Greetings, and welcome to the Titan Machinery Inc. Second Quarter Fiscal 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Sonnek with ICR. Thank you, sir. You may begin.

Thank you. Welcome to Titan Machinery's Second Quarter Fiscal 2026 Earnings Conference Call. On the call today from the company are Bryan Knutson, President and CEO; and Bo Larsen, CFO. By now, everyone should have access to the earnings release for the second quarter ended July 31, 2025, which is also available on Titan's Investor Relations website at ir.titanmachinery.com. In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section. We would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward- looking statements in response to your questions. These statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10- Q. These risks and uncertainties 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 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 comparing underlying results from period to period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation. 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 President and Chief Executive Officer, Bryan Knutson. Bryan, please go ahead.

Thank you, Jeff, and good morning to everyone on the call. I'll start today by covering our performance for the quarter, followed by an update on our operational initiatives and focus points for the remainder of the year. I'll then discuss the current market environment and its impact on each of our operating segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions. Our second quarter results reflect the execution of our operational plan in what remains a challenging market environment. Six months into fiscal 2026, I'm pleased with the progress we've made. As we transition into the second half of the year, we're entering the next phase of our inventory reduction initiative with a heightened focus on optimizing our used equipment portfolio to ensure we're well positioned heading into next year. Consistent with our previously communicated expectations, our equipment inventory levels have remained relatively flat through the first half of the year, albeit we experienced a modest increase in inventory during the second quarter. The quarterly increase was largely due to the timing of OEM shipments ahead of deliveries to our end customers in the second half of this fiscal year. Not only do we remain confident that we will achieve our previously communicated inventory reduction target of $100 million for the full year, we are positioned to exceed it with the majority of that progress still expected toward the end of this fiscal year. As we continue down this path, we now expect our equipment margins to remain subdued through the rest of fiscal 2026, which is the primary variable that underpins the narrowed EPS guidance that we've updated today. This disciplined approach is fundamental to our plan of emerging from this cycle stronger and better positioned for…

Thanks, Bryan, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 second quarter. Total revenue was $546.4 million compared to $633.7 million in the prior year period, reflecting a 14% decrease in same-store sales driven by the factors that Bryan discussed earlier. Gross profit for the second quarter was $93.6 million compared to $112.4 million in the prior year period, and gross profit margin was 17.1% as compared to 17.7% in the prior year. These decreases were driven by lower equipment margins, particularly in our domestic Ag segment, resulting from softer retail demand and our continued efforts to manage inventory to targeted levels. Operating expenses were $92.7 million for the second quarter of fiscal 2026 compared to $95.2 million in the prior year period. The year-over-year decrease of 2.6% was led by lower variable expenses associated with the year-over-year decline in revenue as well as our expense reduction efforts. Floorplan and other interest expense was $11.5 million as compared to $13 million in the prior year period, reflecting our continued efforts to reduce interest-bearing inventory over the past year. In the second quarter of fiscal 2026, net loss was $6 million with loss per diluted share of $0.26, compared to adjusted net income of $4 million or adjusted diluted earnings per share of $0.17 for the same period last year. Now turning to a brief overview of our segment results for the second quarter. Our domestic Agriculture segment realized a same- store sales decrease of 18.7% to $345.8 million. Segment pretax loss was $12.3 million compared to adjusted pretax income of $6.7 million in the second quarter of the prior year, reflecting softer margins due to weak retail demand while continuing our efforts to manage inventory to targeted levels. In our Construction segment, same-store sales decreased…

[Operator Instructions] Our first question comes from Ben Klieve with Lake Street Capital.

Congratulations on progress here in the quarter. First one for me, Bo, you alluded to the historic equipment margin range in the 8% to 12% range from sub-4% this fiscal year. I'm wondering if you can elaborate a bit on what conditions you think need to exist for that, even the low end of that range to get hit? I mean, absent some kind of meaningful improvement in the grain complex, export markets, any kind of macro condition having any material improvement. What do you think can happen to really drive gross margins up to that range in the foreseeable future?

