Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited Condensed Consolidated Financial Statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2024.
Overview
We own and operate a network of full service agricultural and construction equipment stores in the United States, Australia, and Europe. Based upon information provided to us by CNH Industrial N.V. or its U.S. subsidiary CNH Industrial America, LLC, we are the largest retail dealer of CaseIH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the United States. We operate our business through four reportable segments: Agriculture, Construction, Europe and Australia. Within each segment, we have four principal sources of revenue: new and used equipment sales, parts sales, service, and equipment rental and other activities.
Demand for agricultural equipment and, to a lesser extent, parts and service support, is impacted by agricultural commodity prices and net farm income. Based on September 2024 U.S. Department of Agriculture publications, the estimate of net farm income for calendar year 2024 indicated an approximate 4.4% decrease as compared to calendar year 2023, which follows an approximate 19.5% decrease in net farm income for calendar year 2023 as compared to calendar year 2022. Given this expected decrease in farmer profitability, the industry is experiencing decreased demand for equipment purchases.
For the third quarter of fiscal 2025, our net income was $1.7 million, or $0.07 per diluted share, compared to a fiscal 2024 third quarter net income of $30.2 million, or $1.32 per diluted share. Significant factors impacting the quarterly comparisons were:
• Gross profit margin decreased to 16.3% for the third quarter of fiscal 2025, as compared to 19.9% for the third quarter of fiscal 2024. The decrease in gross profit margin is primarily due to lower equipment margins, which are being driven by higher levels of inventory and softening demand. In addition, the Company has taken an active stance on managing inventory down to targeted levels.
• Floorplan interest expense increased by $5.9 million in the third quarter of fiscal 2025 as compared to the same period in fiscal 2024. The increase is primarily due to a higher level of interest-bearing inventory and usage of existing floorplan capacity to finance the O'Connors acquisition in October 2023.
• Revenue in the third quarter of fiscal 2025 decreased by 2.1% compared to the third quarter of fiscal 2024. The revenue decrease was led by softening of demand for equipment purchases due to the expected decline of net farm income this growing season and mostly offset by the additional revenue resulting from the acquisition of O'Connors, in October 2023.
Acquisitions
Fiscal 2024
J.J. O’Connor & Sons Pty. Ltd. Acquisition
On October 2, 2023, we acquired all of the outstanding equity interests of O’Connors. The acquired business consisted of 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia. O'Connors has been a successful Case IH complex, and our acquisition of this entity provides us with the opportunity to expand our international presence into the large, well-established Australian agriculture market. Total cash consideration paid for O'Connors was $66.5 million, which was financed through available cash resources and line of credit availability. The 15 O’Connors store locations are included within our Australia segment.
ERP Transition
In the third quarter of fiscal 2025, we completed the implementation of the phased roll-out plan to integrate all of our domestic stores to the new Enterprise Resource Planning ("ERP"). With the full domestic implementation complete, the focus has now shifted to the next phase, which is working with the ERP provider to enhance the support tools to improve employee efficiency and customer experience.
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Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2024. There have been no changes in our critical accounting policies and estimates since January 31, 2024.
Results of Operations
The results presented below include the operating results of each acquisition made during these periods, from the date of acquisition, as well as the operating results of any stores closed or divested during these periods, up to the date of the store closure. The period-to-period comparisons included below are not necessarily indicative of future results. Segment information is provided later in the discussion and analysis of our results of operations.
Same-store sales for any period represent sales by stores that were part of the Company for the entire comparable period in the current and preceding fiscal years. We do not distinguish between relocated or recently expanded stores in this same-store analysis. Closed stores are excluded from the same-store analysis. Stores that do not meet the criteria for same-store classification are described as excluded stores throughout this Results of Operations section.
Comparative financial data for each of our four sources of revenue are expressed below.
