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Item 7. Management’s Discussion and Analysis

2024-04-03 compared with 2023-03-30 · 120 added, 211 removed, 364 unchanged (48% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing under Item 8 of this Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties.

You should review the "Information Regarding Forward-Looking Statements" in this Item 7 and "Risk Factors" presented under Item 1A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis in this annual report.

A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2021 to fiscal year 2022 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on April 1, 2022.

A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2022 to fiscal year 2023 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, filed with the SEC on March 30, 2023.

BUSINESS DESCRIPTION

We own and operate a network of full service agricultural and construction equipment stores in the United States and Europe.

We own and operate a network of full service agricultural and construction equipment stores in the United States, Europe, and Australia.

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

subsidiary CNH Industrial America, LLC, collectively referred to in this Form 10-K as CNH Industrial, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the U.S.

We operate our business through three reportable segments:

Agriculture, Construction and International.

We operate our business through four reportable segments:

Agriculture, Construction, Europe and Australia.

Within each segment, we have four principal sources of revenue:

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According to its public reports, CNH Industrial is a leading manufacturer and supplier of agricultural and construction equipment based on the number of units sold, primarily through the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands.

Sales of new CNH Industrial products accounted for approximately 73% of our new equipment revenue in fiscal 2023, with our single largest manufacturer other than CNH Industrial representing approximately 4% of our total new equipment sales in fiscal 2023.

Sales of new CNH Industrial products accounted for approximately 71% of our new equipment revenue in fiscal 2024, with our single largest manufacturer other than CNH Industrial representing approximately 3% of our total new equipment revenue in fiscal 2024.

We acquire used equipment for resale primarily through trade-ins from our customers and in some cases through selective purchases.

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We rent equipment and provide other ancillary services such as equipment transportation, GPS signal subscriptions, farm data management systems, precision farming equipment, and finance and insurance products.

Throughout our 42-year operating history, we have built an extensive, geographically contiguous network of 86 stores located in the United States and 35 stores in Europe.

Throughout our 43-year operating history, we have built an extensive, geographically contiguous network of 94 full service stores located in the United States, 39 in Europe and 15 in Australia.

We have a history of growth through acquisitions, including over 60 acquisitions in 15 U.S.

states and four European countries since January 1, 2003.

states, four European countries and three Australian states since January 1, 2003.

We believe that there will continue to be opportunities for dealership consolidation in the future, and we expect that acquisitions will continue to be a component of our long-term growth strategy.

Certain External Factors Affecting our Business

We are subject to a number of factors that affect our business including those factors discussed in the sections in this annual report entitled "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following:

We are subject to a number of factors that affect our business including those factors discussed in the sections in this Form 10-K entitled Item 1A, "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following:

Russia/Ukraine Geopolitical Conflict

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

The Company's business systems in Ukraine have continued

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to function but have been, and could continue to be, negatively impacted in the future.

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

For the fiscal year ended January 31, 2023, Titan Machinery Ukraine's revenues are down approximately 40.5% from the prior fiscal year.

As of January 31, 2023, the Company had total assets of $27.4 million in Ukraine.

The physical assets (e.g.

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

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

The situation in Ukraine is highly complex and continues to evolve.

If the Company cannot provide efficient and uninterrupted services to its customers, this could worsen the conflict's adverse effect on the Company's operations and business in Ukraine.

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

Further, any major breakdown or closure of utility services, any major threat to civilians in our footprint, disruption of commodity exports from Ukraine, or international banking disruption could materially impact the operations and liquidity of Titan Machinery Ukraine.

Supply Chain Disruptions

Equipment availability continues to be challenging as supply chain disruptions throughout 2021 continued throughout 2022, along with increased domestic and global demand for equipment inventory, have caused many manufacturers to be unable to produce enough equipment to meet demand.

The timing of the completion of equipment and the resulting delivery to the end customer can shift from quarter to quarter or in some cases, year to year, thereby potentially impacting when we are able to receive the inventory, enter into sales transactions with our customers, and recognize the revenue.

These supply chain issues have been further complicated by labor shortages as well as the announcement by CNH Industrial that it will be implementing an equipment allocation methodology to determine production slots for calendar year 2023.

All of these factors may limit our ability to match customer demand on certain products in fiscal 2024.

We will continue to work with our manufacturers to source future inventory to fulfill as much customer demand as possible.

The Company's business systems in Ukraine have continued to function but have been, and could continue to be, negatively impacted in the future.

To date, the impact of this conflict has not been and is not expected to be material to Titan Machinery’s consolidated business operations and financial performance.

However, the full impact of the conflict remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions.

The Company will continue to monitor the ongoing conflict between Russia and Ukraine as it is highly complex and continues to evolve.

Macroeconomic and Industry Factors

Our Agriculture and International businesses are primarily driven by the demand for agricultural equipment for use in the production of food, fiber, feed grain and renewable energy.

