Greetings and welcome to the Titan Machinery Fourth Quarter Fiscal 2022 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jeff Sonnek of ICR. Thank you. You may begin.

Thank you and good morning. Welcome to the Titan Machinery fourth quarter fiscal 2022 earnings conference call. On the call today from the company are David Meyer, Chairman and CEO; Mark Kalvoda, CFO; and Bryan Knutson, COO. By now everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2022, which went out this morning at approximately 6:45 AM Eastern Time. If you’ve not received the release, it is available on the Investor Relations tab of the Titan's website at ir.titanmachinery.com. This call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks. We suggest you access the presentation now by going to Titan's website again at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on Slide 2 of the presentation our Safe Harbor Statement. We would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. 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 of Titan's most recently filed Annual Report on Form 10-K. 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 maybe required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note, that during today's call, we'll discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period-to-period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release. The call will last approximately 45 minutes. At the conclusion of our prepared remarks, we will open the call to take your questions. With that I would now like to turn the call over to the company's Chairman and CEO, Mr. David Meyer. David, please go ahead.

Thank you, Jeff. Good morning, everyone. Welcome to our fourth quarter of fiscal 2022 earnings conference call. On today’s call, I will provide a summary of our results, and then Bryan Knutson, our Chief Operating Officer, will give an overview for each of our business segments. Mark Kalvoda, our CFO, will then review financial results for the fourth quarter and full year of fiscal 2022 and conclude with some commentary on our fiscal 2023 modeling assumptions. If you turn to Slide 3, you'll see an overview of our fourth quarter and full year financial results. We generated fourth quarter revenue of $507.6 million increasing 16% versus prior year due to strong equipment sales in our agriculture and international segments, which is further supported by growth in our parts and service business across all our reporting segments. The stronger revenue, coupled with a powerful combination of gross margin expansion and operating expense leverage, drove a remarkable $22 million increase and an adjusted pre-tax income to $28.8 million. This had a corresponding positive impact on our adjusted earnings per diluted share, which is a new quarterly record for the company at $0.99, which compared to $0.09 last year. While this call is focused on our fiscal fourth quarter, I want to emphasize that we experienced exceptional performance each quarter this year driving revenue across all our businesses and perhaps most important, all our segments demonstrated significant operational improvement with each posting strong increases in pretax income, which in turn expanded margins. This is also apparent in our full year results. We generated full year revenue of $1.71 billion, which was up 21.3% compared to fiscal 2021. Adjusted pre-tax income grew 131.3% to $88.1 million versus $38.1 million for the prior year, driving adjusted earnings per share of $2.98 compared to $1.09 last year. This is a product of tremendous effort by our team whose unwavering focus provided the fuel to generate these record results. Furthermore, the resultant growth of our cash flows and strong balance sheet has provided us with greater flexibility to engage in accretive acquisitions such as the recently closed Jaycox acquisition and anticipated closing of our upcoming acquisition of Mark's Machinery, which is scheduled to close in early April of this year. While we do not include future acquisitions in our guidance, I have a number of dealer groups I am in active discussions with, I am hopeful on executing on additional acquisitions at our current fiscal year. Again0 with our strong balance sheet, cash position, and proven operating model, I expect acquisitions to be part of our goal story in the years ahead. Before I turn the call over to Bryan, I want to recognize how proud I am of our growing team to resolve through an extremely fluid operating environment, their commitment to serving our customers, and that we look forward to building on the momentum in fiscal 2023. I will now turn the call over to Bryan to review our three segments in more detail.

Thank you, David, and good morning, everyone. I'm excited to cover our three business segments this morning. Slide 4 is an overview of our domestic agriculture segment. Although somewhat tempered by rising input costs and dry weather concerns in some of our markets, the farmer sentiment remains positive due to excellent commodity prices. In much of our footprint, last year's crop yielded better than expected and our customers were able to sell it at favorable prices. Corn, soybean, and wheat prices remain elevated going into spring planting which has allowed our customers an opportunity to lock in very good prices for current year 2022 production and in some cases customers are already locking in prices for calendar year 2023 crops. As planting season begins, customers are signing up for multi-peril crop insurance programs and USDA safety net farm programs and fields are in great shape due to an extended fall season for tillage and land preparation. There is strong demand for parts and services as the equipment fleets continue to age. We are completing a successful winner of uptime inspections in our service departments and despite some parts supply side issues, our parts and service departments are well prepared to support our customers during the upcoming farming season. New and used equipment demand continues to be very strong outpacing supply. This is again being driven by the current high level of commodity prices. In addition, we are seeing some carryovers from a strong 2021 net farm income supported not only by price and yield, but a number of USDA program payments. With this income, farmers are looking to Section 179 and bonus depreciation to help with their tax planning. Farmers are investing in products that increase yields, productivity, and efficiencies in their operations. While there are product shortages and long…

