Q1 2022 Titan Machinery Inc Earnings Call
[music].
Greetings and welcome to Titan machinery first quarter fiscal 2020.2 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to John Mills with ICR. Thank you you may begin.
Thank you good morning, ladies and gentlemen, and welcome to the Titan machinery first quarter fiscal 2022 earnings conference call.
On the call today from the company are David Meyer, Chairman and Chief Executive Officer, Mark Gilbert, Our Chief Financial Officer.
Brian can knudsen Chief operating officer.
By now everyone should have access to the earnings release for the fiscal first quarter ended April 32021, which went out this morning, and approximately 645 a M eastern time.
If you have not received the release it is available and the Investor Relations page of Titans website at IR Dot Titan machinery Dot com.
This call is being webcast and a replay will be available on the company's website as well.
In addition, we are providing a presentation to accompany today's prepared remarks, you may access the presentation now by going to Titans website at IR Dot Titan machinery Dot com.
The presentation is available directly below the webcast information and the middle of the page.
You'll see on slide 2 of the presentation, our safe Harbor statement, 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 current expectations of management and involve inherent risks and uncertainties, including those identified and the risk factors section of Titans. Most recently filed annual report on form 10-K and.
And updated and says.
So sequentially filed quarterly reports on form 10-Q.
These risk factors contain a more detailed discussions and the factors that could cause actual results to.
And to differ materially from those projected and any forward looking statements, except as maybe 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'll discuss non-GAAP financial measures, including results and adjusted basis.
We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titans ongoing financial performance, particularly when 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 the call will last approximately 45 minutes and at the conclusion of our prepared remarks, we will open the call to take your questions.
Now I'd like to introduce the company's chairman and CEO, Mr. David Meyer go ahead David.
Thank you John Good morning, everyone welcome to our first quarter fiscal 2022 earnings conference call.
On today's call I'll provide a summary of our results and then Bryan can loosen our chief operating officer will give an overview for each of our business segments.
Mark <unk>, our CFO will then review financial results for the first quarter of fiscal 2020, 2 and provide an update to our full year modeling assumptions.
If you turn to slide 3 you will see an overview of our first quarter financial results.
The fiscal first quarter exceeded our expectations on all fronts, what's impressive operating leverage that showcases the earnings power of our efficient dealership network.
On a consolidated basis, we grew revenue by 12% to $373 million driven by continued momentum and equipment sales, which is visible across each of our segments.
The strong sales coupled with a modest increase in operating expenses and lower interest expense resulted in a 179% improvement to our adjusted pretax income of $13.5 million.
And 207% growth and our adjusted earnings per diluted share of <unk> 40 success.
And all of our team's performance I'm pleased to share this success with all our stakeholders.
I will now turn the call over to Brian to review, our 3 segments and more detail.
Thank you David and good morning, everyone I'm excited to cover our agriculture construction and international business segments with you all this morning.
On slide 4 is an overview of our domestic agriculture segment.
The Big news is that during our first quarter and we saw large increases in corn and soybean prices, but you have reached levels not seen since 2013.
These commodity prices and conjunction with carryover from healthy Twenty-twenty government payments and favorable planting conditions have drove and extremely positive customer sentiment and as a result, we currently have a very robust demand for both new and used farm equipment.
Further adding to this demand is the ROI from the new precision technology available on our cash crop equipment. The fact current equipment fleets are becoming age and the tax benefits provided by equipment purchases collectively making for a compelling reasons to upgrade equipment.
While we have production slots per delivery in this fiscal year for all types of equipment. We sell we are starting to book orders for pre sold high horsepower equipment into Q1, and Q2 of fiscal year 2023.
Our focus on the aftermarket parts and service business continues to pay dividends and the repairs and maintenance need and on the H fleets mentioned earlier, along with precision technology retrofits continue to bolster our parts and service business.
While our customers will need timely rains during the growing season, and some of our Dakota markets are experiencing excessively dry conditions. There is a tremendous amount of optimism and our north American AG business.
Turning to slide 5 you will see an overview of our domestic construction segment.
We are seeing increased construction activity and most of our construction equipment footprint.