Yes, I'll touch on those building blocks here in a minute. And first, just a little bit more perspective on that. As I look at the past decade plus, specifically, and we're talking about domestic ag equipment margins here, the only periods of time where we've seen that equipment margin below that 8% was FY '16 and FY '17, which was really the meat of the prior cycle and then, of course, FY '25 and then the current fiscal year. Outside of that, everything had kind of been in that range that we were describing. What needs to happen in order for us to get back up in that range, really, I mean, there are some key building blocks for our margin recovery. First and foremost, I'd start with mix optimization. That's really completing our $100 million inventory reduction, really breaking the back on that aging profile and getting that mix correct. That one, we do feel good about exceeding by the end of the year, as we mentioned in our prepared comments, pricing discipline. What that really means both for us and the industry, again, as inventory levels get healthier, we'll kind of pull off of the gas in terms of that aggressive pricing posture back to kind of a more normal environment and really pricing to that environment. So that will come as inventory gets healthier. Used stability in used equipment values. There's been a significant decline in used equipment values over the last 18 months. Certainly, if you go back to the beginning of calendar 2025, where they were to where they are today, with rapid declines throughout last fiscal year and more stability this year. So we'd characterize while certainly lower than we'd want them to be, used values are relatively stable as opposed to where…

Ben, this is BJ. I would just add that besides your -- you alluded to the fact that besides the obvious of net farm income, but I want to stress that in addition to everything Bo said, that is the biggest driver. So in net farm income, just as a reminder, be a derivative of yield and price and a bit of government payment as well. So farmers, of course, don't like to be reliant on government payments. We'll see how those come in the rest of the year. Crop is looking pretty robust out there. So that looks good. But I'm continuing to implore everybody that -- we just got to continue to find more uses for our crop and really promote the benefits of ethanol and sustainable aviation fuel and biodiesel and just how much -- how efficient our growers have gotten and how that allows us to be very productive and how it's just better to grow stuff on the earth versus mining it out of the earth.

I wholly take your point there, BJ, and completely agree. I appreciate the comments from both of you on this. You got a couple of other questions I had. So I'm in good shape for now. We'll leave it there. Congratulations again on a good quarter.

The next question comes from Mig Dobre with Baird.

I mean we're throwing some margin sort of commentary around a little bit. And I just want to make sure that I'm clear here relative to your reported segments, right? So in your equipment segment, did I understand correctly that you expect 6.6%, 6.7% margin for the full year?

Yes. I appreciate the opportunity to clarify. So we are talking about consolidated total equipment margins. So yes, directly with a total global equipment, that's the 6.6%. Separate from that, I drill down on specifically domestic Ag equipment margins, and that's where I said in the first half of the year, it was 3.1% and for the full year, 3.8%. So that domestic Ag 3.8%, is part of what makes up the total global consolidated 6.6%.

All right. All right. Okay. Well, then if I'm sort of looking as to what the back half guide implies relative to what you've done in the first half, margins are not terribly different in your equipment reported segment. So if margins aren't really changing all that much, what exactly is it that's driving the increase in your revenue guidance?

Well, I mean, if you look at the first half of the year, right, revenue had been stronger than we had prescribed, and we're expecting that to continue. And it's largely focused on the used equipment side of the -- which is helping us ultimately then with the confidence in exceeding that $100 million target. So it's really just a continuation of what we've seen in the first half of the year.

Right. Because I guess my interpretation would have been just based on how I read your press release that you're using pricing as a tool to accelerate your inventory destocking, which translates into maybe better revenues than you initially forecasted, but that should have a negative effect on margin. And I guess this is where my confusion lies, that I'm not really seeing that embedded in your equipment margin outlook for the back half, unless, of course, you're expecting better margins than what you're currently guided to.

No, no. So breaking it down a little bit, it's really, I think, just the mix that's a little bit more difficult for you, right? So from a total equipment margin perspective, we have pulled our expectation down about 100 basis points. Domestic Ag specifically, we've actually pulled down more than that, right? But you see our mix shifting as we're now suggesting that Europe is going to grow 30% to 40%, Europe having pretty strong equipment margins and not seeing nearly the compression that we're seeing domestically. So overall, equipment margins are going down 100 basis points. U.S. ag going down more than that, somewhat being masked by the strength in Europe and specifically Romania, right? So we are -- again, it holds together there. We have pulled it down some. You got more revenue. We're ending in a similar EPS perspective, although we're tightening that range a bit and pulling out the quarter on the upside of everything.