Thanks, Bryan. Turning to Slide 7. Total revenue for the fiscal 2022 fourth quarter was $507.6 million, an increase of 16.2% compared to last year. Our equipment business increased 16.7% versus prior year, which was driven by strength in our Agriculture and International segments. We are particularly pleased with our parts and service business, which generated growth across each of our operating segments, increasing 17.3% and 14.3%, respectively compared to the prior year period. These robust increases were due to the addition of the Jaycox stores in early December as well as same-store increases of 18.8% for parts and 15.9% for service compared to the prior year quarter. Rental and other revenue decreased 1.4% versus prior year quarter due to a decrease in inventory rentals. Despite slightly lower revenues, the dollar utilization of our construction segment rental fleet improved significantly to 28.4% for the current quarter compared to 22.4% in the same period last year and drove margins in this revenue category up 530 basis points compared to the prior year quarter. On Slide 8, our gross profit for the quarter increased by 39.2% to $94.2 million. Our gross profit margin increased 310 basis points primarily due to strong equipment margins as a result of favorable end market conditions, healthy inventories, and increased amounts earned under manufacturer incentive programs, which for the quarter represented approximately $6.4 million. We did see improved margins in our parts, service, and rental categories as well. Operating expenses increased $4.1 million versus the prior year to $64.6 million for the fourth quarter of fiscal 2022 and includes a benefit from the recognition of a $5.7 million pretax gain on the sale of the company's Montana and Wyoming construction equipment stores. As a result of increased revenue and this gain, our operating expenses as a percent…

Thank you. [Operator Instructions]. Our first question has come from the line of Rick Nelson with Stephens. Please proceed with your questions.

Hi, guys. This is Joe Enderlin on for Rick. Thanks for taking our questions. We're wondering if we could get some color on what you're seeing in terms of health for the Ag customer given the elevated commodity prices and then what you're seeing in terms of pre-sales?

Hi, Joe, this is Bryan. The Ag economy barometer did pull back a little bit in January there due to the rising input costs and some of the different pressures customers are facing. But shortly after that report came out, commodity prices moved sharply upward and so we believe there is a very positive sentiment based on the feedback from the growers and our footprint. As I mentioned in my prepared comments, many of them have sold crop at these higher prices recently, and they've also taken this opportunity to lock in some calendar year 2023 crop. And if you look at just yesterday at one of the local elevators here, you had corn over $7 -- well over $7, soybeans starting to approach $17, and wheat over $10. So the strong commodity prices are really bolstering the customer sentiment. Again, it was somewhat mitigated by the input costs, and thus we're seeing really strong demand. We're getting as many order slots as we can, and we got a strong order board of presales and certainly, demand is outpacing supply at this point.

Thank you. That's super helpful. As a follow-up in relation to the sale of the two construction stores in the quarter, do you think you have any room for further divestiture of stores?

Yes. Both Mark and I mentioned, now we -- that was a strategy and a plan that we embarked on beginning about three years ago with the divestiture of our New Mexico stores and then into our Arizona stores and then now with our Montana and Wyoming stores and then most recently, with our consumer product store here in Fargo, North Dakota, which was more of our brand alignment strategy. But -- so we've done a lot of work there. And as we mentioned, we really like our footprint now. Our Colorado stores, the economy is phenomenal there. There's all kinds of activity on the front range and in our locations in Colorado. And then the rest of our footprint is in the Upper Midwest here, in a lot of Ag markets and a lot of great economies, where we've got a great reputation with customers and is very aligned with our Ag footprint. And so yes, we've done a lot of work on that and credit to the team completing that project. And we feel really good about our construction footprint going forward.

Awesome, that is all for me. Thank you, guys.

Thank you. Our next question is coming from the line of Mig Dobre with Baird. Please proceed with your questions.

Hey, good morning everyone. Thanks for taking the questions here.

Good morning, Mig.