Three Months Ended October 31, Nine Months Ended October 31,
2024 2023 2024 2023
(dollars in thousands) (dollars in thousands)
Equipment
Revenue $ 495,147 $ 521,775 $ 1,428,469 $ 1,431,272
Cost of revenue 458,345 454,598 1,292,821 1,237,660
Gross profit $ 36,802 $ 67,177 $ 135,648 $ 193,612
Gross profit margin 7.4 % 12.9 % 9.5 % 13.5 %
Parts
Revenue $ 121,086 $ 114,962 $ 339,118 $ 320,077
Cost of revenue 83,542 78,585 230,932 216,775
Gross profit $ 37,544 $ 36,377 $ 108,186 $ 103,302
Gross profit margin 31.0 % 31.6 % 31.9 % 32.3 %
Service
Revenue $ 51,122 $ 44,767 $ 143,468 $ 122,178
Cost of revenue 17,833 14,393 50,753 41,010
Gross profit $ 33,289 $ 30,374 $ 92,715 $ 81,168
Gross profit margin 65.1 % 67.8 % 64.6 % 66.4 %
Rental and other
Revenue $ 12,469 $ 12,611 $ 31,145 $ 32,785
Cost of revenue 9,610 8,198 23,068 20,549
Gross profit $ 2,859 $ 4,413 $ 8,077 $ 12,236
Gross profit margin 22.9 % 35.0 % 25.9 % 37.3 %
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The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:
Three Months Ended October 31, Nine Months Ended October 31,
2024 2023 2024 2023
Revenue
Equipment 72.8 % 75.2 % 73.5 % 75.1 %
Parts 17.8 % 16.6 % 17.5 % 16.8 %
Service 7.5 % 6.4 % 7.4 % 6.4 %
Rental and other 1.9 % 1.8 % 1.6 % 1.7 %
Total Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Total Cost of Revenue 83.7 % 80.1 % 82.3 % 79.5 %
Gross Profit Margin 16.3 % 19.9 % 17.7 % 20.5 %
Operating Expenses 14.5 % 13.3 % 15.1 % 13.8 %
Impairment of Intangible and Long-Lived Assets — % — % 0.1 % — %
Income from Operations 1.7 % 6.7 % 2.6 % 6.7 %
Other Expense (1.6) % (0.8) % (2.1) % (0.6) %
Income Before Income Taxes — % 5.8 % 0.5 % 6.2 %
Provision for Income Taxes (0.2) % 1.5 % 0.1 % 1.5 %
Net Income 0.3 % 4.3 % 0.4 % 4.6 %
Three Months Ended October 31, 2024 Compared to Three Months Ended October 31, 2023
Consolidated Results
Revenue
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Equipment $ 495,147 $ 521,775 $ (26,628) (5.1) %
Parts 121,086 114,962 6,124 5.3 %
Service 51,122 44,767 6,355 14.2 %
Rental and other 12,469 12,611 (142) (1.1) %
Total Revenue $ 679,824 $ 694,115 $ (14,291) (2.1) %
Total revenue for the third quarter of fiscal 2025 declined by 2.1% or $14.3 million compared to the third quarter of fiscal 2024 primarily due to same-store sales decrease of 10.5% resulting from challenging industry conditions such as decreases in agricultural commodity prices and projected net farm income which have a negative effect on customer sentiment. Further, in the September 2024 U.S. Department of Agriculture publications, calendar year 2024's net farm income is forecasted to decrease 4.4% compared to 2023, which in turn had a decline of 19.5% in net farm income compared to 2022. This was partially offset by the acquisition of O'Connors that was completed in October 2023.
