Greetings and welcome to Titan Machinery’s Fourth Quarter Fiscal 2025 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. It is now pleasure to introduce your host Jeff Sonnek with ICR. Please go ahead.

Welcome to Titan Machinery's Fourth Quarter Fiscal 2025 Earnings Conference Call. On the call today from the company are Bryan Knutson, President and Chief Executive Officer, and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings released for the fiscal fourth quarter ended January 31, 2025. If you've not received the release, it's available on the investor relations 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. In addition, we're providing a presentation to accompany today's prepared remarks, which can also be found on Titan's IR website. The presentation is directly below the webcast information in the middle of the page. 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. 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 today's earnings release and presentation and in the risk factors section and other portion portions of Titan's reports filed with the SEC. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in and 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 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've included reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures in today's release. At the conclusion of our prepared remarks, we will open the call to take your questions. And with that, I'd now like to introduce the company's President and CEO, Mr. Bryan Knutson. Bryan, please go ahead.

Thank you Jeff, and good morning to everyone on the call. I'll start today by covering the significant progress we've made on our short-term goals with an emphasis on our inventory reduction efforts, followed by our view of the current market environment and performance across each of our operating segments. I will then pass the call to Bo for his financial review and incremental thoughts on our modeling assumptions for fiscal 2026. Let's start with inventory. I'm pleased to report that we significantly accelerated our pace of inventory reduction in the fourth quarter, achieving a $304 million sequential decrease, which brings our total reduction to $419 million since inventories peaked in our fiscal second quarter of this past year. This is the direct result of decisive actions we took to significantly reduce incoming inventory as well as an aggressive approach to pricing and internally subsidized finance programs to capitalize on seasonal year-end buying activity within our domestic footprint. I'm very proud of how our entire team executed the plan, which significantly improved our position heading into this next fiscal year. While these collective actions further pressured equipment margins and eroded our profitability in the fourth quarter, it was a critical step that allows us to transition sooner to the next phase of our inventory initiatives. Given the magnitude of the inventory reduction we achieved in fiscal 2025, our primary focus can now shift from general inventory reduction to one that further optimizes our inventory mix while proactively addressing the influx of used trade-ins. More specifically, we are focused on select categories of slower turning equipment that are aging and require right sizing, both domestically and abroad, while at the same time investing in other categories of new equipment that are projected to be below our targeted inventory stocking levels across…

Thanks Bryan, and good morning everyone. Starting with our consolidated results for the fiscal 2025 fourth quarter. Total revenue was $759.9 million compared to $852.1 million in the prior year period, reflecting a 12% decrease in same-store sales partially offset by contributions from the acquisition of Scott Supply in January 2024. Gross profit for the fourth quarter was $51 million compared to $141 million in the prior year period. And gross profit margin was 6.7%. These decreases were driven primarily by lower equipment margins, particularly in our domestic ag segment, and resulted from our accelerated actions to manage inventory to targeted levels sooner as Bryan discussed. On a different note, the fourth quarters of fiscal 2025 and fiscal 2024 included benefits related to manufacturer incentive plans of $8.9 million and $7.8 million respectively. Operating expenses were $96.7 million for the fourth quarter of fiscal 2025 compared to $100.3 million in the prior year period. The year-over-year decrease of 3.6% was driven by lower variable expenses and cost savings initiatives. As a reminder, the O'Connor's acquisition was consolidated into our operations in the fourth quarter of fiscal 2024, which provided a more consistent year-over-year comparison than in prior quarters. Floor plan and other interest expense was $13.1 million as compared to $9.3 million in the prior year period. However, on a sequential basis, floor plan and other interest expense decreased 8.5%, reflecting our efforts to reduce interest bearing inventory in the fourth quarter. As we continue to make progress on inventory levels and mix optimization, we should continue to see floor plan interest expense decline throughout fiscal 2026. Adjusted net loss for the fourth quarter of fiscal 2025 was $44.9 million or $1.98 per diluted share, which includes approximately $0.29 of benefits associated with manufacturer incentive plans. This compares to last…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] First question comes from Ted Jackson with Northland Securities. Please go ahead.

Good morning Bo. Thanks for taking my questions.

Good morning Ted.

So, my first question is just a little bit picky. On the quarter, the service margin was, I would just say well below what I would have expected, and I just wanted to get a little color in terms of what was going on in that and I'm kind of assuming that doesn't carry forward into the next fiscal year. That'd be question number one, and I'll follow up after that.