I'd like to go back to Slide 4 of your presentation. At the very bottom, you talked about supply chain challenges impacting the timing of deliveries. Maybe you can give us a little more context in terms of what that means relative to your outlook, your full year outlook? And then related to this, you mentioned here that you locked in 2022 new equipment orders in line with availability and revenue forecast. I guess what I'm sort of curious to understand is, are you essentially saying that at this point, you kind of have the full year 2022 kind of locked in, in terms of preorders and you have high visibility on deliveries or is this me reading too much into this statement?

Yes Mig, I'll take that, and then Mark might want to expand a little bit. Thank you for the question. As you know, the supply side has been very challenged. Yes, we do have quite good visibility to the model year 2022 production. And I think, as you know, CNH starts their model year 2023 into Q4, and so there'll still be some questions around the model year 2023 production. But we've got a lot of our allocation slides, good visibility to that, a lot of presales in the pipeline. Again, that's what we've based our modeling s There has been some timing moves. We've had some build delays, shipping delays, as all the OEMs have had, which can pushed up from one quarter to the next and so we do anticipate that continuing throughout the year. But overall, we've got a nice supply of presales, nice supply of orders coming in, and then the trade-ins on those presales and a good amount of lease returns that are expiring this year as well.

And maybe just a little bit more on that. I think going back to our fourth quarter just ended, there was some impact on equipment sales. It did come in lower than what we expected on -- within our Ag and construction segments. And some of that is due to the equipment availability and getting the machines and getting the units in. So that push, so it's just kind of a timing of those revenues that will go into the current year. That was considered into our modeling assumptions here of that up 22% to 27% on the Ag side and what we indicated here on the construction side. So that was part of the consideration for the guidance modeling assumptions for the current year as well.

Yes. So I appreciate that. That's essentially what I'm trying to figure out here because the fourth quarter revenue was a bit light and, like you said, some of it seems to have slipped into fiscal 2023. Maybe you can give us a sense for how much that was relative to your plan, but then as we're thinking about your statement here that you expect the supply chain challenges to continue through the first half of 2022, based on what you know today, how should we be thinking about your revenue cadence through the year, more back-end loaded than normal seasonality, I mean, can you give us maybe like a little bit of help first half, second half? And again, presumably you're talking to the OEM and you have an idea as to kind of how they're thinking about delivering this equipment to you, that's really what I'm asking?

Yes. So there's still a lot of unknowns there. We don't know exactly when things are going to happen. Obviously, the crop this year and commodity prices are going to affect some of this as well. I would say, in general, I think the seasonality of our equipment sales will be similar to what we've had in the past. There's actually -- I know that we just kind of indicated the supply chain not freeing up until the later half but we do have a good amount of presales, and some of this push from Q4 into the first part of the year. I think that will help. So I think all being said, the way we're looking at it right now is that there's not a lot of difference in if you look at the seasonality of our equipment sale, and I'm talking domestically here more so. But from a domestic standpoint, I think right now, what we're seeing today with some of those offsets I just mentioned, similar to the seasonality that we've seen last year as an example, except maybe fourth quarter, depending on if things get caught up it could pick up a little bit more in the fourth quarter of this year.

Alright. The other question I wanted to ask was on inventory turns. And Mark, you mentioned that you expect inventory turns to move yet again higher this year. And I'm sort of curious as to how much higher do you think you can move these inventory turns, presumably, there's a limit to where this metric can go, can you comment on that at all?

Yes. There, again, it's kind of hard to say. But I do -- with the -- so what's happening right now are these presales when they come in, they're going out in short order. And then when they go out, we get the trades in. And the trades are generally sold -- a high percentage of those trades are sold. So it really just kind of starts multiplying, which can have a real impact on that turn number. How high can it go? I mean, it's -- I think you started hitting -- I mean, right now, I think it's higher than what we would like, and that reflects the scarcity of some of this inventory, this equipment out there. I think it could reach four this year. That might be a little bit of a stretch with some of the Ukraine drag that's going to be on that with the sales down quite a bit. But I don't see like a four time turn out of the realm of possibility for the year.

That's helpful. And last question. I appreciate all the color on Ukraine. If I'm sort of looking at your international modeling assumptions though, it seems to me like you're embedding pretty good growth in the Balkans, Germany in order to get to your guidance, if we're indeed assuming that Ukraine is down 75%. And I'm just curious as to what gives you confidence that the growth is going to be there. And I'm thinking about the Balkans in particular, Romania, Bulgaria. I mean, don't you think that some of this conflict could potentially sap farmer confidence in terms of CAPEX in those regions as well? Thank you.