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Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Gross Profit
Equipment $ 36,802 $ 67,177 $ (30,375) (45.2) %
Parts 37,544 36,377 1,167 3.2 %
Service 33,289 30,374 2,915 9.6 %
Rental and other 2,859 4,413 (1,554) (35.2) %
Total Gross Profit $ 110,494 $ 138,341 $ (27,847) (20.1) %
Gross Profit Margin
Equipment 7.4 % 12.9 % (5.5) % (42.6) %
Parts 31.0 % 31.6 % (0.6) % (1.9) %
Service 65.1 % 67.8 % (2.7) % (4.0) %
Rental and other 22.9 % 35.0 % (12.1) % (34.6) %
Total Gross Profit Margin 16.3 % 19.9 % (3.6) % (18.1) %
Gross Profit Mix
Equipment 33.3 % 48.6 % (15.3) % (31.5) %
Parts 34.0 % 26.3 % 7.7 % 29.3 %
Service 30.1 % 22.0 % 8.1 % 36.8 %
Rental and other 2.6 % 3.1 % (0.5) % (16.1) %
Total Gross Profit Mix 100.0 % 100.0 %
Gross profit for the third quarter of fiscal 2025 decreased 20.1% or $27.8 million, as compared to the same period last year. Gross profit margin declined to 16.3% in the current quarter from 19.9% in the prior year quarter. The decrease in gross profit margin in the third quarter of fiscal 2025 was primarily due to lower equipment margins, which are being driven by higher levels of inventory and softening demand.
Our Company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — decreased to 74.1% for the third quarter of fiscal 2025 compared to 87.4% during the same period last year. The decrease in our absorption rate was primarily due to increased floorplan interest expense in the third quarter of fiscal 2025 compared to the same period last year.
Operating Expenses
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Operating Expenses $ 98,773 $ 92,115 $ 6,658 7.2 %
Operating Expenses as a Percentage of Revenue 14.5 % 13.3 % 1.2 % 9.0 %
Our operating expenses in the third quarter of fiscal 2025 increased 7.2% as compared to the third quarter of fiscal 2024. The increase in operating expenses was primarily the result of additional operating expenses due to acquisitions that have taken place in the past year. Operating expenses as a percentage of revenue increased to 14.5% in the third quarter of fiscal 2025 from 13.3% in the third quarter of fiscal 2024.
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Impairment Charges
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Impairment of Intangible and Long-Lived Assets $ 264 $ — n/m n/m
*n/m - not meaningful
In the third quarter of fiscal 2025, we recognized $0.3 million in impairment expense related to other intangible and long-lived assets, of which $0.2 million was within the Agriculture segment and $0.1 million was within the Construction segment.
Other Income (Expense)
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Interest and other income (expense) $ 3,097 $ (235) $ 3,332 n/m
Floorplan interest expense $ (9,993) $ (4,045) $ 5,948 (147.0) %
Other interest expense $ (4,286) $ (1,494) $ 2,792 n/m
The change in interest and other income (expense) for the third quarter of fiscal 2025 compared to the third quarter of fiscal 2024 was primarily due to foreign currency fluctuations in the quarter. The increase in floorplan interest expense for the third quarter of fiscal 2025 as compared to the third quarter of fiscal 2024 was primarily due to a higher level of interest-bearing inventory, including the usage of existing floorplan capacity to finance the O'Connors acquisition in October 2023. The increase in other interest expense in the third quarter of fiscal 2025 is the result of increased borrowing on our CNH Industrial revolving line of credit as well as an increased amount of long term debt outstanding resulting from real estate purchased as part of dealership acquisitions and purchases of previously leased facilities in fiscal 2024.
Provision for Income Taxes
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Provision for Income Taxes $ (1,438) $ 10,259 $ (11,697) (114.0) %
Our effective tax rate was 522.9 % and 25.4 % for each of the three months ended October 31, 2024 and October 31, 2023, respectively. The decreased effective tax rate was primarily due to the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income and the impact of the recognition of valuation allowance on our foreign deferred tax assets.
The Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two Global Anti-Base Erosion (“GloBE”) model rules, issued under the OECD Inclusive Framework on Base Erosion and Profit Shifting, introduce a global minimum tax of 15% applicable to multinational enterprise groups with consolidated financial statement revenue in excess of €750 million. Numerous foreign jurisdictions have already enacted tax legislation based on the GloBE rules, with some effective as early as January 1, 2024. As of October 31, 2024, we recognized a nominal income tax expense for Pillar Two GloBE minimum tax. The Company is continuously monitoring the evolving application of this legislation and assessing its potential impact on our future tax liability.
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Segment Results
Certain financial information for our Agriculture, Construction, Europe and Australia business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.
