Titan Machinery Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS TITAN MACHINERY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data) July 31, 2024 January 31, 2024 Assets Current Assets Cash $ 31,219 $ 38,066 Receivables, net of allowance for expected credit losses 131,776 153,657 Inventories, net 1,527,758 1,303,030 Prepaid expenses and other 18,347 24,262 Total current assets 1,709,100 1,519,015 Noncurrent Assets Property and equipment, net of accumulated depreciation 357,346 298,774 Operating lease assets 37,643 54,699 Deferred income taxes 512 529 Goodwill 62,929 64,105 Intangible assets, net of accumulated amortization 51,367 53,356 Other 1,652 1,783 Total noncurrent assets 511,449 473,246 Total Assets $ 2,220,549 $ 1,992,261 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 40,434 $ 43,846 Floorplan payable 1,168,440 893,846 Current maturities of long-term debt 9,940 13,706 Current operating lease liabilities 7,912 10,751 Deferred revenue 57,802 115,852 Accrued expenses and other 58,892 74,400 Total current liabilities 1,343,420 1,152,401 Long-Term Liabilities Long-term debt, less current maturities 116,666 106,407 Operating lease liabilities 35,415 50,964 Deferred income taxes 21,662 22,607 Other long-term liabilities 43,820 2,240 Total long-term liabilities 217,563 182,218 Commitments and Contingencies Stockholders' Equity Common stock, par value $ .00001 per share, 45,000,000 shares authorized; 23,127,895 shares issued and outstanding at July 31, 2024; 22,848,138 shares issued and outstanding at January 31, 2024 — — Additional paid-in-capital 259,911 258,657 Retained earnings 402,362 397,225 Accumulated other comprehensive income (loss) ( 2,707 ) 1,760 Total stockholders' equity 659,566 657,642 Total Liabilities and Stockholders' Equity $ 2,220,549 $ 1,992,261 See Notes to Condensed Consolidated Financial Statements 3 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share data) Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 Revenue Equipment $ 465,233 $ 480,122 $ 933,322 $ 909,498 Parts 109,805 108,510 218,032 205,116 Service 47,268 42,478 92,346 77,411 Rental and other 11,368 11,458 18,676 20,174 Total Revenue 633,674 642,568 1,262,376 1,212,199 Cost of Revenue Equipment 422,236 414,800 834,476 783,062 Parts 74,239 73,086 147,390 138,190 Service 16,144 14,208 32,920 26,617 Rental and other 8,676 7,075 13,458 12,351 Total Cost of Revenue 521,295 509,169 1,028,244 960,220 Gross Profit 112,379 133,399 234,132 251,979 Operating Expenses 95,156 88,751 194,314 170,066 Impairment of Goodwill 531 — 531 — Impairment of Intangible and Long-Lived Assets 942 — 942 — Income from Operations 15,750 44,648 38,345 81,913 Other (Expense) Income Interest and other (expense) income ( 7,048 ) 641 ( 7,335 ) 1,362 Floorplan interest expense ( 9,218 ) ( 2,457 ) ( 16,282 ) ( 3,729 ) Other interest expense ( 3,734 ) ( 1,241 ) ( 6,193 ) ( 2,514 ) (Loss) Income Before Income Taxes ( 4,250 ) 41,591 8,535 77,032 Provision for Income Taxes 54 10,270 3,399 18,745 Net (Loss) Income $ ( 4,304 ) $ 31,321 $ 5,136 $ 58,287 (Loss) Earnings per Share: Basic $ ( 0.19 ) $ 1.38 $ 0.22 $ 2.56 Diluted $ ( 0.19 ) $ 1.38 $ 0.22 $ 2.56 Weighted Average Common Shares: Basic 22,617 22,476 22,580 22,474 Diluted 22,617 22,484 22,583 22,480 See Notes to Condensed Consolidated Financial Statements 4 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (in thousands) Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 Net (Loss) Income $ ( 4,304 ) $ 31,321 $ 5,136 $ 58,287 Other Comprehensive (Loss) Income Foreign currency translation adjustments 58 550 ( 4,467 ) 1,646 Comprehensive (Loss) Income $ ( 4,246 ) $ 31,871 $ 669 $ 59,933 See Notes to Condensed Consolidated Financial Statements 5 Table of Contents TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount Balance at January 31, 2024 22,848 $ — $ 258,657 $ 397,225 $ 1,760 $ 657,642 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 30 ) — ( 794 ) — — ( 794 ) Stock-based compensation expense — — 837 — — 837 Net income — — — 9,441 — 9,441 Other comprehensive loss — — — — ( 4,525 ) ( 4,525 ) Balance at April 30, 2024 22,818 $ — $ 258,700 $ 406,666 $ ( 2,765 ) $ 662,601 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 310 — ( 51 ) — — ( 51 ) Stock-based compensation expense — — 1,262 — — 1,262 Net loss — — — ( 4,304 ) — ( 4,304 ) Other comprehensive income — — — — 58 58 Balance at July 31, 2024 23,128 $ — $ 259,911 $ 402,362 $ ( 2,707 ) $ 659,566 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount Balance at January 31, 2023 22,698 $ — $ 256,541 $ 284,784 $ ( 5,019 ) $ 536,306 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 29 ) — ( 993 ) — — ( 993 ) Stock-based compensation expense — — 659 — — 659 Net income — — — 26,965 — 26,965 Other comprehensive income — — — — 1,096 1,096 Balance at April 30, 2023 22,669 $ — $ 256,207 $ 311,749 $ ( 3,923 ) $ 564,033 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 195 — ( 7 ) — — ( 7 ) Stock-based compensation expense — — 784 — — 784 Net income — — — 31,321 — 31,321 Other comprehensive income — — — — 550 550 Balance at July 31, 2023 22,864 $ — $ 256,984 $ 343,070 $ ( 3,373 ) $ 596,681 See Notes to Condensed Consolidated Financial Statements 6 TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Six Months Ended July 31, 2024 2023 Operating Activities Net income $ 5,136 $ 58,287 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 18,413 14,637 Impairment 1,473 — Deferred income taxes ( 650 ) ( 2,495 ) Stock-based compensation expense 2,099 1,443 Noncash interest expense 493 129 Sale-leaseback finance modification expense 11,159 — Gain on extinguishment of debt ( 3,585 ) — Other, net 7,319 3,250 Changes in assets and liabilities, net of effects of acquisitions Receivables 18,499 ( 20,623 ) Prepaid expenses and other assets 9,301 7,540 Inventories ( 242,113 ) ( 263,121 ) Manufacturer floorplan payable 206,103 150,906 Deferred revenue ( 58,326 ) ( 58,482 ) Accounts payable, accrued expenses and other and other long-term liabilities ( 22,688 ) ( 14,166 ) Net Cash Used for Operating Activities ( 47,367 ) ( 122,695 ) Investing Activities Rental fleet purchases ( 361 ) ( 2,690 ) Property and equipment purchases (excluding rental fleet) ( 22,174 ) ( 25,347 ) Proceeds from sale of property and equipment 1,198 6,029 Acquisition consideration, net of cash acquired ( 260 ) ( 27,935 ) Other, net 130 ( 795 ) Net Cash Used for Investing Activities ( 21,467 ) ( 50,738 ) Financing Activities Net change in non-manufacturer floorplan payable 78,965 185,026 Proceeds from long-term debt borrowings — 6,503 Principal payments on long-term debt and finance leases ( 11,853 ) ( 8,701 ) Payment of debt issuance costs ( 3,745 ) ( 9 ) Other, net ( 956 ) ( 1,000 ) Net Cash Provided by Financing Activities 62,411 181,819 Effect of Exchange Rate Changes on Cash ( 424 ) 466 Net Change in Cash ( 6,847 ) 8,852 Cash at Beginning of Period 38,066 43,913 Cash at End of Period $ 31,219 $ 52,765 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 6,712 $ 15,215 Interest $ 21,408 $ 5,377 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 8,415 $ 5,175 Long-term debt to acquire finance leases $ 42,182 $ — Net transfer of assets to property and equipment from inventories $ ( 7,201 ) $ ( 1,232 ) See Notes to Condensed Consolidated Financial Statements 7 Table of Contents TITAN MACHINERY INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns and other factors influencing customer profitability, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s agriculture, construction and international customers. Therefore, operating results for the six-months ended July 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2025. The information contained in the consolidated balance sheet as of January 31, 2024 was derived from the audited consolidated financial statements of the Company for the fiscal year then ended. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2024 as filed with the SEC. Nature of Business The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States, Europe, and Australia. The Company’s North American stores are located in Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming. Internationally, the Company's European stores are located in Bulgaria, Germany, Romania, and Ukraine and the Company's Australian stores are located in New South Wales, South Australia, and Victoria in Southeastern Australia. Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, goodwill, or indefinite lived intangible assets, collectability of receivables, and income taxes. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation. Recently issued accounting pronouncements not yet adopted In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional income tax disclosures in the rate reconciliation table for federal, state and foreign income taxes, in addition to more details about the reconciling items in some categories when items meet a certain quantitative threshold. ASU 2023-09 is effective for annual periods beginning after December 15, 2024 with early adoption permitted. The Company is currently evaluating the provisions of the amendments and the impact on its future consolidated statements. 