Agriculture industry factors such as changes in agricultural commodity prices and net farm income, have an effect on customer sentiment and their ability to secure financing for equipment purchases.

Agriculture industry factors such as changes in agricultural commodity prices and net farm income, have an effect on our customers' sentiment and their ability to secure financing for equipment purchases.

Macroeconomic and industry factors that affect commodity prices and net farm income include changing worldwide demand for agriculture commodities, crop yields and supply disruptions caused by weather patterns and crop diseases, crop stock levels, production costs, and changing U.S.

dollar foreig n currency exchange rates.

dollar foreign currency exchange rates.

Based on U.S.

Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2022 increased 15.5% compared to calendar year 2021 due to U.S.

crop production and increased commodity exports and partially offset by a reduction in U.S.

Federal government's direct farm program payments.

Based on its February 2023 report, the USDA projected net farm income for calendar year 2023 to decrease 15.9%, as compared to calendar year 2022, but still remain above historical levels.

Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2023 decreased 16% compared to calendar year 2022.

The commodity prices of corn and soybeans, which are the predominant crops in our Agriculture store footprint, were at or near record prices in fiscal 2023 but decreased during fiscal 2024.

Based on its February 2024 report, the USDA projected net farm income for calendar year 2024 to decrease 25.5%, as compared to calendar year 2023, but remain in line with the average inflation adjusted net farm income for the previous 20 years.

Our Construction business is primarily impacted by the demand for construction equipment for use in private and government commercial, residential, and infrastructure construction;

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The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and our available cash flow to fluctuate during the year.

Our customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons, which for farmers are the spring planting and fall harvesting seasons;

and which for Construction customers is typically the second and third quarters of our fiscal year for much of our Construction footprint.

Our customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons, which for farmers are the planting and harvesting seasons;

and which for Construction customers are typically the second and third quarters of our fiscal year for much of our Construction footprint.

Our parts and service revenues are typically highest during our customers' busy seasons as well, due to the increased use of their equipment during this time, which generates the need for more parts and service work.

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In addition, the fourth quarter typically is a significant period for equipment sales in the U.S.

because of our

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customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

Seasonal weather trends, particularly severe wet or dry conditions, can have a significant impact on regional agricultural and construction market performance by affecting crop production and the ability to undertake construction projects.

Weather conditions that adversely affect the agricultural or construction markets decrease the demand for our products and services.

In addition, numerous external factors such as credit markets, commodity prices, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations.

In addition, numerous external factors such as credit markets, government subsidies, commodity prices, production yields, input costs, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations.

Dependence on our Primary Supplier

The majority of our business involves the distribution and servicing of equipment manufactured by CNH Industrial.

In fiscal 2023, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 76% of the new equipment sold in our Construction segment, and 60% of the new equipment sold in our International segment, and represented a significant portion of our parts revenue.

In fiscal 2024, CNH Industrial supplied approximately 71% of our new equipment revenue on a consolidated basis and 75%, 81%, 51%, and 58% in our Agriculture, Construction, Europe, and Australia segments, respectively, and represented a significant portion of our parts revenue.

Thus, we believe the following factors have a significant impact on our operating results:

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• CNH Industrial’s product prices and incentive and discount programs;

• CNH Industrial's supply of inventory and ability to meet delivery timelines;

• CNH Industrial's implementation of an equipment allocation methodology for use in determining production slots in calendar year 2023;

• CNH Industrial's supply of inventory and ability to match demand levels and delivery timelines;

• CNH Industrial's offering of floorplan payable financing for the purchase of a substantial portion of our inventory;

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To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset much of the increases and expect to continue to do so in the future.

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Significant Items Impacting Our Financial Position and Results of Operations

O’Connor & Sons Pty.

On October 2, 2023, we acquired all of the outstanding equity interests of J.J.

O’Connor & Sons Pty.

("O’Connors").

The acquired business consisted of 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia.

O'Connors has been a successful Case IH complex, and our acquisition of this entity provides the Company with the opportunity to expand our international presence into the large, well-established Australian agriculture market.

Total cash consideration paid for O'Connors was $66.5 million, which was financed through available cash resources and line of credit availability.

The 15 O’Connors store locations are included within our new Australia segment.

Heartland Acquisition

On August 1, 2022 we acquired all interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies").

On August 1, 2022, we acquired all of the outstanding equity interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies").

The acquired business consisted 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.

Our acquisition of these entities provides the Company the opportunity for synergies due to overlap of our footprints, which allows 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.

Total cash consideration paid for the business was $94.4 million, which was financed through available cash resources and line of credit availability.

The locations of the 12 Heartland Companies are included within our Agriculture segment.

Mark's Machinery Acquisition

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

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

Total cash consideration paid for the business was $7.7 million which was financed through available cash resources.

In conjunction with the acquisition, we purchased the real estate for $2.5 million which was financed with available cash and long term debt.

The two Mark's Machinery locations are included within our Agriculture segment.

