Greetings, and welcome to the Titan Machinery First Quarter Fiscal 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonneck of ICR. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to the Titan Machinery first quarter fiscal 2024 earnings conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer; Bo Larsen, Chief Financial Officer; and Brian Knutson, President and Chief Operating Officer. By now, everyone should have access to the earnings release for the first quarter ended April 30, 2023, which went out this morning at approximately 6:45 a.m. Eastern Time. If you've not had a chance to find the release, it's available on the IR page of Titan's website at ir.titanmachinery.com. 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, you may access the presentation now by going to Titan's website again at ir.titanmachinery.com. The presentation is available directly below the webcast information in the middle of the page. You'll see on Slide two 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. 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 and 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 will open the call to take your questions. 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 first quarter fiscal 2024 earnings conference call. On today's call, I will provide a summary of our results. And then Brian Knutson, our President and Chief Operating Officer, will give an overview for each of our business segments. Bo Larsen, our CFO, will then review financial results for the first quarter of fiscal 2024 and conclude with some commentary around fiscal 2024 full year expectations. We're off to a solid start to fiscal 2024 with strong first quarter results consistent with our expectations going into the year. Revenue increased 23.6% to $569.6 million in the first quarter, which represents record first quarter revenues supplemented with significant contributions from our most recent acquisitions. The combination of Mark's Machinery, Heartland and Pioneer acquisitions added $94 million of revenue in the first quarter, and we couldn't be happier with how integration has been going so far with each of these acquisitions. Notably, each of our operating segments achieved expansion in pretax margins versus the prior year period. This drove consolidated pretax margin of 6.2% and diluted earnings per share of $1.19, which was over 53% higher than last year's earnings performance. Our Agriculture segment revenue grew 33%, benefiting from our recent acquisitions and reflecting healthy underlying industry fundamentals and strong customer demand. Across all our segments, our equipment business remains very healthy, yet constrained due to an insufficient inventory and delivery delays in key product categories. Our parts and service business also performed well despite a later start to the planting season in some of our northern U.S. markets and in our European footprint. We are poised for this momentum to carry into fiscal second quarter as our agriculture customers complete their spring field work and construction activity gets into full swing. We are well positioned to capitalize on the opportunities that lie ahead and are committed to providing world-class service to our customers and delivering strong results for our shareholders. With that, I'll turn the call over to Brian Knutson for his segment review.

Thank you, David, and good morning, everyone. I will now provide a recap of our fiscal first quarter segment drivers, and then review some of our high-level expectations for the balance of fiscal year 2024 across our respective segments. I'll begin with our domestic Agriculture segment, which produced organic growth on top of last year's strong performance, which was further bolstered by revenue contributions from our most recent acquisitions. This segment also realized another solid quarter of margin performance, with pretax profitability expanding by 50 basis points versus the prior year period to 5.7%, driven by improved equipment margins that benefited from a combination of strong demand and product mix. While planting progress is largely on track across the farm belt, we are experiencing some delays in our northern markets due to the late spring. Our same-store sales growth in the first quarter reflects the delayed start to spring field work, as well as the continued limitations on equipment availability and timing of deliveries for cash crop products. In terms of elements that we have control of, our team is doing an excellent job. We are focused on receiving in performing pre-delivery inspections, installing additional components and then delivering presold equipment to customers as quickly as possible. However, as I previously noted, the timing for that process varies from several weeks to several months, and we continue to see higher levels of presold equipment and inventory at the end of the first quarter. In addition to having presold inventory, our sales team is excited about now having some stock inventory at hand that is available for sale, which puts us in a better position to serve customer demand on products like harvest equipment, small tractors and certain tillage equipment than we were a year ago. We are also working hard…