8 Table of Contents In March 2024, the SEC adopted new rules that will require registrants to provide certain climate-related information in their registration statements and annual reports. The rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks will also include disclosure of a registrant's greenhouse gas emissions. In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements. A federal court has stayed the implementation of the SEC rules, pending the outcome of litigation challenging the rules. The Company will continue to monitor the litigation process. NOTE 2 - EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share (EPS): Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands, except per share data) Numerator: Net (loss) income $ ( 4,304 ) $ 31,321 $ 5,136 $ 58,287 Allocation to participating securities — ( 400 ) ( 78 ) ( 689 ) Net (loss) income attributable to Titan Machinery Inc. common stockholders $ ( 4,304 ) $ 30,921 $ 5,058 $ 57,598 Denominator: Basic weighted-average common shares outstanding 22,617 22,476 22,580 22,474 Plus: incremental shares from vesting of restricted stock units — 8 3 6 Diluted weighted-average common shares outstanding 22,617 22,484 22,583 22,480 (Loss) Earnings Per Share: Basic $ ( 0.19 ) $ 1.38 $ 0.22 $ 2.56 Diluted $ ( 0.19 ) $ 1.38 $ 0.22 $ 2.56 Anti-dilutive shares excluded from diluted weighted-average common shares outstanding: Restricted stock units 12 — — — 9 Table of Contents NOTE 3 - REVENUE Revenue is recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services. Sales, value added and other taxes collected from our customers concurrent with our revenue activities are excluded from revenue. The following tables present our revenue disaggregated by revenue source and segment: Three Months Ended July 31, 2024 Agriculture Construction Europe Australia (1) Total (in thousands) Equipment $ 312,556 $ 52,844 $ 49,146 $ 50,687 $ 465,233 Parts 75,430 11,049 15,407 7,919 109,805 Service 34,570 7,214 3,076 2,408 47,268 Other 1,000 520 198 284 2,002 Revenue from contracts with customers 423,556 71,627 67,827 61,298 624,308 Rental 480 8,564 322 — 9,366 Total revenue $ 424,036 $ 80,191 $ 68,149 $ 61,298 $ 633,674 (1) Australia segment was created through the J.J. O’Connor & Sons Pty. Ltd. ("O’Connors") acquisition that closed in October 2023. Six Months Ended July 31, 2024 Agriculture Construction Europe Australia Total (in thousands) Equipment $ 651,269 $ 99,939 $ 96,645 $ 85,469 $ 933,322 Parts 150,395 22,879 29,931 14,827 218,032 Service 67,512 14,014 5,833 4,987 92,346 Other 1,875 836 351 435 3,497 Revenue from contracts with customers 871,051 137,668 132,760 105,718 1,247,197 Rental 670 14,015 494 — 15,179 Total revenue $ 871,721 $ 151,683 $ 133,254 $ 105,718 $ 1,262,376 Three Months Ended July 31, 2023 Agriculture Construction Europe Total (in thousands) Equipment $ 352,533 $ 53,697 $ 73,892 $ 480,122 Parts 82,246 12,537 13,727 108,510 Service 32,526 7,347 2,605 42,478 Other 1,235 588 193 2,016 Revenue from contracts with customers 468,540 74,169 90,417 633,126 Rental 529 8,694 219 9,442 Total revenue $ 469,069 $ 82,863 $ 90,636 $ 642,568 Six Months Ended July 31, 2023 Agriculture Construction Europe Total (in thousands) Equipment $ 678,193 $ 99,155 $ 132,150 $ 909,498 Parts 151,793 26,202 27,121 205,116 Service 58,793 13,683 4,935 77,411 Other 2,402 948 552 3,902 Revenue from contracts with customers 891,181 139,988 164,758 1,195,927 Rental 1,085 14,872 315 16,272 Total revenue $ 892,266 $ 154,860 $ 165,073 $ 1,212,199 10 Table of Contents Unbilled Receivables and Deferred Revenue Unbilled receivables from contracts with customers amounted to $ 30.8 million and $ 22.3 million as of July 31, 2024 and January 31, 2024, respectively. This increase in unbilled receivables is primarily the result of a seasonal increase in the volume of our service transactions in which we recognize revenue as our work is performed and prior to customer invoicing. Deferred revenue from contracts with customers amounted to $ 57.0 million and $ 114.6 million as of July 31, 2024 and January 31, 2024, respectively. Our deferred revenue most often increases in the fourth quarter of each fiscal year due to a higher level of customer down payments or prepayments and longer time periods between customer payment and delivery of the equipment asset, and the related recognition of equipment revenue, prior to its seasonal use. During the six months ended July 31, 2024 and 2023, the Company recognized $ 85.6 million and $ 107.7 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2024 and January 31, 2023, respectively. No material amount of revenue was recognized during the six months ended July 31, 2024 or 2023 from performance obligations satisfied in previous periods. NOTE 4 - RECEIVABLES The Company provides an allowance for expected credit losses on its nonrental receivables. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics as shown in the table below. Trade and unbilled receivables from contracts with customers have credit risk and the allowance is determined by applying expected credit loss percentages to aging categories based on historical experience that are updated each quarter. The rates may also be adjusted to the extent future events are expected to differ from historical results. In addition, the allowance is adjusted based on information obtained by continued monitoring of individual customer credit. Short-term receivables from finance companies, other receivables due from manufacturers, and other receivables have not historically resulted in any credit losses to the Company. These receivables are short-term in nature and deemed