Fargo Tractor Divestiture

On March 1, 2022, we divested our consumer products store in Fargo, ND.

The sale of this location resulted in a $1.4 dollar gain which is included in fiscal 2023 consolidated operating expenses.

The gain on the sale is included in the Construction segment.

Montana and Wyoming Divestiture

On January 24, 2022, we divested four dealership locations in Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming.

The sale of these locations resulted in a $5.7 million gain which is included in fiscal 2022 consolidated operating expenses.

The gain on the sale is included in the Construction segment.

Jaycox Acquisition

On December 1, 2021, we acquired certain assets of Jaycox Implement ("Jaycox").

The acquired business consisted of three CaseIH agriculture dealership locations in Worthington and Luverne, Minnesota and Lake Park, Iowa.

Total cash consideration paid for the business was $28.2 million which was financed through available cash resources.

In conjunction with the acquisition, we purchased the real estate for $5.5 million which was financed with available cash and long term debt.

The three Jaycox locations are included within our Agriculture segment.

Our acquisition of these entities provides the Company with the opportunity for synergies due to overlap of our footprints, which allows 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.

Total cash consideration paid for the Heartland Companies was $94.4 million, which was financed through available cash resources and line of credit availability.

The 12 Heartland Companies store locations are included within our Agriculture segment.

Key Financial Metrics

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Absorption is an industry term that refers to the percentage of an equipment dealer's operating expense covered by the combined gross profit from parts, service and rental fleet activity.

We calculate absorption by dividing our gross profit from

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sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt.

We calculate absorption by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt.

We believe that absorption is an important management metric because during economic down cycles our customers tend to postpone new and used equipment purchases while continuing to run, maintain and repair their existing equipment.

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However, high dollar utilization of our rental fleet has a positive impact on gross profit margin and gross profit dollars.

Adjusted EBITDA

EBITDA is a non-GAAP financial measure defined as earnings before finance costs, income taxes, depreciation and amortization and is a metric frequently used to assess and evaluate financial performance.

Management uses Adjusted EBITDA as a measure of financial performance, as a supplemental measure to evaluate the Company's overall operating performance and believes it provides a useful metric for comparability between periods and across entities within our industry by excluding differences in capital structure, income taxes, non-cash charges and certain activities that occur outside of the ordinary course of our business.

We calculate Adjusted EBITDA as our net income (loss), adjusted for net interest (excluding floorplan interest expense), income taxes, depreciation, amortization, and items included in our non-GAAP reconciliation, for each of the respective periods.

Adjusted EBITDA should be evaluated in addition to, and not considered a substitute for, or superior to, any GAAP measure of net income (loss).

In addition, other companies may calculate Adjusted EBITDA in a different manner, which may hinder comparability with other companies.

Refer to the Non-GAAP Financial Measures section for a reconciliation of Adjusted EBITDA to net income.

Key Financial Statement Components

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• Rental and other:

Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies.

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Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated with providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies.

Operating Expenses

Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and related benefit costs, insurance expenses, professional fees, property rental and related costs, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental and trucking equipment).

Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and employee benefit costs, insurance expenses, professional fees, property rental and related costs, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental and trucking equipment).

Floorplan Interest

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This includes long-term debt used to finance the purchase of real estate and vehicles.

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Results of Operations

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Gross profit margin 36.3 % 37.9 %

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The following table sets forth our statements of operations data expressed as a percentage of revenue for the fiscal years indicated.

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Operating Expenses 13.1 % 13.6 %

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

Income from Operations 6.2 % 6.3 %

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Total Revenue $ 2,758,445 $ 2,209,306 $ 549,139 24.9 %

The increase in total revenue for fiscal 2023, as compared to fiscal 2022, was primarily the result of Company-wide same-store sales increase of 22.4% over the prior fiscal year and our acquisitions of Jaycox Implement, Mark's Machinery, and the Heartland Companies, completed in December 2021, April 2022, and August 2022, respectively, which was partially offset by the divestitures in Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming, in January 2022, and Fargo, North Dakota in March 2022.

The strong same store sales increase was primarily driven by agriculture equipment sales, which benefited from high demand levels that were supported by higher commodity prices and higher net farm income.

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The increase in total revenue for fiscal 2024, as compared to fiscal 2023, was primarily the result of Company-wide same-store sales increase of 10.1% over the prior fiscal year and our acquisitions of the Heartland Companies, Pioneer Farm Equipment Co.

(“Pioneer”), and O'Connors, completed in August 2022, February 2023, and October 2023, respectively.

The same-store sales increase was primarily driven by equipment sales, which benefited from improved availability of inventory and the sustained high demand of both agriculture and construction equipment.

In addition, parts and service same-store sales also grew in fiscal 2024 compared to fiscal 2023.

Year Ended January 31, Increase/ Percent

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Total Gross Profit Mix 100.0 % 100.0 %

Gross profit increased 32.2% or $107.1 million from fiscal 2022 to fiscal 2023, primarily due to higher revenue and gross profit from our equipment and parts business.

