Greetings. Welcome to the Titan Machinery Inc. Fourth Quarter Fiscal 2024 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Jeff Sonnek from IR. You may begin.

Thank you and welcome to Titan Machinery’s fourth quarter fiscal 2024 earnings conference call today. We have from the company Bryan Knutson, President and Chief Executive Officer and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2024. If you have not received the release, it’s available on the IR tab of 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. Additionally, we are providing a presentation to accompany today’s prepared remarks which can be found also on the same website, ir.titanmachinery.com. The presentation is located directly below the webcast information in the middle of the page. 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. The statements do not guarantee future performance and therefore, undue reliance should 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 maybe made in today’s release or call. Please note that during today’s call, we may 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 have 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 will open the call to take your questions. And now, I’d like to introduce the company’s President and CEO, Mr. Bryan Knutson. Bryan, please go ahead.

Thank you, Jeff. Good morning, everyone. I want to begin today’s call by providing some historical context, which will help put our recent earnings performance into perspective, then I will offer some thoughts on our fiscal 2025 outlook that we are providing today and finish with a summary of our segment performance before passing the call to Bo for his financial review and incremental thoughts on our modeling assumptions. We finished fiscal year 2024 with a strong performance that was driven by growth across all of our legacy operating segments and resulted in record revenue of $2.8 billion and record earnings per share of $4.93. This marked the third consecutive year of achieving record earnings per share while achieving a pre-tax margin of greater than 5%. Our business remains in a position of strength and we expect to demonstrate the durability of our earnings through this cycle following a multiyear effort to implement greater efficiency across our organization. Moreover, this is exactly the level of execution that we outlined at our 2017 Investor Day. I’d remind everyone that back then we were working hard on expense and inventory optimization as a means to driving higher levels of profitability through the cycle. At that meeting, we also outlined a path to $2 earnings per share. Conceptually, we wanted to ensure we made the adjustments necessary to drive an acceleration in operating leverage, so that we were in a strong position once the next cycle arrived. Our business today is nearly twice as large as those projections from 2017 in terms of revenue and I am proud to say our earnings power of nearly $5 per share is higher by 2.5x. Those principles remain in place today that is positioning the business to drive greater and more sustainable levels of profitability in…

Thanks, Bryan and good morning everyone. I’ll start with a brief review of our fiscal 2024 full year results. As Bryan noted in his commentary, we had another exceptional year and are proud of the performance the team delivered. While we don’t expect to repeat this performance in the coming year, we are focused on demonstrating improved results relative to that of the previous cycle as we move forward. Total revenue increased 24.9% to a record $2.8 billion, driven by balanced growth across each of our revenue categories. Equipment grew 25.3% for the full year and was complemented by solid contributions from our recurring parts and service businesses, which increased 25.6% and 21.2% respectively. Additionally, rental and other was up 10.4%. Earnings per diluted share increased 9.8% to $4.93 for fiscal 2024. This was a record for Titan and it was also right in line with the midpoint of the guidance we established at the beginning of fiscal 2024 after adjusting for the O’Connor’s acquisition. Shifting to our consolidated results for the fiscal 2024 fourth quarter, total revenue was $852.1 million, an increase of 46.2% compared to the prior year period. Growth was driven by a 29.9% increase in same-store sales with the balance reflecting the contribution from the O’Connor’s and other acquisitions. Our equipment revenue increased 51.6% versus the prior year period. Both parts and service revenue each increased 25.7% and rental and other revenue was up 3.1% versus the prior year period. Gross profit for the fourth quarter was $141 million and as expected gross profit margin contracted year-over-year to 16.6% driven primarily by lower equipment margins, which are experiencing some normalization as expected at this stage in the cycle. The fourth quarters of fiscal 2024 and fiscal 2023 included benefits related to manufacturer incentive plans of $7.8…

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

Thanks very much. Congratulations on the quarter and congratulations on all the work you’ve done in the last several years to position yourself to work your way through changing the cycle, if you would. I just wanted to touch base quickly on some of the commentary around margin, I know you highlighted that you are going to see more pressure on margin on the equipment side as you know, farm income goes down and there is lesser demand. First of all, with regards to that is this across the board with regards to both new and used, I assume that a bigger driver of this would be used more than new? My second point within margin is what does it mean with regards to rental? And then in my third kind of looking at your parts and services in the last quarter was a little below margin relative to kind of recent periods when we see margin pressure with regards to parts and services also? Thanks.

