Titan Machinery Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 30, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Titan Machinery, Inc. 3rd Quarter Fiscal 20 24 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonnek of ICR.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Good morning, ladies and gentlemen, and welcome to Titan Machinery's Third Quarter Fiscal 2024 Earnings Conference Call. On the call today from the company are David Meyer, Chairman and Chief Executive Officer Brian Knudson, President and Chief Operating Officer and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal Q3 ended October 31, 2023, are in the range of $1,000,000,000 of Titan's website at ir.titanmachinery.com. This call is being webcasted and a replay is available on the company's website as well.

Speaker 1

In addition, we are providing a presentation to accompany today's prepared remarks. You may access the presentation by going to Titan's website again at ir.titan at www.machinery.com. The presentation is available directly below the webcast information in the middle of the page. You'll see on Slide 2 of the presentation our are in the Safe Harbor statement. We'd like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.

Speaker 1

These forward looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the Risk Factors section and the company's most recently filed annual report on Form 10 ks as updated in subsequent filed quarterly reports on Form 10 Q. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward looking statements that may be made in today's release or call. The call will last approximately 45 minutes. At the conclusion of our prepared remarks, we'll open the call to take your questions.

Speaker 1

With that, I'd now like to introduce the company's Chairman and CEO, Mr. David Meyer. David, please go ahead.

Speaker 2

Thank you, Jeff. Good Good morning, everyone. Welcome to our Q3 fiscal 2024 earnings conference call. On today's call, I will provide a summary of our results and Brian Knudson, our current President and Chief Operating Officer, who will be transitioning to the CEO post on February 1st, will give an overview for each of our business segments. Bo Larsen, our CFO, will conclude the call with a review of our financial results for the 3rd are in the quarter of fiscal 2024 and some commentary around our updated fiscal 2024 full year expectations.

Speaker 2

We accomplished a great deal this quarter, completing our acquisition of the Australia based O'Connor's Group in October and solidifying our leadership are in the process of succession plan, which we announced last month, while delivering solid financial results. Brian and his team have been instrumental in jump starting our integration with O'Connor's and we couldn't be more pleased with the quality of the O'Connor's team. We recognize an alignment of our strategies during the O'Connor's due diligence process and the 1st couple of months of operations have proven out how well our organizations mesh. We're thrilled to have them on board and look forward to a bright future together. As it relates to CEO succession, I'm very proud of what our team at Titan Machinery has achieved since my early days in a dealership nearly 50 years ago and the breadth and depth of our operation is are subject to the talent that we've attracted to the organization.

Speaker 2

Through the process of planning for this transition over the last several years with our Board of Directors, we felt it was critical to fill the role with someone who deeply understands the dealership business and our customers. Brian is a natural leader participants have proven his ability to excel across all aspects of the business and our company culture and our employee engagement has never been better. I'm extremely confident in Brian's capabilities and watch his development over the last 20 years as he has excelled in both store and central leadership roles, make some uniquely qualified to lead Titan Machinery in our next stage of growth. Moving to our fiscal Q3 financial performance. We achieved record revenues of $694,000,000 or earnings per share of $1.32 These results came in below our full potential due to delayed OEM deliveries, prioritizing customer uptime throughout the harvest and end of are in construction projects and increased preparation time to complete pre delivery inspections of new machinery.

Speaker 2

This dynamic is also visible in our inventory balance at the end of the quarter as the amount of on hand pre sold are being prepped in our service shops continues to trend above normal levels. Notwithstanding customer uptime is our top priority and our team did a great job on meeting our customers' immediate service needs and minimizing downtime during the all important fall season. Heading into year end, we continue to see demand in excess of OEM production for high horsepower tractors and wheel loaders, which we expect will continue through the at least the first half of calendar year twenty twenty four. While we are positioned well for a strong 4th quarter, Our recognition of equipment revenue will be dependent on both the timing of new machinery received from the OEMs as well as our ability to manage service department workflows. We continue to experience substantially longer preparation time to complete the quality pre delivery inspection and setup process required before delivery to our customers due to the supply chain challenges.

