Q2 2024 Titan Machinery Inc Earnings Call
Speaker 1: Greetings and welcome to the Titan Machinery, Inc. Second Quarter Fiscal 2024 Earnings
Greetings and welcome to the Titan Machinery, Inc. Second quarter fiscal 2024 earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker 1: At this time, all participants are on the listen-only mode. A question and answer session will follow the formal presentation.
Speaker 1: If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this...
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Jeff Sonic of ICR. Thank you. Please go ahead.
Speaker 1: I would now like to turn the conference over to your host, Mr. Jeff Sonick of ICR. Thank you. Please go ahead.
Speaker 2: Thank you. Good morning, ladies and gentlemen, and welcome to Titan Machinery second quarter fiscal 2024 earnings conference call. On the call today from the company are David Meyer, Chairman and Chief Executive Officer, Bo Larson, Chief Financial Officer and Brian Knudson, President and Chief Operating Service.
Thank you and good morning, ladies and gentlemen, and welcome to Titan machinery second quarter fiscal 2024 earnings conference call on the call today from the company are David Meyer, Chairman and Chief Executive Officer, Bo Larsen, Chief Financial Officer, and Brian <unk>, President and Chief operating Officer.
Speaker 2: By now, everyone should have access to the earnings release for the fiscal second quarter ended July 31, 2023, which went out this morning at approximately 6.45 a.m. Eastern Time.
By now everyone should have access to the earnings release for the fiscal second quarter ended July 31, 2023, which went out this morning at approximately 645 a M. Eastern time, if you've not received the release it's available on our Investor Relations page on Titans website at IR Titan machinery Dot Com this call is being wet.
Speaker 2: not received the release. It's available on our investor relations page on Titan's website at ir.titanmachinery.com.
Speaker 2: call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks. You may access this presentation now by going to Titan's website again at ir.titenmachinery.com.
Cast and a replay 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. This presentation now by going to Titans website again at IR at Titan machinery Dot com.
Speaker 2: The presentation is available directly below the webcast information in the middle of the
The presentation is available directly below the webcast information in the middle of the page.
Speaker 2: We'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to the
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.
Speaker 2: not guarantee future performance and therefore undue reliance should not be placed.
Statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
Speaker 2: 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 Titan's most recently filed annual report on Form 10-K as updated in subsequently filed quarterly reports on
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 as updated in subsequently filed quarterly reports on Form 10-Q, these risk factors containing.
Speaker 2: factors containing more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward.
A more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements.
Speaker 2: 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.
Sept 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.
Speaker 2: conclusion of our prepared remarks. We will open the call to take your questions. With that, I'd now like to introduce the company's Chairman and CEO , Mr. David Meyer. David, please go ahead.
At the conclusion of our prepared remarks, we will open the call to take your questions with that I'd now like to introduce the company's chairman and CEO , Mr. David Meyer.
David Please go ahead.
Speaker 3: Thank you, Jeff. Good morning, everyone. Welcome to our second quarter fiscal 2024 earnings conference call.
Thank you Jeff Good morning, everyone welcome to our second quarter fiscal 'twenty 'twenty four earnings conference call.
Speaker 3: On today's call, I provide a summary of our results that Brian Knutson, our President and Chief Operating Officer, will give an overview for each of our business segments. Bo Larson, our CFO , will then finance results.
On today's call I'll provide a summary of our results and Brian can loosen, our president and Chief operating officer will give an overview for each of our business segments Bo Larsen. Our CFO will then review financial results for.
Speaker 3: for the second quarter of fiscal 2024, and conclude with some commentary around fiscal 24, 2024, full year expectations. We will also follow up on the O'Connor's acquisition that was announced yesterday with a high level overview.
For the second quarter of fiscal 'twenty, 'twenty, four and conclude with some commentary around in fiscal 'twenty, four 'twenty 'twenty four or full year expectations.
We'll also follow up on the old counters acquisition that was announced yesterday with a high level overview.
Speaker 3: We carried a strong momentum into the second quarter with revenue increasing 29.4% to 642.6 million dollars. This performance reflects double digits same store revenue growth across all three ever operating segments that combined 86 million dollar contribution from the Heartland and Pioneer acquisition.
We're carrying a strong momentum into the second quarter with revenue, increasing 29, 4% to $642 $6 million. This performance reflects double digit same store revenue growth across all three of our operating segments combined 86 million dollar contribution from the Heartland and Pi.
And are acquisitions.
Speaker 3: Our organic revenue growth was also balanced across equipment, arts and service. Each of them performed well and also delivered healthy growth margins.
Our organic revenue growth was also balanced across equipment parts and service each of what performed well and also delivered healthy gross margins taken.
Speaker 3: Taken together, we generated a consolidated pre-text margin of 6.5%.
Taken together, we generated a consolidated pre tax margin of six 5%.
Speaker 3: food earnings for sure of a dollar and 38 cents, which is more than a 25% increase over the last year's second quarter earnings performance, which once again demonstrates a strength of our organization and the efficiency by which we are operating the business.
Diluted earnings per share all of the dollar and 38 cents, which is more than a 25% increase over last year's second quarter earnings performance, which once again demonstrates the strengths of our organization and the efficiency by which we are operating the business.
Speaker 3: Next, I'll like to provide an update on our equipment inventory.
Next I'd like to provide an update on our equipment inventory.