I see. Okay. That's helpful. when you sort of think about your inventory reduction goals, and you were clear about the fact that you're confident that you'll be able to exceed that $100 million target. I guess I'd be curious by how much do you think you're going to be able to exceed it? Is it just modestly? Is it maybe more meaningful? And then as you think about your fiscal '27, if indeed your inventory is normalized to your target, what's the right way to think about your margin structure? And I guess this goes to the previous question that was asked in terms of the path to margin normalization. If we're done destocking, can we start thinking that your margins are going to be normalized gross margins on equipment?

Yes. Mig, this is Bryan. I'll tackle the first half and then turn it over to Bo for the second half. As far as how much we look to exceed the $100 million by -- of course, the $100 million is what we're maintaining publicly is our goal. Internally, I can tell you, Bo and myself and the team, our goals are a lot higher than that. But there's a lot of variables here for the rest of the year. And so how those variables play out will largely determine where that comes in. But at this point, that's essentially what I can say is internally, our goals are significantly higher than that.

Yes. And then from a follow-up on the margin question. Again, what we're trying to do is provide some historical context. And I guess I'll just kind of go back to that, right? What I'm essentially saying is in the 4 years in the last decade plus that we saw equipment margins, including this year, sub 8% were the years where we were doing the significant work on inventory. Even if you look at like in FY '18, which was clearly not a mid-cycle type environment because we had gotten work done in '16 and '17, we had seen that equipment margin recover kind of those normal ranges. So I would expect that we're approaching that normal range, certainly as we work through next year. And again, logically to me, based on what we're seeing and still what we have ahead of us, I would see that it's going to kind of sequentially improve as we work through the year toward that normalized range.

Understood. Last question for me. As we think about calendar year 2026, maybe your fiscal '27, the OEMs are dealing with cost pressures, right, tariffs and such. And I'm curious for model year 2026, what are you seeing from a pricing standpoint from the OEM? And in terms of the orders that you're taking for calendar 2026, are you able to pass through those OEM price increases? Or is this something that you have to accommodate for with either discounts or essentially items that impact your margin as a dealer instead?

Yes. Mig, I know you were down at Farm Progress Show and visit with the OEMs. And generally speaking, I think they're talking about the 2% to 4% increase. And from a lot of our suppliers, we're seeing the same thing. But then many different incentive packages that can come together off of that to try to -- depending on the deal and to get something to work for the grower. So we're working hand-in-hand with our suppliers on every deal, and it's a very targeted approach right now. I know as they commented to you, we're very early on in some of the '26 presale programs. So it's quite early to tell with results. Again, we'll see what happens with interest rates here with commodity prices, what happens with the crop if they get this big crop in. Obviously, it's a big shot in the arm with the bonus depreciation coming back. So we're very excited about that. And so yes, I think you do see reflected in our margins is largely the aggressiveness we're going on the inventory reduction and inventory optimization. But it certainly can have some impact on our margins for sure and our ability to pass that all through or not. And same with the OEMs, of course. And again, that's where we're really partnering together to take a very prescriptive approach on each one of these deals.

Yes. And maybe just really tangent to that and stating the obvious. With weak commodity prices where we're at today and pressuring farmer profitability, further cost increases are going to be really challenging and ultimately probably lead to some level of demand destruction, right? So what we're trying to do in terms of new deals as we think about presales is maintain discipline in terms of what kind of margin we need to expect so that we can get back towards normalization. And if that means that there's not as much demand for equipment, then that's going to put pressure on the volume that's out there. And that's our stance, and that's kind of our view on things. So we're partnering with the OEMs and clearly going to need to work hard to see what can shape up for the first half of next year.

The next question comes from Ted Jackson with Northland Securities.

Again, congratulations on the quarter. My first question is just jumping into inventories. Can you give a little color with regards to -- I mean, I know it will be in the queue, but what was the mix on inventories between new and used equipment and then within the bucket of used equipment. Could you kind of give a discussion with regards to the mix there between kind of newer used equipment and older used equipment?

