100,471 )
Other, net ( 643 ) ( 176 )
Net Cash Used for Investing Activities ( 64,051 ) ( 123,967 )
Financing Activities
Net change in non-manufacturer floorplan payable 174,353 32,212
Proceeds from long-term debt borrowings 7,721 8,415
Principal payments on long-term debt and finance leases ( 10,685 ) ( 5,596 )
Other, net ( 1,121 ) ( 698 )
Net Cash Provided by Financing Activities 170,268 34,333
Effect of Exchange Rate Changes on Cash 1,912 ( 3,529 )
Net Change in Cash 26,068 ( 100,297 )
Cash at Beginning of Period 43,913 146,149
Cash at End of Period $ 69,981 $ 45,852
Supplemental Disclosures of Cash Flow Information
Cash paid during the period
Income taxes, net of refunds $ 28,890 $ 15,711
Interest $ 10,480 $ 4,595
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 5,479 $ 5,436
Long-term debt to acquire finance leases $ — $ 7,119
Net transfer of assets to property and equipment from inventories $ ( 400 ) $ ( 4,686 )
See Notes to Condensed Consolidated Financial Statements
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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, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2024. The segment formerly known as "International" has been updated to "Europe" as of October 31, 2023 and a fourth segment "Australia" will be added starting in the fourth quarter fiscal 2024 reporting, as a result of the Company's acquisition of J.J. O’Connor & Sons Pty. Ltd. ("O’Connors"), refer to Note 18 - Subsequent Event for further details. 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, Europe, and Australia. 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. Internationally, the Company's European stores are located in Bulgaria, Germany, Romania, and Ukraine and the Company's Australian stores are located in New South Wales, South Australia, and Victoria in Southeastern Australia.
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 issued accounting pronouncements not yet adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements.
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Recently Adopted Accounting Guidance
In September 2022, FASB issued 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 1, 2023, the Company adopted ASU No. 2022-04 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.
The amounts outstanding under these agreements as of October 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 October 31, Nine Months Ended October 31,
2023 2022 2023 2022
(in thousands, except per share data)
Numerator:
Net income $ 30,193 $ 41,257 $ 88,479 $ 83,756
Allocation to participating securities ( 465 ) ( 563 ) ( 1,153 ) ( 1,039 )
Net income attributable to Titan Machinery Inc. common stockholders $ 29,728 $ 40,694 $ 87,326 $ 82,717
Denominator:
Basic weighted-average common shares outstanding 22,512 22,393 22,487 22,365
Plus: incremental shares from vesting of restricted stock units 5 6 6 7
Diluted weighted-average common shares outstanding 22,517 22,399 22,493 22,372
Earnings Per Share:
Basic $ 1.32 $ 1.82 $ 3.88 $ 3.70
Diluted $ 1.32 $ 1.82 $ 3.88 $ 3.70
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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 October 31, 2023 Nine Months Ended October 31, 2023
Agriculture Construction Europe Total Agriculture Construction Europe Total
(in thousands) (in thousands)
Equipment $ 408,648 $ 47,364 $ 65,763 $ 521,775 $ 1,086,840 $ 146,519 $ 197,913 $ 1,431,272
Parts 86,173 12,943 15,846 114,962 237,966 39,144 42,967 320,077
Service 34,718 7,084 2,965 44,767 93,510 20,767 7,901 122,178
Other 1,333 547 318 2,198 3,735 1,496 869 6,100
Revenue from contracts with customers
530,872 67,938 84,892 683,702 1,422,051 207,926 249,650 1,879,627
Rental 532 9,570 311 10,413 1,618 24,442 625 26,685
Total revenue $ 531,404 $ 77,508 $ 85,203 $ 694,115 $ 1,423,669 $ 232,368 $ 250,275 $ 1,906,312
Three Months Ended October 31, 2022 Nine Months Ended October 31, 2022
Agriculture Construction Europe Total Agriculture Construction Europe 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 revenue $ 493,324 $ 86,403 $ 89,046 $ 668,773 $ 1,160,829 $ 223,389 $ 242,105 $ 1,626,323
Unbilled Receivables and Deferred Revenue
Unbilled receivables from contracts with customers amounted to $ 33.0 million and $ 19.8 million as of October 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 $ 43.2 million and $ 118.1 million as of October 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 nine months ended October 31, 2023 and 2022, the Company recognized $ 118.0 million and $ 126.3 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 nine months ended October 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.