Speaker 2

Overall, we expect year over year revenue growth in each of our segments and demands on our service departments. Looking forward, both our agency customers are experiencing the carryover of 3 exceptionally strong years, are in an excellent financial position and creating optimism as I look to the future. Additionally, over the last 24 months, we have in some high quality and strategic acquisitions, which will strengthen our bottom line as they get fully integrated into our system. With that, I'll turn the call over to Brian Knudson for his segment review.

Speaker 3

Have a listen only mode of discussion and then review some of our high level expectations for the balance of fiscal year 2024 across our I'll begin with our domestic agriculture segment. We achieved another record revenue performance On top of last year's outstanding results, driven by a combination of positive same store sales and contribution from the Pioneer are in the position from earlier in the year. As you heard from David, these results were constrained by a few factors. While improving, limited OEM production remains a factor preventing us from meeting the existing demand for high horsepower tractors and self propelled sprayers. And for those new units that we are receiving, our service team is having to spend more preparation time on each pre sold new unit before delivering it to our customers due to supply side challenges.

Speaker 3

While this isn't a new phenomenon for us, As the additional prep time has been something we face throughout this fiscal year, our service department capacity was stretched in the in the Q3 given the seasonally higher volumes and a need to prioritize our support of existing customer equipment throughout harvest. Now that our customers are mostly done with harvest activities, we expect to catch up on delivering some of the incremental buildup of pre sold units throughout the Q4. Bolstering our service network and capacity remains are a key priority for our organization. And as such, we will continue to focus on recruiting, hiring and training skilled technicians. With respect to harvest and customer sentiment, favorable crop development in the later part of the growing season produced average to above average yields throughout our Although corn pricing has softened throughout the year, there was quite a bit of corn that was forward contracted in the $5 to $6 per bushel range And current prices for soybeans, sugar beets, potatoes and edible beans remain very attractive as well as cattle prices.

Speaker 3

Yield trends continue to be positive and some input costs have been decreasing. And with 3 have historically high net farm income. Farmers balance sheets are in great shape with debt to equity ratios historically low And are further aided by increasing land values. Overall, our customers are in a great position to post another solid year of income. Looking to the balance of fiscal 2024 for our agriculture segment, we remain in a position to deliver a strong 4th quarter based on of fundamentals such as healthy farmer cash receipts, which is supporting net farm income at levels well above historical averages, continued tax incentives surrounding Section 179 and bonus depreciation and the additional backlog of pre sold units are awaiting pre delivery inspection and final delivery to our customers.

Speaker 3

Shifting to our domestic construction segment, Similar dynamics to what I just described for our agricultural segment are also relevant here. OEM wheel loader production does not yet meet demand. Preparation time to get new units ready for delivery to customers is longer than normal and with a busy fall construction season to complete projects ahead of winter, Our service departments were balancing competing demands, but always keeping existing customer machinery running as the top priority. I'd also note that there was a shift in timing of equipment deliveries this year versus last, which has some influence on the comparable growth rates. For instance, last year we had a really strong 3rd quarter performance, whereas we expect a stronger 4th quarter performance in the current year.

Speaker 3

As a result, we realized a year over year same store sales decrease of 10.3% in the Q3 this year. Despite Q3 year over year comparisons, we achieved rental fleet dollar utilization of 33.2% and absorption of 88.5%, both of which are very high compared to historical levels for this segment and show the sustained improvement in these General construction activity across our footprint remains at healthy levels and infrastructure, energy and agriculture activity continue to support demand for construction equipment. Looking ahead to the Q4, we expect the timing dynamic I mentioned to be a tailwind for us participants are in the same store basis and finish this fiscal year on a high note for our construction segment. Now moving to an overview of our Europe segment, which was formerly known as our international segment prior to our acquisition of O'Connor's in Australia. Our Europe segment represents our business within the countries of Bulgaria, Germany, Romania and Ukraine.