Speaker 3: Consistent with our prior expectations, we're seeing some improvement in equipment availability of several equipment categories, but do not anticipate receiving treatments of high horsepower tractors, self propelled sprayers, or wheel loaders, in excess of customer retailed units.
Concerning the sense with our prior guidance consistent with our prior expectations. We are seeing some improvement in equipment availability of several equipment categories, but do not anticipate receiving shipments of high horsepower tractors self propelled sprayers or wheel orders in excess of customer retail units.
Speaker 3: We continue to see the man for these products sustained at high levels and expect that to continue into next year.
At Kensington, we continue to see demand for these products sustained at high levels.
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To continue into next year.
Speaker 3: With our suppliers production capacities being limited, we do not anticipate replenishment towards targeted, minimum stocking levels for these equipment categories until at least the second half of calendar year 2024.
What's our suppliers' production capacities being limited, we do not anticipate replenishment towards targeted minimum stocking levels for these equipment categories until at least the second half of calendar year 'twenty 'twenty four.
Speaker 3: This is undoubtedly limiting our sales levels by a very part of the team for achieving these record results given all of these constraints.
This is undoubtedly eliminating our sales levels I am very proud of the team for achieving these record results given all of these constraints.
Speaker 3: Now as we may have seen last night, we're also very excited about our definitive agreement to acquire our conners, the largest case-ciates dealership group in Australia, and a market leader in high-horsepower equipment.
No as you may have seen last night. We're also very excited about our definitive agreement to acquire O'connor's the largest case IH dealership group in Australia, and a market leader in high horsepower equipment.
Speaker 3: Well, Conner's has a seasoned management team with a proven track record of driving solid financial performance through a combination of organic and acquisitive growth for nearly six decade.
O'connor's as a seasoned management team with a proven track record of driving solid financial performance through a combination of organic and acquisition acquisitive growth for nearly six decades decades.
Speaker 3: Additionally, the operating metrics, core values, and customer-centric focus highly aligns with our own, make to them a great partner for our entry into the Australian agriculture market.
Additionally, the operating metrics core values and customer centric focused highly aligns with our own.
Because I'm a great partner for our entry into the Australian agriculture market.
Speaker 3: And their fiscal year would agenda on June 30th, 2023, what counters generated revenue of $258 million and an EBITDA of $21.4 million, which demonstrates the scale of the network they've developed.
And their fiscal year, which ended on June 30th 2023.
Counters generated revenue of $258 million in it.
And an EBITDA of 21 $21.4 million, which demonstrates the scale of the network they've developed.
Speaker 3: Combined the Titan machinery enterprise, including the O'Connor's acquisition, is expected to generate annualized revenue of approximately $2.9 billion and approximately $200 million and adjusted it EBITDA, which makes us an even more formidable player as a global agriculture and construction equipment dealer.
Combined the Titan machinery enterprise, including the O'connor's acquisition is expected to generate annualized revenue of approximately $2.9 billion and approximately approximately $200 million and adjusted EBITDA, which makes us an even more formidable player as a global.
Culture at construction equipment dealer.
Speaker 3: Australia is the largest we producer in the Southern hemisphere and the third largest weed exporter only behind Europe and Russia
Uh huh.
Australia is the largest producer in the southern hemisphere, and the third largest wheat export or only behind Europe and Russia.
Speaker 3: Well, counterstores are located in Australia's highly productive grain belt, which produces 60% of Australia's wheat.
Congress stores are located in Australia is highly productive grain belt, which produces 60% of Australia is weak.
Speaker 3: The Australian Markers benefiting from strong fundamentals are being driven by enhanced productivity, acong is a scale and farmer profitability.
Yes, Australia market is benefiting from strong fundamentals are being driven by enhanced productivity economies of scale and farmer profitability.
Speaker 3: Well, Congress focused on high horse power cash crop production equipment and Australia's grain belt region is being supported by combined farm expansions and increasing adoption of precision egg technology that enhances productivity and propuls.
O'connor is focus on high horsepower, a cash crop production equipment and Australia as grain belt region is being supported by combined farm expansions and increasing adoption of precision AG technologies that enhances productivity in crop yields.
Speaker 3: These trends are very similar to that of Titans domestic and European agriculture business and coupled with Australia's native English language and comparable legal system. This traction both well for a seamless integration that carries over into our shared values and customer centric focus.
These trends are very similar to that of Titans domestic and European agricultural business, coupled with Australia as native English language in Canberra comparable legal system. This transaction bodes well for a seamless integration that carries over into our shared values and customer centric focus.
Speaker 3: We believe it also provides Titan with the unique operational synergy opportunities to expand our global customer service capabilities and capacity across the network.
We believe it is also provide has tightened with a unique operational synergy opportunities to expand our global customer service keep it capabilities and capacity across the network.
Speaker 3: The Australian market is at the early stages of dealer consolidation. And through a combined approach where we are able to leverage our counters existing leadership team and bring tightness brought our capabilities and resources to bear, we believe we are well positioned to capitalize on continued opportunities to unlock network synergies while driving market share games.
Yes, Australia market is in the early stages of dealer consolidation and through a combined approach, where we're able to leverage o'connor's existing leadership team I've Green tires brought tightens broader capabilities and resources to bear. We believe we are well positioned to capitalize on continued opportunities to unlock network since.
Jeez, while driving market share gains.
Speaker 3: Together we will be able to build upon their presence in the heart of the Australian Green Belt and capitalize on operational synergies across our three continent footprint consisting of some of the best global agricultural markets generating a significant value for our shareholders.
