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Item 2. Management’s Discussion and Analysis

2024-06-07 compared with 2023-12-07 · 83 added, 220 removed, 137 unchanged (69% of the section changed)

1 unchanged sentence

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.

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, Australia, and Europe.

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

subsidiary CNH Industrial America, LLC, we are the largest retail dealer of CaseIH 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 United States.

We operate our business through three reportable segments:

Agriculture, Construction and Europe, formerly International.

Starting in the fourth quarter fiscal 2024, our fourth segment will be Australia, see Note 1 - Business Activity and Significant Accounting Policies for further details.

We operate our business through four reportable segments:

Agriculture, Construction, Europe and Australia.

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

1 unchanged sentence

Demand for agricultural equipment and, to a lesser extent, parts and service support, is impacted by agricultural commodity prices and net farm income.

Based o n August 2023 U.S.

Department of Agriculture publications, the estimate of net farm income for calendar year 2023 indicated an approximate 22.8% decrease as compared to calendar year 2022, and an approximate 30.7% increase in net farm income for calendar year 2022 as compared to calendar year 2021.

For the third quarter of fiscal 2024, our net income was $30.2 million, or $1.32 per diluted share, compared to a fiscal 2023 third quarter net income of $41.3 million, or $1.82 per diluted share.

Based o n February 2024 U.S.

Department of Agriculture publications, net farm income is estimated to decrease by 25.5% in calendar year 2024, as compared to calendar year 2023, but remain in line with the average inflation adjusted net farm income for the previous 20 years.

For the first quarter of fiscal 2025, our net income was $9.4 million, or $0.41 per diluted share, compared to a fiscal 2024 first quarter net income of $27.0 million, or $1.19 per diluted share.

Significant factors impacting the quarterly comparisons were:

• Revenue in the third quarter of fiscal 2024 increased by 3.8% compared to the third quarter of fiscal 2023.

The revenue increase was led by additional revenue resulting from the acquisition of Pioneer Farm Equipment, in February 2023.

Same-store sales remained stable, on top of the record performance from prior year which saw same-store growth of 34%.

• Gross profit margin decreased to 19.9% for third quarter of fiscal 2024, as compared to 20.9% for the third quarter of fiscal 2023.

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

Another factor is the prior year equipment gross profit benefited from the recognition of a $2.0 million accrual on the expected achievement of annual manufacturer incentive programs, which is not included in the results for the third quarter of fiscal 2024.

• Floorplan interest expense increased by $3.5 million in the third quarter of fiscal 2024 as compared to the same period in fiscal 2023, due to an increase in interest bearing inventory and higher interest rates.

While we continue to experience less than desired shipments of certain product categories, primarily high-horsepower tractors, self-propelled sprayers and wheel loaders, for most other product categories we have been able to receive enough inventory to meet demand and also have stock available for sale.

Russian-Ukrainian Conflict

In February 2022, Russian military forces invaded Ukraine, and although the length, impact, and outcome of the ongoing conflict in Ukraine is highly unpredictable, this conflict has led, and could continue to lead, to significant market and other disruptions, including instability in financial markets, supply chain interruptions, political and social instability, and increases in cyberattacks.

We are actively monitoring the situation in Ukraine and assessing its impact on our business.

For the nine months ended October 31, 2023, Titan Machinery Ukraine's revenues are down approximately 10.3% from the prior year period.

As of October 31, 2023, the Company had total assets of $32.3 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 assets in Ukraine, as of January 31, 2023, were $27.4 million.

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.

On August 29, 2023, the Company entered into a definitive purchase agreement to acquire J.J.

• Gross profit margin decreased to 19.4% for first quarter of fiscal 2025, as compared to 20.8% for the first quarter of fiscal 2024.

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

• Floorplan interest expense increased by $5.8 million in the first quarter of fiscal 2025 as compared to the same period in fiscal 2024, due to an increase in interest bearing inventory.

• Revenue in the first quarter of fiscal 2025 increased by 10.4% compared to the first quarter of fiscal 2024.

The revenue increase was led by additional revenue resulting from the acquisition of O'Connors, in October 2023.

O’Connor & Sons Pty.

("O’Connors"), which operates 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia.