Speaker 3

Rainfall throughout the growing season varied across these countries, which helped drive above average yields in Germany and Ukraine. And as a result, we saw a softening in demand for new equipment purchases in these two countries. Overall, same store sales decreased 7.5% in our fiscal Q3. Looking to expectations for the rest of the year, we continue to expect European Ag fundamentals to moderate. However, last year's fiscal Q4 was significantly impacted by limited equipment availability and did not follow normal revenue in this year's Q4.

Speaker 3

Last but not least is our new Australia segment. Although we closed on the O'Connor's acquisition in October, those results won't be consolidated into our financials until the Q4. Harvest has now started in Australia and is providing evidence that the O'Connor's footprint is one of the most consistent areas in the country. Growers in our footprint are seeing above average yields as they begin harvest activities, while the same cannot be said for much of the rest of the country. Recent moisture is presenting some challenges to the current harvest, but it is helpful to restoring moisture levels in the region for next year's crop.

Speaker 3

We continue to be extremely excited about the Australian market and the opportunity to build upon what the O'Connor's team has accomplished. We are working through our integration strategy and are grateful for the entire team's eagerness as we come together. With that, I just want to thank all the members of our Titan family for their hard work and focus as we kept growers and contractors up and running during the important fall season. Now I will turn the call over to Bo to review our financial results in more detail.

Speaker 4

Thanks, Brian. Good morning, everyone. Starting with our consolidated results for the fiscal 2024 Q3, total revenue was $694,100,000 an increase of 3.8% compared to the prior year period. Are in our agriculture segment. Growth was also visible across our other revenue streams as well, with our parts revenue increasing 5.7%, service up 14.9 percent and rental and other revenue up 4.2% versus the prior year period.

Speaker 4

Gross profit for the Q3 was $138,000,000 and as expected, gross profit margin decreased participants are in the range of $1,000,000 by 100 basis points to 19.9%, driven primarily by lower equipment and parts margins, Partially offset by higher service and rental margins. It's worth noting that the equipment gross profit in the prior here benefited from the recognition of a $2,000,000 accrual on the expected achievement of annual manufacturer incentive programs, of manufacturer incentives in the prior fiscal year spread across Q2, Q3 and Q4. Our guidance, which I'll talk about further in a minutes includes a similar level of manufacturing incentives for the current fiscal year, all of which if earned would be recognized in the Q4. Includes the full year's impact of manufacturing incentives to be recognized in the Q4 and part of the reason for keeping our EPS guidance unchanged. Operating expenses were $92,100,000 for the Q3 of fiscal 2024, compared to $84,900,000 in the prior year.

Speaker 4

The year over year increase of 8.5% participants associated with increased sales. Additionally, the inconsistent OEM deliveries and longer preparation time for pre delivery inspection of new equipment have created some temporary inefficiencies that we are tackling with an eye toward returning to normal conditions in are in the range of 2nd quarters. On a consolidated basis, I would expect operating expenses as a percentage of sales in the 4th quarter should be similar to or modestly lower than the 13.3% realized in the 3rd quarter. Over the past 2 years, we have made 7 acquisitions that accounted for approximately $670,000,000 in annualized revenue. Overall and as is typical, those acquisitions came with a higher operating expense as a percentage of sales than our base business, and resource reallocation, so the business is optimized to deliver operational efficiencies through the cycle.

Speaker 4

We have a long track record of acquiring businesses and improving their financial metrics over time to be in line with our overall financial targets. And I'd expect that we'll be able to demonstrate that in the future as well. Floorplan and other interest expense was $5,500,000 As compared to $1,800,000 for the Q3 of fiscal 2023, primarily due to higher interest bearing floorplan borrowings driven by higher Additionally, we use the capacity of our existing bake syndicate floorplan facility to finance the O'Connor's acquisition. Net income for the Q3 of fiscal 2024 was $30,200,000 or $1.32 per diluted share And compares to last year's Q3 net income of $41,300,000 or $1.82 per diluted share. Now turning to our segment results for the Q3.

