Greetings, and welcome to the Titan Machinery Fourth Quarter Fiscal 2023 Earnings Call. [Operator Instructions] 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. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to Titan Machinery's Fourth Quarter Fiscal 2023 Earnings Conference Call. On the call today from the company are David Meyer, Chairman and CEO; Bo Larsen, CFO; and Bryan Knutson, President and COO. By now, everyone should have access to the earnings release to the fiscal fourth quarter ended January 31, 2023, which went out this morning at approximately 6:45 a.m. Eastern Time. If you've not received the release, it's available on the Investor Relations tab of Titan's website 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 again, going to the Titan's website 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'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 questions. 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 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. 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 measures in today's release. At the conclusion of our prepared remarks, we'll open the call to take your questions. And with that, I'd now like to introduce the Company's Chairman and CEO, Mr. David Meyer. David, please go ahead.

Thank you, Jeff. Good morning, everyone. Welcome to our fourth quarter fiscal 2023 earnings conference call. On today's call, I will provide a summary of our results, and then Bryan Knutson, our President and Chief Operating Officer, will give an overview of each of our business segments. Bo Larsen, our CFO, will then review financial results for the fourth quarter and full year fiscal 2023 and conclude with some commentary around our fiscal 2024 modeling assumptions. Fiscal 2023 was a record year for us, driven by strong execution and our continued commitment to outstanding customer service. We generated sales of $2.2 billion and record adjusted earnings per share of $4.52, reflecting solid organic growth and operating leverage. We are operating the business with discipline and efficiency as demonstrated by the consolidated pre-tax margin of 6.1% that we delivered for the full year with each of our operating segments driving strong pre-tax margin growth. This is a direct reflection of the hard work that we put into the business over the last decade to ensure that Titan Machinery is be in position to drive higher levels of profitability and cash flow throughout the cycle. We are a much stronger company today with earnings per share of more than double that over the prior peak. Our record performance is further supported by a strong year of acquisition activity. Altogether, looking at the past 14 months, we have added 22 new store locations to our footprint, representing approximately $400 million of annualized revenue, marking one of our most productive structures of acquisition activity in Company history. Just last month, we closed our acquisition of the Idaho dealership assets of Pioneer Farm Equipment. This was the first acquisition that leveraged our expanded commercial application footprint following the addition of Heartland's distribution territory in August…

Thank you, David, and good morning, everyone. First, I will be providing a recap of fiscal year 2023, and will then outline some high level fiscal year 2024 expectations for each of our segments. Slide 4 is an overview of our domestic Agriculture segment. But before we jump into that, I'd like to start by expanding on the comments David made about the whole goods congestion at the end of our fiscal year and explain a little more about our process after we receive new equipment from the factory, which can be several weeks after it comes off the production line. Once we know the unit will arrive at our dealership, we work it into our service schedule, where we perform comprehensive pre-delivery inspections, commonly referred to as PDI. In many cases, after completion of the PDI, we installed additional components like technology or other various attachments and completing packages. These additional components have also been experiencing supply chain constraints, delaying their arrival and thus holding up final delivery. This combination of PDI assembly and calibration activities can cause pre-sold equipment to sit in our inventory for several weeks or up to several months before we are able to deliver to the end user and recognize the sale. A delay in any part of our process can affect the cadence of our revenue recognition. In this case, the largest contributing factor to the increase in pre-sold units sitting in inventory at year-end was the timing of new equipment shipments so late in the fourth quarter, reducing the window of time to complete our normal delivery process. Now on to our Agriculture segment highlights. Fiscal 2023 was quite a year. Favorable commodity prices and yields led to record net farm income, which helped drive strong organic sales. We've also been very…

Thanks, Bryan. Starting with our consolidated results for fiscal 2023 fourth quarter, total revenue was $583 million, an increase of 14.9% compared to the prior year. Our equipment business increased 14% versus prior year, led by incremental revenue from our recent acquisitions as well as same-store sales growth across our Agriculture and Construction segments. Our parts revenue grew 23.6%. While service revenue growth was held lower at 6.6% as much of the service team's effort was focused on getting new equipment ready for delivery rather than working on service tickets. Rental and other revenue also increased 21.3% versus prior year. Gross profit for fourth quarter increased by 15.5% to $108.9 million, reported gross profit margin increased by a modest 10 basis points. However, I'd point out that the fourth quarter of fiscal 2023 and fiscal 2022 included benefits related to manufacturer incentive plans of USD 1.8 million and USD 6.4 million, respectively. The underlying gross profit margin, excluding those manufacturer incentives, saw more substantial improvement, increasing by 106 basis points, primarily due to stronger equipment margins. While the fourth quarter amounts differed primarily due to the timing of incentive accruals, on a full year basis, those manufacturer incentives were approximately $6.4 million in each fiscal year. Operating expenses were $83.7 million for the fourth quarter of fiscal 2023 compared to $64.6 million in the prior year. The year-over-year increase was primarily due to the inclusion of operating expenses related to our acquisitions over the past year as well as higher variable expenses on increased revenues. Floorplan and other interest expense was $2.1 million as compared to $1.4 million for the fourth quarter of fiscal 2022, primarily due to the utilization of our bank syndicate line to help fund the Heartland acquisition and modestly higher interest-bearing floorplan borrowings. Adjusted net income…