Demand for new and used equipment continues to increase due to the opening up of the economy low interest rates new housing starts construction equipment demand from farmers and ranchers for land improvement livestock operations and material handling along with improved oil prices and.
<unk> for infrastructure investments.
The market factors I, just mentioned along with our internal rental initiatives make us optimistic about improved rental utilization with our smaller rental fleet.
The operational improvements that our team has implemented to date have helped produce another consecutive quarter of profitability and we look forward to continued bottom line contributions from our construction segment going forward.
Okay.
On slide 6 we have and overview of our international segment, which represents our business and the countries of Bulgaria, Germany, Romania, Serbia and Ukraine.
And as we saw drought conditions and poor yields and some of our key European markets last year. This year is starting off much better with good early crop development, along with improved moisture conditions and areas affected by last year's dry weather.
Also our European customers are benefiting from the strong global commodity prices, creating robust demand for equipment purchases.
As you can see this strong demand is reflected in our international segment Q1 top and Bottomline results.
As we are also experiencing domestically there is a growing adoption rate for equipment with new precision technology and Europe.
And also similar to the U S. There are supply side challenges, causing some interruptions and timing of deliveries.
We continue to focus on the parts and service areas of our international business as customers and these developing markets are looking for higher levels of product support as the equipment becomes more sophisticated and technologically advanced.
Before I turn the call over to Mark I would like to sincerely. Thank all of our employees for another great quarter as they support our customers through this busy and important spring season.
With that I will turn the call over to Marc to review, our financial results and more detail.
Mark.
Thanks, Brian.
Turning to slide 7.
Total revenue increased 21% to $372.7 million for the first quarter of fiscal 2022.
Our equipment business increased 26, 3% versus prior year.
Which was driven by significant year over year growth across each of our segments agriculture construction and international.
Our parts and service business also performed well against solid performance and the prior year.
Parts generated growth of 10, 6% versus a 9% increase and the prior year and service increased 8.2% compared to a 12, 1% increase last year.
Rental and other revenue decreased 32, 6% versus prior year due to a smaller rental fleet and our current construction footprint as well as a reduced fleet due to the January 2021 divestiture of our construction stores in Arizona.
Despite the decrease our dollar utilization of our construction segment rental fleet improved slightly to 19, 2% for the current quarter compared to 18, 9% and the same period last year.
On slide 8 our gross profit for the quarter increased 21, 5% to $71 million and our gross profit margin increased by 20 basis points.
The current favorable end markets, coupled with our healthy inventory led to enhanced equipment margins, which offset the impact of sales mix away from our higher margin parts and service businesses.
Operating expenses increased $3.3 million versus the prior year to $56.4 million for the first quarter of fiscal 2022.
This modest increase was more than offset by revenue growth and led to 200 basis points of operating expense leverage compared to the prior year, reducing our operating expenses as a percentage of revenue to 15, 1%.
Floorplan and other interest expense decreased 28, 1% to $1.5 million and the first quarter of fiscal 2022 compared to the same quarter last year.
The decrease was due to lower borrowings and our lower interest rate environment.
And the first quarter of fiscal 2022, our adjusted net income increased 207, 9% to $10.4 million.
The adjusted first quarter fiscal 2022, net income excludes a $100000 Ukraine remeasurement gain while the adjusted first quarter of fiscal 2021, net income excluded $1.1 billion of expenses net of taxes.
Our adjusted our adjusted earnings per diluted share for the quarter was 46 <unk>.
Compared to 15, and the first quarter of last year.
Adjusted EBITDA increased 78, 8% to $19.8 million compared to $11.1 million and the first quarter of last year.
You can find a reconciliation of adjusted net income adjusted income per diluted share and adjusted EBITDA to their most comparable GAAP amounts and the appendix to the slide presentation.
On slide 9 you will see an overview of our segment results for the first quarter of fiscal year 2022.
Agriculture segment sales increased 18, 6% to $229.6 million, helping to drive a significant increase and our adjusted pretax income of 82, 1% to $11.2 million.
In addition to the strong sales across equipment parts and service. The bottom line also benefited from higher equipment margins and lower Floorplan interest expense.
Turning to our construction segment.