In its most recently completed fiscal year ended June 30, 2023, O’Connors generated revenue of approximately $258 million.

The Company closed on the acquisition on October 2, 2023, see Note 18 - Subsequent Event for further details.

The consideration paid is approximately $ 62 million, subject to final working capital and other purchase price closing adjustments.

The acquisition will be accounted for in accordance with Accounting Standards Codification ("ASC") Topic 805, "Business Combinations".

The Company funded the acquisition with cash on hand and using the proceeds of additional indebtedness incurred under the floorplan and working capital loans of the Bank Syndicate Agreement.

On June 1, 2023, the Company acquired certain assets of 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 related to its full-service agriculture dealership businesses 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.

The acquired business consists of five agriculture equipment stores in American Falls, Blackfoot, Idaho Falls, Rexburg, and Rupert, Idaho.

These locations are included in the Company's Agriculture segment.

The total consideration transferred for the acquired business was $19.5 million paid in cash, which includes $9.4 million for the purchase of the real estate.

In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Pioneer Farm Equipment.

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.

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 twelve CaseIH commercial application agriculture locations, in 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.

The Heartland Companies are included in the Agriculture segment.

In the most recent completed fiscal year prior to the acquisition, the Heartland Companies generated revenue of approximately $214 million.

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.

In its most recent fiscal year prior to the acquisition, Mark's Machinery, Inc.

generated revenue of approximately $34.0 million.

The total cash consideration paid for the acquired business was $ 7.7 million.

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

ERP Transition

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The new ERP application is expected to provide data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience.

The Company has implemented a phased roll-out plan to integrate all of its domestic stores to the new ERP.

We will continue the phased rollout until all remaining domestic locations have been transitioned to the new ERP.

The Company has implemented a phased roll-out plan to integrate all of its domestic stores to the new ERP, which it plans to complete by the end of fiscal year 2025.

Critical Accounting Policies and Estimates

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Comparative financial data for each of our four sources of revenue are expressed below.

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

(dollars in thousands) (dollars in thousands)

Three Months Ended April 30,

(dollars in thousands)

Revenue $ 468,089 $ 429,376

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The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:

Three Months Ended October 31, Nine Months Ended October 31,

2023 2022 2023 2022

Three Months Ended April 30,

Equipment 74.5 % 75.4 %

11 unchanged sentences

Net Income 1.5 % 4.7 %

Three Months Ended October 31, 2023 Compared to Three Months Ended October 31, 2022

Three Months Ended April 30, 2024 Compared to Three Months Ended April 30, 2023

Consolidated Results

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

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Total Revenue $ 628,703 $ 569,631 $ 59,072 10.4 %

Total revenue for the third quarter of fiscal 2024 was 3.8% or $25.3 million higher than the third quarter of fiscal 2023 driven primarily by our acquisition of Pioneer Farm Equipment completed in February 2023.

Three Months Ended October 31, Increase/ Percent

Total revenue for the first quarter of fiscal 2025 was 10.4% or $59.1 million higher than the first quarter of fiscal 2024 driven primarily due to the acquisition of O'Connors that was completed in October 2023.

Same-store sales increased by 1.1%, driven by an increase of 4.3% by the Agriculture segment, which was partially offset by European same-store sales decrease of 15.5%.

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

17 unchanged sentences

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit for the third quarter of fiscal 2024 decreased 0.9% or $1.2 million, as compared to the same period last year.

Gross profit margin also declined to 19.9% in the current quarter from 20.9% in the prior year quarter.

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

Our Company-wide absorption rate — which is calculated 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 — decreased to 87.4% for the third quarter of fiscal 2024 compared to 95.9% during the same period last year, led by increased floorplan interest expense in the third quarter of fiscal 2024 compared to the same period last year.

Gross profit for the first quarter of fiscal 2025 increased 2.7% or $3.2 million, as compared to the same period last year.

Gross profit margin declined to 19.4% in the current quarter from 20.8% in the prior year quarter.

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

Our Company-wide absorption rate — which is calculated 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 — decreased to 71.2% for the first quarter of fiscal 2025 compared to 83.5% during the same period last year, led by increased floorplan interest expense in the first quarter of fiscal 2025 compared to the same period last year.

