Titan Machinery Inc. ($TITN)

Thank you. Incorporated's first quarter fiscal 2027 earnings call. At this time, I'll dispense our enlistment-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Store 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonick of ICR. Thank you. Please go ahead.

Thank you. Welcome to Titan Machinery's first quarter fiscal 2027 earnings conference call. On the call today from the company are Brian Knudson, President and Chief Executive Officer, and Bo Larson, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal first quarter April 30th, 2026, 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. I'd also 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, under 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 statement 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. 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 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 Titans ongoing financial performance, particularly when comparing underlying results from period to period. INCLUDED RECONCILIATIONS OF THESE NON-GAP FINANCIAL MEASURES TO THEIR MOST DIRECTLY COMPARABLE GAP FINANCIAL MEASURE IN TODAY'S RELEASE AND SUPPLEMENTAL PRESENTATION. 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 CEO, Brian Knudson. Brian, please go ahead.

Thank you, Jeff. I will start today with an overview of our first quarter performance and our continued progress on the operational priorities we set heading into fiscal 2027. I will then walk through what we are seeing across each of our segments before turning the call over to Beau for his financial review and comments on our fiscal 2027 modeling assumptions. Fiscal 27 first quarter results came in slightly ahead of our expectations. Equipment margin improvement arrived sooner than anticipated, and we view this as a direct result of the disciplined work our team has done over the past several quarters to clear age inventory and position the business for the next phase of the cycle. We are still well below the normal range for equipment margins, but it is good to see continued improvement which is reflective of the work we have done to improve inventory health. Overall, we had a relatively strong start to the year due to timing of deliveries, but the underlying demand environment for our customers remains challenged as their margins are under pressure from a combination of low commodity prices and higher input costs. As such, we are maintaining our full year guidance. As we discussed last quarter, our focus has shifted from absolute inventory reduction to mix optimization. The disciplined work our team has executed over the past two years has strengthened our foundation and we believe has positioned the business well for the next phase of the cycle. Total inventory at the end of the first quarter was modestly higher than year-end, which was in line with our expectations and reflects the normal seasonal cadence. Most importantly, our age equipment inventory has continued to decline each month so far this year. This is a critical leading indicator of sustained equipment margin improvement. We still have work to do across certain use categories and select slower moving seasonal new equipment categories. But the overall health of our inventory continues to trend in the right direction, and we believe this focus has put Titan in an advantageous position relative to our dealer industry peers. Our customer care initiative remains central to our operating strategy as we navigate what we expect as the bottom of the equipment cycle. Our parts and service businesses delivered another quarter of stability, which is a meaningful accomplishment in an environment where many growers have increasingly shifted to a fix-his-fail mentality. Holding the parts and service business steady at Trough Industry Volumes is a credit to the partnerships our team has built with our customers across our footprint. And we believe this engagement will continue to translate into share wallet gains as growers return to more normalized purchasing patterns. With that, I'll now turn to our segments. In domestic egg, the environment for our grower customers remains very challenging. Commodity prices continue to sit below break even for many producers and while we have seen some positive movement in corn prices over the past several weeks, grower profitability remains challenged. Government funds remain a critical near-term variable to provide support, and we continue to be active in Washington advocating for farmers. Year-round E15 adoption remains a top policy priority for our customers and we and we are also encouraged by ongoing momentum around biodiesel and sustainable aviation fuel. of which would help alleviate the structural oversupply of corn and soybeans. We expect the pre-sale order period, which begins this month, to be an important indicator for back half activity, and we will continue to monitor OEM programming and grower sentiment closely to identify where deals can be made. In construction, infrastructure and data center activity continues to provide a healthy baseline of demand across our footprint. And residential activity has tracked in line with our expectations. As a reminder, a meaningful portion of our construction segment sales go to farmers, and that portion of the business is where we are experiencing the same softness we are seeing in our domestic agriculture segment. Setting that aside, there are generally good market conditions for our construction segment. In Europe, we completed the majority of our wind-down activities for our German operations during the first quarter, marking an important milestone in our footprint optimization efforts. We are pleased to have this work behind us, and our team remains focused on the markets where we believe we can deliver the strongest long-term returns. As expected, Romania will have challenging year-over-year comparables as we lap last year's European Union Subvention Program activity. while Bulgaria and Ukraine are expected to achieve modest growth for the full fiscal year. In Australia, our customers are facing disproportionate pressure from elevated input costs, particularly in diesel fuel and fertilizer, both of which have experienced pronounced cost increases in the country following the onset of the conflict in the Middle East. While substantial input inflation is top of mind for growers, increased rainfall across most of our footprint in Australia is setting up more favorable growing conditions relative to recent years. We continue to like our long-term position in this market, and our dual-brand strategy with Case H in New Holland continues to expand our reach. Before turning the call over to Beau, I want to thank our team for the continued discipline and execution they have demonstrated in the first quarter. The strategic work we have been doing over the past several years to strengthen our business is becoming more visible in our operating results with each passing quarter, and I am convinced that this that our position today is setting us up for stronger performance as industry conditions improve. With that, I will turn the call over to Beau for his financial review. Thanks, Brian, and good morning, everyone.