Revenue increased 14, 1% to $68.6 million compared to the prior year period.
The stronger revenue despite the January divestiture of 2 stores in Arizona.
Bind with lower interest costs drove a $2.8 million dollar improvement and segment adjusted pre tax income to positive $100000 compared to a loss of $2.7 million and the first quarter of the prior year.
Our international segment revenue rebounded and first quarter, and and increased 32% to $74.5 million and.
As Brian discussed in his remarks, the improved growing conditions and strong global AG fundamentals have generated heightened equipment sales activity across our international footprint.
The strong equipment sales and solid equipment margins yielded a $2.2 million dollar improvement and adjusted pre tax income to a positive $2.7 million.
On slide 10, we provide an overview of our balance sheet highlights at the end of the first quarter of fiscal 2022.
We had cash of $89.7 million as of April 32021.
Our equipment inventory at the end of the first quarter was $330 million a decrease of $8 million from January 31.2021.
Reflecting the net effect of a $5 million increase and new equipment that was more than offset by a $13 million decrease and used.
Strong sales and lower inventory levels continue to drive equipment inventory turns which increased and the first quarter to 2.3 versus 1.6 and the prior year period.
I will provide a little more color on our inventory on the next slide.
Our rental fleet assets at the end of the first quarter increased slightly to $79 million compared to $78 million at the end of fiscal 2021.
We still anticipate our fleet size to be around $80 million.
At the end of fiscal 2022.
As of April 32021, we had $169 million of outstanding Floorplan payables and $770 million of total floor plan lines of credit.
Which leaves us with considerable capacity and our credit lines to handle our equipment financing needs.
Our adjusted debt to tangible net worth ratio was a strong 9 compared to 1.3 and the prior year period and is well below 3.5 which is the leverage covenant requirement of our 2 largest floorplan facilities outside of our bank Syndicate credit agreement.
Turning to slide 11.
The amount of new and used equipment inventories are reflected and the size of the red and blue bars on this slide.
As we discussed last quarter and earlier on this call supply chain disruptions due to the pandemic and strong customer demand due in part to the resurgence of agricultural commodities has created and overall tighter industry supply of equipment and helped us generate a higher inventory turn of 2.3.
We believe our equipment orders and level of pre sales and used equipment inventory have us well positioned to meet our revenue modeling assumptions for fiscal year 2022.
Given current inventory levels and stronger end markets and each of our segments. We expect our inventory turn will continue to increase for the full fiscal year 2022.
The overall quality of our inventory remains very healthy our inventory under noninterest bearing terms, which can be seen by the gray bar on the slide ended first quarter at 36, 4%.
Given our current cash position, we have elected to forego certain noninterest bearing terms with our suppliers and exchange for cash discounts on equipment purchases.
And this practice practice enhances equipment margins, but decreases our level and percentage of noninterest bearing inventory.
Slide 12 provides an overview of our cash flows from operating activities for the first 3 months of fiscal 2022.
The GAAP reported cash flow provided by operating activities for the period was $27 million compared to cash used for operating activities of $5.4 million and the comparable prior period.
As part of our adjusted cash flow provided by operating activities. We include all our inventory equipment inventory financing, including non manufacturer floorplan activity and adjust our cash flow to reflect a constant equity.
And our equipment inventory.
Allowing us to evaluate and operating cash flows and exclusive of changes and equipment inventory financing decisions.
After applying these adjustments our adjusted cash provided by operating activities was $7 million for the 3 months period ended April 32021, compared to adjusted cash used for operating activities of $3.6 million for the same period last year.
Slide 13 shows our updated fiscal 2022 annual modelling assumptions, which we are raising across the board.
Each of our business segments are performing better than expected and are off to a great start in fiscal 2022.
Improving end markets combined with years of operational improvements are combining to generate strong bottom line results.
For the Agriculture segment, we are increasing our revenue growth assumption to up 15% to 20% from up 10% to 15%.
The fiscal 2000.2022 growth range includes a full year revenue contribution from our horizon West acquisition that closed in May 2020.
For the construction segment, we are increasing our revenue assumption to up 2% to 7% from flat to down 5% and.