Three Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Revenue
Agriculture $ 482,022 $ 531,404 $ (49,382) (9.3) %
Construction 85,285 77,508 7,777 10.0 %
Europe 62,382 85,203 (22,821) (26.8) %
Australia 50,135 — 50,135 n/m
Total $ 679,824 $ 694,115 $ (14,291) (2.1) %
Income (Loss) Before Income Taxes
Agriculture $ 1,876 $ 35,130 $ (33,254) (94.7) %
Construction (941) 4,057 (4,998) (123.2) %
Europe (1,195) 5,146 (6,341) (123.2) %
Australia (298) — (298) n/m
Segment (Loss) Income Before Income Taxes (558) 44,333 (44,891) (101.3) %
Shared Resources 833 (3,881) 4,714 121.5 %
Total $ 275 $ 40,452 $ (40,177) (99.3) %
Agriculture
Agriculture segment revenue for the third quarter of fiscal 2025 decreased 9.3% compared to the third quarter of fiscal 2024, primarily driven by a same-store sales decrease of 10.8%. The same-store sales decrease was due to a decrease in equipment revenue, which resulted from challenging industry conditions, such as, decreases in agricultural commodity prices and projected net farm income, which negatively affected customer sentiment in the third quarter of fiscal 2025, as compared to the same period in the prior year. Changes in actual or anticipated net farm income generally have a direct correlation with the retail demand for equipment.
Agriculture segment income before income taxes for the third quarter of fiscal 2025 was $1.9 million compared to $35.1 million for the third quarter of fiscal 2024. The decrease in gross profit is primarily due to lower sales, which is being driven by softening demand, lower equipment margins, as well as an increase in floorplan interest expense.
Construction
Construction segment revenue for the third quarter of fiscal 2025 increased 10.0% compared to the third quarter of fiscal 2024. The increase in revenue was primarily due to timing of equipment sales.
Our Construction segment loss before income taxes was $0.9 million for the third quarter of fiscal 2025 compared to $4.1 million income before income taxes in the third quarter of fiscal 2024. The decrease in segment results was primarily related to a lower equipment margins as well as higher floorplan interest expense compared to same period last year. In addition, dollar utilization of our rental fleet decreased from 33.2% in the third quarter of fiscal 2024 to 26.2% in the third quarter of fiscal 2025. Dollar fleet utilization is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period.
Europe
Europe segment revenue was $62.4 million for the third quarter of fiscal 2025 compared to $85.2 million in the third quarter of fiscal 2024. The decrease in revenue results the softening of equipment demand, which results from a decrease in global agricultural commodity prices, sustained higher interest rates and drought conditions in Eastern Europe which have negatively impacted yields and grower profitability.
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Our Europe segment loss before income taxes was $1.2 million for the third quarter of fiscal 2025 compared to $5.1 million income before income taxes in the third quarter of fiscal 2024. The decrease in segment pre-tax income was primarily the result of decreased equipment sales as noted above as well as a reduction in equipment gross margins due to softening of demand.
Australia
We entered the Australian market in October 2023 with our acquisition of O'Connors. Australia segment revenue for the third quarter of fiscal 2025 was $50.1 million. Our Australia segment loss before income taxes was $0.3 million for the third quarter of fiscal 2025.
Shared Resources/Eliminations
We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, unallocated balances may occur. Shared Resources income before income taxes was $0.8 million for the third quarter of fiscal 2025 compared to loss before income taxes of $3.9 million for the same period last year.
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Nine Months Ended October 31, 2024 Compared to Nine Months Ended October 31, 2023
Consolidated Results
Revenue
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Equipment $ 1,428,469 $ 1,431,272 $ (2,803) (0.2) %
Parts 339,118 320,077 19,041 5.9 %
Service 143,468 122,178 21,290 17.4 %
Rental and other 31,145 32,785 (1,640) (5.0) %
Total Revenue $ 1,942,200 $ 1,906,312 $ 35,888 1.9 %
Total revenue for the first nine months of fiscal 2025 increased by 1.9%, or $35.9 million, compared to the first nine months of fiscal 2024, driven primarily by the acquisition of O'Connors that was completed in October 2023 and offset by the decrease in Company-wide same-store sales of 7.6%. The same-store sales were negatively impacted by challenging industry conditions, such as, decreases in agricultural commodity prices and projected net farm income, which have a negative effect on retail demand for equipment. Further, in the September 2024 U.S. Department of Agriculture publications, calendar year 2024's net farm income is forecasted to decrease by 4.4% compared to 2023, which in turn had a decline of 19.5% in net farm income compared to 2022.