[Operator Instructions] Our first question is coming from the line of Mig Dobre with R.W. Baird.

It's Joe Grabowski on for Mig this morning. So I guess my first question, supply chain and production issues have been problematic the past several quarters, but Titan has exceeded their quarterly expectations each of the past several quarters. So I'm hoping you could expand a little more on what happened specifically in the fourth quarter that was different than the prior quarters and how you expect these issues to impact deliveries in the upcoming year?

Yes, I'll start with that one. This is Bo. So I think what you saw there compared to the prior quarter was, there was a bit more of an acute congestion of deliveries right at the end of the fiscal year. So you're absolutely right. The OEMs continue to work through supply chain constraints and other production challenges. And that's not something that's new. But what was new, again, was the congestion of the deliveries to us right at the end of the fiscal year, which as Bryan was walking through today based on the activities that we need to perform didn't allow us enough time to really push through the rest of those deliveries. As to what you expect for the rest of the year, what I would say from that right is that we'll work through and catch up on some of that miss as we progress throughout the year. The reason for that would be is certainly, right, we'll probably deliver all of those pieces of equipment that we had at the end of the year, but there will likely be some timing exchange between Q1 and Q2 and Q2 and Q3, for example.

Okay. Got it. And just out of curiosity, I mean, obviously, the OEM has a December fiscal year, you guys have a January fiscal year. I mean, did that impact the congestion right at the end of your fiscal year? Or was that not really a factor?

Well, it is one benefit to having a little bit of an offset here. But unfortunately, a month didn't give us enough time to catch up there. But what you're probably alluding to, right, is that they're all pushing hard to deliver strong results for the end of their fiscal years. It resulted in what we saw as an increase in inventory in our year. But again, big picture wise, this is a timing issue. Demand is strong, and we expect a strong fiscal 2024.

Got it. Okay. Next question I wanted to ask is around International, revenue down 22% year-over-year. You mentioned FX and you mentioned the war in Ukraine, but obviously, those have been issues throughout the fiscal year and the revenues, the first thing specific in the fourth quarter in International, were they impacted at all by equipment deliveries, I guess, and supply chain? Or just anything you can expand on there?

Yes. So big picture wise, on a constant currency basis for the full year, International sales were up 4.2%. In the fourth quarter, excluding the currency impact, right, primarily the decrease year-over-year was Ukraine. And the rest of the business was down mid-single digits. So not significantly different than the full year results and it was primarily a result of the timing of when revenue was recognized for Ukraine in the quarters versus the first 3 quarters of the year.

Got it. Okay. And then my final question. Regional banks have been in the news the past week with some thoughts that maybe they were going to have to tighten their lending standards. How do you view that? And do you think if the regional banks did have to tighten their lending standards, if that could impact the farmers' ability to secure financing going forward?

So we've been having conversations with our banking partners as well and paying close attention to the developments in the banking space. We've also been paying attention to what the government has been doing in terms of taking action to ensure confidence in the industry. And we feel good about where things are progressing and that there shouldn't be an impact there, right? There's a little bit of speculation right now with what interest rates are going to do. But big picture wise, we don't have concerns and impact to our business in fiscal 2024.

Our next question is coming from the line of Daniel Imbro with Stephens.

On the farmer backdrop, we've seen crop prices maybe moderate here in the last 30 to 60 days, maybe some more uncertainty around China reopening than we anticipated. I'm just curious if you've seen any notable change in farmer behavior. It sounds like your commentary is that demand is still strong. But if crop prices maybe remain, there's still elevated relative history, but below where they've been, do you think you'll see pre-orders flow kind of what's baked into the guide to that outlook? And just any thoughts you can provide on that backdrop?