Yeah, I mean, big picture wise, I'll start with the end there, and we're actually expecting equipment margin to increase a little bit year-over-year. This past year we added a significant amount of our stores onto our new ERP system, and there's a little bit of a transition there and a little bit of inefficiencies that will get worked out. So, year-over-year we're prescribing that to go up on a consolidated basis, a little less than 100 basis points. From a fourth quarter perspective and compared to year-over-year, it really just comes down to a lot of different factors in terms of how much of it was for work for customers, how much of it was on equipment that was getting delivered. And again, yeah, -- there's nothing else there to really call out and like I said, I'd expect it to increase somewhat next year.

Thanks Bo. And then actually I have 2 more questions, just another one that's just a little kind of tiny one. With the reduction in inventory, which was impressive and congratulations on doing that, because in the longer term it's really a great move on your part; were you able to accomplish that through your own dealers network or did you actually end up having to go to auction to clean some of that out?

Yeah. Our focus is on keeping those units local to our customers Ted, and getting a future installed parts and service out of them, and so yeah, almost all within our own network, from time-to-time select units certainly, certain aging profile, depending on when the time you have another auction maybe we'll work with some of those partners, but -- so we did auction a few, but very much by and large is through our own network, and that's how we plan to continue going forward.

Yeah. A nice thing about that and keeping that equipment in our footprint is we can earn the right to provide parts and service on that going forward as well.

Well that's the answer I wanted to hear, so glad. And then my last question because I know [indiscernible], given what's going on with the administration and the potential of all these tariff wars and you are the largest dealer for CNH equipment, you have operations on 3 continents. How do you see that playing out across your business, both through kind of how it impacts CNH and then also just how it impacts just you. I mean, is there anything that we should be paying attention to on that front as analysts? I mean, is there any part of your playbook that's worth discussing there?

We're watching the tariffs closely Ted right now like everybody else, and CNH does a lot of production domestically here, the largest chunk of our revenues come domestically as well, especially in the cash crop sector. Yeah, so we'll continue to just monitor that. We've dealt with inordinate price increases before as recently here is shortly after COVID with some of the supply chain issues and passed those through, then the question always becomes what does that do to demand, especially with the tougher backdrop that we have right now, and I think it's no secret that any material price increases would likely further decrease demand or put more pressure on demand, but offsetting that you also have the government payments that there's some 10 billion in farm assistance and the commodity assistance -- applications are going in right now and they're looking to get those payments pretty quickly to customers and then another 20 billion that's potentially out there in terms of again economic relief, disaster relief, etc. And we'll just see how that flows through throughout the rest of the year here. I haven't talked to a lot of growers that are banking on that or certainly factoring that into any of their equipment purchasing decisions at this point and likely that'll be much later in the year here as we see how those flow through; but one of the other positives with those payments is, that's not like crop that can sit in the bin or defer to next year. They need to spend that money and they often use that money to help bolster their operations. So, there is a lot going on between both the general economy and the tariffs and government assistance and farm build discussions, and so we'll certainly be monitoring all of that closely as we progress throughout the year.

All right, I'm going to step out of line, I might jump back in if no one asks some of my other questions. Thanks.

Thanks Ted.

Next question, Mig Dobre with Baird. Please go ahead.

Hey, good morning guys. I want to pick up where Ted left off here with the discussion on government assistance. Just looking back at the first Trump administration, I think the cumulative payments to farmers were something close to $80 billion. So, even sort of more significant than -- than what's being contemplated right now. And you know we all kind of remember how that played out right? I mean like demand has remained weak, really -- we didn't see a recovery until 2021 when commodity prices move higher. So, I guess my question to you is, if you're sort of looking at these government payments coming to farmers now, do you have any reason to believe that behavior this time around is going to be different than what we have seen during that 2018 through 2020 time frame?

I think a few of the differences this time Mig is, last time, as the trade tariff talks and so on with China, they were right in the middle of rebuilding their herds and out of that did come the most purchases they've done with the Phase 1 and Phase 2 agreements there of soybeans from us. And so, will those stocks resume and get them back purchasing to that level again of soybeans from the U.S., that remains to be seen how those negotiations pan out; in any given year, 2020 would have been the peak, I believe, and I think it was about 32 billion in change, that the total of government assistance was. And keep in mind, you've got the food assistance, food stamps, all those programs are within that. And so, the most that I've heard here is potentially 45 billion, but looking more like that 30 billion. So, it would be in line with the 2020 time frame, 2019 numbers and I would say it was a good spark, -- if you really let the dust settle on all that, the way I've really looked at talking with our grower customers, it helped essentially offset the impact to commodity prices that happened during some of those trade discussions and got the farmers made back whole again. It was essentially almost a buck on corn and about $2 on soybeans is really roughly what that shook out to, and then that led to, like you said, following that was some better increases in industry volumes and uptake in purchases in the subsequent years to follow in 2021, 2022 and 2023. So, I actually look at that somewhat as a potential positive here depending on how all this plays out. So, again we'll continue to monitor that really closely.