to be of good credit quality and have no need for any allowance for expected credit losses. Management continually monitors these receivables and should information be obtained that identifies potential credit risk, an adjustment to the allowance would be made if deemed appropriate. Trade and unbilled receivables from rental contracts are primarily in the United States and are specifically excluded from the accounting guidance in determining an allowance for expected losses. The Company provides an allowance for these receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts. July 31, 2024 January 31, 2024 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 59,745 $ 83,187 Unbilled receivables 30,790 22,324 Less allowance for expected credit losses ( 3,076 ) ( 3,038 ) 87,459 102,473 Short-term receivables due from finance companies 22,606 28,486 Trade and unbilled receivables from rental contracts Trade receivables 4,904 3,101 Unbilled receivables 1,251 666 Less allowance for expected credit losses ( 588 ) ( 465 ) 5,567 3,302 Other receivables Due from manufacturers 14,893 18,775 Other 1,251 621 16,144 19,396 Receivables, net of allowance for expected credit losses $ 131,776 $ 153,657 11 Table of Contents Following is a summary of allowance for credit losses on trade and unbilled accounts receivable by segment: Agriculture Construction Europe Australia (1) Total (in thousands) Balance at January 31, 2024 $ 164 $ 177 $ 2,638 59 $ 3,038 Current expected credit loss provision 146 110 ( 81 ) 38 213 Write-offs charged against allowance ( 46 ) ( 122 ) ( 42 ) ( 31 ) ( 241 ) Credit loss recoveries collected 2 34 57 — 93 Foreign exchange impact — — ( 26 ) ( 1 ) ( 27 ) Balance at July 31, 2024 $ 266 $ 199 $ 2,546 $ 65 $ 3,076 (1) Australia segment was created through the O'Connors acquisition that closed in October 2023. Agriculture Construction Europe Total (in thousands) Balance at January 31, 2023 $ 367 $ 124 $ 2,589 $ 3,080 Current expected credit loss provision ( 15 ) 123 244 352 Write-offs charged against allowance ( 143 ) ( 56 ) ( 53 ) ( 252 ) Credit loss recoveries collected 13 1 42 56 Foreign exchange impact — — 15 15 Balance at July 31, 2023 $ 222 $ 192 $ 2,837 $ 3,251 The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts reflected in Operating Expenses in the Condensed Consolidated Statements of Operations: Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands) Impairment losses (recoveries) on: Receivables from sales contracts $ ( 61 ) $ 69 $ 213 $ 351 Receivables from rental contracts 16 71 130 123 $ ( 45 ) $ 140 $ 343 $ 474 NOTE 5 - INVENTORIES July 31, 2024 January 31, 2024 (in thousands) New equipment $ 939,858 $ 745,445 Used equipment 378,928 347,041 Parts and attachments 201,183 203,124 Work in process 7,789 7,420 $ 1,527,758 $ 1,303,030 12 Table of Contents NOTE 6 - PROPERTY AND EQUIPMENT July 31, 2024 January 31, 2024 (in thousands) Rental fleet equipment $ 81,284 $ 79,308 Machinery and equipment 31,038 31,760 Vehicles 112,897 103,765 Furniture and fixtures 54,491 57,935 Land, buildings, and leasehold improvements 260,199 204,992 539,909 477,760 Less accumulated depreciation 182,563 178,986 $ 357,346 $ 298,774 The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in Cost of Revenue, which was $ 2.4 million and $ 2.2 million for the three months ended July 31, 2024 and 2023, respectively, and $ 4.3 million and $ 3.9 million for the six months ended July 31, 2024 and 2023, respectively. All other depreciation expense is included in Operating Expenses, which was $ 6.1 million and $ 5.2 million for the three months ended July 31, 2024 and 2023, respectively, and $ 12.2 million and $ 10.0 million for the six months ended July 31, 2024 and 2023, respectively. The Company reviews its long-lived assets for potential impairment whenever events or circumstances indicate that the carrying value of the long-lived asset (or asset group) may not be recoverable. The Company determined, based on changing expectations regarding the future use of certain long-lived assets, that the $12.7 million carrying value of these assets may not be fully recoverable. Accordingly, the Company performed step two of the impairment analysis and estimated the fair value of the asset using an income approach. As a result, the Company recognized an impairment charge of $0.9 million within the Europe segment in the second quarter of fiscal 2025, which is reflected in the Impairment of Intangibles and Long-Lived Assets amount in the Condensed Consolidated Statements of Operations. NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Finite-Lived Intangible Assets The Company's finite-lived intangible assets consist of customer relationships and covenants not to compete. The following is a summary of intangible assets with finite lives as of July 31, 2024 and January 31, 2024: July 31, 2024 January 31, 2024 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Customer relationships $ 11,893 $ (1,559) $ 10,334 $ 12,209 $ (704) $ 11,505 Covenants not to compete 1,125 (538) 587 1,236 (453) 783 $ 13,018 $ (2,097) $ 10,921 $ 13,445 $ (1,157) $ 12,288 Total expense related to the amortization of intangible assets, which is recorded in Operating Expenses in the Condensed Consolidated Statements of Operations, was $0.5 million and $0.1 million for the three months ended July 31, 2024 and 2023, respectively. Total expense related to the amortization of intangible assets, which is recorded in Operating Expenses in the Condensed Consolidated Statements of Operations, was $1.0 million and $0.2 million for the six months ended July 31, 2024 and 2023, respectively. The Company performed an interim impairment test in the second quarter of fiscal 2025 with respect to its German subsidiary's assets and recorded an impairment charge of $ 0.1 million within the Europe segment, which is reflected in Impairment of Intangible and Long-Lived Assets in the Condensed Consolidated Statements of Operations. 13 Table of Contents Future amortization expense, as of July 31, 2024, is expected to be as follows: Fiscal Year Ending January 31, Amount (in thousands) 2025 (remainder) $ 957 2026 1,891 2027 1,865 2028 1,738 2029 1,642 Thereafter 2,828 $ 10,921 Indefinite-Lived Intangible Assets The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of the changes in indefinite-lived intangible assets, by segment, for the six months ended July 31, 2024: Agriculture Construction Australia Total (in thousands) January 31, 2024 $ 18,154 $ 72 $ 22,842 $ 41,068 Foreign currency translation — — (622) (622) July 31, 2024 $ 18,154 $ 72 $ 22,220 $ 40,446 Goodwill The following presents changes in the carrying amount of goodwill, by segment, for the six months ended July 31, 2024: Agriculture Europe Australia Total (in thousands) January 31, 2024 $ 37,820 $ 474 $ 25,811 $ 64,105 Arising from business combinations — 70 — 70 Impairment — (531) — (531) Foreign currency translation — ( 13 ) (702) ( 715 ) July 31, 2024 $ 37,820 $ — $ 25,109 $ 62,929 The Company performed an interim impairment test in the second quarter of fiscal 2025 for the German reporting unit. Under the impairment test, the fair value of the reporting unit is estimated using an income approach in which a discounted cash flow analysis is utilized, which includes a five-year forecast of future operating performance for the reporting unit and a terminal value that estimates sustained long-term growth. The discount rate applied to the estimated future cash flows reflects an estimate of the weighted-average cost of capital of comparable companies. The quantitative goodwill impairment analysis for the German reporting unit indicated that the estimated fair value of the reporting unit was less than the carrying value. The implied fair value of the goodwill associated with the reporting unit approximated zero, thus requiring a full impairment charge of the goodwill carrying value of the reporting unit. As such, a goodwill impairment charge of $ 0.5 million was recognized within the Europe segment, which is reflected in Impairment of Goodwill in the Condensed Consolidated Statements of Operations. NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT On May 17, 2024, the Company entered into a Fourth Amended and Restated Credit Agreement (the "Bank Syndicate Agreement") with a group of banks, which replaced the previous Third Amended and Restated Credit Agreement (the "Existing Credit Facility") the Company had entered into in April 2020. The Credit Agreement provides for a secured credit facility in an amount of up to $500.0 million, consisting of $395.0 million floorplan facility and $105.0 million revolving operating line which can be used by both the U.S. Borrowers and the Australian Borrower. The maximum aggregate facility for the Australian Borrower cannot exceed $100.0 million and the U.S. Borrowers aggregate facility cannot exceed $485.0 million. The 14 Table of Contents outstanding indebtedness under the Credit Agreement matures on May 17, 2029. The amounts available under the Bank Syndicate Agreement are subject to borrowing base calculations and reduced by outstanding standby letters of credit and certain reserves. The Bank Syndicate Agreement includes a variable interest rate on outstanding balances, charges a 0.25% non-usage fee on the average monthly unused amount, and requires monthly payments of accrued interest. For the U.S. borrowings under the Credit Agreement, the Company elects at the time of any advance to choose a Base Rate Loan or a SOFR Rate Loan. The SOFR Rate is based upon one month, three month or six-month SOFR plus an adjustment (0.11448% for one-month term; 0.26161% for three-month term; and 0.42826% for six-month term), as chosen by the Company, but in no event shall the SOFR Rate be less than zero. The Base Rate is the greater of (a) the prime rate of interest announced, from time to time, by Bank of America; (b) the Federal