Titan Machinery Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS TITAN MACHINERY INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data) October 31, 2024 January 31, 2024 Assets Current Assets Cash $ 23,420 $ 38,066 Receivables, net of allowance for expected credit losses 140,295 153,657 Inventories, net 1,413,088 1,303,030 Prepaid expenses and other 19,896 24,262 Total current assets 1,596,699 1,519,015 Noncurrent Assets Property and equipment, net of accumulated depreciation 357,056 298,774 Operating lease assets 37,520 54,699 Deferred income taxes 535 529 Goodwill 63,865 64,105 Intangible assets, net of accumulated amortization 52,074 53,356 Other 1,654 1,783 Total noncurrent assets 512,704 473,246 Total Assets $ 2,109,403 $ 1,992,261 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 44,689 $ 43,846 Floorplan payable 1,048,221 893,846 Current maturities of long-term debt 9,500 13,706 Current operating lease liabilities 8,178 10,751 Deferred revenue 41,979 115,852 Accrued expenses and other 59,460 74,400 Total current liabilities 1,212,027 1,152,401 Long-Term Liabilities Long-term debt, less current maturities 131,134 106,407 Operating lease liabilities 34,814 50,964 Deferred income taxes 19,701 22,607 Other long-term liabilities 43,527 2,240 Total long-term liabilities 229,176 182,218 Commitments and Contingencies Stockholders' Equity Common stock, par value $ .00001 per share, 45,000,000 shares authorized; 23,125,967 shares issued and outstanding at October 31, 2024; 22,848,138 shares issued and outstanding at January 31, 2024 — — Additional paid-in-capital 261,011 258,657 Retained earnings 404,075 397,225 Accumulated other comprehensive income 3,114 1,760 Total stockholders' equity 668,200 657,642 Total Liabilities and Stockholders' Equity $ 2,109,403 $ 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 October 31, Nine Months Ended October 31, 2024 2023 2024 2023 Revenue Equipment $ 495,147 $ 521,775 $ 1,428,469 $ 1,431,272 Parts 121,086 114,962 339,118 320,077 Service 51,122 44,767 143,468 122,178 Rental and other 12,469 12,611 31,145 32,785 Total Revenue 679,824 694,115 1,942,200 1,906,312 Cost of Revenue Equipment 458,345 454,598 1,292,821 1,237,660 Parts 83,542 78,585 230,932 216,775 Service 17,833 14,393 50,753 41,010 Rental and other 9,610 8,198 23,068 20,549 Total Cost of Revenue 569,330 555,774 1,597,574 1,515,994 Gross Profit 110,494 138,341 344,626 390,318 Operating Expenses 98,773 92,115 293,087 262,182 Impairment of Goodwill — — 531 — Impairment of Intangible and Long-Lived Assets 264 — 1,206 — Income from Operations 11,457 46,226 49,802 128,136 Other Income (Expense) Interest and other (expense) income 3,097 ( 235 ) ( 4,239 ) 1,129 Floorplan interest expense ( 9,993 ) ( 4,045 ) ( 26,275 ) ( 7,774 ) Other interest expense ( 4,286 ) ( 1,494 ) ( 10,479 ) ( 4,008 ) Income Before Income Taxes 275 40,452 8,809 117,483 (Benefit) Provision for Income Taxes ( 1,438 ) 10,259 1,959 29,004 Net Income $ 1,713 $ 30,193 $ 6,850 $ 88,479 Earnings per Share: Basic $ 0.07 $ 1.32 $ 0.30 $ 3.88 Diluted $ 0.07 $ 1.32 $ 0.30 $ 3.88 Weighted Average Common Shares: Basic 22,631 22,512 22,597 22,487 Diluted 22,631 22,517 22,599 22,493 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 October 31, Nine Months Ended October 31, 2024 2023 2024 2023 Net Income $ 1,713 $ 30,193 $ 6,850 $ 88,479 Other Comprehensive (Loss) Income Foreign currency translation adjustments 5,821 ( 1,938 ) 1,354 ( 292 ) Comprehensive Income $ 7,534 $ 28,255 $ 8,204 $ 88,187 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 issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 2 ) — ( 4 ) — — ( 4 ) Stock-based compensation expense — — 1,104 — — 1,104 Net income — — — 1,713 — 1,713 Other comprehensive income — — — — 5,821 5,821 Balance at October 31, 2024 23,126 $ — $ 261,011 $ 404,075 $ 