Gross profit margin increased from 19.4% in fiscal 2022 to 19.9% in fiscal 2023.

The increase in overall gross profit margin was primarily due to stronger equipment margins, which were positively impacted by favorable end market conditions.

Gross profit increased 20.8% or $91.5 million from fiscal 2023 to fiscal 2024, primarily due to higher revenue and gross profit from our equipment, parts, and service business.

Gross profit margin decreased from 19.9% in fiscal 2023 to 19.3% in fiscal 2024.

The decrease in gross profit margin is primarily the result of a partial normalization of equipment gross profit margin as the supply of many product categories has caught up with demand.

Our Company-wide absorption rate declined to 79.2% for fiscal 2024 as compared to 82.7% during fiscal 2023.

The absorption rate in both years was favorably impacted by gains recognized on divestitures in our Construction segment.

There was a gain of $1.4 million recognized on the divestiture of our consumer products store in North Dakota in the fist quarter of fiscal 2023, and a $5.7 million gain recognized on the divestiture of one Wyoming and three Montana stores in the fourth quarter of fiscal 2022.

Excluding these divestiture related gains, absorption was flat at 82.2%.

The lower absorption rate in fiscal 2024 compared to fiscal 2023, was primarily impacted by a significant rise in floorplan interest expense in fiscal 2024, the fiscal 2023 absorption rate was also favorably impacted by a gain of $1.4 million recognized on the divestiture of our consumer products store in North Dakota in the first quarter of fiscal 2023.

Operating Expenses

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Operating expenses for fiscal 2024 increased $61.0 million, as compared to fiscal 2023.

The increase in operating expenses was primarily due to variable expenses associated with increased sales as well as acquisitions that have occurred in the last fourteen months.

The increase in operating expenses was primarily due to acquisitions that have occurred in the last eighteen months as well as variable expenses associated with increased sales.

In fiscal 2024, operating expenses as a percentage of revenue decreased to 13.1% from 13.6% in fiscal 2023.

The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in fiscal 2024 compared to fiscal 2023, which positively affected our ability to leverage our fixed operating costs.

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Impairment Charges

Year Ended January 31, Percent

2023 2022 Decrease Change

(dollars in thousands)

Impairment of Intangible and Long-Lived Assets — 1,498 (1,498) n/m

During fiscal 2023, the Company did not recognize any impairment charges.

In fiscal 2022, the Company recognized $1.5 million of impairment charges related to certain intangible and long-lived assets, in our International segment.

Other Income (Expense)

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Other interest expense (7,303) (5,069) 2,234 44.1 %

The increase in interest and other income (expense) compared to fiscal 2022 is primarily the result of a strengthening U.S.

dollar relative to the Euro thus creating foreign currency gains in fiscal 2023.

The increase in floorplan interest expense for fiscal 2023, as compared to fiscal 2022, was primarily due to increased interest-bearing borrowings.

The decrease in interest and other income (expense) compared to fiscal 2023 was primarily the result of changes in foreign currency fluctuations.

The increase in floorplan interest expense for fiscal 2024, as compared to fiscal 2023, was primarily due to increased interest-bearing borrowings, resulting from higher inventory levels, as well as a higher interest rate environment.

The increase in other interest expense in fiscal 2024 is the result of an increased amount of long term debt resulting from real estate purchased via acquisition or the buyout of previously leased facilities in fiscal 2023 and 2024.

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Our effective tax rate increased from 24.7% in fiscal 2023 to 25.6% in fiscal 2024.

The effective tax rate for each of the years ended January 31, 2023 and 2022, is subject to variation due to factors such as impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income and the impact of valuation allowances on certain of our foreign deferred tax assets.

See Note 14 to our consolidated financial statements for further details on our effective tax rate.

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The effective tax rate for each of the years ended January 31, 2024 and 2023, is subject to variation primarily due to the impact of items related to the vesting of share-based compensation, limitation on the tax deductibility of officers' compensation and the mix of domestic and foreign income.

Segment Results

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Construction 332,463 308,457 24,006 7.8 %

International 299,129 317,991 (18,862) (5.9) %

Europe 311,910 299,129 12,781 4.3 %

Australia 69,809 — 69,809 *N/M

Total $ 2,758,445 $ 2,209,306 $ 549,139 24.9 %

Income (Loss) Before Income Taxes

Income Before Income Taxes

Agriculture $ 121,072 $ 102,733 $ 18,339 17.9 %

Construction 18,346 18,569 (223) (1.2) %

International 20,197 12,552 7,645 60.9 %

Europe 16,487 20,197 (3,710) (18.4) %

Australia 4,115 — 4,115 *N/M

Segment income before income taxes 160,020 141,499 18,521 13.1 %

Shared Resources (6,258) (1,761) (4,497) n/m

Shared Resources (8,980) (6,258) (2,722) 43.5 %

Total $ 151,040 $ 135,241 $ 15,799 11.7 %

*N/M = Not Meaningful

Agriculture segment revenue for fiscal 2024 increased 27.6%, or $442.5 million, compared to the same period last year.