I think that is a good question, and we'll kind of see how things unravel. I guess, maybe, first of all, backing up to the first part of your question. So Ukraine isn't our largest market over there. We've got other territories that are larger than that. So that 75% decrease certainly is impacting it, but maybe not quite as much as you would expect. As far as the other markets, I would say, yes, in all of them, we are expecting some level of increase over the prior year. And quite frankly, so far this year, we're seeing that. I think things are looking good. We'll see how this spillover with the geopolitical events in Ukraine, how that spills over going forward. We're not seeing a big impact right now. One of the impacts more from the positive side is just obviously the impact on commodity prices. So there's a lot of wheat grown in some of those surrounding Balkan countries that you mentioned. And they're benefiting right now and being able to sell their wheat at higher prices and the possibility of their crop this year being sold at higher prices as well. But that's something -- certainly that's part of the risk or the unknowns to our -- or added risk, I should say, to our modeling assumptions for this year, and we'll be monitoring it close as you will. And we'll keep you updated throughout the year.

Yes. And Mark, I would just add, certainly, there is some anxiety but the commodity price is excellent, and they're experiencing that as well. But also just the growing conditions, very ample moisture, much improved growing conditions. The fall-seeded crop came through the winter very nice. And so that's looking very positive as well.

Mig, also, we've had some recent expansion in Romania and there's some really, really good farming areas and stuff. And we're starting to get some of the return on some of those store expansions in the some really good farming areas, too. So I think that's helping that country a lot, too.

Alright, appreciate it guys. Good luck.

Thanks Mig.

Thank you. Our next questions come from the line of Steve Dyer with Craig-Hallum. Please proceed with your questions.

Thanks. Good morning guys. As you sort of sit here going into the main planting season, how do your preorders from end customers this year sort of compared to previous years at this time? And have you seen any changes in the last month or two sort of given the commodity spikes?

Hey Steve, this is Bryan. Yes, as I mentioned, the presales are very strong, as strong as they've ever been. There was a month ago there, farmer sentiment had backed off just a little bit from some extremely high levels that we experienced all throughout Q4 last year after the crop came in with better-than-expected yields throughout our footprint as the prices have continued to climb. And also then inputs had continued to climb. So as prices backed off a little bit there in January, that had ticked downward and we had a little bit of let up. But again, still, demand still well outpacing supply. So we could afford a little bit of that. But then they took off again here in the last 40 days or so and now, as an example with corn, we're up well over another $1 since then, and wheat another $2, and soybeans another $2.50 since then. So very, very robust again. And then you just take the planting conditions out there. Again, we had a nice fall in a lot of our footprint. The land got worked really well. They got a lot of land improvements done. Some of the moisture got replenished with some good snowfall and the snow is coming off nice here. The -- looks like farmers could potentially get in, in a very timely fashion and potentially have a very nice spring planting. So that's also driving positive sentiment. So a lot of activity on our order board. And as I mentioned, we're trying to get our hands on everything we can.

Got it. That's helpful. So the supply side obviously remains pretty tight from an inventory perspective. Does your guidance sort of imply that it loosens a little bit in the back half of the year, sort of similar to Mig's question or is it sort of assumed that it's pretty tight all year long, I guess what I'm trying to get at is demand remains strong and probably will, given commodity prices if the inventory starts to flow a little bit better than expected in the second half of the year, is there sort of upside to your plan and what you guys are thinking or does it feel pretty locked from here?

Yes. Steve, I'll just comment quick and let Mark primarily weigh in there. But yes, it is fluid, and we certainly could see some puts and takes from quarter-to-quarter here as things shift. But it is strong looking throughout the year as, again, farmers can lock in even into 2023 pricing. And with these price levels, really behooves them to do that, and there are a lot of growers working closely with their advisers and doing that. So certainly could be some potential uptick if things did really loosen up in the back half.

Right. Yes. So I would just say the same. I think we've got it modeled pretty tight to what we expect the deliveries to be. And if there's upside in those deliveries and we get more than expected, I think there's some upside potential to our guidance.

And Steve, if you listen to our main suppliers call here, the recent call or last call, we've talked about the supply side being tighter in the first half and probably getting some improvement in the second half. And we tend to be somewhat aligned with that. So we can pretty much sell what we can get. So the more we can get, the more we'll sell. And like I say, that's good news. I think the back half could potentially be a little bit better.