Daniel, this is Bryan. Yes. So to your point, the projections out there right now are net farm income to be down just over 20%. However, again, as you mentioned, coming off a record year, so -- and still being projected to be the second highest profit year for them on record. So really good demand still far outpacing supply for us, all the cash crop products and so on, as we mentioned, in all 3 of our segments in Ag specifically cash crop products being our limiting factor for us right now. So even -- we haven't seen it yet, but if we did get a little slowing of the order board due to profitability coming down a little higher equipment prices, interest rates, some of the buzzy here around those topics. Again, we still have way more demand than we have for supply and for allocation right now.

Great. My first follow-up, I don't know if I missed it to the first question during Q&A, but have you given an expectation of how long do you think it will take you to work through this timing issue of whatever was pushed from 4Q. Is that all going to get sold in 1Q? Or does that get dragged out for a while?

Yes. So we see that really spreading across the year. The reason for that, right, is as we mentioned, there's still supply chain and production constraints, and there's movement from quarter-to-quarter. So again, big picture, demand is strong. We feel good about our guidance. In terms of that whole $100 million push from Q4, I would not expect that all to be in Q1.

Got it. Helpful. And then last one for me. Just on the construction side, obviously, resi feels a good slowed. On the commercial side, just curious, any update on the trends, the guide kind of low singles, I think, makes sense, but we've seen energy prices come off has been an investor focus. So can you update us kind of on maybe what the inputs you're assuming are there? And then what are the biggest risks when you think about the 0% to 5% guide as you move through the year. Maybe that would cause you to come to the low end or maybe that guidance?

Yes. So biggest risk for us would be overall economy, Daniel, but we definitely mentioned a couple of times our diversification. So being quite a bit tied to agriculture as well and not just oil and not just resi and highway and bridge work or landscape, et cetera, again, we're really diversified across all those various industries. And so we feel good about a lot of demand right now for farmers buying construction equipment, so we feel really good about that continuing. And again, if you look at just a lot of our key product categories, again, we -- our demand is still way outpacing supply. We still have a big backlog there. And so that's going to take a while to catch up. So I think we feel really good about fiscal '24 here in construction.

The next question is coming from the line of Larry De Maria with William Blair.

So I just wanted to get back to the timing when the issue developed. Is it -- you're saying it's late in the quarter. Was this like a late January issue, where things just didn't get there in time or I really want to drill down to when did this actually happened? And secondly, are we talking about incremental production problems and delays at your OEM partner? Or are these more on allocation issues that maybe other folks got stuff and wasn't your turn?

Yes. So I'll clarify a little bit and then BJ or Dave, if you had anything to add there, right? So I would say that there isn't some incremental production issue that we're seeing, right? And in terms of timing, there was -- we received a significant amount of inventory like right at the end of December. You're kind of talking about that last 30 days of the quarter, and BJ was backing through everything it takes to deliver pieces of equipment, right? So if we take a step back and we look at November came in as about as expected, and we had visibility to December and January, December was a bit slower. And then right at the end of December, right, was a big push as OEMs were finishing their fiscal year, for example, right? And then we worked as hard as we could to process through as much of that as we could in the fourth quarter. That push is about $100 million. We expect to process that through as we progress throughout the year, right? And that's included in our growth rate assumptions that we were discussing. So if anything -- things are looking as good or continue to trend in the right direction from our OEM partners.

This is David. And I can add on to that a little bit. So we were anticipating more equipment to get shipped before Christmas and a lot of this is -- so if you flyover over an airplane in any of the plants, you just see rows and rows of tractors and combines and sprayers and sitting or waiting there. There -- they came off the assembly line, but they're waiting for the various components. And as those components came in, they get them mine. They get them invoiced to us. Then there's been a couple of weeks there in the first part of January get on trucks to get them shipped to us. And just like I said, just the whole -- the magnitude of it and the whole congestion, but we're getting enough special haul trailers and all that stuff to get that stuff out there. So really, a lot of these units -- and I think if you listen to some of the OEM calls, I think they substantiated, a lot of that. It was just a lot of really all hands on deck put and all these components on to get their completed tractors done by -- waiting for that week before Christmas in the end of the year, which really is tough to manage through that magnitude and that congestion on a onetime. So…

Yes. And Larry, this is Bryan. I'd just add too, as you know, we put a lot of technology on the equipment and do other things to it, as I mentioned there. And just the supply chain issues and the backlogs we're experiencing and even shipping delays on that stuff as well, which also compounded it.