Together, we believe we will be able to build upon their presence in the heart of the Australia and Green belt.
Capitalize on operational synergies across our three continent footprint, consisting of some of the best global agricultural markets generating significant value for our shareholders.
Speaker 3: We are excited to welcome the O'Connor's Management team and employees to the Titan machinery family and what forage was smooth transaction closing and integration process.
We're excited to welcome the O'connor's management team and are poised to tighten to the Titan machinery family and well look forward to a smooth transaction closing and integration process.
Speaker 3: We expect closing to be completed in Q4 of calendar year 2023.
We expect closing to be completed in Q4 of calendar year 2023.
Speaker 3: In closing, we remain highly encouraged by the ongoing demand we are seeing in our business. We are looking hard to get our customers their equipment as OEM production and delivery schedules allow.
In closing we remain highly encouraged by the ongoing demand we're seeing in our business and we're looking working hard to get our customers their equipment as OEM production and delivery schedules of law.
Speaker 3: Our team is ready to support our customers through the very busy harvest and year-in construction seasons in the second half of our fiscal year. With that, I will turn the call over to Brian Knutson for his segment review.
Our team is ready to support our customers with a very busy harvest in ear and construction seasons in the second half of our fiscal year with that I will turn the call over to Brian can loosen for our segment review.
Yeah.
Thank you David and good morning, everyone.
Speaker 4: Today I will provide a recap of our fiscal second quarter segment drivers and then review some of our high level expectations for the balance of fiscal year 2024 across our respective segments.
Today, I will provide a recap of our fiscal second quarter segment drivers and then review some of our high level expectations for the balance of fiscal year 'twenty 'twenty four across our respective segments.
Speaker 4: I will begin with our domestic agriculture segment, which produce strong organic growth with the same store sales that increase 10%.
I will begin with our domestic agriculture segment, which produced strong organic growth with same store sales that increased 10%.
Speaker 4: As you heard from David, we continue to be equisitive and the O'Connor's transaction is particularly exciting.
As you heard from David we continue to be acquisitive in the O'connor's transaction is particularly exciting.
Speaker 4: Our organic growth in the egg segment was further bolstered by revenue contributions from our recent acquisitions in our domestic market.
Organic growth in the AG segment was further bolstered by revenue contributions from our recent acquisitions in our domestic market.
Speaker 4: We are also particularly pleased with our ability to maintain our strong pre-tax margin execution, which remain consistent with the prior year period at 7%.
We are also particularly pleased with our ability to maintain our strong pretax margin execution, which remained consistent with the prior year period at 7%.
Speaker 4: Although spring planting got off to a late start this year in some of our northern markets, crop progress across our footprint is largely back on track following some timely precipitation.
Although spring planting got off to a late start this year in some of our northern markets crop progress across our footprint is largely back on track following some timely precipitation.
Speaker 4: Although this participation was inconsistent across the upper Midwest, yield potential has improved from earlier this summer, which is encouraging and is helping improve farmer sentiment.
Although this precipitation was inconsistent across the upper Midwest yield potential has improved from earlier this summer, which is encouraging and is helping improve farmer sentiment.
Speaker 4: Additionally, with the planting delay, we realize some additional parts and service activity that move from Q1 into Q2, which is also reflected in the strong growth that we reported today.
Additionally, with the planting delay we realized some additional parts and service activity that moved from Q1 into Q2, which is also reflected in the strong growth that we reported today.
Speaker 4: As David touched on in his commentary, we are still experiencing tight supply in several of our highest-selling equipment categories.
As David touched on in his commentary, we are still experiencing tight supply in several of our highest selling equipment categories.
Speaker 4: Our dedicated inventory procurement team continues to work tirelessly to obtain as many of those units as we can from our OEM partners, other dealers, lease returns, and through the used market.
Our dedicated inventory procurement team continues to work tirelessly to obtain as many of those units as we can from our OEM partners other dealers lease returns and through the use market.
Speaker 4: Most other categories of equipment have returned to more normalized levels. And this same inventory procurement team has been monitoring inventory trends and it made the appropriate adjustments to purchasing volumes to optimize inventory levels and will continue to do so on a forward looking base.
Most other categories of equipment have returned to more normalized levels and the same inventory procurement team has been monitoring inventory trends and it made the appropriate adjustments to purchasing volumes to optimize inventory levels and we'll continue to do so on a forward looking basis.
Speaker 4: While we remain focused on pre-cell, especially for cash crop equipment, we feel good about where we have landed and are happy to have replenished stocking levels for many equipment categories that we can serve our customers well, despite not yet being able to procure enough equipment in our key cash crop product categories.
While we remain focused on pre sell especially for cash crop equipment. We feel good about where we have landed and are happy to have replenished stocking levels for many equipment categories that we can read that we can serve our customers well.
Despite not yet being able to procure enough equipment and our key cash crop product categories.
Speaker 4: We also have a team dedicated to our inventory valuation process in regards to ongoing mark to mark in As well as determining what price we should offer a customer for a trade in unit
We also have a team dedicated to our inventory valuation process in regards to ongoing mark to market as well as determining what price we should offer a customer for a trading you in.
Speaker 4: This team also intensely monitors internal and external market trends and is continually adjusting our trade in pricing on a real time basis to ensure healthy margins on future use equipment sales.
This team also intensely monitors internal and external market trends and is continually adjusting our trade in pricing on a real time basis to ensure healthy margins on future used equipment sales.