Thanks, Bryan. Starting with our consolidated results for the fiscal 2024 first quarter, total revenue was $569.6 million an increase of 23.6% compared to the prior year period. Our equipment revenue increased 20.5% versus the prior year period, led by incremental revenue from our recent acquisitions as well as positive same-store sales growth across our Agriculture and Construction segments. Our parts revenue grew 40.9%, service revenue grew 18.3% and rental and other revenue increased 32.9% versus the prior year period. Gross profit for the first quarter increased 33.7% to $119 million. Reported gross profit margin increased by 160 basis points, driven primarily by improved equipment margins, which benefited from strong demand and favorable product mix. Consistent with the first quarter of the prior year, there was no recognition of manufacturer incentives as we will wait until we get further into the year to make these types of accruals for accounting purposes. Operating expenses were $81.3 million for the first quarter of fiscal 2024 compared to $64.2 million in the prior year. The year-over-year increase of 26.8% 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. Floor plan and other interest expense was $2.5 million as compared to $1.5 million for the first quarter of fiscal 2023, primarily due to higher interest-bearing floor plan borrowings. Net income for the first quarter of fiscal 2024 was $27 million, or $1.19 per diluted share, and compared to last year's first quarter net income of $17.5 million or $0.78 per diluted share. Now turning to our segment results for the first quarter. In our Agriculture segment, sales increased 32.9% to $423.2 million. This growth was driven by our recent acquisitions of Mark's Machinery, Heartland Ag and Pioneer,…

[Operator Instructions]. Our first question is from Alex Rygiel with B. Riley. Please proceed with your question. Alex, is your line on mute?

Good morning. And sorry about that. If we come back to inventory as a topic, you mentioned that insufficient inventory and product delays in certain key product lines, I know you went through that a little bit. But can you expand upon that a little bit more?

Yes. Good morning, Alex, this is Bryan. Yes, I think it's important, as Bo and I both tried to do in the prepared remarks, to delineate within the different inventory or product categories. So as we mentioned, certainly, lower horsepower tractors have been normalizing. We have been getting in some stock inventory for those, which is great. That's traditionally a product that does sell more out of stock than presale and it's the type of thing you like to have on hand. So we're optimistic about that improving. So that's leading definitely to some of the increase again, still feel really good about that level. And then as Bo mentioned, other areas, harvest equipment, certain tillage, hay and forage, not quite back to historical levels yet. But we have seen some improvement in those levels. Also, there's some timing things with those products as well. We feel good about that as well with the way our cattle prices are right now, looking for a great season here in hay and forage. And then as you get into a lot of the cash crop products, Alex, you look at things like four-wheel drive tractors, magnum, sprayers, a lot of that critical cash crop equipment that's critical to our business as well. It's still an extremely short supply on allocation and continues to be really short of demand. And as Bo mentioned, that really, at this point, will carry into FY '25 now for us. And I guess just to maybe delineate between the sales WIP that we talked about as well as the on-hand inventory. And so again, sales WIP, like we talked about last quarter, there's just an increase in the number of things. We need to do to units right now that are arriving from our manufacturers over historical levels. And then also the components that we put on are also impacted by the supply chain. So we are seeing longer turnover times to get those out to our customers and get the revenue recognized as well. But important to point out, the available for-sale inventory in many of those key cash crop categories is extremely low and much lower than we'd like.

And then just so we could maybe sort of understand, how long do you think lead times for high horsepower equipment are still going to be sort of extended?

So right now, we have visibility into our fiscal '25. And so definitely through then, Alex.

Great. Thank you very much.

Our next question is from Daniel Imbro with Stephens. Please proceed with your question.

Hey guys, this is Joe Enderlin on for Daniel. Thanks for taking the questions. I wanted to start out on revenue growth. You saw around 25% growth this quarter. Could you maybe break out how much of that would be from the demand aligned with the first quarter? And then how much was driven by the delay in shipments last quarter? Do you expect the revenue from that delay in shipments to be relatively evenly spaced over this year? Or is there any change in how you're thinking about the cadence?