Well, to be clear, the equipment purchases have not improved until commodity prices improved. It was not government payments that have driven down [indiscernible].

I absolutely agree. Just saying that -- some certainly would argue that the government assistance that helped position the U.S. for those negotiations that led to more purchasing that then impacted the supply and demand curves and brought up commodity prices then triggered the equipment purchases. But again, some would argue that was the beginning of when we saw commodity prices start to come up in 2021 and certainly not the only factor of course -- global weather and things, many other factors were involved as you know.

Understood. I want to talk about inventories as well and I echo congrats on the very good progress that you have made here, but I guess as we look forward, I'm curious to learn how you think about the optimal amount of inventory that you should have given where demand is? Is there a way to frame it in terms of inventory turns and exactly what this guidance contemplates as the year progresses, because candidly, I'll tell you another $100 million of inventory reduction well great. To me at least, does not seem to fully factor in the erosion in demand that you're anticipating in fiscal 2026. I would think that there would be room to do a little bit more, maybe another 100 to maybe even up to 200 million more. So, tell me how you think about it and why that's the right figure?

Yeah, and I mean that's to start with, right, and I think in my initial comments we'll continue to see how the year plays out and I'd say even more importantly than that what we're looking for as we get closer to what next year is going to look like and a little bit more specifics on that. I would say that a big portion of that reduction will come more in the back half of the year. We have a lot of optimization work to get done. And as we've talked about in our comments and as we project forward through this year, even with these lower demand levels, there are areas where we're going to be getting thin on that, we're going to need to backfill. Our strategy, and we are largely a large ag company, high horsepower cash crop equipment is to focus on pre-sales with customers and over time we'd like to see that continue to increase. And what we want to do is leverage our footprint to the highest extent that we can right, and having a really efficient level of stock inventory and then focus on that pre-sale equipment. And that's where we're going and we continue to make progress on that every -- every month, every quarter. This year, to get to your comments, yeah, if you want to play the math right, this really implies an inventory turn of about 1.6, and that's certainly below where we would want to be. But if you project forward, let's fast forward to next year, and this is just an illustrative purpose. Nobody's providing guidance here, right? Have you assumed that there's a 10% rebound on industry volumes and you keep that, 825 million flat throughout that year, turns are about 1.9 to 2, and that's really at the bottom end of the range that we'd like to see. Historically, we've seen it get as high as 3.5 times and that was due to the global supply chain constraints and really, there are some in-availability problems there. So realistically, at the bottom of a cycle, things turn quickly, if you can still manage to keep that at 2, on the top end somewhere around 3 and averaging 2.5, for us that's a bit of a sweet spot in terms of inventory availability, optimizing floor plan interest expense, etc. So that's what we're going towards right, and putting a lot of effort into ensuring that we can manage it closer to that 2 in the bottom of a cycle, and these numbers kind of project to that 2-ish level next year assuming at a base case that we're still well below longer term mid-cycle averages.

Okay. And I don't know if you're going to be able to answer this question. I'm hoping that you can. There's moving pieces here, maybe more than normal, if I'm comparing where you are inventory wise now versus, for instance, the prior cycle, pre-COVID. Because, by my math, you have quite a bit of growth in store account, you've got something like 38% more stores than you did exiting your fiscal 2020 pricing is significantly higher on new equipment, maybe like 35% higher pricing. So, in many ways, the dollars that are on your balance sheet of inventory have sort of been distorted a little bit by the fact that you have more stores and the pricing in units is higher. So, if we're trying to think about how many units you actually have per store, are you able to talk a little bit about that and sort of say, hey, listen, this is kind of what -- what would be normal for us in terms of -- in terms of units per store, and this is kind of where we are today and this is where we're hoping to exit in fiscal 2026. Sorry for the long question. I'm just trying to clarify this.