Speaker 4: are used to equipment inventories are in a very healthy position. Due to our industry leading inventory management processes, which are the result of our scale, decades of experience, and continuous improvements.
Our used equipment inventories are in a very healthy position due to our industry, leading inventory management processes, which are the result of our scale decades of experience and continuous improvements.
Speaker 4: Looking to the balance of fiscal 2024 for our agriculture segment, we remain on track with the modeling assumptions that we laid out at the beginning of the year.
Looking to the balance of fiscal 'twenty 'twenty four for our agriculture segment, we remain on track with our modeling assumptions that we laid out at the beginning of the year.
Speaker 4: Net Farm income remains well above historical averages and continues to support demand for equipment purchases.
Net farm income remains well above historical averages and continues to support demand for equipment purchases.
Speaker 4: Further with healthy farmer profitability remaining in place, coupled with continued tax incentive throughout section 179 of bonus depreciation, the environment is setting up well for a second, strong second half of the year.
Further with healthy farmer profitability remaining in place coupled with continued tax incentives routing section 179 and bonus depreciation the environment is setting up well for a second half strong second half of the year.
Speaker 4: Although equipment shortages in cash crop categories are expected to persist,
Although equipment shortages and cash crop categories are expected to persist.
Speaker 4: We do foresee an increase in available slots as we move through calendar year 2024.
We do foresee an increase in available slots as we moved through calendar year 2024.
Speaker 4: Nonetheless, long lead times, couple with strong fundamentals have our order board consistent with our prevailing expectation that the industry is well positioned heading into next year.
Nonetheless long lead times, coupled with strong fundamentals have our order board consistent with our prevailing expectation that the industry is well positioned heading into next year.
Now shifting to our domestic construction segment.
Speaker 4: Construction activity was strong throughout our footprint during our fiscal second quarter and we generated another great performance in all areas of the business with same-store sales growth of 18.5 percent. An excellent pre-tax margin expansion of 60 basis points to 6.2 percent.
Construction activity was strong throughout our footprint during our fiscal second quarter and we generated another great performance in all areas of the business with same store sales growth of 18, 5% an excellent pre tax margin expansion of 60 basis points to six 2%.
Speaker 4: We also achieved rental fleet dollar utilization of 30.2% and absorption of 91.2%.
We also achieved our rental fleet dollar utilization of 32% and absorption of 91, 2%.
Speaker 4: General construction activity remains strong. An infrastructure, energy, and agriculture projects continues to support demand for construction equipment, which has resulted in your-to-date segment revenue growth of 13%, which is above the initial modeling assumptions we've provided at the beginning of the 2024-5th year.
General construction activity remains strong in infrastructure energy and agriculture projects continue to support demand for construction equipment, which has resulted in year to date segment revenue growth of 13%, which is above the initial modeling assumptions, we provided at the beginning of the 2024 Fiske.
All year.
Speaker 4: Although equipment availability is also a limiting factor in the near term for certain types of construction equipment, we continue to see a favorable backdrop as a result, and as a result are increasing our full year modeling assumptions for this segment today.
Although equipment availability is also eliminating factor in the near term for certain types of construction equipment. We continue to see a favorable backdrop as a result.
And as a result are increasing our full year modeling assumptions for this segment today.
Speaker 4: Now moving to an overview of our international segment, which represents our business within the countries of Bulgaria, Germany, Romania and Ukraine.
Now moving to an overview of our international segment, which represents our business within the countries of Bulgaria, Germany, Romania and Ukraine.
Speaker 4: Same source sales increase 15.9% in the fiscal second quarter and pre-tax margin remained very healthy at 6.1%.
Same store sales increased 15.9% in the fiscal second quarter and pre tax margin remained very healthy at six 1%.
Speaker 4: Conditions varied across our European footprint with excellent growing conditions in Germany and Ukraine, contrasting with those of Bulgaria, which is experiencing dry growing conditions, which are also present in South Eastern Romania, although to a lesser extent.
Conditions varied across our European footprint with excellent growing conditions in Germany in Ukraine, contrasting with those of Bulgaria, which is experiencing dry growing conditions, which are also present in south eastern Romania, although to a lesser extent.
Speaker 4: As a part of our footprint build-out strategy in our current German market, we acquired an adjacent two-store dealership complex in Germany during the second quarter.
As a part of our footprint build out strategy the strategy and our current German market, we acquired an adjacent to store dealership complex in Germany during the second quarter.
Speaker 4: Looking forward to the balance of the year, we are updating our modeling assumptions to reflect somatic conservatism given our year-to-date growth of 7.8%, which was at the low end of our prior range.
Looking forward to the balance of the year, we are updating our modeling assumptions to reflect somatic conservatism given our year to date growth of seven 8%, which was at the low end of our prior range.
Speaker 4: We continue to expect European ag fundamentals to moderate with flat industry volumes given the ongoing conflict in Ukraine and the challenges with equipment availability that we see across the other segments of our business.
We continue to expect European AG fundamentals to moderate with flat industry volumes, given the ongoing conflict in Ukraine.
And the challenges with equipment availability that we see across the other segments of our business.
Speaker 4: Before it turn the call over to Beau, I'd like to echo David's comments with respect to the O'Connor's team.
Before I turn the call over to Bo I'd like to Echo David's comments with respect to the o'connor's team.
Operator: and Welcome to the Titan Machinery Inc. 2nd quarter, fiscal 2024 earnings call. At this time, all participants are in the listen only mode.