Operating Expenses

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

2 unchanged sentences

Operating Expenses as a Percentage of Revenue 15.8 % 14.3 % 1.5 % 10.5 %

Our operating expenses in the third quarter of fiscal 2024 increased 8.5% as compared to the third quarter of fiscal 2023.

The increase in operating expenses was primarily the result of the additional operating expenses due to acquisitions that have taken place in the past year as well as an increase in variable expenses associated with increased sales.

Operating expenses as a percentage of revenue increased to 13.3% in the third quarter of fiscal 2024 from 12.7% in the third quarter of fiscal 2023.

Three Months Ended October 31, Increase/ Percent

Our operating expenses in the first quarter of fiscal 2025 increased 21.9% as compared to the first quarter of fiscal 2024.

The increase in operating expenses was led by additional operating expenses due to acquisitions that have taken place in the past year.

Operating expenses as a percentage of revenue increased to 15.8% in the first quarter of fiscal 2025 from 14.3% in the first quarter of fiscal 2024.

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

3 unchanged sentences

Other interest expense (2,459) (1,274) 1,185 93.0 %

The change in interest and other income (expense) compared to fiscal 2023 was primarily the result of foreign currency fluctuations in the quarter, creating foreign currency losses in fiscal 2024.

The increase in floorplan interest expense for the third quarter of fiscal 2024 as compared to the third quarter of fiscal 2023 was primarily due to a higher level of interest-bearing inventory and a higher interest rate in the third quarter of fiscal 2024.

The change in interest and other income (expense) for the first quarter of fiscal 2025 compared to the first quarter of fiscal 2024 was primarily the result of foreign currency fluctuations in the quarter, creating foreign currency losses for the first quarter fiscal 2025.

The increase in floorplan interest expense for the first quarter of fiscal 2025 as compared to the first quarter of fiscal 2024 was primarily due to a higher level of interest-bearing inventory in the first quarter of fiscal 2025.

The increase in other interest expense in the first quarter of fiscal 2025 is the result of an increased amount of long term debt outstanding resulting from real estate purchased as part of dealership acquisitions and purchases of previously leased facilities in fiscal 2024 as well as increased borrowing on our CNH Industrial revolver line of credit.

Provision for Income Taxes

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

1 unchanged sentence

Provision for Income Taxes $ 3,345 $ 8,474 $ (5,129) (60.5) %

Our effective tax rate was 25.4 % and 24.5 % for each of the three months ended October 31, 2023 and October 31, 2022, respectively.

The effective tax rates for the three months ended October 31, 2023 and 2022 were subject to various factors such as the impact of certain discrete items, mainly the vesting of share-based compensation and the mix of domestic and foreign income.

Our effective tax rate was 26.2 % and 23.9 % for each of the three months ended April 30, 2024 and April 30, 2023, respectively.

The effective tax rates for the three months ended April 30, 2024 and 2023 were subject to various factors such as the impact of certain discrete items, mainly the vesting of share-based compensation and the mix of domestic and foreign income.

The Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two Global Anti-Base Erosion (“GloBE”) model rules, issued under the OECD Inclusive Framework on Base Erosion and Profit Shifting, introduce a global minimum tax of 15% applicable to multinational enterprise groups with consolidated financial statement revenue in excess of €750 million.

Numerous foreign jurisdictions have already enacted tax legislation based on the GloBE rules, with some effective as early as January 1, 2024.

As of April 30, 2024, we recognized a nominal income tax expense for Pillar Two GloBE minimum tax.

The Company is continuously monitoring the evolving application of this legislation and assessing its potential impact on our future tax liability.

Segment Results

Certain financial information for our Agriculture, Construction and Europe business segments is presented below.

Certain financial information for our Agriculture, Construction, Europe and Australia business segments is presented below.

“Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level.

Revenue between segments is immaterial.

Three Months Ended October 31, Increase/ Percent

Three Months Ended April 30, Increase/ Percent

2024 2023 (Decrease) Change

3 unchanged sentences

Europe 65,105 74,440 (9,335) (12.5) %

Australia $ 44,419 $ — $ 44,419 *N/M

Total $ 628,703 $ 569,631 $ 59,072 10.4 %

Income Before Income Taxes

Income (Loss) Before Income Taxes

Agriculture $ 13,045 $ 24,152 $ (11,107) (46.0) %

1 unchanged sentence

Europe 1,350 6,384 (5,034) (78.9) %

Australia (486) — (486) *N/M

Segment Income Before Income Taxes 14,177 35,069 (20,892) (59.6) %

1 unchanged sentence

Total $ 12,786 $ 35,439 $ (22,653) (63.9) %

Agriculture segment revenue for the third quarter of fiscal 2024 increased 7.7% compared to the third quarter of fiscal 2023.