Yes. No, I appreciate the question. So as we talked about at the end of last year, and you were referencing the $100 million push and us discussing working through that as we progress through the year, our view and we continue to have confidence in the fact that we can continue to see improvement in production and delivery cadence as we progress throughout the year. In other words, it gets better quarter over quarter over quarter. So, in terms of the $100 million specifically, right, like those units are units that were delivered in the quarter. But it's a similar carryover from Q1 to Q2. So I guess we see getting another bite -- a larger bite at that apple as we work through the year.

That makes sense. Thank you. As a follow-up, in the slides, you noted you're still actively looking for acquisitions in the ag sector. Could you maybe provide some color on how seller multiples are trending in this market? And then are you seeing more sellers come to market?

Well, I'd say there are definitely some motivated sellers out there, Joe, as you see the interest rates increasing and increased cost of equipment and all the capital needs with that, increased OEM demands, this complexity and sophistication of these equipment and the shortage of the skilled product support people out there to support that equipment. We're getting into a new round of regulations, employer mandates. There are challenges out there, especially on the HR side from the recruiting and retaining of employees. So definitely, we're seeing that continued consolidation ownership. And yes, I think there's a good pipeline out there and we continue to focus on integrating the acquisition we did. But at the same time, we're actively looking for quality and strategic acquisitions going ahead. And there is the pipeline it's consistent to what we've seen in the last couple of years.

And maybe just a little bit more from a multiples perspective, right? I mean we maintained discipline. The company has been in acquisitions for a long time. And so that's not necessarily something that's changing. Clearly, the average dealer is doing more revenue and more EBITDA today than they were a few years ago. So that's there. But from a multiple perspective, that's not something that we're seeing evolve, at least not the way we approach acquisitions.

That’s helpful. Thanks guys. That’s all for us.

Our next question is from Larry De Maria with William Blair. Please proceed with your question.

Thanks and good morning. First question regarding allocations. Obviously, you had some comments on those, but in your discussion with Scott and the final outcome here, kind of curious magnitude of what you got versus what you asked for. Can you kind of talk about how that played out for you? And maybe, let's say, how short you are versus where you want to be? And related to that, is the current full allocation, is it complete? Is that fully embedded into your guide? And do you think you can go out and get more of that stuff that you're reasonably short of this year, kind of like you've did in the last couple of years, sort of more in the open market?

Yes. Thanks, Larry. So I'll start with -- on the allocation, again, it really depends on the product category. But in several of our key product categories, I think it's important to separate into, you asked what we want versus what we got. Then there's the other bucket of what we got versus what we expected to get. And so that's definitely in line. What we're getting is roughly in line with the information they've given us as we work closely with them since allocation came out here about a year ago. And we certainly -- it really does depend on the product category, Larry, but there are some certain product categories where we would like at least 50% more than what we are able to get. So as Bo mentioned, as you know, that does elongate the cycle here specifically and especially in those product categories. And it does -- we're really seeing some aged fleets now in those certain product categories as well. So that's an additional driver to our parts and service business, though, as you know. So that's the positive side of it. And -- then again, it'll likely be into next year before we even see signs of catch-up. And depending on how supply chain recovers in those areas as well as some of the production constraints, it could even be -- we could be sitting at the end of next year and still not be quite to the levels we want in some of those product categories.

Okay, that's good color. Thank you. And maybe staying there, the -- obviously, crop prices are lower, which we all know. And you noted that obviously in for question lower as well. Can you just really give us a real-time update of what you're seeing? Obviously, talking about strong demand, but have these lower prices start to matriculate through the system at all in terms of in your conversations and sort of, like, let's say, real-time ordering out there? And then also related to that, any real impact to North Dakota late planting season? Or is that just going to get caught up and be okay?