Starting with our consolidated results for the fiscal 27 first quarter, total revenue was $522.4 million compared to $594.3 million in the prior year period. reflecting a 10.4% decrease in same-store sales driven by softer demand in our domestic ag, and Europe segments partially offset by growth in our Australia segment Despite the sales headwinds in the first quarter, gross profit was down only slightly at $89.3 million compared to $90.9 million in the prior year period. While gross profit margin expanded 180 basis points to 17.1%, compared to 15.3% in the prior year. This year-over-year improvement primarily reflects stronger equipment margins driven by the continued benefit from our aged inventory reduction efforts alongside a higher mix of parts and service revenue in our consolidated total. Equipment margins in the fiscal 27 first quarter increased approximately 100 basis points year-over-year to 7.8%. Operating expenses were $94.4 million for the first quarter of fiscal 27. from $96.4 million in the prior year period. Our headcount and discretionary spending continue to be down year-over-year as a result of disciplined expense management. partially offset by higher variable expenses tied to driving sales. Floor plan and other interest expense was $8.2 million. decrease of 26% from last year's $11.1 million, reflecting the significant reduction in interest-bearing inventory levels over the past year. In the first quarter of fiscal 27, net loss was $12.6 million, with loss per diluted share of 55 cents. compared to a net loss of $13.2 million, with loss per diluted share of 58 cents in the prior year period. Adjusted EBITDA was $1 million compared to $2.6 million last year. Now, turning to a brief overview of our segment results for the first quarter. Our domestic Ag segment achieved sales of $344.2 million. a same-store sales decrease of 8.2%, driven by continued softness in equipment demand against the challenging industry backdrop. However, these results were stronger than our initial expectations and benefited from a pull forward of deliveries to customers relative to our expected quarterly cadence. As Brian alluded to, we are leaving our full-year revenue guidance intact as we think this balances out throughout the rest of the year. Segment pre-tax loss improved to $6.2 million compared to a pre-tax loss of $12.8 million in the first quarter of the prior year. reflecting the actions we have taken to accelerate inventory reductions and the resulting improvement in equipment margins that we have achieved. In our construction segment, same-store sales decreased by 6.5%, to $67.5 million, driven primarily by the timing of equipment deliveries. We are leaving our full-year revenue guidance intact and expect modest year-over-year growth for the balance of the year. Pre-tax lasts narrowed to $0.6 million compared to a pre-tax last of $4.2 million in the first quarter of the prior year. In our Europe segment, sales declined to $60.4 million for the quarter. which included a $4.2 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue decreased approximately 40%, primarily reflecting the expected softening of demand in Romania following the prior year period, which had benefited from a strong response to European Union's Subvention Program activity. Additionally, I'd like to call out that our Germany divestiture had an immaterial impact in the segment revenue decline year over year. but it will have a larger year-over-year