Funds Rate plus 0.5%, and (c) one-month SOFR plus 1.0%, but in no event shall the Base Rate be less than zero. The effective interest rate on the Company’s borrowings is then calculated by adding an applicable margin to the SOFR Rate or Base Rate. The applicable margin is determined based on excess availability as determined under the Credit Agreement and ranges from 0.75% to 1.25% for Base Rate Loans and 1.75% to 2.25% for SOFR Rate Loans. The applicable margins for the U.S. loans under the Bank Syndicate Agreement are 0.25% higher than the margins under the Existing Credit Facility. For the Australian borrowings under the Credit Agreement, the Company elects at the time of the advance to choose an Australian Base Rate Loan or an Australian Bill Rate Loan. The Australian Bill Rate is based on the Bank Bill Swap Reference Bid Rate with an equivalent term of the loan, but in no event shall the Australian Bill Rate be less than zero. The Australian Base Rate is the sum of 1% plus the interbank overnight cash rate calculated by the Reserve Bank of Australia (but in no event shall the Australian cash rate be less than zero). The effective interest rate on the Australian’s borrowings is then calculated by adding an applicable margin to the Australian Bill Rate or the Australian Base Rate. The applicable margin is determined based on excess availability as determined under the Credit Agreement and ranges from 1.75% to 2.25%. As of July 31, 2024, the Company had floorplan and working capital lines of credit totaling $ 1.5 billion, which is primarily comprised of three floorplan lines of credit: (i) $ 875.0 million credit facility with CNH Industrial, (ii) $ 410.0 million floorplan line of credit and $90.0 million working capital line of credit under the Fourth Amended and Restated Credit Agreement, and (iii) $ 80.0 million credit facility with DLL Finance LLC. The Company's outstanding balances of floorplan lines of credit as of July 31, 2024 and January 31, 2024, consisted of the following: July 31, 2024 January 31, 2024 (in thousands) CNH Industrial $ 803,665 $ 567,677 Bank Syndicate Agreement Floorplan Loan 237,400 162,845 DLL Finance 43,362 38,528 Other outstanding balances with manufacturers and non-manufacturers 84,013 124,796 $ 1,168,440 $ 893,846 As of July 31, 2024, the interest-bearing U.S. floorplan payables carried a variable interest rate with a range of 7.19 % to 10.68 % compared to a range of 7.22 % to 10.70 % as of January 31, 2024. As of July 31, 2024, foreign floorplan payables carried a variable interest rate with a range of 5.18 % to 7.51 %, compared to a range of 5.24 % to 8.27 % as of January 31, 2024, on multiple lines of credit. The Company had non-interest-bearing floorplan payables of $ 594.1 million and $ 507.7 million, as of July 31, 2024 and January 31, 2024, respectively. 15 Table of Contents NOTE 9 - LONG TERM DEBT The following is a summary of the Company's long-term debt as of July 31, 2024 and January 31, 2024: Description Maturity Dates Interest Rates July 31, 2024 January 31, 2024 (in thousands) Mortgage loans, secured Various through May 2039 2.1% to 7.3% $ 83,455 $ 88,669 Sale-leaseback financing obligations Various through December 2030 6.1% to 6.2% 19,608 10,043 Vehicle loans, secured Various through June 2030 2.1% to 7.4% 21,732 14,433 Other Various through February 2029 1.2% to 7.0% 1,811 6,968 Total debt 126,606 120,113 Less: current maturities ( 9,940 ) ( 13,706 ) Long-term debt, net $ 116,666 $ 106,407 In the second quarter of fiscal year 2025, the Company signed an agreement to purchase 13 of its leased facilities at the end of the respective lease terms, resulting in an increase of the Sale-leaseback financing obligation by $11.2 million which is recorded to Current maturities of long-term debt and Long-term debt, less current maturities in the Condensed Consolidated Balance Sheet. The sale-leaseback finance modification expense was recorded to Interest and other income (expense) in the Condensed Consolidated Statements of Operations. Additionally, in the second quarter of fiscal year 2025, the Company decreased the Other debt balance by $3.6 million for the debt cancellation in relation to a New Market Tax Credit Program, which is recorded to Current maturities of long-term debt in the Condensed Consolidated Balance Sheet. The gain in debt cancellation was recorded to Interest and other income (expense) in the Condensed Consolidated Statements of Operations. NOTE 10 - DERIVATIVE INSTRUMENTS The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations. From time to time, the Company uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net income. The Company's foreign currency forward contracts generally have one month to three-month maturities. The notional value of outstanding foreign currency contracts was $ 65.1 million and $25.3 million as of July 31, 2024 and January 31, 2024, respectively. As of July 31, 2024 and January 31, 