Speaker 4: A few months back I had the privilege of curing all their stores and traveled their entire footprint.
A few months back I had the privilege of touring all their stores and traveled their entire footprint.
Operator: A question and answer session will follow the formal presentation. If anyone should require upward assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker 4: Doing so, confirm my expectations of their highly productive agriculture landscape. And I met a number of wonderfully talented people who make their organization so special.
Doing so would confirm my expectations of their highly productive agriculture landscape and I met a number of wonderfully talented people who make their organization. So special.
Jeff Sonnek: I would now like to turn the conference over to your host, Mr. Jeff Sonnek of ICR. Thank you. Please go ahead. Thank you.
Speaker 4: Throughout my visit, I was very encouraged by how similar our company cultures are, which is a testament to the focus that their leadership team has brought to their business over the years.
My visit I was very encouraged by how similar our company cultures are which is a testament to the focus at their leadership team has brought to their business over the years.
Jeff Sonnek: Good morning, ladies and gentlemen, and welcome to Titan Machinery 2nd quarter, fiscal 2024 earnings conference call. On the call of the day from the company, our David Meyer, Chairman and Chief Executive Officer, Bo Larson, Chief Financial Officer and Bryan Knutson, President and Chief Operating Officer. By now, everyone should have access to the earnings release for the fiscal 2nd quarter ended July 31, 2023, which went out this morning at approximately 6.45 a.m.
Speaker 4: We are extremely excited to welcome them to the Titan family and look forward to a smooth integration.
We are extremely excited to welcome them to the tightened family and look forward to a smooth integration.
Speaker 4: With that, I just want to thank all the members of our Titan family for their hard work and dedication to our customers, which have produced fantastic year-to-date results.
With that I just wanted to thank all the members of our tightened family for their hard work and dedication to our customers, which have produced fantastic year to date results.
Speaker 4: Now I will turn the call over to Bow to review our financial results in more detail.
Now I will turn the call over to Bo to review our financial results in more detail.
Oh.
Thanks, Brian and good morning, everyone.
Jeff Sonnek: If you've not received the release, it's available on our Invest Relations page on Titan's website at ir.titanmachinery.com. This call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to a company today's prepared remarks. You may access this presentation now by going to Titan's website again at ir.titanmachinery.com. The presentation is available directly below the webcast information in the middle of the page.
Speaker 4: Starting with our consolidated results for the fiscal 2024 second quarter, total revenue was $642.6 million, an increase of 29.4% compared to the prior year period.
Starting with our consolidated results for the fiscal 2024 second quarter total revenue was $642 6 million, an increase of 29, 4% compared to the prior year period.
Speaker 4: our equipment revenue increased 28% versus the prior year period, led by incremental revenue from our recent acquisitions, as well as double digit same store sales growth across all three of our reporting segments, which combined for a 12.1% increase on the same store basis.
Our equipment revenue increased 28% versus the prior year period led by incremental revenue from our recent acquisitions as well as double digit same store sales growth across all three of our reporting segments, which combined for a 12, 1% increase on a same store basis.
Jeff Sonnek: We'd 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 risk and uncertainties including those identified in the risk factor section of Titan's most recently filed annual report on form 10K.
Speaker 4: This cross was also visible across our other revenue streams as well, with our parts revenue increasing 39.7%, service up 27.3%, and rental and other revenue up 11.6% versus the prior year period.
This growth was also visible across our other revenue streams as well with our parts revenue, increasing 39, 7% service up 27, 3% and rental and other revenue up 11, 6% versus the prior year period.
Speaker 4: Rose profit for the second quarter increased 29.9% to $133 million.
Gross profit for the second quarter increased 29, 9% to $133 million.
Speaker 4: Drows profit margin increased by 10 basis points to 20.8%. Driven primarily by a slight mix shift to higher margin parts cells relative to equipment cells.
Profit margin increased by 10 basis points to 28% driven primarily by a slight mix shift to higher margin parts sales relative to equipment sales.
Jeff Sonnek: As updated in subsequently filed quarterly reports on form 10Q. These risk factors contain 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.
Speaker 4: Operating expenses were $88.8 million for the second quarter of fiscal 2024, compared to $68.8 million in the prior year.
Operating expenses were $88 $8 million for the second quarter of fiscal 2024 compared to $68 $8 million in the prior year.
Speaker 4: The year-rear increase of 28.9% was primarily additional operating expenses due to acquisitions that have taken place in the past year, as well as an increase in variable expenses associated with the increased sales.
The year over year increase of 28, 9% was primarily additional operating expenses due to acquisitions that have taken place in the past year as well as an increase in variable expenses associated with the increased sales.
Operator: At the conclusion of our prepared remarks, we'll open the call to take your questions.
David Meyer: With that, I'd now like to introduce the company's chairman and CEO, Mr. David Meyer. David, please go ahead. Thank you, Jeff. Good morning, everyone. Welcome to our second quarter fiscal 2024 earnings conference call. On today's call, I provide a summary of our results that Brian Knutson, our president and chief operating officer, will give an overview for each of our business segments. Volarsson, our CFO, will then finance results for the second quarter of fiscal 2024 and conclude with some commentary around fiscal 2024, 2024 for your expectations.
Speaker 4: That said, we are pleased to achieve the modest operating leverage of 10 basis points versus the prior year as a percentage of sales.