Short-term 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.
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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.
October 31, 2023 January 31, 2023
(in thousands)
Trade and unbilled receivables from contracts with customers
Trade receivables due from customers $ 60,385 $ 47,298
Unbilled receivables 32,985 19,764
Less allowance for expected credit losses 3,515 3,080
89,855 63,982
Short-term receivables due from finance companies 22,513 11,212
Trade and unbilled receivables from rental contracts
Trade receivables 3,614 3,629
Unbilled receivables 1,060 776
Less allowance for expected credit losses 399 360
4,275 4,045
Other receivables
Due from manufacturers 11,781 15,007
Other 975 1,598
12,756 16,605
Receivables, net of allowance for expected credit losses $ 129,399 $ 95,844
Following is a summary of allowance for credit losses on trade and unbilled accounts receivable by segment:
Agriculture Construction Europe Total
(in thousands)
Balance at January 31, 2023 $ 367 $ 124 $ 2,589 $ 3,080
Current expected credit loss provision 64 155 495 714
Write-offs charged against allowance 191 95 56 342
Credit loss recoveries collected 15 7 52 74
Foreign exchange impact — — ( 11 ) ( 11 )
Balance at October 31, 2023 $ 255 $ 191 $ 3,069 $ 3,515
Agriculture Construction Europe 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
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The following table presents impairment losses on receivables arising from sales contracts with customers and receivables arising from rental contracts reflected in Operating Expenses in the Condensed Consolidated Statements of Operations:
Three Months Ended October 31, Nine Months Ended October 31,
2023 2022 2023 2022
(in thousands)
Impairment losses on:
Receivables from sales contracts $ 362 $ 197 $ 714 $ 1,196
Receivables from rental contracts 19 49 141 81
$ 381 $ 246 $ 855 $ 1,277
NOTE 5 - INVENTORIES
October 31, 2023 January 31, 2023
(in thousands)
New equipment $ 675,547 $ 369,828
Used equipment 216,947 164,761
Parts and attachments 171,586 164,553
Work in process 7,008 4,797
$ 1,071,088 $ 703,939
NOTE 6 - PROPERTY AND EQUIPMENT
October 31, 2023 January 31, 2023
(in thousands)
Rental fleet equipment $ 77,231 $ 75,386
Machinery and equipment 31,601 27,220
Vehicles 89,870 80,122
Furniture and fixtures 57,062 53,937
Land, buildings, and leasehold improvements 185,991 140,773
441,755 377,438
Less accumulated depreciation 174,600 159,656
$ 267,155 $ 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 $ 2.5 million and $ 2.6 million for the three months ended October 31, 2023 and 2022, respectively, and $ 6.5 million and $ 6.0 million for the nine months ended October 31, 2023 and 2022, respectively. All other depreciation expense is included in Operating Expenses, which was $ 5.3 million and $ 4.2 million for the three months ended October 31, 2023 and 2022, respectively, and $ 15.3 million and $ 11.3 million for the nine months ended October 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 nine months ended October 31, 2023 and 2022.