Speaker 4

In our Agriculture segment, sales increased 7.7 represent to $531,400,000 This growth was driven by our acquisition of Pioneer Equipment as well as same store sales growth of 3.5 and same store sales growth of 28% the year prior to that. As previously discussed, 3rd quarter revenues were constrained by delayed OEM deliveries and capacity constraints of our service department. Agriculture segment pretax income was $35,100,000 compared to $42,000,000 in the Q3 of the prior year, which implies a pre tax margin decrease of 190 basis points to 6.6%. In our construction segment sales declined 10.3 percent to $77,500,000 As Brian already mentioned, the timing of equipment deliveries in the back half of this year versus the back half of last year create some variability in the year over year comparability. We expect this headwind to shift to a tailwind in the are in the Q4 where we anticipate generating year over year growth.

Speaker 4

Pretax income was $4,100,000 and compared to $6,100,000 in the Q3 of the prior year. And our year over year pre tax margin decreased by approximately 180 basis points are 2%. In our Europe segment, sales decreased by 4.3% to $85,200,000 Reflecting a softening of demand in Bulgaria and Romania, which were negatively impacted by the aforementioned dry conditions and lower yields. Pre tax income was $5,100,000 and compares to $8,500,000 in the Q3 of fiscal 2023, Through the 1st 9 months of the year, the Ag segment's pre tax margin is 6.5% or 70 basis points lower than the prior year. CE's pre tax margins are 5.9%, which are flat with the prior year.

Speaker 4

And Europe's pre tax margins are 6.8% are 90 basis points lower than the 1st 9 months of the prior year. Now on to our balance sheet and inventory position. We had cash of $70,000,000 and an adjusted debt to tangible net worth ratio of 1.1 times as of October 31, 2023, which is well below our bank covenant of 3.5 times. Equipment inventory increased $98,800,000 in the 3rd quarter. As we discussed in detail during our Q2 earnings call, our domestic ag segment was still a little short of targeted inventory levels at that time.

Speaker 4

And we expected inventories to increase modestly during the Q3 based on planned OEM ship dates and projected customer deliveries. We also expected to start working down the amount of pre sold equipment in inventory back toward normal levels. However, as David touched on earlier, Given the dynamics of longer preparation times and prioritization of service for customers' existing equipment, our progress on reducing the amount of pre sold equipment and Given that we are largely past the busy fall season, we should have more time to dedicate toward delivering pre sold equipment to customers in the Q4. But the inventory balance at the end of the fiscal year will be dependent on both the timing of incremental equipment deliveries from OEMs are in the Q3 and then stabilize within a range thereafter as things normalize. Will also see the O'Connor's balance sheet added to our financials in the Q4 as well.

Speaker 4

With that, I'll finish by sharing a few comments on our fiscal 2024 full year guidance, And we have narrowed the range of expected revenue for each segment, contemplating the continuation of limited availability of a few key equipment categories And the longer prep times for pre Liberty inspections we have been experiencing. We now expect our Ag segment to finish up 20% to 23%, our Construction segment to be at 4% to 7% and our Europe segment to be at 4% to 7%. With respect to our new Australia reporting segment, we completed the O'Connor's transaction on October 2nd. Similar to Europe, these results will be reported on a 1 month lag. And as anticipated, this will result in 3 months of activity being reported in our fiscal 2024 results.