Impacting this assumption is the divestment of 2 of our construction equipment stores and Arizona at the end of fiscal 2021, which accounted for approximately $27 million of combined revenue.
Excluding these revenues from the prior year base, our modeling and equates to a same store sales range of up 10% to 15%.
For the International segment, we are increasing our revenue assumption to up.
2 up 17% to 22% from up 12% to 17%.
From an earnings per share perspective, we are increasing our diluted earnings per share assumption by 40 cents at the midpoint.
To a new range of $1.65 to $1.85 for fiscal 2022.
As a reminder, this range includes all ERP implementation costs.
This concludes our prepared remarks.
Operator, we are now ready for the question and answer session of our call.
Thank you.
And with your question. Please press star 1 on your telephone keypad.
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Our first question and it's from Steve Dyer with Craig Hallum Capital Group. Please proceed.
Good morning, guys, right and signal 1 for Steve and congrats on the results.
Good morning, Ryan.
Yes.
I'm curious how much benefit you think you've seen from higher corn and soybean price and is driving equipment purchases now realize theres, some but versus the expectation and potentially greater demand. This fall after harvest and the sale of futures and that may be already locked in from a pricing standpoint, you mentioned bookings quarter was good.
But can you break those 2 out of kind of a benefit.
Hey, Brian This is Brian.
Yes, I think definitely on the customer's sentiment has been positively impacted by the the.
Corn and soybean prices, which is.
<unk> been up significantly here and.
And then you've got as I mentioned.
The tax benefits, which are going to come into play here like you said as they continue to book more sales it really helps.
Put together and solid year for this year for them and and really next.
And next year, as well and and actually out into calendar year 2023, you can.
Lock in some really good prices right now so.
Yes, I think that's driving a lot of it but then also and just the age fleet and then the and the opportunity and update to the newer technology and the efficiency benefits and you know what that can do for their bottom line.
So I definitely think it is.
It's a combination of both.
Yes, long overdue and.
And.
These commodity price and really help them.
And then how much do you think it's new equipment buying versus replacing old equipment kind of the maintenance.
And that kind of long overdue and like you said.
Yeah.
Okay.
Sometimes hard to discern exactly what because of a technology purchase versus.
And to update their aged fleet from a maintenance perspective, because really the grower picks up.
Benefit of both at the same time.
And along with the tax benefit so.
The 3 together really make for a compelling reasons, but.
Yeah.
The downtime is really expensive too so.
The age fleet becomes problematic for the growers from that standpoint.
And so all all 3 are really big drivers, but definitely the updating to the newer technology and getting the precision technology and then just the newer equipment required and less maintenance and downtime would be the biggest 2.
And then.
John Deere and so their U S and Canada large AG industry sales outlook for 2021 was plus 25% year over year.
And your AG updated guidance for 15% to 20%.
Should we think about the delta between those 2.
Between kind of the OEM.
The retailer side.
Yes, good question right.
It's.
Like you said not apples to apples and.
And the dealer retailer versus OEM.
Dear and comment on large AG production precision North America, and they're well, we're looking at all egg business, including the lower horsepower tractors Hay and forage.
Also in our guidance is our parts and service, which are more stable and and don't typically have the large equipment growth swings.
<unk> guidance also includes Canada, which is experiencing stronger growth right now and the U S.
And then also keep in mind that our Titan FY 'twenty, 1 and Q4 was up 39%.
And as we reported our prior year results compared to the same 3 month period for Deere, which is reflected in their current year guidance. So just kind of day that timing between the fiscal years, there and the reporting with us being a quarter lag or to them.
Mark and anything to add and.
Thank you covered it all.
Great helpful. Thanks, guys and good luck pop back in the queue.
Thanks, Brian. Our next question is from main calibrate with Baird. Please proceed.
Good morning.
And I guess.
The way I would ask the guidance question is maybe slightly different.
When when when you're looking at Europe.
The increase.
Increase it and agriculture segment revenue relative to the previous assumptions I'm wondering.
If there was any limiting factor.
And it behind this guidance increase meaning is this 500 basis point increase your view.
And sort of where true retail demand is going to be based on incoming orders on store and and so forth.
Does this reflect some degree of constraint piece of the equipment availability for fiscal 'twenty, 2 that could carry into fiscal 'twenty 3.
Yes, and make this Brian.
I think youre right.
And we've got that.
<unk> modeled in to our assumptions.
Generally we believe industry demand will exceed current year production event.
But we do have some on hand inventory to sell down as well and also some access to lease returns and deeply inventory, but that unfilled demand will move into calendar year 2022 production and as we.
We continue to.
Presale.
And those customers into those unit so.
Yes.
We've modeled that into our guidance, where we are in constant communication with <unk> on that.
See there are supply chain issues.
Limit component availability labor shortages and so on.
And their logistics guys are jumping through a lot of hoops to keeping up and material and components to keep the plants going.
And we're really proud of them. They are doing a really good job of that to this date and again stay in close communication with us so.
Yes.
And that in and then.
And.
And those lease returns or additional dealer transfers.
Or.
Yes.
Any additional orders we get would be then.
Increased.
Incremental.
But just just to clarify because I'm still a little bit confused here.
And that you're taking <unk> into Q1, and Q2 of fiscal 'twenty 3.
I mean, that's great I'm just trying to understand if this is sort of different than a year ago were different than normal and.
And is this a factor of cuts.
<unk>, saying, Hey, look I think the equipment and you're basically saying well I'm going to have to put you in and backlog basically.
Deliberate and Q1 and Q2 of 'twenty 3 or is that just sort of the customers' demand.
Naturally.
And is associated with those 2 quarters.
I don't know, if I'm, making sense here, but I'm trying to understand if we're really dealing with.
Supply constraints on your part in terms of equipment availability.
Yes.
Little bit of both what you said, there make but more so the.
The first bullet point it is.
The production lead times are longer.
A lot of the order slots are filled up so depending on the product category and.
And then other times depending on cuts.
Customer desire and that will get us out into the Q1 and Q2.
But.
More prevalent would be the production schedules.
And are getting out there and.
And some product categories.
Alright.
And then.
And I guess my my second question is on <unk>.
And normal seasonality of the business.
Relative to your to your guidance.
And I mean, historically from what I can see Q1 is.
Not 1 of the seasonally strong quarters and.
You've done quite well right 46 cents and earnings better than I guess all of US expected. So as you look relative to your full year guidance, how do we think about Q1 relative to other quarters.
And <unk>.
Is there a reason to think that the fourth quarter for instance.
And as.
As in any way lower than Q1 has been.
Yes.
Other things that we've done over the years, we've talked about this for a while but.
Promoting that pre sell and really.
Pushing the pre sales and we've done a nice job of that and have moved that and by doing that we have kind of moved some of that.
Fourth quarter, what we had done and the path and this has been done gradually over the years.
More so into that first quarter. So we have kind of shifted the seasonality. If you will somewhat on some of that equipment from from the fourth quarter to the to the first quarter and somewhat into that into the second quarter as well with them with the presale activity.
So yes, the first quarter certainly this year doesn't appear to be or are soft soft.
Quarter.
Okay.
Well I guess I'll talk to you more about this mark and offline but.
And my my final question.
And I'm kind of going back a few years to go back to 2017 and I remember the last analyst day, you guys put together at the time.
You were talking about.
Right sizing the cost structure to be able to deliver pre tax margin of 5%.
And about 1 billion and a half of revenue.
And.
Clearly, we're talking about revenue here.
Other than a 1 billion and a half and.
And if we're looking at your equipment margins.
And Theyre also in better shape, and I think you anticipated back in 2017, when you put those targets together and so my question for you Mark is.
Yeah.
How have things changed over the past 4 years and how.
Realistic is it for you to be able to attain these kind of pre tax margins on volume that's better than a $1 billion and have a great. Thank you.
Yes, I think when we gave that.
Presentation back in 2017, we talked about kind of mid cycle conditions and I think we're I think we're entering that and we're getting very close to that on the on the AG side and quite frankly, I think I think we've got a good shot of getting there this year on the AG side, and maybe even surpassing it a little bit.
And where we still need some level of improvement to get to the total what we talked about a $2.
At the time is we still need further traction and we've.
From a long way I think on both international and our construction segment.
But we still need to get more traction there to get us up to that.
A total of 5%.
For the company.
I think as <unk>.
Ryan mentioned on the call I think we've got 4 quarters now of profitability and construction were certainly looking to build on that and there has been a nice resurgence here from international moving and the right direction. So I think.
And what we talked about back then as certainly within reach.
May be a possibility for this year, but.
Probably more likely another year or 2 with similar market conditions and and we could be there.
Alright, good luck guys.
Thanks, Greg.
Our next question is from Rick Nelson with Stephens. Please proceed.
Okay. Thanks.
Good morning.
<unk>.
And I would start to the year.
Okay.
Curious.
And you could update us as Harvey and our crude station and.
Environment.
Alright COVID-19.
Kind of slowed those are those cash flows but.
It is our strength.
Turning to heat up there.
Well I think if you looked at some of the demographics from the profiles of the.
Dealer principals of their and Rick and.
Looking at the sophistication and equipment at the capital requirements OEM requirements lack of succession of alternatives and all of that hasn't really changed much right and all but dealers for the most part are doing really well right and all financially and considering we're in the cycle, which.
Both impactful timing and the price the price of acquisitions, and so they're not going away.
<unk> talked about it and the last couple of calls there is a logo or a pause right and hard as many of the dealers are working through the PPP loan forgiveness process and I don't think Theres, there just hasn't been a lot of activity.
All from.
From from some of the banks and.
To get to get those that all store and process. So so we continue we're engaged or we've got a number of targets out there and why.
Discussions going on solar.
And like you say the demographics haven't changed and other dealer principle, I think theres still a lot of opportunity, we're seeing and industry consolidation taking place. So yes, we are.
Definitely all overdue and acquisitions in.
And we had a nice that Northwood acquisition was nice from the horizon or West 1 we did last year and we want to definitely.
We've got strong balance sheet and we've got some cash we want to deploy so we're all over that so it's going to happen and we just got to be smart about it and disciplined in our pricing and make sure that the timing is right for Volta.
Motivated seller and our team.
Thanks for that color.
So with.
With inventory.
And your debt apparently quite a bit.
You talked about the supply constraints it would seem.
Has this part we should've been blurred day insurance from merge Dragons.
Just curious what level of equip our merger and bill.
To that kind of a fiscal 'twenty 2 alright guidance.
Yes.
So first quarter was very good.
Quarter from our equipment margin perspective, better than we were anticipating as well.
So it was at 11, 7%.
And certainly some of the and market conditions that we're talking about helped both in pricing and limiting inventory adjustments.
We did also and the first quarter, we did benefit from some very strong used sales kind of and the mix for AG and then on the international side, the new equipment sales.
There were quite strong, which they generally get higher equipment margins.
And then we get over here, so certainly mix had something to do with it is as well so we don't anticipate.
Maintaining this year and 11.
7%.
However, we still expect some nice improvement off of last year, which I think was kind of in that and.
Mid to lower tens I think closer to that 11% overall is going to be where we're landing right around that 11%.
When we get towards the end of the year as well that we still have some of those bigger deals that happened that have some of those higher ticketed items that.
We will take down the full year number as well so overall kind of a blended.
Right around 11% is what we're looking at.
Great.
Tori.
Turn to 3 turns.
And I know you know the top and debris or goals.
And it's been 3 turns.
Do you see that potentially.
Tight inventories situations and Chile.
And I'm pretty sure.
I think getting above this year is still going to be difficult. It's possible in this environment certainly with the with the tightness of supply.
But probably.
And probably just south of 3 is where we're looking at right now for the for the full year Nonetheless.
Some good improvements certainly limits the amount of write downs, but we also need that equipment this year to get.
And.
And especially with the supply chain challenges.
So we're looking to get that equipment and as much as possible.
Great.
The timing of regulatory normalized.
Okay.
Last call you were suggesting in the fourth quarter.
And now it sounds like.
Maybe not until early next year.
Sure.
Hi.
And.
A little bit of both strength.
And the build.
Build schedules and the lead times.
Continue to move and evolve, but a lot of that we title and last quarter was.
Did get ordered and we and we did get those sales and so and we've got a lot of equipment coming into Q4 and now as the calendar rolls forward and we're starting.
Sir from product category.
Book some of those sales into Q1 and Q2.
Makes sense.
And good luck.
Yeah. Thanks, Rick.
And as a reminder, just star 1 on your telephone keypad, if he would like to ask a question. Our next question is from Larry de Maria with William Blair. Please proceed.
Thanks, and good morning, everybody.
Good morning, Larry.
Just to clarify and the pre sales that you're doing you're ready for next year is this part of a new program or just a function of the environment oriented.
I think it's the latter.
But if so can you.
Early orders become the norm and that's something we can build on and book or.
Do you have to put discounts.
Discounts and to get those orders in place now or are they book.
Full retail price. Thank you.
Yes, Larry you're right. It's more so the latter it's more so a function of the environment and just the lead times and the demand.
But as Mark mentioned.
Also a little bit of our internal initiatives to drive more pre sale, which also helps our inventory turns helps cash flow helps us give more visibility to the.
And to the guidance into the future revenues so.
Yes, we're going to continue to drive that.
As far as.
Margins, there, we incentivize the customer.
There is.
And OEM incentives there for the customer to to commit put their name on it.
But more so the bigger driver would be then they get to spec out the equipment. The way they want it there is lots of different options and equipment on and on the equipment today very similar to when you order a.
And automobile oftentimes, even more so and.
So they get to the spec it out how they want for their farm they get and to plan their business with their banker and then they get to help ensure availability of of when they want it.
Okay. That's very helpful. And then maybe I'll turn it into more of a.
The rules.
As far as the equipment gross margin and that's.
Can you talk about margins a little bit but.
Delta was obviously and equipment side, you mentioned, a couple of factors international and new but.
Help us understand the difference between maybe the impact from cost cuts that are a little bit more structural.
And maybe from their temporary but also maybe more importantly, the mix of new versus used equipment and the equipment sales and what is it now what is the historically and sustainable because obviously you would have to think that you can make it much more money on the used equipment prices that are surging and that's leading to some of the upside and margin. So can you just help kind of pull that altogether.
Yes, I'll try and elaborate a little bit more specifically on the equipment margins there Larry.
Yes.
And so on.
On the used.
So every every month, we have and quarter for external purposes, but we have write downs that happened on our used we have a lower of cost and market process. So certainly in this environment, where pricing is strong because of the limited demand.
The level of some of those write downs are much lower than what they are in different parts of the cycle. So when you're swinging up and Theres a lot less pressure on those types of adjustments.
And then same with the pricing side.
And can hold together quite nicely.
And that combined with the aging of our equipment, we don't have.
The level of aging.
Very healthy.
Healthy inventory at this point, where there is not.
Giving on pricing there to the extent we've had in the past.
Those are certainly factors that that lift.
Lift the overall equipment margins.
And the new I kind of mentioned just different.
Product and and maybe segments between the segments and new was particularly strong there with international.
And where we do get higher equipment margins and so certainly that.
Net mixes as is.
Is helpful. There as well.
And then I think you asked about just kind of overall margin in the business and so this year relative to last year. We certainly took on some more expenses anticipated some more expenses.
And those expenses are moving through but we're certainly benefiting from some of the cost initiatives that we had in.
Prior year and.
And 2.3 years before that with different.
And.
Initiatives that were done to help bring that.
More to the to the bottom line there and then finally on the.
Floor plan and interest expense you can see that that's come down significantly.
Significantly over the years, just with the cash generation paying off the convert from a couple of years ago, and basically out of our domestic lines at this point as well.
All of that contributing nicely to the bottom.
Okay, great. Thanks for that detailed answer last question.
Just trying to get a sense of inventory now and at year end and.
And my guess is obviously you'd like to have more inventory and the industry would like to have more inventory, but I'm curious to hear from you.
If you could have your way how much higher would you between now and where would you like to inventory.
At year end going into next year, just trying to get a sense of you know.
And how short the industry is and how short you guys think you are and where you think you need to be to really satisfy the industry demand and feel comfortable going into next year.
And maybe I'll start it out Larry and then B.
P J or David can can add on I think.
I think right now things are things have been fine as far as the inventory coming in and getting to the customer and getting the sale done I think it's more about the unknown and the risks that we're hearing about and that type of thing that would cause me to want.
I think to want more new equipment at this at this time to kind of take out some of that.
Risk.
For the back half of the year, we don't know the exact level of demand that's going to be there and we'd certainly want enough to get every sale done.
And then.
If demand even.
Increases or something like that that we've got we've got the available inventory for that so if things stayed steady.
Steady the way they are and we and the year with.
And whatever you're around $400 million something like that I think we'd be.
We'd be fine, it's just getting it in and kind of time for that so I don't know that Theres a magic number for 4 inventory 400 kind of feels about right to me as long as we're getting it.
To satisfy those sales.
And between.
Okay understood. Thank you and good luck.
And we now have a follow up question from Nathan <unk> with Baird. Please proceed.
Just a quick 1 and thanks for taking a follow up.
And we get a quick update on the ERP rollout here.
Where are you in terms of progress.
When do you think you'll be you'll be done with this.
Maybe an updated view as to what the benefits for the enterprise are going to be out of this initiative and.
Quick update on cost and what how.
How much of a drag we have on in fiscal 'twenty 2.
Yeah.
And this is David I'll start off and also.
So in other benefits and we're going to see.
<unk> functionality and improve customer experience through and see more b I.
I think if you look at.
The ability to add on and integrate different apps out there and some other things as we tie and the.
And what we're seeing and moving into the digital and even the precision and some of the telematics stuff I think it's all going to tie up the tie and much better and from both a functionality standpoint and <unk>.
Long term enterprise value. So so we're pretty positive about that and as we talked about our last caller. We've got 1 test store that is running very well right now.
And with the development and audits.
And when we do a full rollout Inc.
Potentially try to bring on a few more stores and.
And Oliver both the CEO and the AG segment.
We'll get to some of the rental and all tested and then then for the full roll out and we definitely want that to happen sometime in calendar <unk>.
And I would say within the next.
12 months from Peru for that full rollout. So it's all about timing and when we really from a comparable at a.
Minimizing any risk of what could potentially happen and that rollout. So so that's where we are and and we're excited about that so many of them and I'll, let mark talk a little bit too.
Sure.
You should be looking at the financial side of it.
Yes from a cost perspective, similar to what we talked about last quarter. So last year, we had just over $3 million involved with the ERP. This year, it's going to be a little bit higher and then we talked about 4.4 and a half still looking to be about that that's in our and our guidance numbers.
And.
Hasnt changed really allowed as far as the expectation for the current year.
I see and.
Just to clarify here.
<unk> is.
Still.
Sort of in.
In line with your expectations, there are no issues or delays or something like that and Mark should we expect these costs to be.
And I'm presuming, they're going to be coming down in fiscal 'twenty 3 based on what David said.
And as far as the schedule of rollout.
How should we think about it.
Yes, I think from a cost perspective.
I don't see well, yes, it should come down some I would expect next year. If we get this done let's say 12 months.
Cost would come down and the areas like external consulting and that type of thing and.
And not.
Whatever building as much and capitalizing as much into.
2 and ERP.
Asset, but I wouldnt expect any kind of big.
Decrease or anything like that in the initial year. When you. When you go lives and there'll be a lot of support that's necessary allowed to support that.
We want to make sure that our teams are.
Well.
Supported as they as they roll into the new system.
And like me and I'm sure.
In the ERP and I'll never happens fast enough and all but I think just we're really making sure our testing on our training of our team and how to really.
And through the sale of a robust rollout, there and and minimize any risk of any type of interruption or anything so.
And we want to make sure we've got the dial and so.
I think everything's everything financed progressing and if I can say it and they're happening fast enough, but we want to get it right and so that's where we are.
Great. Thank you for that day.
We have reached and question and answer session I would like to turn the conference back over to Mr. Meyer for closing comments.
Alright, Thank you everybody for being on the call and your interest and Titan machinery look would look forward to updating you and on our progress on our next call. So have a good day everybody.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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Okay.
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