Okay. Yes. I guess I was just surprised because you're at a conference in early mid-January. And this issue didn't come up, but it sounds like you probably knew about it at that point. So that was sort of the gist of the question, as to why the kind of the big surprise today. But it sounds like things are congested and obviously, the $100 million miss in Ag, but it didn't go away. We're going to get it over the next couple of quarters. And how much -- so obviously, your inventory is up substantially in large part because of this. How much of inventory, especially naturally on the new stuff, has a customer name attached to it? Can you just help us out there? Just trying to understand any kind of risk to the inventory that you have on balance sheet now?

Yes, Larry, I'll just go a high level and then Bo can speak a little more to the numbers. But a very high percentage of it has a customer name to it, especially the high dollar pieces, the part that's the majority of our business, the cash crop equipment. So the only building that we actually have that's not just a timing issue we've been discussing here or sales WIP, if you will, or from acquisitional growth is really just the small horsepower tractors under 140 horsepower, especially under 100 and then hand-forge equipment to a degree. So beyond that, again, I just reiterate the cash crop equipment we're short of on demand and have an order backlog for that. And so obviously, high degree -- very high degree of names on all that pre-sold.

The other thing I would say, just to add a little bit of perspective, right, if you think about fiscal 2023, in large part, there was virtually no equipment that was sitting on a lot that was available for sale. So to see some areas starting to improve, for example, like the low horsepower tractors, combines and some other areas is definitely a welcomed thing. But yes, big picture wise, on a lot of our main bread and butter pieces of equipment, overall demand is outstrip supply. Everything is pre-sold, and we'd love to get as much of it as we can.

And the -- because of the kind of where you were the timing, maybe you're not going to catch up everything, but is this -- maybe you can give us a cadence first half or second half in terms of maybe sales and earnings?

So big picture wise, from a cadence perspective, right? If you set Heartland to the side and talk about the rest of our business, last year, we did about 45% of our revenue in the first half of the year, 55% of the revenue in the second half of the year. We see something very similar to that happening this year, right? The question is just how -- within the first half, how much is in Q1 versus Q2. But it should be about in that mix. And then as you're doing your modeling and your layering on Heartland, they are a bit more of a front half business. Although also with equipment availability, you might think about more of that is like 55% in the first half of the year, 45% in the back half of the year for them.

Our next question is coming from the line of Steve Dyer with Craig-Hallum.

Most of mine might have been answered. Just a couple of questions on your outlook for the year. It sounds like you are assuming a relatively consistent level of manufacturers' incentives for this year, is that right?

Included in our guidance.

Got it. And then it seems a bit late in the year, maybe I'm wrong or a bit late to not sort of have a good sense of your Q4 allocations yet. I mean, do you typically -- and when do you anticipate sort of having better color on that throughout the year?

Yes, it definitely is late. And so, all the manufacturers are definitely keeping those windows tight right now. They're wanting to get as much visibility as they can to pricing and production abilities. So we're anticipating, hopefully, in Q2 here, seeing what those are. And so it is making it a little tough to plan, but all our modeling that we've got here takes into account to the best that we have. And obviously, we've gotten some indications of what our Q4 allocation could be.

Sure. Got it. Last one then for me as you look at sort of potential acquisitions throughout the year. I mean, I guess, any help there on what we should expect in terms of some of the smaller tuck-in stuff you've historically done. You went a little bigger. This last year, sort of what -- generally, what's sort of the thought process going forward, big, small Ag, construction, et cetera?

Well, I think we're targeting the Ag and I think you're probably going to -- you're going to see definitely I think there could be some tuck-in, Steve. And then -- and there's -- I think there are also some larger opportunities out there. So I just want to make sure right now, near-term, we're integrating, and we've got -- we had a pretty big chunk last year. But at the same time, the pipeline is full, and we've got a number of people we're talking to stuff. So we just -- I think the last couple of years, we had a good run rate acquisition you can see there are -- the dynamics out there, they do their principles and that increased sophistication of the equipment and you can add that whole another dimension of the capital needs out there and then the -- and some of the difficulties and the backroom activities, right, and the regulations and stuff out there and some of the HR challenges. So yes, I still -- I don't think the dynamics aren't change out there. So we still think there's really a nice runway out there, potential acquisitions going ahead and we're managing through those.

It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Meyer for any additional closing remarks.

Okay. Thanks, everyone, for your interest in Titan, and we look forward to updating you on our progress on our next call. So have a great day, everybody.

Ladies and gentlemen, this does conclude today's teleconference. Once again, we thank you for your participation, and you may disconnect your lines at this time.