Speaker 4

With all of that said, we are refining our fiscal 2024 revenue estimate are subject to the financial results. To be $70,000,000 to $80,000,000 with a diluted EPS contribution in the range of $0.10 to $0.15 factors are in factoring in financing and integration related expenses. As a reminder, 4th quarter gross margins are typically a few 100 basis points lower sequentially than the 3rd quarter, largely driven by mix and larger are tax incentivized purchases with multi unit discounts. The same is expected to hold true this year. Additionally, we continue to expect modest participation of equipment margins consistent with improved inventory levels and equipment availability.

Speaker 4

Gross margin in the 3rd quarter was about 100 basis points lower than the prior year's Q3. And I would expect a similar 100 basis point normalization year over year in the 4th quarter, Overall, with margin strength offsetting slightly lower sales expectations for the year, our underlying EPS guidance, Excluding the positive impact from the O'Connor's transaction remains unchanged as compared to the guidance that we established at the beginning of the fiscal year. We look forward to finishing the year strong and delivering on the record results that we committed to 9 months ago and we are really proud of that.

Operator

Thank you. Our first question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question.

Speaker 5

Thank you. Good morning.

Operator

Good morning.

Speaker 3

Good morning, Ted.

Speaker 5

Hey, so I've got two questions. The first one is just going into the issues with regards to prep time, participants Which I just wanted to get a little more color around, is it just a is it a labor issue and you're trying you need more people? Is it equipment that's being delivered and needs extra work for some reason because it's coming participants are in a lesser state than is normal. Just kind of what's driving that Aspect if you would with regards to delay in top line.

Speaker 3

Sure. A tenant is really a combination of all the things that You mentioned, if you as an example, were to fly over the global 4 wheel drive plant here in Fargo, you see a lot of units outside. And Typically, what you're going to find is they're either waiting on a truck for delivery due to the shortage of truckers out there right now and or they are have seen a component, some of the supply chain challenges that are still out there and they got to keep the assembly line moving or The quality of the component that CNH received from one of the suppliers, what didn't pass inspected. So again, they kept the line moving. They caught it at the plant.

Speaker 3

So they're having those delays on their side and that creates some of these timing issues we've talked about. Then as We get those units as far as the additional prep time that we're seeing on our end is anytime you've had one of those units can't go through the normal build process and you've heard a lot of commentary from Deere and CNH and AgCo on this in previous quarters. You always have a risk And of quality issues or other things. So we just take a lot of pride in our commitment to our customers and Excellence in the units when we deliver them to them. And so that's really increased the inspection time to make sure we go through a multi point inspection, we're catching things and it's just then we got to fix those things and so it just adds to the time.

Speaker 3

And then as we've also mentioned, we do add a lot of different are in the same store. Technology and things that's very commonplace for us to do for our customers and the supply chain is still constrained and deliveries in tires and wheels and so on. So still waiting on some of those components. But collectively, that tell us what's leading to that significant increase in prep time.

Speaker 4

Yes. And I would just add to that. General supply chain, I think everybody said over time has continued to improve and that's definitely the case. As we look into next year and kind of get past the first We largely see a lot of these issues being behind us and getting back towards normalized conditions. We specifically called it out here because given the higher seasonality volumes, right, it did create a bit of a pinch point in terms of the amount of equipment we could get delivered kind of prevented us from reaching the full potential for the quarter.

Speaker 5

Okay. And then my Sorry, I woke up with something today. So, but my second question is around O'Connor's in Australia. Participants And I mean, I'm just kind of curious, you narrowed your guidance range, taking the top down by $10,000,000 And Is that a result of a change in kind of macro dynamics within Australia? Is that a result of participants Having gotten further into the weeds with regards to the business and a better understanding of it, just kind of a little color in terms of what prompted you to take the top end of that range down.

Speaker 4

Yes, absolutely. Appreciate the question. It's definitely the latter. It's really just getting in are in the timing of delivery to customers. So really just being able to take the time as we got through close to just sharpen the pencil on exactly what would unfold for these three months was just the narrowing on that range there.

Speaker 5

Okay. All right. I'll get out of the queue. Thanks. Are ready to

Operator

take questions. Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.