The higher revenue was driven primarily by an increase in same-store sales of 29.3% for fiscal 2023, as compared to fiscal 2022, as well as the acquisitions of Jaycox Implement, Mark's Machinery, and the Heartland Companies in December 2021, April 2022, and August 2022, respectively.

The same-store sales increase was driven by increased demand for equipment due to higher commodity prices and higher net farm income.

The higher revenue was driven primarily by the acquisitions of the Heartland Companies and Pioneer in August 2022 and February 2023, respectively, as well as an increase in same-store sales of 12.1%.

The same-store sales increase was primarily driven by equipment sales, which benefited from improved availability of inventory and the sustained high demand for new and used equipment.

In addition, same-store sales for parts and service also grew in fiscal 2024 compared to fiscal 2023.

Agriculture segment income before income taxes for fiscal 2024 improved by $18.3 million, or 17.9%, compared to fiscal 2023.

The improvement in segment results was primarily the result of higher equipment revenue along with stronger gross profit margin on equipment driven by increased demand.

Construction segment revenue for fiscal 2023 decreased 2.7% or $8.7 million compared to fiscal 2022.

However, when accounting for the divestitures of the Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming stores in January 2022, and the North Dakota consumer products store in March 2022, same-store sales increased 25.7%.

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

The improvement in segment results was primarily the result of higher revenue partially offset by higher operating expenses due to variable expenses associated with increased sales.

Construction segment revenue for fiscal 2024 increased 7.8%, or $24.0 million, compared to fiscal 2023.

When accounting for the divestitures of the North Dakota consumer products store in March 2022, same-store sales increased 8.3%.

Construction activity in our footprint sustained at healthy levels, which was the primary factor in the same-store sales growth.

The Construction segment income before income taxes was $18.3 million for fiscal 2024 compared to income of $18.6 million for the prior year.

The improvement in segment results was primarily due to increased construction activity within our footprint and an increase in rental fleet utilization.

The dollar utilization of our rental fleet increased from 26.5% in fiscal 2022 to 30.2% in fiscal 2023.

The prior year benefited from a $5.7 million gain on the divestitures of the Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming stores in January 2022.

International

International segment revenue for fiscal 2023 decreased 5.9% or $18.9 million compared to fiscal 2022.

The decrease in revenue was primarily due to a 10.9% devaluation of the Euro, the functional currency in much of our international footprint, but was partially offset by higher commodity prices which drove demand for equipment sales, in fiscal 2023.

The decline in segment results was primarily due to the $1.4 million gain on our consumer products store in the first quarter of fiscal 2023 which was mostly offset by an increase in same-store sales, in fiscal 2024.

The dollar utilization of our rental fleet decreased from 30.2% in fiscal 2023 to 29.3% in fiscal 2024.

Europe segment revenue for fiscal 2024 increased 4.3%, or $12.8 million, compared to fiscal 2023.

Revenue, net of the effect of foreign currency fluctuations, was up 2.1% or $6.2 million compared to fiscal 2023.

The segment was also negatively impacted by a 40.5% decrease in revenues from our Ukrainian subsidiary due to the Russia-Ukraine conflict, compared to fiscal 2022.

Our International segment income before income taxes was $20.2 million for fiscal 2023, compared to $12.6 million for fiscal 2022.

The higher segment results were primarily the result of improved gross profit margin for our three main revenue streams, equipment, parts, and service.

There were no fixed or intangible asset impairment charges recognized in fiscal 2023, while $1.5 million of charges were recognized in fiscal 2022 related to the impairment of certain intangible and long-lived assets of our German subsidiary.

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The increase in revenue was primarily related to pricing increases in fiscal 2024 compared to fiscal 2023.

Our Europe segment income before income taxes was $16.5 million for fiscal 2024, compared to $20.2 million for fiscal 2023.

The decrease in segment pre-tax income was primarily the result of increased operating expenses.

We entered into the Australian market in October 2023 with the O'Connor acquisition.

Australia segment revenue for fiscal 2024 was $69.8 million.

Our Australia segment income before income taxes was $4.1 million for fiscal 2024.

Shared Resources/Eliminations

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Shared Resource loss before income taxes was $9.0 million for fiscal 2024 compared to $6.3 million for fiscal 2023.

Aside from the allocation difference, the lower shared resources results were driven by $1.1 million o f acquisition related expenses incurred for the Heartland Companies acquisition.

Non-GAAP Financial Measures

To supplement our net income and diluted earnings per share ("diluted EPS"), both GAAP measures, we present, and our management utilizes, adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.

Generally, these non-GAAP financial measures include adjustments for items such as impairment charges and foreign currency remeasurement gains/losses in Ukraine.