impact in future quarters. Pre-tax loss for the segment was $0.9 million compared pre-tax income of $4.7 million in the first quarter of last year. In our Australia segment, sales increased 14% to $50.3 million. compared to $44 million in the first quarter of last year, which included a $5.1 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue increased $1.2 million, or 2.8%. with the current period benefiting from additional revenue related to Bellevue Machinery acquisition completed last fall. Pre-tax loss for the segment was $1.8 million compared to a pre-tax loss of $0.6 million in the first quarter of last year. Now on to our balance sheet and inventory position. We had cash of approximately $30 million and an adjusted debt to tangible net worth ratio of 1.6 times as of April 30, 2026, which is well below our bank covenant of 3.5 times. Total inventory at quarter end was $914.8 million, a modest increase of $12 million compared to year end. This increase was in line with our expectations and reflects the normal seasonal cadence. As Brian noted, our focus in fiscal 27 is on mix optimization rather than inventory reduction. We expect total inventory to fluctuate seasonally throughout the year. Turning to our fiscal 27 modeling assumptions. We are reaffirming each of the modeling assumptions for fiscal 27 we introduced on last quarter's call. While our first quarter performance was modestly better than our expectations, the underlying demand environment remains consistent with our prior outlook. As a reminder, our segment revenue assumptions are for agriculture to be down 15 to 20 percent, construction flat to up 5 percent, Europe down 20 to 25 percent and Australia up 10 to 15 percent. From a margin perspective, we continue to expect consolidated full-year equipment margin to be approximately 8.4 percent. which compares to 7.3% in fiscal 2026. This expected year-over-year improvement is a direct reflection of the work we have done to right-size our inventory and reduce aged equipment. and the progress we have demonstrated in the first quarter supports our confidence in delivering against this expectation across the balance of the year. Operating expenses are expected to decline year over year, although we intend to continue to invest in our customer care strategy. which is supporting stability in our parts and service businesses. We continue to expect operating expenses to be approximately 17% of sales. On floor plan interest expense, we have continued to see aged inventory and floor plan interest expense decline quarter over quarter on a sequential basis. And we reiterate our prior expectation of an approximately 25% year-over-year decline because the great work our team is doing to manage healthier levels of inventory and improved inventory turns. Bringing it all together, we are reaffirming our full year adjusted EBITDA range of $17 to $29 million and our adjusted diluted loss per share range of $1.25 to $1.25. In summary, the first quarter unfolded about as expected and the soft demand backdrop continues to suggest our expectations for the full year remain prudent. We remain focused on executing our near-term initiatives while continuing to lean into our customer care strategy with exceptional discipline and operational excellence to accelerate our earnings power as market conditions improve. This concludes our prepared comments. Operator, we are now ready for the question and answer session of the call.