3,114 $ 668,200 Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount Balance at January 31, 2023 22,698 $ — $ 256,541 $ 284,784 $ ( 5,019 ) $ 536,306 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 29 ) — ( 993 ) — — ( 993 ) Stock-based compensation expense — — 659 — — 659 Net income — — — 26,965 — 26,965 Other comprehensive income — — — — 1,096 1,096 Balance at April 30, 2023 22,669 $ — $ 256,207 $ 311,749 $ ( 3,923 ) $ 564,033 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 195 — ( 7 ) — — ( 7 ) Stock-based compensation expense — — 784 — — 784 Net income — — — 31,321 — 31,321 Other comprehensive income — — — — 550 550 Balance at July 31, 2023 22,864 $ — $ 256,984 $ 343,070 $ ( 3,373 ) $ 596,681 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 1 ) — 1 — — 1 Stock-based compensation expense — — 896 — — 896 Net income — — — 30,193 — 30,193 Other comprehensive loss — — — — ( 1,938 ) ( 1,938 ) Balance at October 31, 2023 22,863 $ — $ 257,881 $ 373,263 $ ( 5,311 ) $ 625,833 See Notes to Condensed Consolidated Financial Statements 6 TITAN MACHINERY INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) Nine Months Ended October 31, 2024 2023 Operating Activities Net income $ 6,850 $ 88,479 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 28,687 22,871 Impairment 1,737 — Deferred income taxes ( 3,003 ) ( 3,731 ) Stock-based compensation expense 3,203 2,339 Noncash interest expense 537 206 Noncash lease expense 6,532 7,004 Sale-leaseback finance modification expense 11,159 — Gain on extinguishment of debt ( 3,585 ) — Other, net ( 1,255 ) ( 1,376 ) Changes in assets and liabilities, net of effects of acquisitions Receivables 12,541 ( 31,947 ) Prepaid expenses and other assets 9,124 5,774 Inventories ( 114,485 ) ( 358,837 ) Manufacturer floorplan payable 78,714 274,968 Deferred revenue ( 76,838 ) ( 77,425 ) Accounts payable, accrued expenses and other and other long-term liabilities ( 16,113 ) ( 10,386 ) Net Cash Used for Operating Activities ( 56,195 ) ( 82,061 ) Investing Activities Rental fleet purchases ( 514 ) ( 5,154 ) Property and equipment purchases (excluding rental fleet) ( 30,284 ) ( 36,770 ) Proceeds from sale of property and equipment 1,490 6,451 Acquisition consideration, net of cash acquired ( 260 ) ( 27,935 ) Other, net 129 ( 643 ) Net Cash Used for Investing Activities ( 29,439 ) ( 64,051 ) Financing Activities Net change in non-manufacturer floorplan payable 77,990 174,353 Proceeds from long-term debt borrowings 12,440 7,721 Principal payments on long-term debt and finance leases ( 14,748 ) ( 10,685 ) Payment of debt issuance costs ( 3,754 ) ( 121 ) Other, net ( 960 ) ( 1,000 ) Net Cash Provided by Financing Activities 70,968 170,268 Effect of Exchange Rate Changes on Cash 20 1,912 Net Change in Cash ( 14,646 ) 26,068 Cash at Beginning of Period 38,066 43,913 Cash at End of Period $ 23,420 $ 69,981 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 5,887 $ 28,890 Interest $ 33,899 $ 10,480 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 12,484 $ 5,479 Long-term debt to acquire finance leases $ 42,182 $ — Net transfer of assets to property and equipment from inventories $ ( 7,626 ) $ ( 400 ) 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 nine-months ended October 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. In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in ASU 2024-03 require public entities to disclose specified information about certain costs and expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026 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 NOTE 2 - EARNINGS PER SHARE The following table sets forth the calculation of basic and diluted earnings per share (EPS): Three Months Ended October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands, except per share data) Numerator: Net income $ 1,713 $ 30,193 $ 6,850 $ 88,479 Allocation to participating securities ( 37 ) ( 465 ) ( 119 ) ( 1,153 ) Net income attributable to Titan Machinery Inc. common stockholders $ 1,676 $ 29,728 $ 6,731 $ 87,326 Denominator: Basic weighted-average common shares outstanding 22,631 22,512 22,597 22,487 Plus: incremental shares from vesting of restricted stock units — 5 2 6 Diluted weighted-average common shares outstanding 22,631 22,517 22,599 22,493 Earnings Per Share: Basic $ 0.07 $ 1.32 $ 0.30 $ 3.88 Diluted $ 0.07 $ 1.32 $ 0.30 $ 3.88 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 October 31, 2024 Agriculture Construction Europe Australia (1) Total (in thousands) Equipment $ 358,430 $ 53,770 $ 41,893 $ 41,054 $ 495,147 Parts 84,763 13,704 16,290 6,329 121,086 Service 37,275 7,730 3,516 2,601 51,122 Other 1,056 490 196 151 1,893 Revenue from contracts with customers 481,524 75,694 61,895 50,135 669,248 Rental 498 9,591 487 — 10,576 Total revenue $ 482,022 $ 85,285 $ 62,382 $ 50,135 $ 679,824 (1) Australia segment was created through the Company's acquisition of J.J. O’Connor & Sons Pty. Ltd. ("O’Connors") in October 2023. Nine Months Ended October 31, 2024 Agriculture Construction Europe Australia Total (in thousands) Equipment $ 1,009,699 $ 153,710 $ 138,537 $ 126,523 $ 1,428,469 Parts 235,159 36,583 46,220 21,156 339,118 Service 104,787 21,744 9,350 7,587 143,468 Other 2,931 1,327 546 586 5,390 Revenue from contracts with customers 1,352,576 213,364 194,653 155,852 1,916,445 Rental 1,168 23,607 980 — 25,755 Total revenue $ 1,353,744 $ 236,971 $ 195,633 $ 155,852 $ 1,942,200 Three Months Ended October 31, 2023 Agriculture Construction Europe Total (in thousands) Equipment $ 408,648 $ 47,364 $ 65,763 $ 521,775 Parts 86,173 12,943 15,846 114,962 Service 34,718 7,084 2,965 44,767 Other 1,333 547 318 2,198 Revenue from contracts with customers 530,872 67,938 84,892 683,702 Rental 532 9,570 311 10,413 Total revenue $ 531,404 $ 77,508 $ 85,203 $ 694,115 Nine Months Ended October 31, 2023 Agriculture Construction Europe Total (in thousands) Equipment $ 1,086,840 $ 146,519 $ 197,913 $ 1,431,272 Parts 237,966 39,144 42,967 320,077 Service 93,510 20,767 7,901 122,178 Other 3,735 1,496 869 6,100 Revenue from contracts with customers 1,422,051 207,926 249,650 1,879,627 Rental 1,618 24,442 625 26,685 Total revenue $ 1,423,669 $ 232,368 $ 250,275 $ 1,906,312 10 Table of Contents Unbilled Receivables and Deferred Revenue Unbilled receivables from contracts with customers amounted to $ 35.0 million and $ 22.3 million as of October 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 $ 41.7 million and $ 114.6 million as of October 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 nine months ended October 31, 2024 and 2023, the Company recognized $ 112.1 million and $ 118.0 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 nine months ended October 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. October 31, 2024 January 31, 2024 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 64,330 $ 83,187 Unbilled receivables 34,980 22,324 Less allowance for expected credit losses ( 3,413 ) ( 3,038 ) 95,897 102,473 Short-term receivables due from finance companies 24,757 28,486 Trade and unbilled receivables from rental contracts Trade receivables 4,873 3,101 Unbilled receivables 1,236 666 Less allowance for expected credit losses ( 525 ) ( 465 ) 5,584 3,302 Other receivables Due from manufacturers 13,137 18,775 Other 920 621 14,057 19,396 Receivables, net of allowance for expected credit losses $ 140,295 $ 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 340 174 ( 41 ) 19 492 Write-offs charged against allowance ( 86 ) ( 185 ) ( 39 ) ( 17 ) ( 327 ) Credit loss recoveries collected 10 86 99 3 198 Foreign exchange impact — — 10 2 12 Balance at October 31, 2024 $ 428 $ 252 $ 2,667 $ 66 $ 