Gross Profit
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Gross Profit
Equipment $ 135,648 $ 193,612 $ (57,964) (29.9) %
Parts 108,186 103,302 4,884 4.7 %
Service 92,715 81,168 11,547 14.2 %
Rental and other 8,077 12,236 (4,159) (34.0) %
Total Gross Profit $ 344,626 $ 390,318 $ (45,692) (11.7) %
Gross Profit Margin
Equipment 9.5 % 13.5 % (4.0) % (29.6) %
Parts 31.9 % 32.3 % (0.4) % (1.2) %
Service 64.6 % 66.4 % (1.8) % (2.7) %
Rental and other 25.9 % 37.3 % (11.4) % (30.6) %
Total Gross Profit Margin 17.7 % 20.5 % (2.8) % (13.7) %
Gross Profit Mix
Equipment 39.4 % 49.6 % (10.2) % (20.6) %
Parts 31.4 % 26.5 % 4.9 % 18.5 %
Service 26.9 % 20.8 % 6.1 % 29.3 %
Rental and other 2.3 % 3.1 % (0.8) % (25.8) %
Total Gross Profit Mix 100.0 % 100.0 %
Gross profit decreased 11.7% or $45.7 million for the first nine months of fiscal 2025, as compared to the same period last year. Gross profit margin also decreased to 17.7% in the first nine months of fiscal 2025 from 20.5% in the same period last year. The decrease in gross profit margin for the first nine months of fiscal 2025 was primarily due to lower equipment margins, which are being driven by higher levels of inventory and softening demand.
Our Company-wide absorption rate for the first nine months of fiscal 2025 decreased to 72.8%, as compared to 95.9% during the same period last year. The decrease in absorption was primarily driven by increased floorplan interest expense in the first nine months of fiscal 2025 compared to the same period last year.
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Operating Expenses
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Operating Expenses $ 293,087 $ 262,182 $ 30,905 11.8 %
Operating Expenses as a Percentage of Revenue 15.1 % 13.8 % 1.3 % 9.4 %
Our operating expenses for the first nine months of fiscal 2025 increased $30.9 million as compared to the first nine months of fiscal 2024. The increase in operating expenses was primarily driven by acquisitions that have occurred in the last twelve months. Operating expenses as a percentage of revenue increased to 15.1% in the first nine months of fiscal 2025 from 13.8% in the first nine months of fiscal 2024.
Impairment Charges
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Impairment of Goodwill $ 531 $ — n/m n/m
Impairment of Intangible and Long-Lived Assets $ 1,206 $ — n/m n/m
*N/M = Not Meaningful
In the first nine months of fiscal 2025, we recognized $0.5 million of impairment expense related to goodwill assets in our Europe segment.
In the first nine months of fiscal 2025, we recognized $1.2 million of impairment expense related to other intangible and long-lived assets 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.
Other Income (Expense)
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Interest and other income (expense) $ (4,239) $ 1,129 $ (5,368) n/m
Floorplan interest expense (26,275) (7,774) 18,501 n/m
Other interest expense (10,479) (4,008) 6,471 n/m
The change in interest and other income (expense) compared to the first nine months of fiscal 2024 was primarily due to the impact of $11.2 million of non-cash, sale-leaseback financing expense related to the agreement to purchase 13 of our leased facilities at the end of the respective lease terms and offset by the $3.6 million gain on cancellation of debt in relation to a New Market Tax Credit Program. Floorplan interest expense increased $18.5 million for the first nine months of fiscal 2025, as compared to the same period last year, primarily due to a higher level of interest-bearing inventory, including the usage of existing floorplan capacity to finance the O'Connors acquisition in October 2023. The increase in other interest expense in the first nine months of fiscal 2025 is the result of an increased amount of long term debt outstanding resulting from real estate purchased as part of dealership acquisitions and purchases of previously leased facilities in fiscal 2024 as well as increased borrowing on our CNH Industrial revolving line of credit.