The higher revenue was driven primarily by the recent acquisition of Pioneer Farm Equipment, completed in February 2023, as well as an increase in same-store sales in our Agriculture segment of 3.5% on top of last year's record performance.

Same-store sales was constrained by delayed OEM deliveries and capacity constraints or our service department as we

prioritized supporting our customers through harvest which limited our ability to process and deliver pre-sold units to customers.

Agriculture segment income before income taxes for the third quarter of fiscal 2024 was $35.1 million compared to $42.0 million for the third quarter of fiscal 2023.

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

Construction segment revenue for the third quarter of fiscal 2024 decreased 10.3% compared to the third quarter of fiscal 2023.

The year-over-year decrease in revenue was primarily driven by the timing of equipment deliveries which shifted some revenue into the fourth quarter of this year as compared to the third and fourth quarters of the prior year.

Our Construction segment income before taxes was $4.1 million for the third quarter of fiscal 2024 compared to $6.1 million in the third quarter of fiscal 2023.

The decrease in segment results was primarily due to a decrease in revenue.

The dollar utilization, which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period, of our rental fleet decreased slightly from 34.3% in the third quarter of fiscal 2023 to 33.2% in the third quarter of fiscal 2024.

Europe segment revenue was $85.2 million for the third quarter of fiscal 2024 compared to $89.0 million in the third quarter of fiscal 2023.

The decrease in revenue was impacted by a softening demand which was negatively impacted by dry conditions in the region as well as being negatively impacted by a 4.2% decrease in total revenue from our Ukrainian subsidiary due to the Russia-Ukraine conflict, compared to the third quarter of fiscal 2023.

Our Europe segment income before income taxes was $5.1 million for the third quarter of fiscal 2024 compared to segment income before income taxes of $8.5 million for the same period last year.

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

*N/M = Not Meaningful

Agriculture segment revenue for the first quarter of fiscal 2025 increased 5.8% compared to the first quarter of fiscal 2024.

The higher revenue was driven primarily by the increase in same-store sales in our Agriculture segment of 4.3%.

Same-store sales was positively impacted by the availability of equipment, but was partially offset by softer demand for equipment purchases which is being negatively impacted by the expected decrease in net farm income.

Agriculture segment income before income taxes for the first quarter of fiscal 2025 was $13.0 million compared to $24.2 million for the first quarter of fiscal 2024.

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

Construction segment revenue for the first quarter of fiscal 2025 was essentially flat compared to the first quarter of fiscal 2024.

Our Construction segment income before taxes was $0.3 million for the first quarter of fiscal 2025 compared to $4.5 million in the first quarter of fiscal 2024.

The decrease in segment results was led by increases in operating expenses and floorplan interest expense.

The dollar utilization of our rental fleet decreased from 26.8% in the first quarter of fiscal 2024 to 21.7% in the first quarter of fiscal 2025.

Dollar fleet utilization is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period.

Europe segment revenue was $65.1 million for the first quarter of fiscal 2025 compared to $74.4 million in the first quarter of fiscal 2024.

The decrease in revenue was impacted by a lower demand, which was impacted by a decrease in global commodity prices and higher interest rates.

Our Europe segment income before income taxes was $1.4 million for the first quarter of fiscal 2025 compared to segment income before income taxes of $6.4 million for the same period last year.

The decrease in segment pre-tax income was primarily the result of decreased equipment sales as noted above as well as gross profit margin normalization of equipment sales as supply has caught up with demand.

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

Australia segment revenue for fiscal 2024 was $44.4 million.

Our Australia segment loss before income taxes was $0.5 million for the first quarter of fiscal 2025.

Shared Resources/Eliminations

1 unchanged sentence

Since these allocations are set early in the year, unallocated balances may occur.