Yes. So one thing I would say about that and obviously, inventory being pretty relevant and pertinent. We have a couple of charts and specifically on Page 15 of the earnings deck. It kind of breaks out the new, used, the turns. It also shows noninterest-bearing, interest- bearing equity and inventory. A couple of interesting things there are that the amount of interest-bearing has really been flat the last couple of quarters. I've talked about for a couple of quarters now, believing that we break the back in terms of absolute dollar value of total aged inventory, that kind of peaking plateauing in the third quarter, and then we really start to see that downward trajectory, which then reflects in lower floorplan interest expense. Our used equipment did decrease about $50 million in the quarter. And then -- or sorry, that's for the first half of the year. Used has gone down about $50 million, new has gone up about $75 million. And the new is a reflection of the timing of receiving equipment in, of course, and then some FX internationally. So we've seen the total value of used equipment go down. We've seen sort of the flattish amount of interest-bearing inventory, which will start to go down, I believe, as we progress through the next quarter and kind of finally see that absolute dollar value start to trend downward. So things are progressing as we've expected. The tone that we described in the comments and then the color here is that we're getting increased confidence in exactly what we're going to achieve there. But yes, for those interested, just trying to point out all of these things for you and represent it there in that slide on the earnings deck.

One of the OEMs at the Farm Show made a comment that they were seeing, obviously, a more challenged environment on newer used equipment and more demand on older used equipment. So newer being 2 to 3 years old and older being 8-plus years old. And that they were putting incentives in place to their dealer network to incentivize people with that older equipment to trade in for the newer used equipment because it was easier for them to make that swap and they get rid of the older equipment. I mean is that something that you're seeing within your own world? Is that something that you guys are trying to do itself? Is that part of what you're trying -- your programs are in place to try to bring down that equipment. So that's kind of where I was going to with that. And then I'll step back. I had another question I want to ask, but I mean I'll leave that one and let you get to that first.

Sure, Ted. Yes, absolutely, that's a piece or an ingredient in our recipe that we use all the time as well. We've used that on the last couple of downturns as well. So it's certainly something we're doing. Every time there's a downturn, the late model used is always the biggest problem area. It's always the glut. And so to work that stuff through and work it down is kind of a historical lever that we and our fellow dealers have traditionally pulled. So we've certainly had a focus on that and been having quite a bit of success in doing that.

And then I'll ask one more and then I'll get out of line. Going back into inventories and such is, another comment that came out of those meetings was that there were instances where dealers were actually not willing to do trade-ins because they didn't want to bring the used equipment into their yards and that was leading to an opportunity to pick up market share by this particular OEM's channel being a little more aggressive. And so I guess my question would be sort of on 2 fronts. I mean one front is, is there ever instances where you guys actually don't take a sale because you don't want the used equipment? And then if I think about that from another perspective, if you do take the sale, is there an opportunity for you to pick up market share, if you would, in your regions by taking these deals where dealers from a competing OEM perhaps were not willing to do the trade-ins. So sort of a 2-part question there. And that's my last.

Yes. We've certainly seen a little bit of that, Ted, that has been happening. But there's a lot that comes into the decision for a grower to switch brands and the full support package that comes with that. So they -- it has been something that we've seen a little bit. But also, we highly encourage our sales team. We quote everything. We never walk away from a deal. It's math. It's a numbers game. It's very important that you got to know your numbers. But every deal makes sense at some point. And so that the trade-in value might be a lot lower than the customer wishes. The trade difference might be a lot higher than the customer wishes or the annual payments might be a lot higher. But there -- we have such a professional back-office team here in our evaluations and how they follow the used market. And so -- and the predictive analytics that we're using along with current data. And so that's really the most important thing is you got to get the amount of money right that it's going to take to recondition the trade properly to get it turned in a timely fashion, and you got to get it on market to where the market is going. And then beyond there, like you can make the deals make sense. So the only time the deals don't work is if a dealer -- since we're all humans screw one of those factors up every now and then or lose discipline and stray from what the numbers say it should be. So we've certainly picked up some of those deals. We've had -- we've seen some customers that have done some switching. But again, just I would put the asterisk on it that there's a lot that growers consider when they make the switch and look at the support. And with that, maybe another thing that didn't get talked about as much is both us and Deere dealers, I know, have been moving some of that late model use that we just talked about earlier to those growers instead of not doing anything with them. So that's been a good opportunity to move some late model use.

So part of that math that he's describing is, of course, factoring in how many months supply you have, right? So that's what goes into it. It's where is the market, where is the market going, but also how many months supply do you have, what kind of terms are you trying to achieve, the higher month supply, the lower that we're going to be able and willing to pay for a trade. You quote the deal and then it either works or it doesn't. And that's been our consistent approach.

The next question comes from Laura Maher with B. Riley.

My question is just with different OEMs having varying exposure to tariffs based on their supply chains, how is this affecting your floor-planning arrangements and allocation strategy?