Got it. Thanks guys. Last one for me, the increase in manufacturing incentives, was that a onetime benefit or is that something we should sort of assume going into fiscal 2023 here from a margin perspective? Thanks.

Yes. So the manufacturer incentives, so this is kind of an incremental item that happened. No, this isn't something that happens very often. It's been a while since we've achieved something like this. It is -- it has metrics involved with it that is more cliffed [ph] in nature, that either you get it and it's at the kind of a higher amount like this or you don't. And then there's nothing. That's why it kind of lumped into the fourth quarter here on us. We do not have this embedded in our guidance for the current year. It is available in the current year, would be available, but we are not building it into our guidance for the current year.

Alright, got it. Thanks guys.

Thank you. Our final questions of the call will come from the line of Larry De Maria with William Blair. Please proceed with your questions.

Hi, thanks. Good morning everybody. Just picking up where that one left off, manufacturing incentives were obviously significant benefit of the $0.47 benefit overall. What are some of the puts and takes why you would or would not get it this year, obviously, it's a surprise -- a positive surprise and now it's become a tough comp but are there -- if it's available this year, and obviously, you have a nice growth embedded, what are the drivers going to be to get that?

Yes, Larry, just for competitive reasons, we don't want to get into that. Our suppliers don't want us to get into it publicly as far as what the drivers of that metric is. There are other incentive programs, if you will from manufacturers that exists out there. That's part of our regular kind of business. This particular metric involved with this is more of a cliff type event like I mentioned but for competitive reasons, we just can't get into that, the details of that.

Okay. Shifting over maybe to Ukraine, what are some of the options around the business to limit losses and stay there, not stay there, etcetera? And what are the kind of -- what kind of help are you getting from CNH at this point? And then finally, the inventory you have on order for Ukraine, presumably you had some, can you divert that to other regions or is that more or less been taken by CNH?

I'll maybe talk a little bit to begin with to that maybe $0.25 and maybe puts and takes there. So obviously, the revenue side, we commented on. From an expense standpoint, it does have some reduced expenses involved, but it's more from a variable-type expense standpoint. The assumption that we have in here is, like I mentioned, we continue to pay all employees throughout the year, even with the lower level of the revenue base that we're talking about. The other thing that's on here, too, is -- and the reason why it's making a little bit higher bottom line EPS impact is the fact that we've got a valuation allowance. So there's no income tax benefit assumed in that $0.25 there as well. I'll let Dave comment.

Yes. I guess most of the machinery there, Larry, is Tier 2 engines in it, so which is -- there are still other markets that have two engines, and some of those engines can be converted or upgraded to the Tier 4 and Tier 4B to allow sales in other countries. But we have -- I think we've done a really good job of minimizing our exposure and moving some of the inventories down, and they're pretty much spread all around. So we feel pretty good where we're at there right now. As we've been working on this for basically all of last year and potentially it's like something that could like could happen.

And is CNH doing much to help you guys, obviously, it impacts you guy’s financials, but you're supporting the...?

They're always good partners. And I think they've made -- they came out [indiscernible] made a nice humanitarian donation to Ukraine stuff. So yes, I'd say they're always good partners. And I think collaboratively, we will work together and try to make the best out of a pretty tough situation over there. But like I say, in the most part, we're just really focused on our employees, the well-being of our employees and the safety of our employees and our customers. So -- and we'll know more. I mean, every week, things kind of change over a little bit and we'll keep everybody abreast of the developments.

Yes, okay. Last quick question here. Specifically, to the orders, how long are he orders out to either in calendar or fiscal year into next year, it sounds like there's obviously completion [ph] into next year. How long are we looking, how long do the order book extend, and you said that the industry is short of equipment so -- and is your guidance assumes something that you think you can hit but how short do you think the availability of the equipment is versus what you could do this year?

Yes, Larry, supplies are really tight. As far as the lead times, it varies a lot by product category. So some of the overseas products -- overseas-built products, some of the batch-built products, and then if you take an overseas batch-built product, you can get into some very long lead times, well over a year out. Others, we still can get yet in this calendar year, albeit towards the end of the calendar year at this point. But -- so it very much is product-specific and even manufacturer-specific.

Okay, thank you.

Thank you. We have reached the end of our question-and-answer session. I would now like to turn the call back over to Mr. David Meyer for any closing comments.

Okay. Thank you, everyone, for your time today and your interest in Titan Machinery, and we look forward to updating you on our progress on our next call. So have a good day, everybody.

This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.