Sure. So a lot of our customers do a lot of planning with their advisers and tax consultants and so on, and a lot of income average unit. So there was a lot of income pushed out of last year into this year are deferred. We expect to see that again. Also with grain sales, a lot of our customers are working with very professional marketers as well. So there is a nice percentage of the crop that is sold now, to hedge if commodity prices do come down further. So just much healthier there than if you look back a couple of decades ago in terms of the professionalism our customers are bringing to the marketing side and again, the tax planning side. So we -- a lot of optimism from our growers, it's still an extremely profitable year overall. And again, the inputs coming down also will help with that. In terms of what we anticipate going forward -- or excuse me, how it impacted North Dakota and, really, Minnesota as well with the late spring, is some of that timing you see in some of our numbers maybe and how things could flow to one quarter or the other in terms of parts and service business, recognizing some of the revenue. Certainly, with all the work that we've had to do with the equipment coming in for the manufacturers, again, I mentioned there's additional work that what we normally see, which we believe will correct itself as we get into next year. But -- and then some of those components we're putting on being delayed as well. So Dave also mentioned the labor shortages across our industry with skilled labor. So we're having to prioritize, Larry, the equipment that we get out that was critical for spring planting. So now we'll get after some of the summer and fall equipment. But from a yield impact perspective, a lot of our growers are going to be getting the crop in the ground here in North Dakota and Minnesota. Very similar timing to last year, which still generated above-average yields. And so at this point, don't expect much other than timing, at least that's our expectation.

That's great. Thank you for that color. If I could just sneak one more quick question. Sales were light on, especially on the ag side, obviously, good bottom line performance overall. How did the ag sales in the quarter different from your expectations? And was that more delivery delays and kind of spillover from the prior quarter? Or is there something else that caused the ag sales to miss?

Yes, I'll let Bo comment mostly here. But generally, from my end was timing and the constraints that we had on equipment and equipment shipments. And again, getting the stuff out the door and onto our customers' hands to recognize the revenue. But yes, just anything you have to add, Bo?

Yes. And I would just say so, I mean, largely overall, things came in as expected. If there was any softness, it would be on the ag side. And I'd say still pretty well aligned with what we expected. Now what we want to do for our customers and deliver for them, we would have loved to fulfill more of that demand. And yes, it was largely what we've been talking about here today, and it's really the cadence of receiving those higher demand cash crop units in and being able to turn them around. That would be the area we want to continue to see improved and that we have confidence will continue to improve through the year.

Okay. Thank you. Good luck.

Our next question is from Mig Dobre with Baird. Please proceed with your question.

Hey. Good morning, guys. It's Joe Grabowski on for Mig this morning. I thought I'd ask a question on equipment gross margin. It was quite strong for a first quarter. I was wondering if Heartland maybe impacted it favorably? And you also mentioned product mix aided margin in the quarter. I was wondering if maybe you could provide a little more color there?

Yes, I'll help you out with that a little bit, and two things. I would say that there was a bit of a timing on the international side, which was exceptionally strong, and I'll talk about that, and then the product mix. So from an international perspective, what we were really alluding to on the timing side of things is kind of the timing of when we ordered products and what price increases had or hadn't come through yet. By the time we received products and we're able to sell them in the market, prices had gone up, and there was an opportunity to sell at the current value, so expect a little bit more profitability there. And then that will kind of have wrapped up in the first quarter here. We don't foresee that continuing the rest of the year. More broadly speaking, and we did see strong margins across our segments. But specifically with ag because we know that drives a lot of what goes on here. The understanding, the dynamics of the cash crop units and those kind of being slower to go out the door and foreseeing more of that happening as we progress throughout the year. Those big ticket items with high price tags tend to have lower margins than some of the hay and forage and other, and tillage and other areas. So what we really saw from a mix perspective, what we're talking about there is some of the equipment that we sell from short lines and some of these smaller ticket items, they carry a higher margin and they were more of that mix. And again, for expectations for the rest of the year, as we drive sequential growth in volume and get more of this cash crop equipment sent out to customers, that comes at a little lower margin, and that's one of the reasons we talk about, the margin changing sequentially as we progress throughout the year.