Speaker 6

Participants are ready. Good morning, everyone. Thank you for taking my question. Just a quick clarification. I thought I heard you talk about inventories coming up again sequentially in 4Q.

Speaker 6

And if I heard that correctly,

Operator

participants are in

Speaker 6

the range of $1,000,000,000. I guess what I'm trying to figure out is when I look seasonally in your business, typically inventories come down sequentially in the 4th quarter and that feels a little bit different right this year. And I guess I'm also wondering if you sort of had these disruptions that kind of prevented you from delivering some machines in Q3, wouldn't you be able to hopefully catch up on some of that in Q4, which again, at least in theory, should bring inventories down sequentially?

Speaker 4

Yes. Hey, Mig. Good morning and thanks for the question. First of all, to start with and maybe a clarifier, right? As we talk about presold equipment awaiting delivery to customers.

Speaker 4

That's always turning, right? So the unit that was there in the Q1 has been delivered to a customer that's not still sitting there. Units that were there in Q2 aren't still sitting there. But what we're seeing right is a continued Delivery from the OEMs and we're needing to process everything through the chute. So definitely in the Q4, we look to be able to chip away at The amount of presold that we have in that inventory balance.

Speaker 4

But again, as we looked at how timing looks to be for everything and with OEM deliveries, right, and the OEMs are looking to finish their year strong and get as much out as they can. I think we're still seeing Some push to make up for some of those supply chain challenges that had otherwise held them back in parts of the year. If you recall last year, we received a tremendous amount of equipment right toward the end of the calendar year between really Christmas and the end in December, right, within a short period of time to really be able to turn that around and deliver to customers. So it's really those factors that we're talking about. You did hear it, right?

Speaker 4

We expect Another incremental increase on inventory there and that kind of stabilizing in that range and looking to continue to normalize presold backlog as we work through the 1st part of next year.

Speaker 3

Okay. Yes. Mig, I would just point out to this, BJ, adding O'Connor, so the balance sheet, as Bo mentioned in the prepared remarks, as well as our other acquisitions. But also just the Timing that we've talked about here. So you're right.

Speaker 3

Historically, we would come down participants By fiscal year end, but everything's kind of delayed and especially in certain products A quarter or so. So I'd build that in as you look with your modeling. We typically would then be You'll more flattish and then build back up throughout the year again. So I think just delay in all that as we get into the end of the year and into Q1.

Speaker 6

Are ready. Understood. Thank you for that. So my follow-up, if we're sort of looking at inventories are going up again in the Q4. I guess I'm curious as to how you're thinking about fiscal 2025 and I'm not looking for you to provide your own guidance in terms of the top line.

Speaker 6

But obviously, Deere commented on next year, CNH, your OEM is are thinking that volumes are going to be down as well. So I guess with the inventory build that you have, If indeed volumes are going to be a little bit lower in your fiscal 2025, how do you think about managing that inventory And your own order placing with the OEMs. Thank you.

Speaker 4

Yes. And you're right. I think the OEMs in their latest earnings calls provided some color and Deere being the end of their fiscal year provided some more granular color on their outlook for the next 12 months. For us, right, I mean, it's not something we've been continually managing and

Operator

estimating where

Speaker 4

things are going.

Speaker 1

You're always

Speaker 4

looking out a year ahead, right? So, are looking at a year ahead, right? So in terms of dialing things in and what we're ordering for next year, participants That's stuff that we've been working on already for quite a while and are feeling really good about where we're sitting and the dials that have been turning over time. Participants We'll absolutely manage inventory and focus on that. But overall, right, and as we've said, we do feel good about where our levels are at.

Speaker 4

On the ag side, we want more 4 wheel drive tractors. On the CE side, we want some more wheel loaders. Participants One data point for you just comparing it to say the prior cycle, right? The number of combines that we have in inventory is about 55 are lower than it was in the prior peak. So I think some of that's reflective of the industry and the constraints that were out there.