Provision for Income Taxes
Nine Months Ended October 31, Increase/ Percent
2024 2023 Decrease Change
(dollars in thousands)
Provision for Income Taxes $ 1,959 $ 29,004 $ (27,045) (93.2) %
Our effective tax rate was 22.2% for the first nine months of fiscal 2025 and 24.7% for the same period last year. The lower effective tax rate for the nine months ended October 31, 2024 and 2023 was primarily due to the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income and the impact of the recognition of valuation allowance on our foreign deferred tax assets.
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The Organization for Economic Co-operation and Development’s (“OECD”) Pillar Two Global Anti-Base Erosion (“GloBE”) model rules, issued under the OECD Inclusive Framework on Base Erosion and Profit Shifting, introduce a global minimum tax of 15% applicable to multinational enterprise groups with consolidated financial statement revenue in excess of €750 million. Numerous foreign jurisdictions have already enacted tax legislation based on the GloBE rules, with some effective as early as January 1, 2024. As of October 31, 2024, we recognized a nominal income tax expense for Pillar Two GloBE minimum tax. The Company is continuously monitoring the evolving application of this legislation and assessing its potential impact on our future tax liability.
Segment Results
Certain financial information for our Agriculture, Construction, Europe and Australia business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.
Nine Months Ended October 31, Increase/ Percent
2024 2023 (Decrease) Change
(dollars in thousands)
Revenue
Agriculture $ 1,353,744 $ 1,423,669 $ (69,925) (4.9) %
Construction 236,971 232,368 4,603 2.0 %
Europe 195,633 250,275 (54,642) (21.8) %
Australia 155,852 — 155,852 n/m
Total $ 1,942,200 $ 1,906,312 $ 35,888 1.9 %
Income (Loss) Before Income Taxes
Agriculture $ 15,556 $ 92,311 $ (76,755) (83.1) %
Construction (5,566) 13,746 (19,312) (140.5) %
Europe (2,115) 17,097 (19,212) (112.4) %
Australia 578 — 578 n/m
Segment Income Before Income Taxes 8,453 123,154 (114,701) (93.1) %
Shared Resources 356 (5,671) 6,027 106.3 %
Total $ 8,809 $ 117,483 $ (108,674) (92.5) %
Agriculture
Agriculture segment revenue for the first nine months of fiscal 2025 decreased 4.9% compared to the same period last year. The revenue decrease was due to a same-store sales decrease of 6.5% during the first nine months of fiscal 2025 as compared to the prior year period. The same-store sales decrease was due to a decrease in equipment revenue resulting from challenging industry conditions, such as decreases in agricultural commodity prices and projected net farm income, which negatively affected customer sentiment in fiscal 2025, as compared to the same period in the prior year. Changes in actual or anticipated net farm income generally have a direct correlation with retail demand for equipment.
Agriculture segment income before income taxes was $15.6 million for the first nine months of fiscal 2025 compared to $92.3 million over the first nine months of fiscal 2024. The decrease in gross profit is primarily due to lower equipment margins, which are driven by higher levels of inventory and softening demand. In addition, we recorded a $6.1 million non-cash, sale-leaseback finance modification expense related to the agreement to purchase 13 of our leased facilities at the end of the respective lease terms and had an increase in our operating expenses and floorplan interest expense.
Construction
Construction segment revenue for the first nine months of fiscal 2025 increased 2.0% compared to the same period last year.