Yes, good morning, Ted. Thanks for the question. From an overall margin perspective, in terms of new and used, we don’t really split that out. And it’s really a function of how you evaluate the used, which impacts the new. Overall, your commentary makes sense right, the pressure comes from selling through the used side. So we don’t really split it out, but I mean, that’s how we are thinking about it. And overall, that’s why we talk about a total equipment margin. From a parts and service perspective, I would expect similar margins this next year, as we had in fiscal ‘24 maybe slightly down. But we’re not talking about the same factors that are impacting our equipment margins. And then from a rental perspective, also feeling good about where that’s at and would expect similar margins to last year. I think you were maybe also referencing there, margin changes in Q4 specifically for parts and service and maybe mainly service. Some of that can really be a function of the seasonality which we really see in the business and where our team is focusing their time between delivering new equipment versus service revenue. And I wouldn’t read anything into that. The margins we have seen are pretty similar to what we would expect perhaps slightly down again, as we have seen some pressure and we are wanting to make sure that we are one of the ones in front leading the labor market in recruiting and retaining our service techs.

Okay, that’s really it for me. Thanks very much.

Yes, Ted, this is Bryan, I would just add on the rental as Bo commented, recall that if you go back to FY ‘18, we had a much higher rental fleet, and we’ve gotten that really lean and reduced it down by over 35% down to just under the $80 million that we have today and really driven over the last few years, much higher utilization rates both in terms of dollar and physical utilization. And so we expect that to continue again with their very lean and agile rental fleet that we have today.

Okay, thank you very much.

Thank you. Our next question comes from the line of Larry De Maria with William Blair. Please proceed with your question.

Thanks. Good morning. I have a few questions. First, I guess can you talk about I know you talked about lead times to some degree. Can you talk about are there any pockets where they are still extended or is everything normal at this point? And are you guys significantly slowing down or canceling orders at this point?

Hey, Larry, this is Bryan. Good morning. Thank you for the question. Yes, generally everything across the board is now normalized, Larry, as you know, domestic Midwest plants versus overseas production plants always have varying lead times, but the supply chain is, as we mentioned, has really quickly caught up here and so going from even towards the last – at the end of last year still being extended out now generally everything normalized.

Okay, even though it’s large four-wheel drive, it staggers and all that stuff is relatively easy to get.

Yes, there is not easy for the OEM still, still some production challenges for them, but yes, now, no longer allocation, I believe from any of the OEMs on any product categories.

Yes. And just to make sure we address the one point, I mean, there is not a cancellation of shareholder rate. What we have done right is adjust the dials and that started last year. So we are just at – we have kind of referred to this as a transitionary period when the supply chain catches up and you see kind of condensing of when that equipment arrives, right. So it’s kind of a matter of timing and it will play itself through, but feel good about our ability to do so. And that’s one of the main focuses this year.

Yes. And Larry, I just add, as you know, we were short on inventory for – in many categories for 2 plus years, we’ve talked a lot about that over the past 2 years. And so it took us a long time to get here. And so as things have rapidly normalized, it’s going to take a while to manage through these. And so that’s why you hear us talking about the transition year in and just – it’s become a lot of equipment coming in a short period of time, orders that we have placed all throughout 2023 and even back into 2022, coming in a short period here. But just to your point about the dialing back, and as Bo said, as we saw some of the markets starting to soften, late last summer, we started to pull levers and dial things back and put actions into place. So we feel really good about the proactive measures we’ve taken and the visibility we have into the order board for the first half of the year and the strong pre-sales coming in. And so again, there is just will be a lot of inventory that’s recently come in and will be coming out in throughout this year that we have got built into our modeling that we are just going to get after and sell through.