Speaker 4

But then So our back office team that's focused on managing inventory levels, both what we're ordering from a new side and also the used equipment evaluations. So the dollars that people are making comparison to the 2 in terms of prior peak, I think you need to consider The decade of price increases, the acquisitions that we've done and otherwise, right? I mean, overall, we feel really good about the inventory levels, but appreciate the comment and we'll certainly as industry volumes trended downwards, we'll be managing our inventory accordingly. We want to keep inventory turns high. We want to keep interest free terms and we want to keep our balance sheet really healthy.

Speaker 3

Yes. And Mig, I would just add, as you know and as Bo mentioned, when you're talking about participants are in the same store. And we've done that and we feel really good about that and heading into next year. And just as he mentioned, our professional team that just focuses on that for a living. That's all they do, really watching a lot of the analytics and metrics and running the dials on our inventory.

Speaker 3

So we feel really good about the actions we've taken. I think as we mentioned on our previous call and as Scott Y mentioned on the CNH call, there's a little bit of pockets with some of that lower Horsepower tractor inventory, real lifestyle stuff that we're a little bit longer on than we'd like, but we've got actions in place on that as well to clean that up. And then as we mentioned with 4 wheel drives and wheel loads and so on, there's some pockets that we're still a little short on some certain categories. But other than that, participants We feel really good about where we're positioned to deliver the Q4 results that we need to and then as we transition into are in the next year and what we anticipate the market is going to do next year.

Speaker 6

Appreciate it.

Operator

Are ready to take questions. Our next question comes from the line of Alex Rygiel with B. Riley Securities. Please proceed with your question.

Speaker 7

Thank you and good morning, gentlemen. A couple of quick questions here. First, your full EPS guidance includes a range of $0.65 of which I believe $0.22 could be from the incentives. So if you could maybe talk about some of the Catalyst being at the high end or low end of that $0.43 difference?

Speaker 4

Yes, well, this isn't going to sound overly sophisticated, right, but it's related to the revenue and where Operating expenses are pretty well honed in, right. So it really is just a function of how much of that equipment gets delivered.

Speaker 7

That is helpful. And then, as it relates to sort of inventory kind of walking up a little bit in the 4th are in the same quarter. I believe you might have thought that it would kind of tail off from the Q3 and decline into the Q4, but now it Sounds like you're expecting it to increase a little bit. Maybe I guess my question is what has changed? And then what's the mix of inventory across ag versus Is one higher or lower than where you'd like the optimal level to be?

Speaker 4

Participants Yes, maybe addressing the latter first. No, I don't think so. I mean, in general, We're feeling pretty good about our inventory levels. On the CE side, the one that short is wheel loaders like we mentioned, but otherwise across the board in general, It's good. There are probably a couple of areas just like on the ag side, for example, low horsepower tractors where we want to continue look to trend just as we anticipate trends going into next year.

Speaker 4

On the Europe side, also some areas there that we'd be looking at to try to trim as we're seeing some softness specifically in Bulgaria and Romania. But on the whole, there's not participants A drastic difference in terms of our thoughts or level of health between ag and CE as you were asking there.

Speaker 7

Very helpful. Thank you very much.

Operator

Thank you. Our next question comes from the line of Daniel Imbro with Stephens, Inc.

Speaker 8

How much visibility do you all have into these OEM deliveries improving

Speaker 5

as we

Speaker 8

move into like the 4th and first quarter? And Since we're going to have a similar dynamic to last year with maybe a heavier 4th quarter, do you foresee maybe delivery timing being a problem again in the first quarter, since you might get a large influx in the 4th quarter?