That said, we are pleased to achieve some modest operating leverage of 10 basis points versus the prior year as a percentage of sales.
Speaker 4: Floor plan and other interest expense was $3.7 million, as compared to $1.6 million for the second quarter of fiscal 2023. Primarily due to higher interest bearing floor plan borrowings driven by higher inventory levels.
Floorplan and other interest expense was $3 $7 million as compared to $1.6 million for the second quarter of fiscal 2023, primarily due to higher interest bearing floorplan borrowings driven by higher inventory levels.
Speaker 4: Net income for the second quarter of fiscal 2024 worth $31.3 million, or $1.38 per diluted share. And compared to last year's second quarter net income of $25 million, or $1.10 per diluted share.
Net income for the second quarter of fiscal 2024 was $31 $3 million or $1.38 per diluted share and.
David Meyer: We will also follow up on the O'Connor's acquisition that was announced yesterday with a high-level overview. We carried a strong momentum into the second quarter with revenue increasing 29.4% to 642.6 million dollars. This performance reflects double-digit same-store revenue growth across all three of our operating segments that combined $86 million contribution from the Heartland and Pioneer Acquisition. Our whole gang revenue growth was also balanced across equipment, arts and service, each of which performed well, and also delivered healthy gross margins.
And compares to last year's second quarter, net income of $25 million or $1.10 per diluted share.
Speaker 4: now turning to our segment results for the second quarter. In our agriculture segment sales increased 34.4% to 469.1 million dollars.
Now turning to our segment results for the second quarter.
In our agriculture segment sales increased 34, 4% to $469 $1 million.
Speaker 4: This growth was driven by our acquisitions of Heartland Ag systems and Pioneer equipment, as well as same-store sales growth of 10%, which was achieved on top of a strong performance in the prior year period.
This growth was driven by our acquisitions of Heartland AG systems, and pioneer equipment as well as same store sales growth of 10%, which was achieved on top of a strong performance in the prior year period.
Speaker 4: To thryte the strong quarterly performance, second quarter revenues continue to be constrained by the equipment availability of high-demand cash crop product categories as already touched on during this call.
Despite the strong quarterly performance second quarter revenues continued to be constrained by the equipment availability of high demand cash crop product categories has already touched on during this call.
David Meyer: Taken together, we generated a consolidated pre-text margin of 6.5% due to earnings for sure of $1.38, which was more than a 25% increase over last year's second quarter earnings performance, which, once again, demonstrates the strength of our organization and the efficiency by which we are operating the business. Next, I'd like to provide an update on our equipment inventory. Consistent with our prior expectations, we are seeing some improvement in equipment availability of several equipment categories, but do not anticipate receiving treatments of high horsepower tractors, self-propelled sprayers, or wheel loaders, in excess of customer retailed units.
Speaker 4: Agriculture's segment pre-tax income was $33 million and compared to $24.9 million in the second quarter of the prior year, which implies a pre-tax margin decrease of 10 basis points to 7%.
Agriculture segment pretax income was $33 million and compared to $24 $9 million in the second quarter of the prior year.
Which implies the pretax margin decrease of 10 basis points to 7%.
Speaker 4: our construction segment continued its momentum in the second quarter and grew sales to $82.9 million, up 18.3% compared to the prior year period. Benefitting from broad-based construction activity and improved equipment availability in some equipment categories.
Our construction segment continued its momentum in the second quarter and grew sales to $82 $9 million up 18, 3% compared to the prior year period.
Benefit benefiting from broad based construction activity and improved equipment availability and some equipment categories.
Speaker 4: Pretext income was $5.2 million and compared to $3.9 million in the second quarter of the prior year. And our year-over-year pretext margin increased by approximately 60 basis points to 6.2%.
Pretax income was $5 $2 million and compared to $3 $9 million in the second quarter of the prior year and a year over year pre tax margin increased by approximately 60 basis points to six 2%.
David Meyer: We continue to see the man for these products sustained at high levels and expect that to continue into next year. With our suppliers production capacities being limited, we do not anticipate replenishment towards targeted minimum stocking levels for these equipment categories until at least the second half of calendar year 2024. This is undoubtedly limiting our sales levels by a very part of the team for achieving these record results given all of these constraints.
Speaker 4: International Saga Man sales increased by 16.9% to $90.6 million, which reflects a 2.1% currency tailwind on the strengthening Euro.
In our international segment sales increased by 16, 9% to $96 million, which reflects a 2.1% currency tailwind on the strengthening euro.
Speaker 4: Net of the effect of these foreign currency fluctuations, the segment achieved a sales growth of 14.9%, which included a modest year-reviewed decline in Ukraine as it remains impacted by the ongoing conflict.
Net of the effect of these foreign currency fluctuations the segment achieved sales growth of 14, 9%.
Which included a modest year over year decline in Ukraine as it remains impacted by the ongoing conflict pre.
Speaker 4: Pre-tax income was $5.6 million and compares to $5.9 million in the second quarter of fiscal 2023, which implies a pre-tax margin decrease of 150 basis points to 6.1%.
Pretax income was $5 $6 million and compares to $5 $9 million in the second quarter of fiscal 2023, which implies a pre tax margin decrease of 150 basis points to six 1%.
David Meyer: As we may have seen last night, we are also very excited about our definitive agreement to acquire O'Connor's, the largest case IH dealership group in Australia, and our market leader in high horsepower equipment. O'Connor's has a seasoned management team with a proven track record of driving solid financial performance through a combination of organic and acquisitive goals for nearly six decades. Additionally, the operating metrics, core values, and customer centric focus, highly aligns with our own, make to them a great partner for our entry into the Australian agriculture market.