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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, 2023 and January 31, 2023:
October 31, 2023 January 31, 2023
Cost Accumulated Amortization Net Cost Accumulated Amortization Net
(in thousands) (in thousands)
Customer relationships $ 538 $ (261) $ 277 $ 538 $ (180) $ 358
Covenants not to compete 1,131 (392) 739 1,025 (222) 803
$ 1,669 $ (653) $ 1,016 $ 1,563 $ (402) $ 1,161
Future amortization expense, as of October 31, 2023, is expected to be as follows:
Fiscal Year Ended January 31,
Amount
(in thousands)
2024 (remainder) $ 86
2025 325
2026 282
2027 232
2028 91
Thereafter —
$ 1,016
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, 2023:
Agriculture Construction Total
(in thousands)
January 31, 2023 $ 17,178 $ 72 $ 17,250
October 31, 2023 $ 17,178 $ 72 $ 17,250
Goodwill
The following presents changes in the carrying amount of goodwill, by segment, for the nine months ended October 31, 2023:
Agriculture Europe Total
(in thousands)
January 31, 2023 $ 30,622 $ — $ 30,622
Arising from business combinations 69 471 540
Foreign currency translation — ( 18 ) ( 18 )
October 31, 2023 $ 30,691 $ 453 $ 31,144
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NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT
As of October 31, 2023, the Company had floorplan and working capital lines of credit totaling $ 923.0 million, which is primarily comprised of three floorplan lines of credit: (i) a $ 500.0 million credit facility with CNH Industrial (amended as of December 6, 2023, to increase the total available domestic limit to $640 million, which includes $590 million for floorplan financing and a $50 million revolver for working capital, and an overall global limit to $875 million), (ii) a $ 250.0 million floorplan line of credit and a $75 million working capital 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 October 31, 2023 and January 31, 2023, consisted of the following:
October 31, 2023 January 31, 2023
(in thousands)
CNH Industrial $ 421,305 $ 177,337
Bank Syndicate Agreement Floorplan Loan 152,410 35,550
DLL Finance 38,110 9,914
Other outstanding balances with manufacturers and non-manufacturers 93,785 35,571
$ 705,610 $ 258,372
As of October 31, 2023, the interest-bearing U.S. floorplan payables carried a variable interest rate with a range of 7.18 % to 8.37 % compared to a range of 5.94 % to 10.25 % as of January 31, 2023. As of October 31, 2023, foreign floorplan payables carried a variable interest rate with a range of 5.51 % to 6.38 %, 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 $ 399.7 million and $ 213.0 million, as of October 31, 2023 and January 31, 2023, respectively.
On September 1, 2023, the Company entered into Amendment No. 3 (“Amendment No. 3”) to the Bank Syndicate Agreement. Among other items, Amendment No. 3 (i) increased the Bank Syndicate Agreement lenders’ aggregate floorplan loan commitments under the Bank Syndicate Agreement from $185.0 million to $250.0 million and the Bank Syndicate Agreement lenders’ aggregate revolving loan commitments under the Bank Syndicate Agreement from $65.0 million to $75.0 million and (ii) amended the terms of the Bank Syndicate Agreement to permit the Company’s acquisition of O’Connors.
NOTE 9 - LONG TERM DEBT
The following is a summary of the Company's long-term debt as of October 31, 2023 and January 31, 2023:
Description Maturity Dates Interest Rates October 31, 2023 January 31, 2023
(in thousands)
Mortgage loans, secured Various through May 2039 2.1% to 7.3%
$ 70,221 $ 68,689
Sale-leaseback financing obligations Various through December 2030 3.4% to 10.3%
10,353 11,252
Vehicle loans, secured Various through September 2029 2.1% to 6.8%
14,012 12,659
Other Various through July 2039 3.6%
4,591 4,591
Total debt 99,177 97,191
Less: current maturities 11,586 7,241
Long-term debt, net $ 87,591 $ 89,950
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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 October 31, 2023 was $ 4.0 million. There were no outstanding foreign currency contracts as of January 31, 2023.