Got it. Okay, that makes sense. Thank you for that. And then maybe just a couple of questions on the construction business. Maybe talk about some of the demand trends you're seeing there. Is the infrastructure bill starting to lift demand? And maybe are there any headwinds from some of the commercial lending issues we've seen? And then maybe secondarily, you mentioned some equipment availability issues in construction. Maybe expand on that.

Yes, Joe, I'll just talk -- we -- up here in the upper Midwest, it's been a strong economy overall. So a lot of our customers had a great year last year. A lot of their demand and thus our equipment demand is carrying now into this year. And the fleet has also been getting really aged out there on the construction side from lack of availability in the last two years now. And so again, carrying demand. Also with the lot of these small independent rental houses that we deal with are also have very aged fleets, again, due to the construction constraints of the last two years. And so they're still looking to replenish their fleets. We haven't been able to do a lot of that yet. And then again, those key product categories, as you mentioned. So very similar to ag. Some of our core legacy products that we do really well with, which are -- some of those are some big ticket items, are on allocation. And again, very short of and we'll continue to grab every one of those we can find and continue to push for more units, or to get our hands on more of those and hope to fulfill demand. But that will be pushed out very similar to the high horsepower tractors and some of those things that we mentioned on the ag side.

Okay, great. I leave it there. Thank you.

Our final question is from Steve Dyer with Craig Hallum. Please proceed with your question.

Good morning, Ryan on for Steve. I want to start with parts supports growth. It was effectively double service growth on the revenue side this quarter. I guess, what caused that outsized strength in parts, vis-a-vis service? And then secondly to that, are you having any supply constraints getting core parts inventory?

So from a growth perspective, parts growth was fairly well aligned with overall ag growth, and some of that came with the acquisitions. But also busy spring, getting people ready for field work. You asked about the dynamic. Why isn't the service growth in line with that parts growth? Some of the service effort, right -- a lot of service effort is focused on getting those new units ready, pre-delivery inspection, installing products like parts, for example. And that doesn't get charged to service revenue. That's going to be part of a new whole good process. So that's a factor there. As there's -- we'd love to have more service tech so that we can accomplish everything at the same time. But with some of the congestion we've discussed and focused on getting new whole goods delivered, that's why you'd see the softer side of the service. And then again, back to parts, I just see it more in line kind of with what we're seeing in other areas of the business.

And I would just add on your question right, about the parts availability. We've definitely seen some improvement lately in that. However, still not where we'd like to see. We still have longer lead times than we'd like. We still are struggling to get some parts. And then as an example, our back order lines are still well above where we would -- the levels we'd like to see or met. Now on the flip side, you look at -- it is much improved compared to some of those key cash crop equipment categories like we said, where we just haven't seen any improvement.

And then just for my second question, are any customers willing or even able to shift down to lower horsepower equipment or some of the inventory that you have better supply of? Or are they effectively forced to wait and thus building that almost two-year type pipeline of demand for those high horsepower and in-demand tractors and combines?

Yes, there'd be a few rare exceptions. But in almost every case, they're forced to have to wait.

Yes. And just to add on to that, in some cases, it creates a -- we've got some really nice late model used equipment. And all of a sudden, maybe some of these customer is going to switch from a new purchase to a late model used purchase. And we need to use through the pipeline too. So that's helpful to move the used equipment.

Yes. And then also just adding, that does really help with the future pipeline and the presell is, I guess, the positive is it gives those customers and their tax accounts and advisers plenty of time to plan their business and helps us plan our business, helps them lock in and get the specs that they want and so on. But yes, again, on the specific product category, still dealing with longer lead times than we would like and then our customers would like.

That’s it for me. Thanks guys. Good luck.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to David Meyer for any closing comments.

All right. Thank you, everyone, for taking time for our call, and thanks for your interest in Titan Machinery, and we look forward to updating you on our progress on our next call. So have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.