Shared Resources loss before income taxes was $3.9 million for the third quarter of fiscal 2024 compared to a loss before income taxes of $1.9 million for the same period last year.

The lower shared resources results were primarily from increase in floorplan interest expense as well as $0.6 million of acquisition related expenses incurred for the O'Connors acquisition.

Nine Months Ended October 31, 2023 Compared to Nine Months Ended October 31, 2022

Consolidated Results

Nine Months Ended October 31, Increase/ Percent

2023 2022 (Decrease) Change

(dollars in thousands)

Equipment $ 1,431,272 $ 1,240,579 $ 190,693 15.4 %

Parts 320,077 254,974 65,103 25.5 %

Service 122,178 101,847 20,331 20.0 %

Rental and other 32,785 28,923 3,862 13.4 %

Total Revenue $ 1,906,312 $ 1,626,323 $ 279,989 17.2 %

Total revenue for the first nine months of fiscal 2024 was up 17.2% or $280.0 million compared to the first nine months of fiscal 2023, driven primarily by our acquisitions of Mark's Machinery, the Heartland Companies, and Pioneer Farm Equipment completed in April 2022, August 2022, and February 2023, respectively as well as an increase in Company-wide same-store sales of 4.3%.

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

Nine Months Ended October 31, Increase/ Percent

2023 2022 (Decrease) Change

(dollars in thousands)

Equipment $ 193,612 $ 170,201 $ 23,411 13.8 %

Parts 103,302 82,812 20,490 24.7 %

Service 81,168 66,559 14,609 21.9 %

Rental and other 12,236 11,401 835 7.3 %

Total Gross Profit $ 390,318 $ 330,973 $ 59,345 17.9 %

Gross Profit Margin

Equipment 13.5 % 13.7 % (0.2) % (1.5) %

Parts 32.3 % 32.5 % (0.2) % (0.6) %

Service 66.4 % 65.4 % 1.0 % 1.5 %

Rental and other 37.3 % 39.4 % (2.1) % (5.3) %

Total Gross Profit Margin 20.5 % 20.4 % 0.1 % 0.5 %

Gross Profit Mix

Equipment 49.6 % 51.5 % (1.9) % (3.7) %

Parts 26.5 % 25.0 % 1.5 % 6.0 %

Service 20.8 % 20.1 % 0.7 % 3.5 %

Rental and other 3.1 % 3.4 % (0.3) % (8.8) %

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit increased 17.9% or $59.3 million for the first nine months of fiscal 2024, as compared to the same period last year.

Gross profit margin also improved to 20.5% in the first nine months of fiscal 2024 from 20.4% in the same period last year.

The increase in gross profit margin was primarily due to gross profit mix shift, to higher margin parts sales relative to equipment sales.

Our Company-wide absorption rate for the first nine months of fiscal 2024 increased to 95.9%, as compared to 89.6% during the same period last year, as the increase in gross profit from parts, rental, and service more than offset the increase in operating expenses and interest expense on floorplan payables, during the nine-month period compared to that of the prior year nine-month period.

Operating Expenses

Nine Months Ended October 31, Increase/ Percent

2023 2022 (Decrease) Change

(dollars in thousands)

Operating Expenses $ 262,182 $ 217,841 $ 44,341 20.4 %

Operating Expenses as a Percentage of Revenue 13.8 % 13.4 % 0.4 % 3.0 %

Our operating expenses for the first nine months of fiscal 2024 increased $44.3 million as compared to the first nine months of fiscal 2023.

The increase in operating expenses was a result of an increase in variable expenses associated with increased sales as well as acquisitions that have occurred in the last twelve months.

Operating expenses as a percentage of revenue increased slightly to 13.8% in the first nine months of fiscal 2024 from 13.4% in the first nine months of fiscal 2023.

Other Income (Expense)

Nine Months Ended October 31, Increase/ Percent

2023 2022 (Decrease) Change

(dollars in thousands)

Interest and other income (expense) $ 1,129 $ 3,169 $ (2,040) (64.4) %

Floorplan interest expense (7,774) (1,087) 6,687 615.2 %

Other interest expense (4,008) (3,802) 206 5.4 %

The change in interest and other income (expense) compared to fiscal 2023 was primarily the result of foreign currency fluctuations in the nine months period, creating foreign currency losses in fiscal 2024.