As of October 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 nine months ended October 31, 2023 and 2022. Gains and losses are recognized in Interest and other income (expense) in the condensed consolidated statements of operations:
Three Months Ended October 31, Nine Months Ended October 31,
2023 2022 2023 2022
(in thousands)
Foreign currency contract gain (loss) $ ( 1,006 ) $ 1,058 $ ( 1,104 ) $ 1,058
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 nine month periods ended October 31, 2023 and 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 )
Other comprehensive income (loss) ( 1,938 ) — ( 1,938 )
Balance, October 31, 2023 $ ( 8,022 ) $ 2,711 $ ( 5,311 )
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 )
Other comprehensive income (loss) ( 5,132 ) — ( 5,132 )
Balance, October 31, 2022 $ ( 14,169 ) $ 2,711 $ ( 11,458 )
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NOTE 12 - LEASES
As Lessor
Revenue generated from leasing activities is disclosed, by segment, in Note 3 - Revenue. 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, 2023 and January 31, 2023:
October 31, 2023 January 31, 2023
(in thousands)
Rental fleet equipment $ 77,231 $ 75,386
Less accumulated depreciation ( 28,969 ) ( 26,959 )
$ 48,262 $ 48,427
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
As of October 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 October 31, 2023 and January 31, 2023. The 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, 2023 January 31, 2023
(in thousands)
Carrying amount $ 84,233 $ 81,349
Fair value $ 73,487 $ 70,434
NOTE 14 - INCOME TAXES
Our effective tax rate was 25.4 % and 24.5 % for each of the three months ended October 31, 2023 and 2022, respectively, and was 24.7 % and 24.8 % for the nine months ended October 31, 2023 and 2022, respectively. The effective tax rate for the three and nine months ended October 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.
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 Europe 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.
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In connection with the acquisition of Pioneer Farm Equipment, 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, as it allow us to package deals that 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 of Mark's Machinery, Inc, 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.
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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 fiscal year 2023 and the nine months ended October 31, 2023. The purchase price allocation for the O'Connors acquisition, which is still preliminary, is not included in these numbers as the acquisition will be accounted for based on a calendar year end and will be reflected in the fourth quarter fiscal 2024 financials, refer to Note 18 - Subsequent Event for further details. The following table presents the purchase price allocations for all acquisitions completed during the fiscal year ended January 31, 2023 and the nine months ended October 31, 2023:
October 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
Europe $ 471 $ —
Goodwill expected to be deductible for tax purposes $ 540 $ 21,670
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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 nine months ended October 31, 2023, the Company recognized a non-competition intangible asset of $ 0.1 million in its Europe 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 three and nine month period ended October 31, 2023 amounted to $ 0.6 million and $ 1.1 million, respectively, primarily related to the O'Connors acquisition, refer to Note 18 - Subsequent Event for additional details. Acquisition related costs amounted to $ 1.1 million during 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.
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.
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NOTE 17 - SEGMENT INFORMATION
The Company has three reportable segments: Agriculture, Construction and Europe. Starting in the fourth quarter of fiscal 2024, our fourth segment will be Australia, see Note 1 - Business Activity and Significant Accounting Policies for further details. 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,
2023 2022 2023 2022
(in thousands) (in thousands)
Revenue
Agriculture $ 531,404 $ 493,324 $ 1,423,669 $ 1,160,829
Construction 77,508 86,403 232,368 223,389
Europe 85,203 89,046 250,275 242,105
Total $ 694,115 $ 668,773 $ 1,906,312 $ 1,626,323
Income (Loss) Before Income Taxes
Agriculture $ 35,130 $ 42,044 $ 92,311 $ 83,387
Construction 4,057 6,065 13,746 13,197
Europe 5,146 8,488 17,097 18,683
Segment income before income taxes 44,333 56,597 123,154 115,267
Shared Resources ( 3,881 ) ( 1,919 ) ( 5,671 ) ( 3,855 )
Total $ 40,452 $ 54,678 $ 117,483 $ 111,412
October 31, 2023 January 31, 2023
(in thousands)
Total Assets
Agriculture $ 1,069,180 $ 788,265
Construction 239,516 187,739
Europe 322,559 170,647
Segment assets 1,631,255 1,146,651
Shared Resources 18,483 42,044
Total $ 1,649,738 $ 1,188,695
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NOTE 18 - SUBSEQUENT EVENTS
On October 2, 2023, the Company, through a newly organized, wholly-owned Australian subsidiary, Titan Machinery Holdings Australia Pty Ltd., ("Titan Australia") acquired all outstanding equity interests of O’Connors, for cash consideration of $ 62 million net of cash acquired. O’Connors consists of 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia. Founded in 1964, O’Connors has been a successful CaseIH complex, and our acquisition of O'Connors provides the Company the opportunity to expand our international presence into the large, well-established Australian market.