Furthermore, we calculate adjusted EBITDA as our net income (loss), adjusted for net interest (excluding floorplan interest expense), income taxes, depreciation, amortization, and the adjustments included in our non-GAAP reconciliation as described above, for each of the respective periods.

We believe that the presentation of adjusted net income, adjusted diluted EPS and adjusted EBITDA is relevant and useful to our management and investors because they each provide a measurement of earnings on activities that we consider to occur in the ordinary course of our business.

In addition, our management uses adjusted EBITDA, as a supplemental measure of financial performance, to evaluate the Company's overall operating performance and believes it provides a useful metric for comparability between periods and across entities within our industry by excluding differences in capital structure, income taxes, non-cash charges and certain activities that occur outside of the ordinary course of our business.

Adjusted net income, adjusted diluted EPS, and adjusted EBITDA should be evaluated in addition to, and not considered a substitute for, or superior to, the most comparable GAAP financial measure.

In addition, other companies may calculate these non-GAAP financial measures in a different manner, which may hinder comparability of our results with those of other companies.

The following tables reconcile net income and diluted EPS, GAAP financial measures, to adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.

Year Ended January 31,

(dollars in thousands, except per share data)

Adjusted Net Income

$ 101,868 $ 66,047

Impairment charges — 1,498

Ukraine remeasurement (gain) / loss 777 (263)

Total Adjustments (1) 777 1,235

Adjusted Net Income

$ 102,645 $ 67,282

Adjusted Diluted EPS

Diluted EPS $ 4.49 $ 2.92

Adjustments (2)

Impairment charges — 0.07

Ukraine remeasurement (gain) / loss 0.03 (0.01)

Total Adjustments (1) 0.03 0.06

Adjusted Diluted EPS $ 4.52 $ 2.98

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Year Ended January 31,

(dollars in thousands, except per share data)

Adjusted EBITDA

$ 101,868 $ 66,047

Interest expense, net of interest income 4,730 4,208

Provision for income taxes 33,373 20,854

Depreciation and amortization 25,197 22,139

EBITDA 165,168 113,248

Impairment charges — 1,498

Ukraine remeasurement (gain) / loss 777 (263)

Total Adjustments 777 1,235

Adjusted EBITDA $ 165,945 $ 114,483

(1) Due to the income tax valuation allowance on the Ukrainian and German subsidiaries, there are no tax adjustments of the Ukraine remeasurement (gain)/loss or the impairment charge.

(2) Adjustments are net of the impact of amounts allocated to participating securities where applicable

Liquidity and Capital Resources

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Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan payable and other credit facilities.

We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided, however, that our borrowing capacity under our credit agreements is dependent on compliance with various financial covenants as further described in Note 8 to our consolidated financial statements included in this Form 10-K.

We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided, however, that our borrowing capacity under our credit agreements is dependent on compliance with various financial covenants as further described in Note 8, Floorplan Payable/Lines of Credit , of the Notes to our Consolidated Financial Statements included in this Form 10-K.

We have worked in the past, and will continue to work in the future if necessary, with our lenders to implement satisfactory modifications to these financial covenants when appropriate for the business conditions confronted by us.

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Floorplan payable balances reflect the amount owed for new equipment inventory purchased from a manufacturer and used equipment inventory, which is primarily purchased through trade-in on equipment sales, net of unamortized debt issuance costs incurred for floorplan credit facilities.

Certain of the manufacturers from which we purchase new equipment inventory offer financing on these purchases, either offered directly from the manufacturer or through the manufacturers’ captive finance affiliate.

Certain manufacturers from which we purchase new equipment inventory offer financing on these purchases, either offered directly from the manufacturers or through the manufacturers’ captive finance affiliate.

CNH Industrial's captive finance subsidiary, CNH Industrial Capital, also provides financing of used equipment inventory.

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Borrowings and repayments on manufacturer floorplan facilities are reported as operating cash flows, while borrowings and repayments on non-manufacturer floorplan facilities are reported as financing cash flows in our consolidated statements of cash flows.

As of January 31, 2023, we had floorplan payable lines of credit for equipment purchases totaling $781.0 million, which includes a $500.0 million credit facility with CNH Industrial Capital, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, a $50.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.

As of January 31, 2024, we had floorplan payable lines of credit for equipment purchases totaling $1.4 billion, which includes a $875.0 million credit facility with CNH Industrial Capital, a $275.0 million floorplan payable line under the Bank Syndicate Agreement, a $80.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.

Available borrowing capacity under these lines of credit are reduced by amounts outstanding under such facilities, borrowing base calculations and amount of standby letters of credit outstanding with respect to the Bank Syndicate Agreement, and certain acquisition-related financing arrangements with respect to the CNH Industrial Capital credit facility.

As of January 31, 2024, the Company was in compliance with the financial covenants under its credit agreements.

Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this annual report.

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Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this Form 10-K.

As of January 31, 2024, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility.

Please refer to Note 8 to our consolidated financial statement included in Item 8 for further information regarding the Company's line of credit.