Speaker 4: Now on to our balance sheet and inventory position. We had cash for $53 million and an adjusted debt to tangible network space of 1.0 as of July 31st, 2023, which is well below our bank's covenant of 3.5.
Now onto our balance sheet and inventory position.
We had cash of $53 million and an adjusted debt to tangible net worth ratio of one point as of July 31, 2023, which.
Which is well below our bank covenant of three five.
Speaker 4: Our total inventory balance at the end of the second quarter was $979.4 million, an increase of approximately $275.5 million during the first six months of this fiscal year.
Our total inventory balance at the end of the second quarter was $979 4 million an increase of approximately $275 $5 million. During the first six months of this fiscal year.
Speaker 4: This increase can be a growth in equipment and parts and inventories of $259.1 million and $15 million respectively.
This increase came via growth in equipment and parts inventories of $259 1 million and $15 million respectively.
David Meyer: In their fiscal year, which ended on June 30, 2023, O'Connor's generated revenue of $258 million and an EBITDA of $21.4 million, which demonstrates the scale of the network they've developed. Combined, the tight machinery enterprise, including the O'Connor's acquisition, is expected to generate annualized revenue of approximately $2.9 billion and approximately $200 million and adjusted it EBITDA, which makes us an even more formidable player as a global agriculture and construction equipment dealer. Australia is the largest wheat producer in the southern hemisphere and the third largest wheat exporter, only behind Europe and Russia.
Speaker 4: Of the total increase, $22 million is attributable to the Pioneer acquisition, which was made during the first quarter.
The total increase $22 million is attributable to the pioneer acquisition, which was made during the first quarter.
Speaker 4: The primary driver of the increase is the improvement in new equipment availability from our OEM partners, as they largely caught up on production outside of those key high-hort power equipment categories that David and Brian both mentioned, which are still on allocation.
The primary driver of the increase is the improvement in new equipment availability from our OEM partners as they are largely caught up on production outside of those key high horsepower equipment categories that David and Brian Both mentioned, which are still on allocation.
Speaker 4: Overall, we are still a bit short of targeted stocking levels of available for sale inventory.
Overall, we are still a bit short of targeted stocking levels of available for sale inventory.
Speaker 4: Driving by some of our AgStore locations, the lack of high horsepower display units is clearly notable.
Driving by some of our AG store locations. The lack of high horsepower display units is clearly notable.
Speaker 4: To put it in perspective, we have 74 Ag dealerships domestically. And at today's industry volumes and cost of equipment, we target a combined $7 million of new and used whole good inventory on average per location.
To put it in perspective, we have 74 AG dealerships domestically and at today's industry volumes and cost of equipment, we target a combined $7 million of new and used whole goods inventory on average per location.
David Meyer: O'Connor stores are located in Australia's highly productive grain belt, which produces 60% of Australia's wheat. The Australian markets benefiting from strong fundamentals are being driven by enhanced productivity, economies of scale, and farmer profitability. O'Connor's focus on high-horsepower cash crop production equipment and Australia's grain belt region is being supported by combined farm expansions and increasing adoption of precision egg technology that enhances productivity and crop yields. These trends are very similar to that of Titan's domestic and European agriculture business, and coupled with Australia's native English language and comparable legal system, this kind of action both well for a seamless integration that carries over into our shared values and customer centric focus.
Speaker 4: which is the minimum we need to have one or two stocking units for sale, demonstration, or loaner for our highest demand categories.
Which is the minimum we need to have one or two stocking units for sale demonstration or loaner for our highest demand categories.
Speaker 4: Add in a couple of weeks backlog to account for pre-delivery inspection work and you get to our target of about $600 million versus the $540 million we are at today for our domestic second.
And in a couple of weeks backlog to account for pre delivery inspection work and you get to our target of about $600 million versus the $540 million. We are at today for our domestic AG segment.
Speaker 4: which implies a shortage of about $60 million. However, if you then consider that backlog remains above targeted levels while we continue to normalize both turnaround times, our available for sale inventory is actually about $100 million short of targeted levels.
Which implies a shortage of about $60 million. However, if you then consider that backlog remains above targeted levels. While we continue to normalize those turnaround times are available for sale inventory is actually about $100 million short of targeted levels.
Speaker 4: As for other segments, while there are still key shortages impacting construction and international, their current inventory levels are more or less aligned with targeted levels. But again, do have a few key categories that are still short.
As for other segments, while there are still key shortages impacting construction and international.
David Meyer: We believe is also provides Titan with the unique operational synergy opportunities to expand our global customer service capabilities and capacity across the network. The Australian market is at the early stages of dealer consolidation, and through a combined approach where we are able to leverage our counters existing leadership team and bring Titans broader capabilities and resources to bear, we believe we are well positioned to capitalize on continued opportunities to unlock network synergies while driving market share gains.
Their current inventory levels are more or less aligned with targeted levels, but again do you have a few key categories that are still short.
Speaker 4: Overall, we want to continue to normalize the amount of backlog in inventory and replenish stocking levels of those key equipment categories.
Overall, we want to continue to normalize the amount of backlog and inventory and replenish stocking levels of those key equipment categories.
Speaker 4: Note that these targeted inventory levels take into consideration that we remain focused on those pre-cell activities that Brian touched on earlier.