3,413 (1) Australia segment was created through the Company's acquisition of "O’Connors 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 64 155 495 714 Write-offs charged against allowance ( 191 ) ( 95 ) ( 56 ) ( 342 ) Credit loss recoveries collected 15 7 52 74 Foreign exchange impact — — ( 11 ) ( 11 ) Balance at October 31, 2023 $ 255 $ 191 $ 3,069 $ 3,515 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 October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands) Impairment losses (recoveries) on: Receivables from sales contracts $ 283 $ 362 $ 497 $ 714 Receivables from rental contracts ( 9 ) 19 121 141 $ 274 $ 381 $ 618 $ 855 NOTE 5 - INVENTORIES October 31, 2024 January 31, 2024 (in thousands) New equipment $ 836,040 $ 745,445 Used equipment 381,539 347,041 Parts and attachments 189,073 203,124 Work in process 6,436 7,420 $ 1,413,088 $ 1,303,030 12 Table of Contents NOTE 6 - PROPERTY AND EQUIPMENT October 31, 2024 January 31, 2024 (in thousands) Rental fleet equipment $ 79,865 $ 79,308 Machinery and equipment 37,268 31,760 Vehicles 112,492 103,765 Furniture and fixtures 29,362 57,935 Land, buildings, and leasehold improvements 262,270 204,992 521,257 477,760 Less accumulated depreciation ( 164,201 ) ( 178,986 ) $ 357,056 $ 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 $ 2.8 million and $ 2.5 million for the three months ended October 31, 2024 and 2023, respectively, and $ 7.1 million and $ 6.5 million for the nine months ended October 31, 2024 and 2023, respectively. All other depreciation expense is included in Operating Expenses, which was $ 6.3 million and $ 5.3 million for the three months ended October 31, 2024 and 2023, respectively, and $ 18.4 million and $ 15.3 million for the nine months ended October 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 $15.4 million carrying value of these assets may not be fully recoverable. The Company performed an impairment assessment of this asset group and as a result recognized an impairment charge of $0.3 million, of which $0.2 million was within the Agriculture segment and $0.1 million was within the Construction segment, for the three months ended October 31, 2024. For the nine months ended October 31, 2024, the Company recognized total impairment charges of $1.2 million, of which $0.2 million was within the Agriculture segment, $0.1 million was within the Construction segment and $0.9 million was within the Europe segment. The impairment charge 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 October 31, 2024 and January 31, 2024: October 31, 2024 January 31, 2024 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Customer relationships $ 12,315 $ (2,049) $ 10,266 $ 12,209 $ (704) $ 11,505 Covenants not to compete 1,125 (592) 533 1,236 (453) 783 $ 13,440 $ (2,641) $ 10,799 $ 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 October 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 $1.5 million and $0.3 million for the nine months ended October 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 October 31, 2024, is expected to be as follows: Fiscal Year Ending January 31, Amount (in thousands) 2025 (remainder) $ 489 2026 1,951 2027 1,925 2028 1,799 2029 1,702 Thereafter 2,933 $ 10,799 Indefinite-Lived Intangible Assets The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of the changes in indefinite-lived intangible assets, by segment, for the nine months ended October 31, 2024: Agriculture Construction Australia Total (in thousands) January 31, 2024 $ 18,154 $ 72 $ 22,842 $ 41,068 Foreign currency translation — — 207 207 October 31, 2024 $ 18,154 $ 72 $ 23,049 $ 41,275 Goodwill The following presents changes in the carrying amount of goodwill, by segment, for the nine months ended October 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 ) 234 221 October 31, 2024 $ 37,820 $ — $ 26,045 $ 63,865 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. In second quarter of fiscal year 2025, 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 "Prior 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. The 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 14 Table of Contents 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 0.50%, or (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 Prior 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%. On December 3, 2024, the Company entered into Amendment No. 1 to the Bank Syndicate Agreement that lowers the adjusted excess availability metric from 15% to 10% for the period December 15, 2024 to March 15, 2025, and thereafter reverts to 15%. On December 2, 2024, the Company received a letter from CNH Industrial Capital America LLC that waived the Consolidated Fixed Charge Cover Ratio covenant for the period February 1, 2025 through January 31, 2026. The Company also received a letter from DLL Finance LLC dated December 2, 2024, which waived the Minimum Consolidated Fixed Charge Coverage Ratio covenant for the period April 30, 2025 through January 31, 2026. On December 2, 2024, the Company amended the Wholesale Floor Plan Credit Facilities with CNH Industrial Capital America LLC to reallocate the global limit of $875.0 million, which consists of a total available domestic limit to $650.0 million, total available Australian limit to $125.0 million and total available European limit to $100.0 million. As of October 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) $ 390.0 million floorplan line of credit and $110.0 million working capital line of credit under the Bank Syndicate Agreement, and (iii) $ 80.0 million credit facility with DLL Finance LLC. The Company's outstanding balances of floorplan lines of credit as of October 31, 2024 and January 31, 2024, consisted of the following: October 31, 2024 January 31, 2024 (in thousands) CNH Industrial $ 709,440 $ 567,677 Bank Syndicate Agreement Floorplan Loan 214,051 162,845 DLL Finance 34,954 38,528 Other outstanding balances with manufacturers and non-manufacturers 89,776 124,796 $ 1,048,221 $ 893,846 As of October 31, 2024, the interest-bearing U.S. floorplan payables carried a variable interest rate with a range of 7.21 % to 10.09 % compared to a range of 7.22 % to 10.70 % as of January 31, 2024. As of October 31, 2024, foreign floorplan payables carried a variable interest rate with a range of 4.80 % to 7.50 %, 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 $ 460.2 million and $ 507.7 million, as of October 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 October 31, 2024 and January 31, 2024: Description Maturity Dates Interest Rates October 31, 2024 January 31, 2024 (in thousands) Mortgage loans, secured Various through May 2039 2.1% to 7.3% $ 94,400 $ 88,669 Sale-leaseback financing obligations Various through December 2030 6.1% to 6.2% 19,481 10,043 Vehicle loans, secured Various through September 2030 2.1% to 7.4% 24,336 14,433 Other Various through February 2029 1.2% to 7.0% 2,417 6,968 Total debt 140,634 120,113 Less: current maturities ( 9,500 ) ( 13,706 ) Long-term debt, net $ 131,134 $ 106,407 In the second quarter of fiscal 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 Sheets. 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 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 Sheets. 