Got it. Thanks for the color. And then – and maybe asking from the customer’s perspective, are – how did orders kind of come in through the quarter if they – I guess to understand, have they fallen off a cliff – are they slowly continuing to get weak and have they sort of felt like they have bottomed stabilized and are we seeing any cancellations from customers?

Yes. So, the cancellations are very low. Generally as we talked in the past that tied back to a death or a divorce or unexpected health issues and so, those just continue, but it has not fallen off a cliff by any means. Commodity prices have been pretty steady here for the last few weeks. And so, farmers again had three really good years here and balance sheets are really strong, recording a lot of record land sale prices throughout our footprint. And they are carrying over a lot of good income into this year and that will help stabilize as well and then just, a lot of the new products from our OEMs and the technology that’s really helping with the productivity and supporting demand as well.

Okay, fantastic. If I could just ask one final question, sorry for asking for more, but in the chart where you show the margins a future trough in revenue and you have breakeven margins at sales about half are where we are looking now. Is this meant to be indicative of where you think the market is going or is that more illustrative of what you’ve – of the work you’ve done cycle to cycle?

Yes, no, I appreciate the opportunity to clarify that and it was a bit challenging to perfectly capture something that you can digest relatively quickly. That future state in that trough there right is not trying to provide any indication on the level of revenue, it’s simply trying to provide the pre-tax margin percentage range. So and we also have the budget in there as a reference, right. So, we are coming off of our recent peaks. And we saw an ability to produce pre-tax north of 6%. This year budgeting, a mid-cycle assumption with some added transitionary pressure at that the midpoint about 3.4%. The guidance range here, from zero to 3% is supposed to be indicative of kind of that pre-tax range. And in terms of where it falls in that range, right, all comes down to kind of the timing and the factors at the time, right. Like, what is the trough, what does that look like, where equipment inventory levels, at where interest rates at that point in time. But overall, what we are trying to illustrate is both from peak-to-peak perspective, and then trough-to-trough perspective, and all the way through the cycle, delivering significantly higher profitability. And that’s what we are excited and focused on executing here over the next few years.

Okay. Perfect. Thank you very much and good luck.

Thanks Larry.

Thank you. Our next question comes from the line of Mig Dobre with R. W. Baird. Please proceed with your question.

Hey. Good morning guys. It’s Joe Grabowski on for Mig this morning,

Hi Joe.

Hi Joe.

Hey. Good morning. So, I guess I wanted to start with the quarter, the guidance you gave in late-November, would have implied your ag revenue would have been up about 20% in the fourth quarter, it came in up over 40%. I guess I am just checking, did the equipment availability really improved that much more than you were expecting in late-November, kind of what played out in the quarter? And did you maybe pull any revenue forward that you might have gotten in the current fiscal year?

Yes. I think just quickly from me, and I will have Bo expand further, Joe. But to your question, yes, the equipment has been really tricky to forecast timing of deliveries in the past 2 years. And so with supply chain improving and so on, it did come in better than anticipated, so that certainly was a part of it. And then also again, as I have mentioned in our prepared comments, just credit to our team who really worked hard to reduce our backlog that has been at record levels in the past 2 years and putting in the hours and getting that equipment out to our customers.

Yes. I don’t think I have anything to add there. I think you covered it well.

Okay. Great. Thank you. And my next question, you walked through why your ag revenue guidance for the current fiscal year is so much better than the OEMs, Industry forecasts, and it seems like a big component of that is the market share gains that you are expecting. Maybe talk about your confidence in those market share gains, and I guess if it’s predicated on better equipment availability, I mean isn’t equipment availability improving for everybody, so just your thoughts on that.

Yes. So, stripping everything back and setting the acquisition to the side, right equipment revenues on the Ag segment is about flat to slightly down, versus I think you are referencing the industry volume expectation of like 10% to 15%. And yes, we are better positioned with our equipment, right, and specifically for customers we serve. So, it’s really looking at those relationships and the equipment that they are looking for, and in some cases, our inability to get it in previous years, and now our ability to execute and serve those specific customers. So, it’s not just a broad statement, and we feel pretty good with line of sight, and as we mentioned, with our pre-sale activity through the first half of the year, what we are looking to achieve here.