Yeah, no, I mean, I'll just kind of adding on to the thought process that you're going with there. That's something that we talked about. I can't remember if it was last quarter or the prior quarter. You're absolutely right. Since FY 2014, for example, a 4-wheel drive tractor is about 80% higher, so not quite double. So, while our inventory balance in dollars was a little bit higher than it was in say FY 2014, realistically our units was quite a bit lower, not quite half, but directionally speaking a lot closer like that. And, if you look at the last cycle in terms of what we were able to do, it took about 2 years to see a $350 million decrease from FY 2014 to FY 2016. We did about a $400 million decrease in the last 6 months. Again, less units to get that done, but in a much shorter time frame. So, really happy about what we're doing there. From a number of units perspective, I mean that's obviously going to vary by store and it's based on their volume. We have a pretty wide range in terms of our largest stores and the amount of revenue and the number of units that they're selling versus some of our smaller stores that we're going to continue to grow over time, and I think that that process also continues to evolve, right? I think that as we look at driving efficiency levels, I want to see lower levels of stock inventory and more of the inventory that's on the balance sheet at any given point is pre-sold equipment, waiting for our PDI work and then getting -- delivered to customers.

Understood. Last question for me is on your SG&A line item, and I know you have not provided specific comments for this, but I'm wondering, this came in, call it $390 million in fiscal 2025. What's contemplated in guidance for fiscal 2026. I'm presuming lower, but how much lower and maybe you can comment first half versus second half as well. Thank you.

Yeah, yeah, I mean, what's contemplated in the midpoint of our guidance is it's about $380 million and that gets you to about the 17.33% of sales, which is also the midpoint of guidance. From a cadence perspective, certainly lower in the first half versus the second half, that's an obvious statement, because about 10% of our expenses are commission based, which ultimately vary with equipment sales and we're kind of back half weighted from an equipment sales perspective. From a Q1 perspective of that $380 million, I've got it at around $94 million. And that is an area obviously the 380 that we build ground up thinking about everything we're trying to achieve, where can we pull back on spend, we'll continue to assess that, but that I think is the prudent landing spot to start with and we'll continue to see how the year evolves.

All right, thanks for taking my questions.

Next question, Ben Klieve with Lake Street Capital Markets. Please go ahead.

All right, thanks for taking my questions. I've got a couple on the floor plan payable. First, just a clerical one, can you tell us what the level of interest-bearing, debt outstanding under that plan was versus non-interest bearing ending the year?

Yeah, and this is something that super relevant, I think probably for investors. I just want to call out for the broader community. In our earnings deck on Slide 15, there's an equipment inventory slide. We break out new and used. We also break out interest bearing, non-interest bearing, and equity and inventory. So from an inventory financing perspective, and Ben you wouldn't have perfect numbers there, but interest bearing was about $385 million to end the year. That had come down about $150 million given the reduction in inventory in the fourth quarter, which implies about 50% of that reduction was on interest-bearing units. So that number puts us at about 40% interest bearing across our $925 million of inventory. Big picture, optimal inventory, that number should be more like 25%, and that's certainly something that we're working towards.

Okay, yeah, thanks about that, so you kind of got to my next question is, where this shakes -- where that number shakes out over the next, I don't know, 12 to 18 months, I don't think there's any expectation that you're -- you're, able to get back to the glory days of fiscal 2022 or that was a $30 million dollar balance, but do you have a kind of line of sight into the levels pre-pandemic where that was in the kind of $150 million to $200 million dollar range, it sounds like from your comment right that you think you do.

Yeah, I think as we get into next year, this year and again, I'm really proud of the work that we've done, -- since about this time last year when we had our call, we kind of prescribed a 2-year journey to get inventory to where we want it to be. Again, really accelerated some of that, but still playing out from an optimization perspective taking through FY 2026. So, we're still working on aging and that aging profile. So, a lot of this year is going to fill a bit more in a static perspective, but really set us up well for next year, where we get a lot closer to the levels that you were just mentioning there; so, yeah, if I would just play this out, you could think about more of floor plan interest expense getting cut directionally in half next fiscal year, as long as we continue to execute on the plan that we've laid out.