2024, the fair value of the Company's outstanding derivative instruments was not material. Derivative instruments recognized as assets are recorded in prepaid expenses and other in the Condensed Consolidated Balance Sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the Condensed Consolidated Balance Sheets. The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the three and six months ended July 31, 2024 and 2023. Gains and losses are recognized in Interest and other income (expense) in the Condensed Consolidated Statements of Operations: Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands) Foreign currency contract gain (loss) $ ( 25 ) $ 21 $ 128 $ ( 39 ) 16 Table of Contents NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the six month periods ended July 31, 2024 and 2023: Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2024 $ ( 951 ) $ 2,711 $ 1,760 Other comprehensive loss ( 4,525 ) — ( 4,525 ) Balance, April 30, 2024 ( 5,476 ) 2,711 ( 2,765 ) Other comprehensive income 58 — 58 Balance, July 31, 2024 ( 5,418 ) 2,711 ( 2,707 ) Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2023 $ ( 7,730 ) $ 2,711 $ ( 5,019 ) Other comprehensive income 1,096 — 1,096 Balance, April 30, 2023 ( 6,634 ) 2,711 ( 3,923 ) Other comprehensive income 550 — 550 Balance, July 31, 2023 ( 6,084 ) 2,711 ( 3,373 ) NOTE 12 - LEASES As Lessor Revenue generated from leasing activities is disclosed, by segment, in Note 3 - Revenue. The following is the balance of our dedicated rental fleet assets, included in Property and equipment, net of accumulated depreciation in the condensed consolidated balance sheets, of our Construction segment as of July 31, 2024 and January 31, 2024: July 31, 2024 January 31, 2024 (in thousands) Rental fleet equipment $ 81,284 $ 79,308 Less accumulated depreciation ( 25,908 ) ( 27,282 ) $ 55,376 $ 52,026 NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS As of July 31, 2024, the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, which is an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement. The Company also has financial instruments that are not recorded at fair value in the consolidated balance sheets, including cash, receivables, payables and long-term debt. The carrying amounts of these financial instruments approximated their fair values as of July 31, 2024 and January 31, 2024. The fair value of these financial instruments was estimated based on Level 2 fair value inputs. The estimated fair value of the Company's Level 2 long-term debt, which is provided for disclosure purposes only, is as follows: July 31, 2024 January 31, 2024 (in thousands) Carrying amount $ 105,187 $ 99,031 Fair value $ 100,398 $ 103,102 17 Table of Contents NOTE 14 - INCOME TAXES Our effective tax rate was 1.3 % and 24.7 % for the three months ended July 31, 2024 and 2023, respectively. Our effective tax rate was 39.8 % and 24.3 % for the six months ended July 31, 2024 and 2023, respectively. The effective tax rate for the three and six months ended July 31, 2024 and 2023 were subject to various other factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income , and the change of valuation allowances in certain foreign jurisdictions. NOTE 15 - BUSINESS COMBINATIONS Fiscal 2025 The Company acquired Gose Landtechnik e.K. on March 1, 2024, which consists of one location in Germany and is included in the Europe segment. This acquisition is not considered material to the overall consolidated financial statements during the three and six months ended July 31, 2024 and has been included in the Condensed Consolidated Financial Statements from the date of the acquisition. Fiscal 2024 On October 2, 2023, the Company acquired all of the outstanding equity interests of O’Connors. The acquired business consisted of 15 Case IH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia. 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 the Australia segment. The Company incurred $ 1.1 million in acquisition related expenses in connection with this acquisition, which are included in Operating Expenses in the Consolidated Statements of Operations for the year ended January 31, 2024. The Company completed other acquisitions that were not considered material, individually or collectively, to the overall consolidated financial statements during the year ended January 31, 2024. These acquisitions consisted of five locations of Pioneer Farm Equipment Co. on February 1, 2023, in the state of Idaho, one location of Midwest Truck Parts Inc. on June 1, 2023, in the state Minnesota and one location of Scott Supply Co. on January 10, 2024, in the state of South Dakota, all of which are included in the Agriculture segment. The Company also acquired MAREP GmbH on May 1, 2023, which included two locations in Germany and is included in the Europe segment. These acquisitions have been included in the Condensed Consolidated Financial Statements from the date of the respective acquisition. 