Floorplan interest expense increased $6.7 million for the first nine months of fiscal 2024, as compared to the same period last year, primarily due to increased interest bearing borrowings, resulting from higher inventory levels, as well as a higher interest rate environment.

Provision for Income Taxes

Nine Months Ended October 31, Increase/ Percent

2023 2022 Decrease Change

(dollars in thousands)

Provision for Income Taxes $ 29,004 $ 27,656 $ 1,348 4.9 %

Our effective tax rate was 24.7% for the first nine months of fiscal 2024 and 24.8% for the same period last year.

The effective tax rate for the nine months ended October 31, 2023 and 2022 was subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation and the mix of domestic and foreign income.

Segment Results

Certain financial information for our Agriculture, Construction and Europe business segments is presented below.

“Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level.

Revenue between segments is immaterial.

Nine Months Ended October 31, Increase/ Percent

2023 2022 (Decrease) Change

(dollars in thousands)

Agriculture $ 1,423,669 $ 1,160,829 $ 262,840 22.6 %

Construction 232,368 223,389 8,979 4.0 %

Europe 250,275 242,105 8,170 3.4 %

Total $ 1,906,312 $ 1,626,323 $ 279,989 17.2 %

Income Before Income Taxes

Agriculture $ 92,311 $ 83,387 $ 8,924 10.7 %

Construction 13,746 13,197 549 4.2 %

Europe 17,097 18,683 (1,586) (8.5) %

Segment Income Before Income Taxes 123,154 115,267 7,887 6.8 %

Shared Resources (5,671) (3,855) 1,816 47.1 %

Total $ 117,483 $ 111,412 $ 6,071 5.4 %

Agriculture segment revenue for the first nine months of fiscal 2024 increased 22.6% compared to the same period last year.

The higher revenue was driven primarily by the acquisitions of Mark's Machinery, the Heartland Companies, and Pioneer Farm Equipment in April 2022, August 2022, and February 2023, respectively, as well as an increase in same-store sales of 4.7% for the first nine months of fiscal 2024, as compared to the same period last year.

Agriculture segment income before income taxes was $92.3 million for the first nine months of fiscal 2024 compared to $83.4 million over the first nine months of fiscal 2023.

The improvement in segment results was primarily the result of higher equipment revenue.

Construction segment revenue for the first nine months of fiscal 2024 increased 4.0% compared to the same period last year.

When accounting for the divestitures of the North Dakota consumer products store in March 2022, same-store sales increased 4.8%.

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

Our Construction segment income before income taxes was $13.7 million for the first nine months of fiscal 2024 compared to $13.2 million for the first nine months of fiscal 2023.

The increase in segment results was primarily due to an increase in same-store sales, as described above.

The dollar utilization of our rental fleet decreased from 30.7% in the first nine months of fiscal 2023 to 30.1% in the first nine months of fiscal 2024.

Europe segment revenue for the first nine months of fiscal 2024 increased 3.4% compared to the same period last year.

The increase in segment revenues benefited from improved availability of inventory in certain product categories and the sustained high demand of equipment in the first nine months of fiscal 2024, which more than offset a 10.3% decrease in revenues from our Ukrainian subsidiary due to the Russia-Ukraine conflict compared to the first nine months of fiscal 2023.

Our Europe segment income before income taxes was $17.1 million for the first nine months of fiscal 2024 compared to $18.7 million for the same period last year.

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

Shared Resources/Eliminations

We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments.

Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur.

Shared Resources loss before income taxes was $5.7 million for the first nine months of fiscal 2024, which included $1.1 million of acquisition related expenses incurred for the O'Connors acquisition, compared to a loss before income taxes of $3.9 million for the same period last year.

Shared Resources loss before income taxes was $1.4 million for the first quarter of fiscal 2025 compared to profit before income taxes of $0.4 million for the same period last year.

The lower Shared Resources results were primarily driven by foreign currency fluctuations.

Liquidity and Capital Resources

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Equipment Inventory and Floorplan and Working Capital Payable Credit Facilities

As of October 31, 2023, the Company had floorplan payable lines of credit for equipment purchases totaling $923.0 million, which is primarily comprised of a $500.0 million credit facility with CNH Industrial, a $250.0 million floorplan payable line and a $75.0 million working capital line of credit under the Bank Syndicate Agreement, and a $50.0 million credit facility with DLL Finance.