Each of the Company’s foreign subsidiaries has fiscal quarters and a fiscal year-end that align with the calendar quarterly periods and year-end. Titan Australia also maintains fiscal quarters and a fiscal year-end that aligns with the calendar periods. The quarterly and annual financial statements of all of the Company's foreign subsidiaries are consolidated into the Company’s U.S. quarterly and annual fiscal periods that end on April 30th, July 31st, October 31st and January 31st. Accordingly, the October 2, 2023 foreign acquisition of O'Connors is a fourth quarter of fiscal 2024 transaction, and therefore no amounts were recognized in the consolidated financial statements of the Company for the quarter ended October 31, 2023.
The acquisition of O'Connors 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. The fair value of the consideration paid exceeded the preliminarily estimated fair value of the assets acquired and liabilities assumed, which resulted in the recognition of $ 48.5 million of intangible assets. The Company is in the process of completing an intangible asset valuation and is expected to have goodwill, distribution rights, and customer relationships as the primarily intangible assets. The valuation is expected to be completed by January 31, 2024. The entire goodwill amount will be assigned to the Australia segment and is not expected to be deductible for income tax purposes. All acquisition-related costs, which amounted to $ 1.1 million during the nine months ended October 31, 2023, have been expensed as incurred and recognized as operating expenses in the condensed consolidated statement of operations.
Due to the limited time since the acquisition of O'Connors, the estimated fair values of acquired assets and assumed liabilities are provisional estimates, but are based on the best information currently available. These provisional estimates are subject to change as the Company completes all remaining steps in finalizing the purchase price allocation. The Company expects to finalize the valuation of all assets and liabilities by January 31, 2024. The preliminary allocation of the purchase price to assets acquired and liabilities assumed is as follows:
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(in thousands)
Assets acquired:
Cash $ 4,333
Receivables 5,741
Inventories 97,832
Prepaid expenses and other 296
Property and equipment 11,063
Operating lease assets 14,496
Intangible assets 48,520
Other assets 7
$ 182,288
Liabilities assumed:
Accounts payable $ 4,191
Floorplan payable 74,843
Current maturities of long-term debt 294
Current operating lease liabilities 1,039
Deferred revenue 12,066
Accrued expenses and other 7,204
Long-term debt, less current maturities 2,077
Operating lease liabilities 13,457
Deferred income taxes 965
$ 116,136
Net assets acquired $ 66,152
Pro Forma Information
The following summarized unaudited pro forma condensed statement of operations information for the three and nine months ended October 31, 2023 and 2022, assumes that the Heartland Companies and O'Connors acquisitions occurred as of February 1, 2022. The Company prepared the following summarized unaudited pro forma condensed statement of operations information for comparative purposes only. The summarized unaudited pro forma condensed statement of operations information may not be indicative of the results that would have occurred had the Company completed the acquisitions as of February 1, 2022 or that will be attained in the future.
Three Months Ended October 31, Nine Months Ended October 31,
2023 2022 2023 2022
(in thousands)
Total Revenues $ 757,223 $ 724,416 $ 2,098,124 $ 1,959,048
Net Income $ 34,027 $ 44,390 $ 99,302 $ 100,913
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