18 Table of Contents Purchase Price Allocation Each of the above acquisitions has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed. As of July 31, 2024, the purchase price allocation for all business combinations from fiscal year 2024 and prior are complete with the exception of the O'Connors acquisition for which the Company is in the process of finalizing the closing tax balances and intangible asset valuations. The following summarizes the acquisition date fair value of consideration transferred and the acquisition date fair value of the identifiable assets acquired and liabilities assumed, including an amount for goodwill (in thousands): O’Connors October 2, 2023 (in thousands) Assets acquired: Cash $ 4,165 Receivables 8,323 Inventories 96,802 Prepaid expenses and other 314 Property and equipment 11,450 Operating lease assets 14,798 Intangible assets acquired: Customer Relationships 10,928 Distribution Rights 21,470 Goodwill 24,261 Total assets 192,511 Liabilities assumed: Accounts payable 4,702 Floorplan payable 74,815 Current operating lease liabilities 1,064 Deferred revenue 12,008 Accrued expenses and other 17,284 Long-term debt 2,371 Operating lease liabilities 13,733 Total liabilities 125,977 Net assets acquired $ 66,534 Goodwill recognized by segment: Australia $ 24,261 Goodwill expected to be deductible for tax purposes $ — The recognition of goodwill in the above business combination arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. The acquired customer relationship intangible assets are being amortized on a straight line basis over a useful life of seven years. The distribution rights assets are indefinite-lived intangible assets not subject to amortization, but are tested for impairment annually, or more frequently upon the occurrence of certain events or when circumstances indicate that impairment may be present. The Company estimated the fair value of these intangible assets using a multi-period excess earnings model, an income approach. 19 Table of Contents Pro Forma Information The following summarized unaudited pro forma condensed statement of operations information for the three and six months ended July 31, 2024 and 2023, assuming that the O'Connors acquisition occurred as of February 1, 2023. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed the acquisition as of February 1, 2023 or that will be attained in the future. Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands) Total Revenues $ 633,674 $ 737,920 $ 1,262,376 $ 1,349,005 Net (Loss) Income $ ( 4,304 ) $ 35,456 $ 5,136 $ 63,162 NOTE 16 - CONTINGENCIES The Company is engaged in legal proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of these various legal actions and claims will not have a material impact on its financial position, results of operations or cash flows. These matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable. NOTE 17 - SEGMENT AND GEOGRAPHIC INFORMATION The Company has four reportable segments: Agriculture, Construction, Europe and Australia. Revenue between segments is immaterial. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resources assets primarily consist of cash and property and equipment. Certain financial information for each of the Company’s business segments is set forth below. Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands) (in thousands) Revenue Agriculture $ 424,036 $ 469,069 $ 871,721 $ 892,266 Construction 80,191 82,863 151,683 154,860 Europe 68,149 90,636 133,254 165,073 Australia (1) 61,298 — 105,718 — Total $ 633,674 $ 642,568 $ 1,262,376 $ 1,212,199 Income (Loss) Before Income Taxes Agriculture $ 635 $ 33,029 $ 13,680 $ 57,181 Construction ( 4,893 ) 5,156 ( 4,625 ) 9,689 Europe ( 2,270 ) 5,568 ( 919 ) 11,952 Australia 1,362 — 876 — Segment income before income taxes ( 5,166 ) 43,753 9,012 78,822 Shared Resources 916 ( 2,162 ) ( 477 ) ( 1,790 ) Total $ ( 4,250 ) $ 41,591 $ 8,535 $ 77,032 (1) Australia segment was created through the O'Connors acquisition that closed in October 2023. 20 Table of Contents July 31, 2024 January 31, 2024 (in thousands) Total Assets Agriculture $ 1,340,057 $ 1,183,367 Construction 316,233 257,142 Europe 291,699 280,354 Australia 205,298 225,421 Segment assets 2,153,287 1,946,284 Shared Resources 67,262 45,977 Total $ 2,220,549 $ 1,992,261 Net sales and long-lived assets, by geographic area were as follows: Revenue Three Months Ended July 31, Six Months Ended July 31, 2024 2023 2024 2023 (in thousands) United States $ 504,227 $ 551,932 $ 1,023,404 $ 1,047,126 Australia (1) 61,298 — 105,718 — Other international countries 68,149 90,636 133,254 165,073 $ 633,674 $ 642,568 $ 1,262,376 $ 1,212,199 (1) Australia segment was created through the O'Connors acquisition that closed in October 2023. Long-lived assets July 31, 2024 January 31, 2024 (in thousands) United States $ 347,810 $ 305,512 Australia 26,988 27,637 Other international countries 21,099 21,233 $ 395,897 $ 354,382 21 Table of Contents