Speaker 4

So we definitely anticipate being a strong 4th quarter revenue wise compared to the prior year participants And even a bit if you do the math from where we were in the Q3. Obviously, we have more equipment available and we have backlog there, right? So in terms of the confidence in the Q4, we're feeling good about that stuff. And I think at the same time, we have talked a little bit about today in terms are anticipating that the inventory increases a bit from where we're at. So I think both of those we're saying is what our expectation is, Right.

Speaker 4

And then we're in terms of setting up for next year, again, we're feeling like we're ending the year at a healthy spot inventory wise. We'll provide more context guidance wise Yes. Did that answer your question?

Speaker 8

Yes. That's perfect. And then, on the Service delay side, you mentioned wanting to hire more technicians. How is that going? How is the technician availability?

Speaker 8

And are you having any trouble there that could limit your ability to catch up on this throughput?

Speaker 3

Yes. Good question, Dan. There's a real shortage out there just technicians in general, whether you're talking about the Airline industry or trucking industry or marine powersports, wherever, automotive. And we really participants hit hard into this with our customer care strategy several years ago and have just a lot of actions in place that we feel really good participants have been the pilot and the cutting edge for many people in our industry that are trying to follow suit and keep up with us on a are doing. We just now came out with the 1st accredited apprentice program for our industry.

Speaker 3

We have The first student tech scholarship sponsorship program that we started years ago that we're really starting to see the fruits of now. And then our internship programs as well as the recruiting efforts that we're doing, the sponsoring that we're doing with participants and relationships we have with the high schools and again those tech schools. And so it all takes time and Thankfully, we put a lot of the actions in place that we did that we're now able to see some of the fruits of labor on because you got a lot of baby boos, a lot of workers are now exiting the workforce. And so as you can imagine, it takes in order to grow the base and add the amount of technicians we need And then to offset the retirements, it takes quite a bit and we feel good about the traction and momentum we've got And that's going to remain an absolute front and center priority for us as we go forward.

Speaker 8

All right. Awesome. Thanks for the color, guys. Are

Operator

ready to take questions. Thank you. Our final question this morning comes from the line of Steve Dyer with Craig Hallum Capital Group. Please proceed with your question.

Speaker 9

Hey, good morning guys. Curious on the $6,000,000 of manufacturer incentives that you expect to achieve in Q4, I guess, is that dependent on T and H and your OEM partners meeting their delivery schedules to you or is that fully within your control?

Speaker 4

Participants For competitive reasons and others, we don't really get into a lot of the mechanics on that. But I guess what I would say, right, is we have it in our guidance and that reflects are confident in achieving the number. There are definite timing differences between this year and last year, and that's why we put a little bit more perspective on that.

Speaker 9

Good. Then for a second question, what percent of equipment is leased versus sold today. And I guess how has that mix trended over the past several years?

Speaker 3

Yes. Right now, we're in single participants on leasing versus sold, just a tremendously low amount being leased, and that has trended way down. I think Dheeraj mentioned also on their call, you look at that's a big difference between 10 years ago and today is Not only the level of leasing, but the quality of the leases. So 1 2 year leases, everybody was doing those. They were participants Very problematic back then.

Speaker 3

And then, of course, when the downturn had hit, then those lease returns were coming back in addition to a glut of supply of used from the overbilling, over selling and new that all happened. And none of that trifecta is in place today. So we have Way less leases. We have the leases we do have are minimum 3 year, mostly 5 year, very quality leases. And then And as Bo mentioned with the combine example, you just got a lot lower levels of used equipment in play today.

Speaker 3

And then participants In most categories except 2 degree combines. And so that helps with the dampening. And then with less new sold, you just Didn't get the amount of used and so again back to the shortage of used supplies. So all of those components are tremendously healthy and very supportive

Speaker 5

are

Operator

ready. Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Meyer for final comments.

Speaker 2

Okay. Well, thank you everybody for your time today and your interest in Titan Machinery.

Operator

Thank you. This concludes our conference call. Thank you for your participation. You may now disconnect your lines.

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Earnings Conference Call
Titan Machinery Q3 2024
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