Alright. And my last question, any early learnings from the O’Connors acquisition and your – maybe your broader thoughts about the Australia market.

Yes. I think just as we continue to get to know the team better and collaborate with them on our best practice sharing and leveraging each other’s knowledge and skill sets, it’s just all been extremely positive. Where, we are really pleased with the acquisition, we are really pleased with the leadership team and the employees over there and very similar business philosophies our two companies have and so that’s really helped with the integration and transition. We really like the market over there. We are very excited to grow over there and continue to invest over in Australia. And yes, we just couldn’t be happier, Joe, and really pleased with that acquisition, excited about going forward.

Alright. Great. Thank you.

You bet.

Thank you. Our next question comes from the line of Ben Klieve with Lake Street Capital Markets. Please proceed with your question.

Alright. Thanks for taking my questions. A couple for me. First of all, regarding the ‘25 outlook, I am wondering if you can kind of help us a bit with top line seasonality. Last year was a very lumpy one, I am wondering if you can kind of point to any historic year, you can give us kind of a bit of a benchmark for kind of how we should look at seasonality here in fiscal ‘25, because I suspect it’s going to be off quite a bit from fiscal ‘24.

Yes. So certainly, when you look at it, and things like the strength of the fourth quarter, definitely come into play there with your comments. Big picture wise, surprisingly, and as we look at things average over the last 6 years, last 3 years, last couple of years, a whole bunch of different ways. But as we see it, traditionally, our revenues are about 45% in the first half of the year, 55% in the second half of the year. And Australia, even when you overlay Australia with our financials, we expect something very similar with 45%-ish in the first half of the year, 55%-ish in the second half of the year. The nuance here I think is, you are definitely right, there was some strength in the fourth quarter in our U.S. Ag segment, which kind of made Q4 stand out. So, I think that that normalizes a bit, and Q3 and Q4 look more similar in FY ‘25 than they did in FY ‘24. But overall, back half of the year about 55%. And then from a first half of the year perspective, that first 45%, Q1 is traditionally and expected to be lower than Q2, and a lot of that is seasonality and timing of activity and purchasing. So overall, big picture wise, it won’t change drastically from what we have seen. But there is some nuance and certainly more of a level setting between Q3 and Q4 is probably the best expectation at this point.

Got it. That’s very helpful. Thanks Bo. And then one more from me and I will get back in queue. I am wondering if you can talk about the M&A opportunities today and maybe in the context of kind of how the M&A environment was at mid-cycle in the – assuming midpoint of the previous cycle as well, is the outlook kind of more favorable, less favorable than it was at this point in the prior cycle, or any big takeaways you can point to there?

Yes. Thanks Ben. Yes, certainly, I believe there is – there will start to be a greater amount of opportunities here as we go forward. And also we could see a little bit of a change in the multiples and so on as we go more towards mid-cycle here, and as margins come down a little bit for the other dealers as well. But the real drivers still remain in place, all the back office challenges in the – a lot of the single store, the smaller and the traditional operations struggling with the technology and all the HR and government regulations and just a lot of that back office function that really ties in nicely with our models. And so those drivers that just continued to be ever present. And as we again go towards more mid-cycle here, those get highlighted even further. So, we do believe there will be an increased amount of opportunities as we go forward here. But I would reiterate, for the immediate year here, as we laid out in our prepared comments, we are really focused on our customer care strategy and continuing to focus on driving our parts and service business and increasing our parts and service revenues, increasing our support capabilities for our customers. And we are going to continue to invest in that and be really focused on our customer care strategy. And just really keen on expenses and again, inventory management. So, those are the three priorities we certainly will be opportunistic with acquisitions and as we manage through that inventory that will free up room on the balance sheet, that will generate quite a bit of cash as we exit the year and go throughout next year as well. So, we will certainly be ready and going to be very selective with acquisitions as we go forward.

Very good. I appreciate that color. Thanks for taking my questions. I will get back in queue.

Thanks Ben.

Thank you. Our next question comes from the line of Alex Rygiel with B. Riley. Please proceed with your question.