Thank you. We'll now be conducting the question and answer session. To ask a question at this time, you may press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And the first question comes from the line of Liam Burke with B. Riley. Please proceed with your questions.

Thank you. Good morning, Brian. Good morning, Bob. Good morning. Brian, can you give us some sense on the competitive pricing environment out there? I mean, it looks like things are stable, but could you give us some color on that, please? Sure.

Yes, used equipment values is a big piece of that. As most of our customers, especially in North America, have a trade-in, so it's really about the trade difference and what boils down to their payment and ultimately the cost per acre on the ag side. Definitely within this year we've seen stability in the used equipment prices after about 18 months of almost going on two years of sequentially falling used equipment values. So that stability all throughout the year here has been good in the used side. Also, we had some large price increases post-COVID. and over the recent years and also that's stable now, you know, very low single digits. You're hearing C&H and deer and egg, while talking that, you know, one to 2% range, a couple of select categories, maybe being as high as 3%, but generally one to 2%. They're managing through the tariffs as well. So ultimately, the pricing has stabilized, Liam. And it's really at this juncture about getting commodity prices up and inputs down and returning our farmers on the ag side to profitability here.

Sure. And then you discussed, I believe, in the parts and service section about how your customers are pushing hard on existing assets rather than rather than maintaining them. But I guess my question is, as those assets are being pushed harder, does that have a cyclical impact on new or,.

equipment purchases down the road? Yes, absolutely. So that bodes well for us as we go through the cycle here and as things start to turn the fleets getting older, the hours on the machines are getting higher. Also, as we mentioned, you know, in these tough of times, producers are... Having a bit of fix-is-fail mentality, which is a testament, as we said, to our parts and service businesses, where we have strength that we do there when, frankly, they're trying to spend as little money as possible. They're not doing some of those upgrades that they would typically do as well as certainly through the parts and service side as well as trading the machines. So that'll bode well both on a parts and service side for us and especially on the machine trade cycle as we go forward.

Great. Thank you, Brian. Thank you. Our next question is from the line of Mick Dobry with RW Baird. Please proceed.

use your questions. Hey, good morning, guys. It's Joe Grabowski on for MIG this morning. Hey, good morning. So I wanted to start with the delivery pull forward. Maybe could you tell us what drove that? And then you said that it kind of balances out the rest of the year, but would it be safe to assume that maybe if Q1 was down less than the full year goal, guidance, maybe Q2 would be down a little more than the full year guidance or your thoughts on the.

cadence for the rest of the year? Yes, so ultimately that came down to timing of when we received equipment and then we're able to turn around and deliver to customers. I think it kind of pulls through the rest of the year. And really as we play it out, I anticipate that most of that offset really comes in the back half of the year, a little bit in the second quarter. assuming we continue to receive and turn equipment around, you know, we'll essentially, the same sort of thing will happen in Q2, Q3, and then you'll get to Q4 at the end of the year there. So, you know, the messaging there was intentional, and obviously it wasn't massive, but we didn't want anybody to over-read into Q1X expectations and, of course, setting our full year expectations consistent with what we said at the beginning of the year. That's really what it came down to. We were able to get more of that equipment turned around in customers' hands sooner than we thought we would. Got it. Okay. That's helpful. And then my follow-up question, you mentioned equipment margin.

has been improving sooner than expected, but you kind of left your full year guidance on equipment margins the same as last quarter. I guess sort of what would the drivers be to maybe get the equipment margin, you know, into the high 8% versus the 8.4% guidance?.

Yes, for sure. So, you know, if we continue to make, you know, additional progress beyond what's anticipated from an aging profile perspective, as we already talked about, you know, absolute dollar value, we felt pretty good. Still a little work to do in some select new categories and on the used side. We are making progress quarter over quarter. We anticipate will continue to do so. At the same time, right, I think we prefaced that a little bit with the fact that we're in really a trough-type environment with the lowest TIVs in multiple decades, so not anticipating, you know, that we'd see a sharp inflection to start the beginning of the year, you know, we were thinking from a domestic ag perspective that margins would be more like five and a quarter, and this quarter it was six. We were expecting it to be more like five and a quarter first half of the year, and then closer to seven, seven and a half in the back of the year. I think what we're really seeing is kind of of a pull forward in a leveling in first quarter with 6% for domestic ag and we're expecting the rest of the year to be in that six and a half to upwards of 7% for the rest of the quarters. So just a little bit more flat than we originally anticipated. Glad to see that improvement coming. But again, just comparing that to the backdrop and and what the demand has been and what we're expecting that to be the rest of the year, not getting out ahead of ourselves in where we think it'll go. That said, again, really good to see that progress, feeling good about where inventory is going, and definitely feel like we'll see a sharper inflection as we see demand normalize here.

Great. Okay, I appreciate it. Thanks for taking my questions. Thanks, Joe.

Thank you. At this time, I'll turn the call back to management for closing remarks.

Thank you, everybody, for joining us on our call today, and we look forward to updating you next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. [Call has ended.]