Our equipment inventory turnover decreased slightly to 3.3 times for fiscal 2023 compared to 3.4 times for fiscal 2022.

Please refer to Note 8, Floorplan Payable/Lines of Credit , of the Notes to our Consolidated Financial Statement included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further information regarding the Company's line of credit.

Our equipment inventory turnover decreased to 2.2 times for fiscal 2024 compared to 3.3 times for fiscal 2023.

Our equipment inventory balance increased 104.4% from January 31, 2023 to January 31, 2024.

The decrease in equipment turnover was primarily due to the increase in average equipment inventory in fiscal 2023 as compared to fiscal 2022 but was mostly offset by an increase in equipment cost of sales over these time periods.

The decrease in equipment turnover was primarily due to the increase in average equipment inventory in fiscal 2024 as compared to fiscal 2023 as we were coming off very low inventory levels in fiscal 2023, due to allocation restrictions implemented by our suppliers.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 18.2% as of January 31, 2024, from 51.7% as of January 31, 2023.

The decrease was primarily due to drawing on our floorplan loan with the Bank Syndicate to finance acquisitions in fiscal 2023.

The decrease in our equity in equipment inventory is primarily due to the stocking of new equipment inventories as availability has improved, as well as drawing on our floorplan loan with the Bank Syndicate in conjunction with the O'Connors acquisition.

Long-Term Debt Facilities

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Our ability to service our debt will depend upon our ability to generate necessary cash.

This will in turn depend on our future acquisition activity, operating performance, general economic conditions, and financial, competitive, business and other factors, some of which are beyond our immediate control.

This will in turn depend on our operating performance, general economic conditions, and financial, competitive, business and other factors, some of which are beyond our immediate control, and future acquisition activity.

Based on our current operational performance, we believe our cash flow from operations, available cash, and available borrowings under our existing credit facilities will be adequate to meet our liquidity needs beyond the next 12 months.

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There can be no assurances that we will be able to succeed with one of these alternatives on commercially reasonable terms, if at all.

In addition, if we pursue strategic acquisitions, we may require additional equity or debt financing to consummate the transactions, and we cannot assure you that we will succeed in obtaining this financing on favorable terms or at all.

In addition, if we pursue strategic acquisitions, we may require additional equity or debt financing to consummate the transactions, and we cannot give absolute assurance that we will succeed in obtaining this financing on favorable terms or at all.

If we incur additional indebtedness to finance any of these transactions, this may place increased demands on our cash flow from operations to service the resulting increased debt.

Our existing debt agreements contain restrictive covenants that may restrict our ability to adopt any of these alternatives.

Any non-compliance by us under the terms

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of our debt agreements could result in an event of default which, if not cured, could result in the acceleration of our debt.

Any non-compliance by us under the terms of our debt agreements could result in an event of default which, if not cured, could result in the acceleration of our debt.

We have met all financial covenants under these credit agreements as of January 31, 2024.

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The Notes to the Consolidated Financial Statements provide additional information in regard to Long Term Debt (Note 10) and Leases (Note 13).

Other purchase obligations consist primarily of IT related expenses with estimated cash payments of $4.7 million for fiscal 2024, as well as a combined $4.7 million for fiscal years 2025, 2026, and 2027.

Cash Flow Provided By Operating Activities

Net cash provided by operating activities in fiscal 2023 was $10.8 million compared to $158.9 million in fiscal 2022.

The decrease in net cash provided by operating activities is primarily the result of an increasing inventory balance and a decrease in deferred revenue which were partially offset by an increase in net income and manufacturer floorplan payable balance during fiscal 2023 compared to fiscal 2022.

Other purchase obligations consist primarily of IT related expenses with estimated cash payments of $4.1 million for fiscal 2025, as well as a combined $0.7 million for fiscal 2026, 2027, and 2028.

Cash Flow (Used For) Provided By Operating Activities

Net cash used for operating activities in fiscal 2024 was $32.3 million compared to net cash provided by operating activities of $10.8 million in fiscal 2023.

This decrease in operating cash flow was driven by an increase in inventories and partially offset by an increase in floorplan lines of credit from manufacturers, timing and collections of accounts receivable and higher net income for fiscal year 2024.

Cash Flow Used For Investing Activities

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Net cash used for investing activities was $163.4 million in fiscal 2024, compared to $134.1 million in fiscal 2023.

The driver was an increase in acquisition activity, as the Company utilized $100.5 million of cash for acquisitions in fiscal 2023, compared to $33.6 million in the prior year.

Cash Flow Provided By (Used For) Financing Activities

Net cash provided by financing activities was $22.0 million in fiscal 2023, compared to net cash used for financing activities of $35.3 million in fiscal 2022.

In fiscal 2023, net cash provided by financing activities was the result of increased non-manufacturer floorplan payables, which was used to finance acquisitions in fiscal 2023.

The primarily driver was due to an increase of $25.2 million in cash used for purchases of property and equipment and increase of $7.1 million in acquisition activity compared to prior year.