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 $ 54.7 million and $25.3 million as of October 31, 2024 and January 31, 2024, respectively. As of October 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 nine months ended October 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 October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands) Foreign currency contract gain (loss) $ ( 114 ) $ ( 1,006 ) $ 14 $ ( 1,104 ) 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 nine month periods ended October 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 ) Other comprehensive income 5,821 — 5,821 Balance, October 31, 2024 $ 403 $ 2,711 $ 3,114 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 ) Other comprehensive loss ( 1,938 ) — ( 1,938 ) Balance, October 31, 2023 $ ( 8,022 ) $ 2,711 $ ( 5,311 ) 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 October 31, 2024 and January 31, 2024: October 31, 2024 January 31, 2024 (in thousands) Rental fleet equipment $ 79,865 $ 79,308 Less accumulated depreciation ( 26,514 ) ( 27,282 ) $ 53,351 $ 52,026 17 Table of Contents NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS As of October 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 October 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: October 31, 2024 January 31, 2024 (in thousands) Carrying amount $ 121,153 $ 99,031 Fair value $ 115,116 $ 103,102 NOTE 14 - INCOME TAXES Our effective tax rate was 522.9 % and 25.4 % for the three months ended October 31, 2024 and 2023, respectively. Our effective tax rate was 22.2 % and 24.7 % for the nine months ended October 31, 2024 and 2023, respectively. The effective tax rate for the three and nine months ended October 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 nine months ended October 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 October 31, 2024, the purchase price allocation for all business combinations from fiscal 2025 and prior are complete. 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 nine months ended October 31, 2024 and 2023, assumes 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 the results that will be attained in the future. Three Months Ended October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands) Total Revenues $ 679,824 $ 757,223 $ 1,942,200 $ 2,098,124 Net Income $ 1,713 $ 34,027 $ 6,850 $ 99,302 NOTE 16 - CONTINGENCIES The Company is engaged in legal proceedings incidental to the normal course of business. Due to their nature, these 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 October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands) (in thousands) Revenue Agriculture $ 482,022 $ 531,404 $ 1,353,744 $ 1,423,669 Construction 85,285 77,508 236,971 232,368 Europe 62,382 85,203 195,633 250,275 Australia (1) 50,135 — 155,852 — Total $ 679,824 $ 694,115 $ 1,942,200 $ 1,906,312 Income (Loss) Before Income Taxes Agriculture $ 1,876 $ 35,130 $ 15,556 $ 92,311 Construction ( 941 ) 4,057 ( 5,566 ) 13,746 Europe ( 1,195 ) 5,146 ( 2,115 ) 17,097 Australia ( 298 ) — 578 — Segment income before income taxes ( 558 ) 44,333 8,453 123,154 Shared Resources 833 ( 3,881 ) 356 ( 5,671 ) Total $ 275 $ 40,452 $ 8,809 $ 117,483 (1) Australia segment was created through the Company's acquisition of "O’Connors in October 2023. 20 Table of Contents October 31, 2024 January 31, 2024 (in thousands) Total Assets Agriculture $ 1,256,367 $ 1,183,367 Construction 294,748 257,142 Europe 276,644 280,354 Australia 213,820 225,421 Segment assets 2,041,579 1,946,284 Shared Resources 67,824 45,977 Total $ 2,109,403 $ 1,992,261 Net sales and long-lived assets, by geographic area were as follows: Revenue Three Months Ended October 31, Nine Months Ended October 31, 2024 2023 2024 2023 (in thousands) United States $ 567,307 $ 608,912 $ 1,590,715 $ 1,656,037 Australia (1) 50,135 — 155,852 — Other international countries 62,382 85,203 195,633 250,275 $ 679,824 $ 694,115 $ 1,942,200 $ 1,906,312 (1) Australia segment was created through the Company's acquisition of "O’Connors in October 2023. Long-lived assets October 31, 2024 January 31, 2024 (in thousands) United States $ 345,945 $ 305,512 Australia 27,914 27,637 Other international countries 21,625 21,233 $ 395,484 $ 354,382 21 Table of Contents