Thank you. Good morning. A couple of quick questions here. First, can you talk a little bit about your expectations for inventory increasing throughout the year?

Yes. I mean from the color we are trying to provide today is generally right, that we still have inventory coming in. And obviously, we have expectations for good sales pull-through. In terms of quarter-to-quarter, that remains to be seen a little bit. Again, as we have said, lead times have normalized some, but there is still some inconsistency in terms of when things would arrive. But as it stands, I would expect that we do see some uptick in inventory here in the first half of the year, assuming that all of those things stay on schedule, and then we would play it out and see some inventory reduction from there in the back half of the year. All of that subject to again, the timing of how everything plays out. And we will continue to provide an update for you on a quarterly basis.

Thank you. And then what’s your appetite these days to increase investment into your rental fleet?

Yes. So, Alex, we monitor that closely on a real time basis and it just ultimately is a function of our utilization. And so our team does a great job building relations, and relationships and being out there in the market. And we really look to continue to push and promote our rental fleet. It continues to improve every year. And so we are just very mindful, though, of the utilization rates. And as long as we can keep those up and keep improving those, we will continue to add fleet. And as we see them start to taper off or pull back a little bit, we will turn the valves, or decrease the valves back down. And again, just really a function of the utilizations.

Thank you.

Thank you. And our final question will come from the line of Ted Jackson with Northland Securities. Please proceed with your question.

Thanks. You kind of touched on it a little bit with your inventory comments, but I did want to circle back with regards to kind of working capital levels as we roll through fiscal 2025. And that’s obviously tied to inventory levels, a little bit surprised that you would see inventories trending up, like in the first half, given the jump you had in the fourth quarter. But kind of taking that and tying it together, is it fair to assume that we will see a drop in working capital and an improvement in free cash flow during fiscal 2025? And will we – what kind of – what can we expect in terms of free cash flow number for the year, and how would that be weighted out in terms of sort of first half to second half? Thanks.

Yes. So, I mean overall, at the heart of your question is would we see better operating cash flow generation, right, and ultimately that all comes down to what the inventory balance is going to look like. So, this year, we saw a significant increase year-over-year in inventory. We certainly wouldn’t expect to see the same thing occur in FY ‘25, right. So, that’s going to be a real positive to the dynamics on the cash flow side. Just a bit more on that, I guess as we as we look at this. So again, we have mentioned a little bit earlier, about 45% of revenue in the first half of the year, 55% in the back half of the year, will kind of the inverse is true in terms of expectations for deliveries. Again, because of the supply chain cash up, right. So, when you have more – a larger portion of inventory coming in, in the period where you have a lower portion of your sales, that’s just mathematically I guess against it that would lead to a continued increase here in the near-term. But overall as we step back and take a look at this, right, and we talk about the team that we have in place and the controls we have in place and everything that we focus on, the dynamics that have kind of come together here in terms of the cycle turning and then the catch up with the supply chain, ultimately just lead to a situation where it takes a little time to play through, right. So, big picture wise, we talk about maintaining healthy inventory turns, and staying out of interest-bearing inventory. And I think this year, we will see that inventory turns are lower than our targeted levels. And it probably takes, working through FY ‘26 to get the turns back up, just the dynamics with how those ratios were even calculated. So, we see the transitionary period and kind of a 2-year journey to get back on that term level. But very much seeing it play out something we can manage deliver the higher profitability that we are talking about today, be well positioned for FY ‘26 and beyond. And ultimately, all of that is going to lead to better cash flow generation that we had seen recently. But in terms of specifically now in the quarters, I mean we will have to continue to see how that plays out here in ‘25.

Do you think you can generate positive free cash flow for the entire year?

Yes. Again, it ultimately all comes down to inventory levels, but we feel good about being able to manage those and achieve them.

Okay. Thanks Bo.

Thank you. And we have reached the end of the question-and-answer session. I will now turn the call back over to management for closing remarks.

Okay. Thank you for your interest in Titan Machinery and we look forward to updating you with our progress on our next call. Thank you and have a great day everyone.

This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.