And Ben, this is Bryan. I just go back to 2 of Mig's inventory questions that he pointed out are exactly in line with what we're doing here. So, as Bo mentioned, the 100 million, that's as we get now very prescriptive cleaning up our specific pockets of aging and in certain specific seasonal product categories and to really get our inventory dialed in this year. But as far as that 100 million number, yeah, it's likely more, just like Mig mentioned, but as Bo said just for illustrative purposes and that's predicated on the minimum with where we think the industry is headed, but we will absolutely work the levers accordingly, and if things get worse here, like out of the gate, early in January and February, a lot of time to recover yet, but the volumes have been down even more than the 30% that the OEMs and others have predicted so far. So, we'll see how that recovers throughout the year. We're monitoring and adjusting that on a monthly basis. And you could see another $150 million or $200 million reduction here throughout the year if that's what we believe is needed, and again as we look to FY 2027 as Bo mentioned earlier as well. And then also as Mig mentioned, I was glad he pointed that out in terms of a unit basis versus dollar basis, because over the last 10 years, even 5 years, prices have changed so incredibly much here that, we do an extremely prescriptive bottom-up plans with -- with every one of our branches and it is really more about the number of units. And finally, the more we drive pre-sale, which is a big initiative of ours, the lower the interest cost starts to come down and again the quicker the turns come up. And so that's something as a company we're going to continue to push and you saw some tailwinds that we got as you mentioned in FY 2022 that gave a glimpse of what those numbers can look like when you're really executing on pre-sale.

Very good. I appreciate the color. Thanks to you both for taking my questions.

Thanks, Ben.

Ted Jackson with Northland Securities. Please go ahead.

Thanks. I just have one final question. I wanted to talk just about cadence of demand and not even about with the outlook directly, but just sort of as we have gone into the first part of 2025 and I guess what I'm asking is -- lack of a better term, kind of late in the reporting cycle for putting your numbers out, because of the way your fiscal year ends up. I've just noticed over the course of this reporting cycle that the companies that I talked to that reported later in the cycle, generally comment that the tenor of demand going into calendar 2025 changed noticeably as they got to the back part of January and specifically in response to the Trump administrations moves on tariffs and government downsizing, and many of them basically found that their pipelines of business kind of dried up, that they had business that orders where they had deferrals. I know with the ag business that the first quarter is probably not a good period to kind of base the rest of the year on, but just out of curiosity, as you've gone through the year to date, have you seen a change in kind of the macros of your -- the demand of your business relative to what you saw as you're going into the year like some of these other companies that I cover and communicate with. That's my last question.

Yeah, for us Ted, on the construction side of our business, we've seen a little bit more of that you're describing; at the same time, many optimistic points of view out there amongst our -- our clientele about where the economy could be headed and less regulations and so on. On the ag side for our grower customers, nothing is more impactful than commodity prices and yields. It just always boils down to those 2 things. Certainly, inputs come into play there, -- we're going to see how moisture shapes up here and weather conditions throughout the growing season, especially the critical parts of the growing season in each of our markets, and then we'll continue to see what commodity prices do, especially that June time frame is always an important time of the year, that's often when we get a better visibility on where it was, the reports looking, and how crop is progressing again, and all that. So, for sure those are the biggest 2 factors outside well beyond anything else on the ag side for our growers.

Yeah, I may just reiterating what he was just saying there, it's certainly way too early from an ag side. Because, Q1 for us is about delivering on purchase decisions that they made quite a while ago. You really got to get into the end of Q2, and then we're talking about how we feel like the demand is looking for this year, and that kind of speaks to what I was talking about before. So yeah, I think it's relevant and topical on construction for ag for us to be too early to speak about that and how it would imply for the full year.

Okay, alright. Thanks very much.

Thanks, Ted.

Our last question comes from Steve Dyer with Craig-Hallum. Please go ahead.

Hey, thanks guys. This is Matthew Raab on for Steve. Can you just talk a little bit about parts and service, how's traffic been holding up given the -- given the macro and have you noticed any notable movements across the footprint? Maybe if you could touch on kind of traffic versus ticket that'd be great, thanks.

Yeah, so a couple of comments on that. I mean, from a full year perspective, we're kind of getting flattish on parts and service for Q1 specifically, we're expecting that to be down a bit. Part of that was, if you looked at same-store growth last year in Q1 for ag, it was up like 22%, just really hot, lot of activities. So, kind of pull back on that. And yeah, in general, I think we are seeing a little bit slower activities to start the year, plenty of time to make up for it, got a lot of initiatives behind it, got a lot of momentum behind us ourselves. Again, ag full-year same-store last year was 8.2, so coming out of the gate a little bit slower, expecting it to look flattish, definitely throwing a lot of effort at it and feeling good about our long-term trajectory and averaging kind of mid single digits over a longer period of time, but to start the year we're seeing a little bit of slowness there.

Thanks guys, appreciate it.

I would like to turn the floor over to management for closing remarks.

Thank you everybody for your interest in Titan Machinery and we look forward to updating you on our Q1 earnings call.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.