Our Construction segment loss before income taxes was $5.6 million for the first nine months of fiscal 2025 compared to $13.7 million of income before income taxes for the first nine months of fiscal 2024. The decrease in segment results was led by a $5.1 million non-cash, sale-leaseback finance modification expense related to the agreement to purchase for 13 of our leased facilities at the end of the respective lease terms, equipment gross margins were also lower due to increased supply and
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moderately softer demand, and floorplan interest expense increased compared to the same period last year. The dollar utilization of our rental fleet decreased from 30.1% in the first nine months of fiscal 2024 to 24.2% in the first nine months of fiscal 2025.
Europe
Europe segment revenue for the first nine months of fiscal 2025 decreased 21.8% compared to the same period last year. The decrease in revenue reflects the softening of new equipment demand, which results from by a decrease in global agricultural commodity prices, sustained higher interest rates and drought conditions in Eastern Europe which negatively impacted yields and grower profitability.
Our Europe segment loss before income taxes was $2.1 million for the first nine months of fiscal 2025 compared to $17.1 million of income before income taxes for the same period last year. The decrease in segment pre-tax income was primarily the result of decreased equipment sales as noted above. Additionally, we recorded $0.5 million of impairment expense related to certain goodwill assets and $0.9 million in impairment expense related to other intangible assets and long-lived assets.
Australia
We entered the Australian market in October 2023 with our acquisition of O'Connors. Australia segment revenue for the first nine months of fiscal 2025 was $155.9 million. Our Australia segment income before income taxes was $0.6 million for the first nine months of fiscal 2025.
Shared Resources/Eliminations
We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur. Shared Resources income before income taxes was $0.4 million for the first nine months of fiscal 2025 compared to a loss before income taxes of $5.7 million for the same period last year.
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Non-GAAP Financial Measures
To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP financial measures that include an adjustment for the impact of a one-time, non-cash sale-leaseback financing expense. We believe that the presentation of adjusted net income and adjusted Diluted EPS is relevant and useful to our management and investors because it provides a measurement of earnings on activities that we consider to occur in the ordinary course of our business. Adjusted net income and adjusted Diluted EPS should be evaluated in addition to, and not considered a substitute for, or superior to, the most comparable GAAP measure. In addition, other companies may calculate these non-GAAP financial measures in a different manner, which may hinder comparability of our adjusted results with those of other companies.
The following tables reconcile (i) net income, a GAAP measure, to adjusted net income and (ii) Diluted EPS, a GAAP measure, to adjusted Diluted EPS:
TITAN MACHINERY INC.
Non-GAAP Reconciliations
(in thousands, except per share data)
(Unaudited)
Three Months Ended October 31, Nine Months Ended October 31,
2024 2023 2024 2023
Adjusted Diluted Earnings Per Share
Diluted Earnings Per Share $ 0.07 $ 1.32 $ 0.30 $ 3.88
Adjustments
Impact of sale-leaseback finance modification expense (1)
— — 0.48 —
Total Pre-Tax Adjustments — — 0.48 —
Less: Tax Effect of Adjustments — — (0.12) —
Total Adjustments — — 0.36 —
Adjusted Diluted Earnings Per Share $ 0.07 $ 1.32 $ 0.66 $ 3.88
Adjusted Income Before Income Taxes
Income Before Income Taxes $ 275 $ 40,452 $ 8,809 $ 117,483
Adjustments
Impact of sale-leaseback finance modification expense (1)
— — 11,159 —
Total Adjustments — — 11,159 —
Adjusted Income Before Income Taxes $ 275 $ 40,452 $ 19,968 $ 117,483
(1 ) One-time, non-cash accounting impact sale-leaseback finance modification expense related to the agreement to purchase 13 of our leased facilities at the end of the respective lease terms.
(2 ) The tax effect of U.S. related adjustments was calculated using a 25.5% tax rate, determined based on a 21% federal statutory rate and a 4.5% blended state income tax rate.
Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan and other credit facilities. We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future. However, our borrowing capacity under our floorplan and other credit facilities is dependent on compliance with various covenants as further described in the "Risk Factors" section of our Annual Report on Form 10-K.
Equipment Inventory and Floorplan and Working Capital Payable Credit Facilities
As of October 31, 2024, the Company had floorplan payable lines of credit for equipment purchases totaling $1.5 billion, which is primarily comprised of a $875.0 million credit facility with CNH Industrial, a $390.0 million floorplan payable line and a $110.0 million working capital line of credit under the Bank Syndicate Agreement, and a $80.0 million credit facility with DLL Finance.