Cash Flow Provided By Financing Activities

Net cash provided by financing activities was $188.6 million in fiscal 2024, compared to $22.0 million in fiscal 2023.

the increase in net cash provided by financing activities was the result of increased non-manufacturer floorplan payables in fiscal 2024, as the Company drew on its Bank Syndicate Agreement floorplan loan in fiscal 2024, to finance higher inventory levels.

Critical Accounting Policies and Use of Estimates

In the preparation of financial statements prepared in conformity with U.S.

generally accepted accounting principles ("GAAP"), we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures.

generally accepted accounting principles, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures.

While we believe the estimates and judgments we use in preparing our financial statements are appropriate, they are subject to future events and uncertainties regarding their outcome and therefore actual results may materially differ from these estimates.

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In instances in which relevant third-party information is not available, the value assigned to trade-in equipment is dependent on internal judgments.

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New and used equipment inventories are stated at the lower of cost (specific identification) or net realizable value.

New and used equipment inventories are stated at the lower of cost or net realizable value, determined for each piece of equipment (specific identification).

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

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Adverse changes in any of these factors in future periods could result in impairment charges in future periods which could materially impact our results of operations and financial position.

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition.

We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount.

However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test.

An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

Subsequent reversal of goodwill impairment charges is not permitted.

When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test.

If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any.

To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach.

The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates.

These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates.

Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of December 31 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

In 2024, we elected to perform the qualitative test on all reporting units with the exception of our German reporting unit, which management decided to perform a quantitative assessment.

Our test indicated that there is no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $64.1 million and $30.6 million at January 31, 2024 and 2023, respectively.

In determining our provision for income taxes, we must make certain judgments and estimates, including an assessment of the realizability of our deferred tax assets.

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These assumptions require significant judgment and estimation.

In reviewing our deferred tax assets as of January 31, 2023, we concluded that a full valuation allowance continued to be warranted on our Ukrainian and German subsidiaries and our Luxembourg holding company.

Due to continued improved performance, a release of the remaining valuation allowance on the Company's Bulgarian subsidiary was recorded.

In total, valuation allowances of $6.5 million exist for our international entities as of January 31, 2023.

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At the end of fiscal year ended January 31, 2022, the Company concluded a full valuation allowance continued to be warranted on our Ukrainian subsidiary.

It was also concluded that a full valuation allowance was warranted on our German subsidiary and we also recorded a full valuation allowance of our Luxembourg holding company.

Due to improved performance, a partial release of a valuation allowance for the Company's Bulgarian subsidiary was recorded.

In total, valuation allowances of $6.0 million existed for certain of our international entities as of January 31, 2022.

The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate.

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Information Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act.

We include "forward-looking" information in this Form 10-K, including this Item 7, as well as in other materials filed or to be filed by us with the SEC (as well as information included in oral statements or other written statements made or to be made by us).

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• our beliefs with respect to the impact of U.S federal government policies on the agriculture economy;

• our beliefs with respect to the impact of commodity prices for the fossil fuels and other commodities on our operating results;

• our beliefs with respect to the impact of commodity prices for crops, fossil fuels and other commodities on our operating results;

• our beliefs with respect to the impact of government regulations;

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• our beliefs with respect to our employee relations;

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• our assumptions, beliefs and expectations with respect to past and future market conditions, including interest rates, and public infrastructure spending, new environmental standards, and the impact these conditions will have on our operating results;

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• our cash needs, sources of liquidity, and the adequacy of our working capital.

Forward-looking statements are only predictions and are not guarantees of performance.

While we believe that the forward-looking statements in this Form 10-K are reasonable, such statements are only predictions and are not guarantees of performance.

These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information.

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Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement.

All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the SEC and public communications.

You should evaluate all forward-looking statements made in this Form 10-K in the context of these risks and uncertainties.

Many of these factors are beyond our ability to control or predict.

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• our dependence on CNH Industrial, our primary supplier of equipment and parts inventory, and our relationships with other equipment suppliers;

• the terms of the CNH dealer agreements that subject us to restrictions that may adversely impact our business and growth;

• the terms of the CNH Industrial dealer agreements that subject us to restrictions that may adversely impact our business and growth;

• the risks associated with our international operations;

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• the risks associated with the expansion of our business;

• the risks resulting from outbreaks or other public health crises, including the continuing impact of COVID-19 on our business;

• the risks resulting from outbreaks or other public health crises;

• risks related to our ability to attract, train, and develop key employees necessary for our success;

• the potential inability to integrate any businesses we acquire;

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• compliance with laws and regulations;

• other factors discussed under "Risk Factors" or elsewhere in this Form 10-K.

• other factors discussed under Item 1A, Risk Factors, or elsewhere in this Form 10-K.

You should read the risk factors and the other cautionary statements made in this Form 10-K as being applicable to all related forward-looking statements wherever they appear in this Form 10-K.

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Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis