Q4 2022 Titan Machinery Inc Earnings Call
Greetings and welcome to the Titan machinery fourth quarter fiscal 2022 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.
Pat as a reminder, this conference is being recorded I would now like to turn the conference over to your host Jeff Sonic of ICR. Thank you you may begin.
Thank you and good morning, welcome to the Titan machinery fourth quarter fiscal 2022 earnings conference call on the call today from the company are David Meyer, Chairman and CEO , Mark <unk>, CFO and Brian can Knutson C O O.
By now everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2022, which went out this morning at approximately 645, a M eastern time if you've.
Not received the release, it's available on the Investor Relations tab.
The Titans website at IR Dot Titan machinery Dot com.
Call is being webcast and replay will be available on the company's website as well. In addition, we are providing a presentation to accompany today's prepared remarks. We suggest you access the presentation now by going to Titans website again at IR Titan machinery Dot com presentation is directly below the webcast information in the middle of the page.
You'll see on slide two of the presentation, our safe Harbor statement I 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.
The statements do not guarantee future performance and therefore undue reliance should be placed upon them.
These forward looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the risk factors section of Titans. Most recently filed annual report on Form 10-K .
These risk factors contained a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements.
Except as 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'll discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures and facilitate a more complete analysis and greater transparency into Titans ongoing financial performance, particularly when comparing underlying results from period to period.
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 at the conclusion of our prepared remarks, we will open the call to take your questions with that I'd now like to turn the call over to the company's chairman and CEO , Mr. David Meyer David. Please go ahead.
Yeah.
Thank you Jeff Good morning, everyone welcome to our fourth quarter fiscal 2022 earnings conference call.
On today's call I will provide a summary of our results and then Bryan can knudsen and our Chief operating officer will give an overview for each of our business segments Mark of older. Our CFO will then review our financial results for the fourth quarter and full year of fiscal 'twenty, If I had to kind of conclude with some commentary on our fiscal 'twenty to 'twenty three.
We've got assumptions.
If you turn to slide three you will see an overview of our fourth quarter and full year financial results.
We generated fourth quarter revenue of $507 $6 million, increasing 16% versus prior year due to the stronger equipment sales in our agriculture and international segments.
This is further supported by growth in our parts and service business across all our reporting segments.
The stronger revenue coupled with a powerful combination of gross margin expansion and operating expense leverage.
Drove a remarkable 22 million dollar increase our adjusted pretax income to $28 $8 million.
This had a corresponding positive impact on our adjusted earnings per diluted share.
Which is a new quarterly record for the company at 99 cents, which compared to nine cents last year.
Well this call call is focused on our fiscal fourth quarter I wonder emphasized that we experienced exceptional performance each quarter. This year.
Revenue across all our businesses.
Most important all of our segments demonstrated significant operational improvement with each posting strong increases in pre tax income, which in turn expanded margins.
This is also apparent in our full year results.
<unk> rated full year revenue of $1.71 billion, which was up 21, 3% compared to fiscal 2020 one.
Just a pre tax income grew 131, 3% to $88 $1 million versus $38 $1 million for the prior year driving adjusted earnings per share of $2.98 compared to $1.09 last year.
This is a product of tremendous effort by our teams, whose unwavering focus provided the fuel to generate these record results. Furthermore, the resulting growth of our cash flows and strong balance sheet has provided us with greater flexibility to engage in accretive acquisitions, such as the recently closed <unk>.
<unk> acquisition and the anticipated closing of our upcoming acquisition marks machinery, which is scheduled to close in early April of this year.
Well, we do not include future acquisitions in our guidance I have a number of dealer oops I am in active discussions with and hopefully executing on additional acquisitions of our current fiscal year.
Again, with our strong balance sheet and cash position and proven operating model I expect acquisitions will be part of our growth story in the years ahead.
Before I turn the call over to Brian I want to recognize how proud I am of our growing team they're resolved through an extremely fluid operating environment their commitment to serving our customers and they will and we look forward to building on that momentum in fiscal 'twenty 'twenty three.
I will now turn the call over to Brian to review, our three segments in more detail.
Okay.
Thank you David and good morning, everyone.
I'm excited to cover our three business segments. This morning.
Slide four is an overview of our domestic agriculture segment.
Although somewhat tempered by rising input costs and dry weather concerns and some of our markets.
Farmer sentiment remains positive due to excellent commodity prices.
And much of our footprint last year's crop yielded better than expected and our customers were able to sell it at favorable prices.
Corn, soybean and wheat prices remain elevated going into spring planting which has allowed our customers an opportunity to lock in very good prices for current year 2022 production and in some cases customers are already locking in prices for calendar year 2023 crops.
As planting season begins customers are signing up for multi peril crop insurance programs and USDA safety net farm programs and fields are in great shape due to an extended fall season for tillage and land preparation.
There is strong demand for parts and service says he equipment fleets continue to age.
We are completing a successful winter of uptime inspections, and our service departments and despite some parts supply side issues, our parts and service departments are well prepared to support our customers during the upcoming farming season.
New and used equipment demand continues to be very strong outpacing supply.
This is again being driven by the current high level of commodity prices.
In addition, we are seeing some carryover from a strong 2021 net farm income supported not only by price and yields but a number of USDA program payments.
With this income farmers are looking to section 179, and bonus depreciation to help with their tax planning.
Farmers are investing in products that increase yield productivity and efficiencies in their operations.
Well there are product shortages and long lead times, we have a solid order board and do not believe that product shortages will impact our ability to meet the revenue modeling assumptions that mark will share with you shortly.
Many of you were able to see firsthand at C. N H industrial it's February 22nd capital markets day.
The investment and focus C N H industrial is putting into technology.
Our solutions precision automation electrification and connected machines.
Farmers and ranchers are investing in this technology and we are excited about the commitment of our main suppliers, making towards having industry, leading products and technology solutions for our customers.
I'm excited.
82 announced the pending acquisition marks machinery. The two store case age group with locations in Yankton, and Wagner, South Dakota, which David alluded to earlier.
Located in southeast South Dakota. These stores are contiguous to our diversified crop livestock markets and plat South Dakota Sioux Falls, South Dakota, Wayne, Nebraska, and Lamar is Iowa and have a five decade history of profitably serving customers.
They have a great team and we are scheduled to close in early April .
As you can see we have a lot going on in our domestic AG segment, we had a great FY 2022 in our domestic AG segment and I expect much of the same in FY 'twenty three.
Turning to slide five you will see an overview of our domestic construction segment.
This segment continues to improve and as David stated was a strong contributor to our Q4 and full year financial results.
As our economy opens up post pandemic, we are seeing increased construction activity in our key markets.
Not only do we see continued housing and commercial activity, but we are seeing the start of some significant infrastructure products projects in our markets.
We have exposure to the oil business in the Bakken and the Colorado front range, which is creating construction equipment retail and rental demand and with our upper Midwest C stores and AG markets. We are seeing farmer demand for construction equipment being used for material handling feedlots and land improvement.
The operational improvements that our team has implemented over the past couple of years produced another year of improved adjusted pretax income.
Late in the fiscal fourth quarter, we divested our C stores in Montana and Wyoming.
Okay.
Well, a fairly small CE market, we sold the stores to a well respected case, IH and new Holland dealer in Montana, who can utilize the synergies of having all the C N H industrial brands in the same market.
In March we also divested our small noncore see consumer product store in Fargo, North Dakota, due to our brand consolidation strategy.
Over the last several years, we have been working towards optimizing our C footprint, which is now complete with these transactions.
We feel positive about our currency footprint. Our locations now include the large and growing Colorado markets as well as our C stores located in the upper Midwest, where we have the heritage and synergies of our AG store coverage.
Before we turn to slide six international overview I want to share a couple of comments on our ERP implementation, which impacts our domestic AG and CE business.
We have been successfully operated pilot stores since July of 2020 on our new area ERP platform.
We added five more stores in December of 'twenty, 'twenty, one and plan to continue a phased approach again in April of this year continuing to add stores until implementation is fully complete.
We feel this phased approach will provide not only a quality and minimal risk implementation, but also provide the best employee and customer experience through the process.
Now moving to slide six.
We have an overview of our international segment, which represents our business within the countries of Bulgaria, Germany, Romania and Ukraine.
Our international segment turned in excellent Q4, and full year financial results.
Above average crops and strength in growing global commodity prices created strong demand for new and used equipment.
This combined with our operational improvements inventory reduction and continued execution of our parts and service growth strategy all contributed to a much improved bottom line.
The Russia, Ukraine conflict is top of mind for all of us.
While there is total business disruption in Ukraine. This market is less than 5% of our company's total revenues and assets and less than 25% of the revenues and assets of our international segment.
With the safety and wellbeing of our Ukrainian employees being a top priority. We initially closed our Ukrainian stores to allow employees to attend to their family needs and safety.
We continued to advance payroll and some employees are able to work from home both in and out of country.
Some farms continue to operate and we have partially opened some stores to support our customers with parts and service on a limited basis.
In addition, we are beginning to finalize equipment sales to customers at their request taking into consideration safety and risk.
Like much of the World, we are carefully observing the near term and long term geopolitical and economic situation in Ukraine.
Concurrently we look forward to continued success from the Balkan countries of Bulgaria, and Romania, and improved operational results in Germany.
Before I turn the call over to Mark I'd like to thank all of our employees, both domestically and abroad for a very successful fiscal 2022 in the face of adversity, our employees stepped up and outperformed at all levels of the organization producing outstanding results, while supporting our customers and their operations.
Finally, please keep our Ukrainian employees and customers and your thoughts and prayers. During this very difficult time with that I will turn the call over to Marc to review our financial results in more detail.
Thanks, Brian .
Turning to slide seven.
Total revenue for the fiscal 2022 fourth quarter was $507 $6 million, an increase of 16, 2% compared to last year.
Our equipment business increased 16, 7% versus prior year, which was driven by strength in our agriculture and international segments.
We were particularly pleased with our parts and service business, which generated growth across each of our operating segments, increasing 17, 3% and 14, 3% respectively.
Compared to the prior year period.
These robust increases were due to the addition of the Jay Cocks stores in early December as well as same store increases of 18, 8% for parts and 15, 9% for service compared to the prior year quarter.
Rental and other revenue decreased one 4% versus prior year quarter due to a decrease in inventory rentals.
Despite despite slightly lower revenues the dollar utilization of our construction segment rental fleet improved significantly to 28, 4% for the current quarter.
<unk> to 22, 4% in the same period last year and drove margins in this revenue category up 530 basis points compared to the prior year quarter.
On slide eight.
Gross profit for the quarter increased by 39, 2% to $94 $2 million.
Our gross profit margin increased 310 basis points, primarily due to strong equipment margins as a result of favorable end market conditions healthy inventories and increased amounts earned under manufacturer incentive programs, which for the quarter represented approximately $6 four.
Dollars.
We did see improved margins in our parts service and rental categories as well.
Operating expenses increased $4 $1 million versus the prior year to $64 $6 million for the fourth quarter of fiscal 2022 and includes a benefit from the recognition of a $5 $7 million pre tax gain on the sale of the company's Montana.
Wyoming construction equipment stores.
As a result of increased revenue and this gain our operating expenses as a percent of revenue was 12, 7% compared to 13, 9% of revenue in the prior year period.
Despite this improvement we continue to see inflationary pressures, particularly in the areas of fuel wages and employee benefits.
Floorplan and other interest expense decreased six 4% to $1 $4 million compared to the same period last year due to lower floor plan borrowings.
In the fourth quarter of fiscal 2022, our adjusted net income increased to $22 $5 million, which includes a $1 $3 million benefit from a partial release of an income tax valuation allowance in our international business.
This compared to adjusted net income of $1 $9 million from the prior year quarter.
Our adjusted earnings per diluted share was <unk> 99 cents for the quarter, which includes approximately 47 cents of benefits associated with the previously mentioned increased manufacturer incentives gain on sale of Montana, and Wyoming construction store divestitures and a partial release of an inch.
Some tax valuation allowance.
This compares to last year's adjusted <unk> performance.
Fourth quarter of fiscal 2022, adjusted EBITDA increased over 160% to $35 $9 million, which compares to $13 $7 million in the prior year.
You can find a reconciliation of adjusted net income adjusted income per diluted share and adjusted EBITDA to the most comparable GAAP amounts in the appendix to the slide presentation.
On slide nine you will see an overview of our segment results for the quarter.
Agriculture segment sales increased 14, 2% to $346 $3 million, helping to drive a significant increase in our segment adjusted pre tax income from $8 million to $17 $7 million, which included a $5 $1 million benefit earns through.
Increased manufacturer incentives.
Turning to our construction segment.
Revenue decreased one 1% to $87 $9 million compared to the prior year period, reflecting the lost contributions from the Companys, Arizona stores. Following the January 2021 divestiture.
On a same store basis, excluding those stores' revenues were up seven 2% for the quarter.
We are pleased with the continued improvement in this segment's adjusted pretax income, which improved by $8 $4 million to $9 million.
Even after excluding the $5 $7 million gain associated with the fiscal 2022 fourth quarter sale of four store locations in Montana and Wyoming.
This segment is showing strong improvement over the prior year quarter.
Our international segment also benefited from improved agricultural market conditions and generator generated revenue growth of 64, 4% to $73 $4 million.
The combination of strong equipment sales and margins coupled with solid growth in our higher margin parts and services businesses yielded a $5 8 million dollar improvement in adjusted pretax income to a positive $3 $1 million.
This profit improvement also included a $1 3 million dollar benefit earned through increased manufacturer incentives.
The adjusted pretax results for the comparable period in the prior year was a pretax loss of $2 $7 million.
Yeah.
Turning to slide 10, you will see our full year results.
2022, total revenue increased 21, 3% compared to last year.
Driven by 27, 1% growth in equipment revenue and was further supported by solid contributions from our parts and service businesses.
Which increased nine 1% and seven 8% respectively.
Rental and other.
Was down 12, 9% due to reduced inventory rentals and a smaller dedicated rental fleet.
Full year dollar utilization of our rental fleet improved to 26, 5% compared to 22, 2% last year.
Turning to slide 11, our full year gross profit was $332 $7 million or 27, 3% increase compared to last year.
Our gross profit margin increased 90 basis points to 19, 4% for the full year of fiscal 2022.
Higher margins across all categories of revenue primarily equipment margins are more than offsetting the shift in revenue mix.
Our operating expenses increased by $22 million or nine 2% for the full year of fiscal 2022 compared to the prior year.
This increase was more than offset by revenue growth and led to 150 basis points of operating expense leverage improvement compared to the prior year, reducing our operating expenses as a percent of revenue to 14, 1% in fiscal 2022.
Impairment expenses decreased from $3 $2 million in the prior year to $1 $5 million in the current full year period.
Yeah.
Floorplan and other interest expense decreased 25% to $5 $7 million in the full year period, primarily due to overall lower floor plan borrowings.
For the full year of fiscal 2022, our adjusted net income was $67 $3 million, an increase of 174, 9% from.
From the prior year.
Our adjusted earnings per diluted share was a record $2.98 for fiscal 2022, representing a 173, 4% increase compared to $1 nine in the prior year.
Once again recall the positive 47 cents per share benefit we realized in the fourth quarter, which enhanced our fiscal 2022 results.
For fiscal 2022, adjusted EBITDA grew 75, 1% to $114 $5 million compared to $65 $4 million in fiscal 2021.
Turning to slide 12, we provide our segment results for the full year fiscal 2022.
Yeah.
Overall, our adjusted pre tax income increased 131, 3% to $88 $1 million for the full 2022 fiscal year and resulted in a pretax margin of five 1%.
The improvement was generated by all three of our business segments, but was led by strong agriculture segment performance.
Turning to slide 13.
Here, we provide an overview of our balance sheet highlights at the end of the year.
We had cash of $146 million as of January 31, 2022.
Our equipment inventory at the end of fiscal 2022 was $324 million a decrease of approximately $14 million from January 31 2021.
Reflecting the combination of an $11 million decrease in new equipment, and a 3 million dollar decrease in used equipment.
Strong sales and lower inventory levels continue to drive the equipment inventory turns which increased to $3 four versus 2.0 and the prior year.
I will provide a little more color on our equipment inventory on the next slide.
Parts inventory has increased to $96 million at the end of fiscal 2022 from $79 million at the end of the prior year.
This increase is the result of a concerted procurement effort to better ensure parts availability for our customers during the current global supply chain challenges as well as the fourth quarter acquisition of J Cox.
Yeah.
Our rental fleet assets at the end of the fourth quarter decreased to $65 million compared to $78 million at the end of fiscal 2021.
The decrease of $13 million was due to the fourth quarter divestiture of our four Montana and Wyoming construction equipment stores.
We anticipate our fleet size to increase slightly by the end of fiscal 2023 to around $70 million.
As of January 31, 2022, we had $135 million of outstanding Floorplan payables on $752 million of Floorplan lines of credit.
Which leaves us with considerable capacity in our credit lines to handle our equipment financing needs.
Our adjusted debt to tangible net worth ratio was a strong one point, though and is well below three five which is the leverage covenant requirement of our two largest floorplan facilities outside our bank Syndicate agreement.
Turning to slide 14.
The amount of new and used equipment inventories are reflected in the size of the red and blue bars on this slide.
As we've discussed during the past couple of quarters, our inventory turns have accelerated due to the combination of increased customer demand and a tighter supply industry supply of equipment.
At the end of this fiscal year, we drove an inventory turn of 3.4 times give.
Given the favorable industry conditions health of our inventory and ongoing supply chain challenges.
Would anticipate further increases in our equipment turns going forward.
Okay.
On slide 15, we've provided some additional information around our Ukraine exposure.
Given the ongoing conflict in the region, that's impacting our operations.
As we've stated previously this market is less than 5% of our total revenues and assets.
We are providing some additional context around our assets to help with your understanding of what could be at risk.
And in terms of total exposure, we currently have approximately $39 million of assets in our Ukraine business.
Of that approximately 70% or about $28 million is what we would consider higher risk these represent in country inventories.
Fixed assets, such as vehicles and other assets such as customer receivables.
Physical assets of our inventories and vehicles are primarily dispersed across the northern and western sections of Ukraine.
From a currency perspective, our exposure is limited as our net monetary assets denominated in <unk> is currently below $2 $5 million.
However, due to currency conversion restrictions on the freedom.
This amount may grow in the future importantly.
Importantly, due to the Ukrainian governments classification of agriculture, as a critical industry, our operations and Ukraine have very recently been able to convert some or even that to U S dollars to pay for critical parts into our invoices.
This is an improvement and restrictions from just a few days ago.
On an operating basis.
Filmmaking efforts to help our customers when and where possible keep our doors open.
As you can appreciate the environment is very fluid, but we are seeing farmers preparing for and in some cases, beginning spring planting activities and less impacted areas of our footprint.
That said activity has understandably much lower than normal and we believe we have taken a conservative approach to our current your expectations for these operations.
Have modeled Ukraine revenues to be down approximately 75% versus prior year, which could which would result in associated loss of approximately <unk> 25 per share in fiscal 2023 due to unabsorbed expenses.
Such Unabsorbed expenses include the assumption that full labor costs for all employees will be incurred for the full year.
Please note that this.
Estimated loss does not account for any possible asset impairments that may arise.
With that I'll shift to slide 16, and take you through our formal fiscal 2023 full year modeling assumptions.
While our business is carrying significant momentum into the new year the environment remains fluid.
Apply chains have yet to recover.
Inflationary pressures continue to grow and as I just discussed the level of disruption of our business in Ukraine, Ukraine remains to be seen.
Thus please keep in mind that there is a higher degree of uncertainty in these assumptions compare to a normal operating environment.
For the Agriculture segment, our initial assumption is for revenue growth in the range of up 22% to 27%.
Which importantly includes a full year revenue contribution from our J Cox acquisition that closed in December 2021, as well as partial year revenue contribution from the marks machinery acquisition, which is anticipated to close in April 2022.
For the construction segment. Our initial assumption is for revenue to decrease to in the range of down 12% to 17%.
Impacting this assumption is the divestment of our five construction equipment stores in Montana, Wyoming, and North Dakota in January and March of calendar, 2022, which accounted for approximately $73 million of combined revenue.
Excluding these revenues from the prior year base, our assumption equates to same store sales growth of up approximately 8% to 13%.
We believe these divestitures will further strengthen our construction segment. We are excited about the construction footprint we have today.
For the International segment, our initial assumption is for revenue growth in the range of down 8% to 13%, which includes the assumption I mentioned on the previous slide of revenue down approximately 75% for our Ukrainian business.
From a diluted earnings per share perspective, we are introducing a fiscal 2023 range of $2 55 to $2.85 per share.
This range includes the revenue assumptions just discussed inflationary expense pressure, particularly in labor related costs, and a 25 cent per share loss modeled for our business in Ukraine.
It does not include the recurrence of the fourth quarter items, making up the 47 cents of EPS I previous previously discussed.
We will update the EPS range and the developments within our Ukrainian business activity as the year progresses.
Regarding tax we anticipate an effective tax rate for the fiscal 2023 of approximately 27%. This.
This rate will likely vary quarter to quarter as profit and loss mix fluctuate due to seasonality within our various international tax jurisdictions, where corporate tax rates vary and valuation allowances exist.
We will provide future updates as necessary regarding regarding any change in our tax rate expectation.
This concludes our prepared remarks.
Operator, we are now ready for the question and answer session of our call.
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Yeah.
Our first questions come from the line of Rick Nelson with Stephens. Please proceed with your questions.
Hi, guys. This is Joe <unk> on for Rick Thanks for taking our question.
I'm wondering if.
I guess, we were wondering if we could get some color on what youre seeing in terms of health for the AG customer given the elevated commodity prices and then what youre seeing in terms of pre sales.
Hey, Joe This is Brian .
You know.
The AG economy barometer.
It did pull back a little bit in in January there too.
Due to.
The rising input costs.
Some of the different pressures customers are facing but shortly after that report came out commodity prices moved sharply upward and so we believe there is very positive sentiment based on the feedback from the growers in our footprint.
As I mentioned in my prepared comments many of them have sold crop at these higher prices recently and they've also taken this opportunity.
To lock in some calendar year 'twenty three.
Crop.
If you look at.
Just yesterday one of the local elevators here your corn.
Over $7, well over $7 soybeans, starting to approach $17 and wheat over $10 or so so the strong commodity price are really.
Bolstering the the customer sentiment.
Again, it was somewhat.
Mitigated by the input costs.
Yeah.
Thus, we're seeing really strong demand.
We've we're getting as many order slots as as we can and.
We've got a strong order board of a pre sales and and certainly demand is outpacing supply at this point.
Thank you that's super helpful. As a follow up in relation to the sale of the two construction stores in the quarter.
Do you think you have any room for further divesture of stores.
Yes, it's both Mark and I met you know.
That was a.
Our strategy and a plan that we embarked on beginning.
About three years ago with the divestiture of our new Mexico stores, and then into our Arizona stores, and then now with our Montana and Wyoming stores and then.
And then most recently with their consumer product store here.
In Fargo, North Dakota, which was more of a R.
Our brand alignment strategy, but so we've done a lot of work there and as we mentioned, we really like our footprint now you are our Colorado stores.
The economy is is a phenomenal.
Phenomenal there theres all kinds of activity on the on the front range and in our locations in Colorado and then the.
The rest of our footprint is in the upper Midwest here and a lot of AG market and a lot of great economies, where we've we've got a great reputation with customers and is really aligned with our our AG footprint and so on.
Yes, we've done a lot of work on that and credit to the team of completing.
Completing that project.
And we feel really good about our construction footprint going forward.
Yeah.
Awesome that is all for me. Thank you guys.
Thank you our next questions come from the line of Mig <unk> with Baird. Please proceed with your questions.
Hey, good morning, everyone. Thanks for taking my questions here.
Good morning Mig.
I'd like to go back to slide four of your presentation.
Very bottom you you talk about supply chain challenges impacting the timing.
Maybe.
Maybe you can give us a little more context in terms of what.
That means relative to your.
Your outlook your full year outlook.
And then.
Related to this you mentioned here that you.
You locked in 2022, new equipment orders in line with availability and revenue forecast I guess.
What.
I'm sort of curious to understand is.
Are you essentially saying that at this point you kind of have the.
Full year 'twenty, two kind of locked in in terms of preorders and you have high visibility on deliveries or.
Is it me reading too much into the statement.
Yes.
Take that and then mark might want to expound a little bit. Thank you for the question as you know the.
The supply side has.
Been very challenged.
Yes, we do have.
Quite good visibility to the model year 'twenty two production.
I think as you know <unk> starts their model year 'twenty three.
Into Q4 and.
And so there will still be.
Some questions around.
The model year 'twenty three production.
We've got a lot of our.
[noise] allocation slides good visibility to that a lot of pre cells are in the pipeline again, that's what we've.
At least our modeling around.
There has been.
Some timing moves.
We've had some build delays shipping delays as all the Oems.
Which can pushed up.
From one quarter to the to the next.
And so we do anticipate that continuing throughout the year.
But overall, we've got a nice supply of pre sales nice to play of orders coming in.
And then the trade ins on those pre cells and a good amount of lease returns are there.
They are expiring this year as well.
And maybe just a little bit more on that I think even going excuse me going back to our fourth quarter. Just ended there was some impact that oney equipment sales it did come in lower than our than what we expected on within our AG and construction.
Segments and some of that is due to the equipment availability and getting the machines.
Machines and getting the units in <unk>.
So does that push so it's just kind of a timing of those revenues that will go into the current year.
That was considered into our modeling assumptions here of that up 20% to 22% to 27 on the AG.
AG side and what we indicated here on the construction side.
So that was part of the consideration for the guidance on modeling assumptions for the current year as well.
Yeah. So I appreciate that that's essentially what I'm trying to figure out here.
Because the fourth quarter revenue was a bit light.
Like you said.
Some of it seems to have flipped it into fiscal 'twenty three maybe maybe you can give us a sense for how much that was relative to your plan. But then is we're as we're thinking about.
Your your statement here that you expect the supply chain challenges to continue through the first half of 'twenty two.
Based on what you know today, how should we be thinking about your revenue cadence through the year more backend loaded than normal seasonality I mean can you give us maybe like a little bit of help first half second half.
And again, you know you, presumably you're talking to the OEM and you have you have an idea as to kind of how they're thinking about delivering this equipment to you that that's.
Really why Matt.
Yes.
Still a lot of unknowns there we don't know exactly when things are going to happen you know obviously the crop this year in commodity prices are going to affect some of this as well I would say in general I think the seasonality of our equipment sales.
We will be in similar to what we've had in the past Theres actually I know, we just kind of indicators in the supply chain not freeing up until the later half, but we do have a good amount of pre sales and some of this push from Q4 into the first part of the year I think that will that will.
So I think all being said the way we're looking at it right now is there's not a lot of difference and if you look at the seasonality very equipment and I'm talking domestically here more so.
But from a domestic standpoint I.
Thank you.
Right now what we're seeing today with some of those assets I just mentioned.
Similar to the seasonality that we've seen.
Last year as an example, except maybe fourth quarter, depending on things getting caught up it could pick up a little bit more in the fourth quarter of this year.
Alright.
The other question I wanted to ask was on inventory turns.
And Mark you mentioned that.
Do you expect inventory turns to move yet again higher this year and I'm sorry.
Sort of curious as to how much higher do you think you can move these inventory turns presumably there is.
There is a limit to where this metric can go can you comment on that at all.
Yeah, there again, it's kind of hard to say, but I do you know with the you know sort of what's happening right now or these are pre sales when they come in they're going out in short order and then when they go up we get the trade it trades in and the trades are generally sold a high percentage of those trades are so so it really just kind of starts multiplying which.
Can have a real <unk>.
Impact on that on that turn number.
How high can it go you know what I mean, it's a I think you started hitting I mean right now I think it's higher than what we would like and that reflects the scarcity of some of this inventory this.
Our equipment out there I think it could reach for this year that might be a little bit of a stretch with some of the UK.
Ukraine.
Ukraine drag that's going to be on that with.
It was down quite a bit, but I don't see a like a four times turn out of the realm of possibility for the year.
That's helpful and last question.
I appreciate all the color on Ukraine, if I'm, if I'm sort of looking at your.
International modeling assumptions.
It seems to me like you're embedding.
Pretty good growth in the Balkans, Germany.
You know in order to.
To get to your guidance.
If we're indeed, assuming Ukraine is down 75%.
And I'm just curious as to what gives you confidence that the growth is going to be there and I'm thinking about the Balkans in particular, Romania, Bulgaria.
Don't you think that some of this conflict could potentially snap.
Farmer competence in terms of Capex in those regions as well.
Thank you.
Yeah, I think that is a.
Good question.
We'll kind of see how things unravel I guess, maybe first of all backing up to the first part of your question, So Ukraine isn't our largest.
Market over there.
We've got other territories that are larger than that so that 75% decrease certainly is impacting it but maybe not quite as much as you would expect.
As far as the other markets I would say, yes, and all of them were expecting some level of increase older over the prior year and quite frankly, so far this year, we're seeing that I think things are looking good.
We'll see how this is spillover with the geopolitical events.
Events in Ukraine, how that <unk>.
Spills over going forward, we're not seeing a big impact right now are one of the impacts you know more from a positive side.
You know obviously the impact on commodity prices. So theres a lot of wheat grown in some of those surrounding Balkan countries that you mentioned.
And they are benefiting right now and being able to sell them at.
Higher prices and.
The ability of their crop this year being sold at higher prices.
As well, but that's something certainly that's part of the the risk or.
The unknowns to our.
Added risk I should say to our modeling assumptions for this year and we'll be monitoring it closely as you will and well.
If you can update itself yes.
And Mark I would just add you know.
Certainly there is some anxiety in the commodity prices excellent and they are experiencing as well, but also just the growing conditions.
Very ample moisture much improved growing conditions the false ceded.
<unk> came through the winter very nice and so that's looking very positive as well.
Yeah. So maybe also you know we've had some recent expansion in Romania into some really really good farming areas and stuff and we're starting to get some of the return on some of those Azam store expansions in the some some really good farming areas too. So I think that's helping that country a lot too.
Alright appreciate it guys good luck.
Thanks, Mike.
Thank you our next questions come from the line of Steve Dyer with Craig Hallum. Please proceed with your questions.
Oh, Thanks, good morning, guys.
Sort of sit here going into the main planting season, how do your preorders for many customers this year compared to previous years at this time and then have you seen any changes in the last month or two sort of given the commodity spike.
Hey, Steve This is Bryan.
Yeah.
As I mentioned the.
The pre sales are very strong as strong as they've ever been.
There was a.
You know a month ago, there of farmer sentiment had backed off just a little bit from some extremely high levels that we experienced all throughout Q4 last year after.
After the crop came in with better than expected yields throughout our footprint as the prices have continued to climb and also then inputs had continued to climb so as as prices backed off a little bit there.
In January that had ticked downward and we had a little bit of of let up but again still a dimmed.
Demand still well outpacing supply so we could afford a little bit of that but but but then they took a took off again here in the last 40 days or so.
Now as an example with with corn.
Well over another Buck.
Since then.
And we to another two bucks in soybeans and other.
250, since then so a.
Very very robust again, and then you just take the the planting conditions out there again, we had a nice fall and a lot of our footprint. The land got worked really well.
They've got a lot of land improvements done.
Some of the moisture got replenished with with some good snowfall and and the snow is coming off nice here that looks like farmers could potentially get in in a very timely fashion and potentially have a very nice spring planting. So that's also driving positive sentiment so.
So lot of activity.
Our order board and.
As I mentioned, we're trying to get our hands on everything we can.
Got it that's helpful. So the supply side, obviously remains.
Pretty tight from an inventory perspective cause your guidance.
Sort of imply that it loosened a little bit in the back half of the year sort of similar.
Similar to <unk> question or is it sort of assume that it's.
Yes, it's pretty tight all year long I guess, what I'm trying to get at as demand remains strong and probably will give them commodity prices.
If the inventory starts to flow a little bit better than expected in the second half of the year or is there sort of upside to your plan and what you guys are thinking or does it feel pretty locked from here.
Yes, Steve I'll, just comment quick and let mark primarily win there but.
Yeah. It is fluid and we certainly could see.
Some puts and takes from quarter to quarter here as things shift.
But it's.
It is strong looking throughout the year.
Again I'd come of farmers can lock in even into 2023 pricing.
With these price levels really behooves them to do that and there are a lot of growers working closely with their advisors in and doing that so.
Certainly could be some potential uptick if things did really loosen up in the back half.
Right, yes so.
Yeah, and just to stay the same I think.
We've got it modeled pretty tight to what we expect the deliveries to be and if there's upside in those deliveries and we get more than expected I think there is some upside potential to our guidance.
And Stuart if you listen to you know our main suppliers call here as the recent call our last call that you'd already talked about.
The supply side being tighter in the first half and probably getting some improvement in the second happened and we tend to be somewhat aligned with that so we can pretty much sell what we can get so the more we can get the more we will sell them like I say, that's so that's good news.
Back half could potentially be a little bit better.
Got it thanks, guys last one for me.
The increase in manufacturing incentives was that a one time benefit or is that something we should sort of assume going into fiscal 'twenty three year from a margin perspective.
Yes, so the manufacture incentives. So this is kind of a incremental item that happened no. This isn't something that happens very often it's been a while since we've achieved something like this it is.
Has metrics involved with it that is more of a cliff.
You know in nature and that either you get it and it's kind.
Kind of a higher amount like this or you don't.
And then there's nothing that's why it kind of lumped into the fourth quarter here on us we.
We do not have this.
Embedded in our guidance for the current year at a it is available in the current year would be available, but we are not building it into our guidance for the current year.
Right got it thanks guys.
Thank you our final question is of the call.
That will come from the line of Larry de Maria with William Blair. Please proceed with your questions.
Hi, Thanks, good morning, everybody.
Just picking up where that would have left off.
Manufacturing incentives were obviously significant benefit of the 47% benefit overall what are some of the puts and takes of why you would or would not get it this year.
The surprise positive surprise and now it becomes a tough comp but are there.
Payable this year and obviously you have a nice girl embedded what are the drivers going to be to get that.
Yeah, Larry just for competitive reasons, we don't want to get into all of our suppliers don't want us to get into it publicly as far as what the what the drivers of that metric is.
There are other incentive programs, if you will for manufacturers that.
At <unk>.
Exist out there that's part of our regular kind of business. This this particular metric involved with this as more of a cliff type event.
Event like I've.
I mentioned, but.
For competitive reasons, we just can't get into that are the.
The details of that.
Okay.
And shifting over maybe to Ukraine, what is some of the options around the business to limit losses.
You know what.
Stay there and ask you there et cetera, and what are the kind of what kind of help are you getting from Phoenix to this point and then finally the.
Inventory you have on order for Ukrainian presumably add some can you divert that to other regions are as yet.
I'm more left to be taken by C. H.
Okay.
Well, maybe talk a little bit to begin with to that are maybe 25 cents and maybe puts and takes there. So obviously the revenue side. We commented on from an expense standpoint. It does have some reduced expenses.
Expenses involved but more from a variable type expense standpoint, the assumption that we have in here is like I mentioned, we continue to pay all employees throughout the year, even with the lower level of.
The revenue base that we're talking about.
The other thing that's on here too is and the reason why it's making it a little bit higher bottom line EPS impact is the fact that we've got a valuation allowance so theres no.
Income tax benefit.
Assumed in that.
Is there as well.
Dave I guess I'm most of machinery, there Laurie as tier two engines and if so which as you know.
There are still other markets that have two engines and some of the some of those owners can be converted or upgraded to the two tier four to tier four b law sales in other countries, but we haven't we've I.
I think we've done a really good job of minimizing our exposure in moving some of the inventory is down and they're pretty much spread all around so we.
We feel pretty good where we're at there right now.
We've been working on this for basically all last year and potentially that's something that could.
Could happen so.
And he's seen H. Thanks.
David has seen H doing much to help you guys obviously.
It impacts you guys financials, but you know you're supporting.
They're always good partners and I think they've made.
They came out with Brexit the statement was made a nice humanitarian.
Nation to create and stuff.
Let's say, they're always good partners and I think you know collaboratively work together and try to.
The peso or.
A pretty.
Sure.
Hum pretty tough situation over there, but like I said the most worried at all we're just really focused on our employees the wellbeing of our employees.
The safety of our employees and our customers.
And we'll know more I mean every week things kind of changed a little bit and we will keep everybody abreast of the developments.
Okay, and then last quick question here.
As it relates to the orders how long.
Are your orders out to either in calendar fiscal year.
It sounds like there's obviously <unk>.
Sales into next year, how long are we looking at how long do you worry about extend and you said that the industry is short equipment, so and we're going to hit your guidance assumed something that you think you can hit but.
How short.
Do you think the.
1 billion equipment is versus where you could do this year.
Yes, Larry.
Supplies are really tight as far as the lead times.
It varies a lot by product category. So.
Some of the overseas product overseas build products that some of the batch built product and if you've taken overseas that build product.
Can get into some very long lead times, you know well well over a year you're out.
Others, we still can get yet in this calendar year.
Albeit towards.
At the end of the calendar year at this point, but so it very much is product specific and even manufacturers specific.
Okay. Thank you.
Yeah.
Thank you we have reached the end of our question and answer session I would now like to turn the call back over to Mr. David Meyer for any closing comments.
Okay. Thank you everyone for your time today and your interest in Titan machinery, and we look forward to updating you on our progress on our next call. So have a good day everybody.
This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.