Well, so when I hear floorplan, I think about floorplan interest expense. And that, I guess, long and short would be that, that hasn't really impacted it, right? Overall, even outside of tariffs, what we're trying to do as we continue to leverage our scale more and more is minimize our stock inventory and drive higher levels of presale. Now that happens to also fit when you're talking about increased costs, whether it's because of tariffs or otherwise. But our objective, I guess, remains the same there. Get lean and mean on stock levels of inventory that in itself helps your terms and lowers your floorplan interest expense, focus on those presales, making sure that we're doing everything we can via how we incentivize our team, but also how we make presales the best deal for customers to drive more and more behavior in that direction so that there's less of that risk that sits on our balance sheet.

The next question comes from Steve Dyer with Craig-Hallum.

This is Matthew Raab on for Steve. Maybe 2 for Bo. What's the line of sight to OEM incentives in the second half? And then I guess with that, any sort of cadence you can give us on Q3 versus Q4 and how that might compare versus last year?

Yes. No, I appreciate the opportunity to do that. First of all, when it comes to incentives relative to presale activity for the back half of the year, that stuff is really already all out there. I mean, clearly, we're all still working together to get deals done, but I would say pretty clear on what that looks like and reflected in our guidance. Now to do some comparisons to the prior year, well, first, I'll start with Q3 to Q4. So overall, total revenue Q3 to Q4, we are assuming it's going to actually look pretty consistent. However, there is a mix change. And what I mean there is that last year, we saw parts and service in Q4 declined sequentially 30% versus Q3. And we would expect something similar happening as well, right? So what I'm saying is if you think about that, then Q3 is going to show more gross margin and profitability than Q4 because Q4, the time and attention from our shops is focused on getting a lot of those presales delivered before year-end. So that directs a lot of our energy to delivering equipment, less of it on that parts and service side. You see that mix change, the profitability change. The other thing -- the other anomaly that I would point out this year is Europe and specifically Romania with those suspension funds kind of expiring at the end of September. So we saw significant growth in Europe in the second quarter. Third quarter itself, we're assuming we will see about a doubling, about 100% year-over-year growth in Europe in the third quarter. And then actually, when you get to the fourth quarter and those funds going back, we're actually expecting like a 20% year-over-year pullback in Europe. So those are some underlying dynamics, albeit on a segment that's a smaller portion of our business. But then again, overall, Q3, Q4 total revenue, similar, pretty significant mix change. So you're going to see very different profitability outlooks in those periods.

Okay. That's great. And then just quick on parts and service, maybe I missed it, but are we still expecting relatively flat revenue there for the full year versus last year?

Yes. Yes, exactly. So parts flattish. The changes that we have implied in the guidance are really all reflective of what we're expecting from an equipment perspective.

The last question comes from Ted Jackson with Northland Securities.

I just wanted to ask with regards to the pending farm bill and the kinds of farmer support. Just a little color of what you are hearing is going to be included in there? And just maybe just a little -- I'm saying just a little -- paint the picture a bit in terms of what looks like is going to happen with that -- that's going to come to the [indiscernible].

Yes, there's a lot of debate around that right now, Ted. But certainly, the biggest thing that the growers are lobbying for is more permanent support in there. It's been a long time since we've had a new farm bill here. We keep getting the continuation of the old farm bill. And then we've most recently here had put in a lot of elements of it put into the big, beautiful bill, which, hey, there was a lot of positives in there. So we certainly like that. But a permanent farm bill has been close to getting across the finish line here several times now. So that's what we're certainly lobbying for is just to see that done once and for all. And then just something lately that I've been talking about that I mentioned at the beginning of the call on a personal level with growers is really just that price support. And coming more in the form of organically, as I mentioned, just when you look at the stocks- to-use ratios or supply and demand and just continuing to find more uses for crops. There was a recent study that just came out of Nebraska that showed on more recent vehicles, the mileage was almost the same with 1 mile per gallon less with E15 vehicles or usage. And actually, on the slightly older vehicles, it was 1 mile per gallon better. And so the state of Nebraska did a test with 100 of their own vehicles. And so we got to get that word out better. There's so much opportunity here for increased independence and diversity of our resources by leveraging ethanol better and by leveraging soybeans better. And just so many more products out there that we can make with soybeans as just one example. So funding for research in those areas is also a less talked about previously, but it's certainly an area that I can tell you we're pushing for on our end.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

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

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.