Our equipment inventory turnover decreased from 2.4 times for the rolling 12 month period ended October 31, 2023 to 1.6 times for the rolling 12 month period ended October 31, 2024. The decrease in equipment turnover was attributable to an
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increase in equipment inventory over the rolling 12 month period ended October 31, 2024 and a decline in demand for equipment purchases. Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 13.9% as of October 31, 2024 from 18.2% as of January 31, 2024.
Adequacy of Capital Resources
Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, funding capital expenditures, including rental fleet assets, and funding acquisitions. Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.
As of October 31, 2024, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of October 31, 2024. The financial covenants also require us to maintain an adjusted debt to tangible net worth ratio of 3.5, which is measured on a quarterly basis.
On December 2, 2024, we 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. We 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 3, 2024, we 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%.
While not expected to occur, if operating results were to create the likelihood of a future covenant violation, we would continue to work with our lenders on an appropriate modification or amendment to our financing arrangements.
Cash Flow
Cash Flow Used for Operating Activities
Net cash used for operating activities was $56.2 million for the first nine months of fiscal 2025, compared to $82.1 million for the first nine months of fiscal 2024. The decrease in the usage of cash for operating activities was primarily driven by an increase in inventory and favorable collection of outstanding receivables, which was partially offset by decrease in the amount drawn on manufacturing floorplan payables and decrease in net income for the first nine months of fiscal 2025 compared to the prior year period.
Cash Flow Used for Investing Activities
Net cash used for investing activities was $29.4 million for the first nine months of fiscal 2025, compared to $64.1 million for the first nine months of fiscal 2024. The decrease in net cash used for investing activities was primarily the result of the acquisitions of Pioneer Farm Equipment and MAREP in the first nine months of fiscal 2024.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities was $71.0 million for the first nine months of fiscal 2025 compared to $170.3 million for the first nine months of fiscal 2024. The decrease was primarily driven by a higher amount drawn on non-manufacturing floorplan payables during the first nine months of fiscal 2024.
Information Concerning Off-Balance Sheet Arrangements
As of October 31, 2024, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Forward-looking statements are contained in this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our Annual Report on Form 10-K for the year ended January 31, 2024, and in other materials filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made by the Company).
Forward-looking statements are statements based on future expectations and specifically may include, among other things, the impact of farm income levels on customer demand for agricultural equipment and services, the effectiveness and
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expected benefits of our new ERP system and the timing of the phased roll-out of the ERP system to the Company's domestic locations, the general market conditions of the agricultural and construction industries, equipment inventory levels and our ability to manage inventory down to target levels and the effects of these actions on future results, and our primary liquidity sources being sufficient to meet future business needs for the foreseeable future, and the adequacy of our capital resources to provide for our liquidity needs for the next 12 months. Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of our management. These forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results or outcomes in the future and, accordingly, actual results or outcomes may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, the impact of the Russia-Ukraine conflict on our Ukrainian subsidiary, our ability to successfully integrate and realize growth opportunities and synergies in connection with the O'Connors acquisition, the risk that we have assumed unforeseen or other liabilities in connection with the O'Connors acquisition, the impact of those conditions and obligations imposed on us under the CaseIH dealer agreements entered into in connection with our acquisition of the Heartland companies, commercial application equipment business, our substantial dependence on CNH Industrial, including CNH Industrial's ability to design, manufacture and allocate inventory to our stores in quantities necessary to satisfy our customer's demands, disruptions of supply chains and associated impacts on the Company's supply vendors and their ability to provide the Company with sufficient and timely inventory to meet customer demand, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K. In addition to those matters, there may exist additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may materially adversely affect our business, financial condition or results of operations and may cause results to differ materially from those contained in any forward-looking statement. Other than as required by applicable law, we disclaim any obligation to update such risks and uncertainties or to publicly announce results of revisions to any of the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect future events or developments.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.