Our equipment inventory turnover decreased from 3.6 times for the rolling 12 month period ended October 31, 2022 to 2.4 times for the rolling 12 month period ended October 31, 2023.

The decrease in equipment turnover was attributable to an increase in equipment inventory over the rolling 12 month period ended October 31, 2023 as compared to the same period ended October 31, 2022.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 20.9% as of October 31, 2023 from 51.7% as of January 31, 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'Connor acquisition.

As of April 30, 2024, the Company had floorplan payable lines of credit for equipment purchases totaling $1.4 billion, which is primarily comprised of a $875.0 million credit facility with CNH Industrial, a $275.0 million floorplan payable line and a $75.0 million working capital line of credit under the Bank Syndicate Agreement, and a $80.0 million credit facility with DLL Finance.

Our equipment inventory turnover decreased from 3.0 times for the rolling 12 month period ended April 30, 2023 to 2.0 times for the rolling 12 month period ended April 30, 2024.

The decrease in equipment turnover was attributable to an increase in equipment inventory over the rolling 12 month period ended April 30, 2024.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 16.3% as of April 30, 2024 from 18.2% as of January 31, 2024.

Adequacy of Capital Resources

Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, and funding capital expenditures, including rental fleet assets, and funding acquisitions.

Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, funding capital expenditures, including rental fleet assets, and funding acquisitions.

Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.

As of October 31, 2023, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of October 31, 2023.

As of April 30, 2024, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of April 30, 2024.

While not expected to occur, if anticipated operating results were to create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.

Cash Flow Used for Operating Activities

Net cash used for operating activities was $82.1 million for the first nine months of fiscal 2024, compared to net cash used for operating activities of $7.1 million for the first nine months of fiscal 2023.

The change in net cash used for operating activities is primarily the result of an increase in inventories and a decrease in deferred revenue, which were partially offset by an increase in non-interest bearing floorplan lines of credit from manufacturers and higher net income for the first nine months of fiscal 2024.

Net cash used for operating activities was $32.4 million for the first three months of fiscal 2025, compared to $77.7 million for the first three months of fiscal 2024.

The change in net cash used for operating activities is primarily the result of timing and collections of accounts receivable, which was partially offset by lower net income for the first three months of fiscal 2025.

Cash Flow Used for Investing Activities

Net cash used for investing activities was $64.1 million for the first nine months of fiscal 2024, compared to $124.0 million for the first nine months of fiscal 2023.

The decrease in cash used for investing activities was primarily the result of the acquisition of Mark's Machinery and the Heartland Companies in the first nine months of fiscal 2023 which was partially offset by the acquisitions of Pioneer Farm Equipment, MAREP, and Midwest Truck in the first nine months of fiscal 2024.

Net cash used for investing activities was $12.9 million for the first three months of fiscal 2025, compared to $26.3 million for the first three months of fiscal 2024.

The decrease in cash used for investing activities was primarily the result of the acquisitions of Pioneer Farm Equipment and MAREP in the first three months of fiscal 2024.

Cash Flow Provided by Financing Activities

Net cash provided by financing activities was $170.3 million for the first nine months of fiscal 2024 compared to $34.3 million for the first nine months of fiscal 2023.

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

Net cash provided by financing activities was $43.1 million for the first three months of fiscal 2025 compared to $98.2 million for the first three months of fiscal 2024.

The decrease in cash provided by financing activities was primarily the result of lower drawings on our non-manufacturer floorplan lines of credit in the first three months of fiscal 2025.

Information Concerning Off-Balance Sheet Arrangements

As of October 31, 2023, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of April 30, 2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Therefore, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

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In addition to those matters, there may exist additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may materially adversely affect our business, financial condition or results of operations and may cause results to differ materially from those contained in any forward-looking statement.

Other than as required by law, we disclaim any obligation to update such risks and uncertainties or to publicly announce results of revisions to any of the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.

Other than as required by applicable law, we disclaim any obligation to update such risks and uncertainties or to publicly announce results of revisions to any of the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.

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-Q

Item 2. Management’s Discussion and Analysis