Note that these targeted inventory levels taken a consideration that we remain focused on the presale activities that Brian touched on earlier.
Speaker 4: and pre-cell is an excellent opportunity to provide more visibility into future cells, as well as maintaining higher levels of inventory turns.
And pre sell as an excellent opportunity to provide more visibility into future sales as well as maintaining higher levels of inventory turns.
David Meyer: Together, we believe we will be able to build upon their presence in the heart of the Australian Green Belt and capitalize on operational synergies across our three continent footprint consisting of some of the best global agricultural markets generating a significant value for our shareholders. We are excited to welcome the O'Connor's Management team and employees to Titan to the Titan Machinery family, and we look forward to a smooth transaction closing and integration process.
Speaker 4: With that, I'll share a few comments on our fiscal 2024 full year guidance, which we have updated to reflect the year-to-date performance of our businesses and to include an assumption for the partial year impact of the O'Connor's acquisition.
With that I'll share a few comments on our fiscal 2024, our full year guidance, which we have updated to reflect the year to date performance of our businesses and to include an assumption for the partial year impact of the <unk> acquisition.
Speaker 4: expect to report as a fourth business segment.
We expect to report as a fourth business segment.
Speaker 4: The year-to-date performance of our agriculture segment has been consistent with our expectations, underpinned by strong organic growth and operating performance.
The year to date performance of our Agriculture segment has been consistent with our expectations underpinned by strong organic growth and operating performance.
David Meyer: We expect closing to be completed in Q4 of calendar year 2023. In closing, we remain highly encouraged by the ongoing demand we are seeing in our business and we are looking hard to get our customers their equipment as OEM production and delivery schedules allow. Our team is ready to support our customers through the very busy harvest and year in construction seasons in the second half of our fiscal year.
Speaker 4: We expect that to continue through the back half of this fiscal year. Our construction segment has been exceeding expectations, and we expect construction activity to continue to support that trend for the rest of the year.
We expect that to continue through the back half of this fiscal year.
Our construction segment has been exceeding expectations and we expect construction activity to continue to support that trend for the rest of the year.
Speaker 4: As for our international segment, it is performing well but toward the lower end of our previous guidance reign.
As for our international segment.
It is performing well, but towards the lower end of our previous guidance range.
Speaker 4: As such, we are reaffirming our assumptions for agriculture segment of up 20 to 25 percent.
As such we are reaffirming our assumptions for our agriculture segment of up 20% to 25%.
Bryan Knutson: Without, I will turn the call over to Brian Knutson for a segment review. Thank you, David, and good morning, everyone. Today, I will provide a recap of our fiscal second quarter segment drivers and then review some of our high-level expectations for the balance of fiscal year 2024 across our respective segments. I will begin with our domestic agriculture segment, which produced strong organic growth with same-store sales that increased 10 percent. As you heard from David, we continue to be acquisitive, and the O'Connor's transaction is particularly exciting.
Speaker 4: Increasing our assumption for construction to be up 5 to 10% as compared to the previous guidance of FLAF to up 5%. And modifying our international stigma assumption to be up 5 to 10% as compared to the previous guidance of up 8 to 13%.
Increasing our assumption for construction to be up 5% to 10% as compared to the previous guidance of flat to up 5%.
And modifying our international segment assumption to be at 5% to 10%.
As compared to the previous guidance of up 8% to 13%.
Speaker 4: This adjustment for Europe brings us more in line with industry volume forecasts for that read.
This adjustment for Europe brings us more in line with industry volume forecast for that region.
Speaker 4: Before adding the partial year impact of the O'Connor's transaction, we are maintaining our expectation for deluded earnings per share with the midpoint of $4.80.
Before adding the partial year impact of the O'connor's transaction, we are maintaining our expectation for diluted earnings per share with the midpoint of $4 80.
Speaker 4: Our first half performance has added to our confidence in achieving the numbers that we presented at the beginning of the fiscal year. And we remain focused on execution for the remainder of the year.
Our first half performance has added to our confidence in achieving the numbers that we presented at the beginning of the fiscal year and we remain focused on execution for the remainder of the year.
Bryan Knutson: Our organic growth in the egg segment was further bolstered by revenue contributions from our recent acquisitions in our domestic market. We are also particularly pleased with our ability to maintain our strong pre-tax margin execution, which remained consistent with the prior year period at 7 percent. Although spring planting got off to a late start this year in some of our northern markets, crop progress across our footprint is largely back on track following some timely precipitation.
Speaker 4: With respect to the anticipated partial year impact of the O'Connor transaction, we expect for it to close in the fourth quarter of this calendar year. And for purposes of this estimate, we are assuming a closing date of October 1st.
With respect to anticipated partial year impact of the O'connor transaction.
We expect for it to close in the fourth quarter of this calendar year.
And for purposes of this estimate we are assuming a closing date of October one.
Bryan Knutson: Although this precipitation was inconsistent across the upper Midwest, yield potential has improved from earlier this summer, which is encouraging and is helping improve farmer sentiment. Additionally, with the planting delay, we realized some additional parts and service activity that moved from Q1 into Q2, which is also reflected in the strong growth that we reported today. As David touched on in his commentary, we are still experiencing tight supply in several of our highest-selling equipment categories.
Their results will be reported on a one month lag. So these assumptions would result in three months of activity being reported in our fiscal 2024 results.
With all of that said, we have provided an initial revenue estimate of $70 million to $90 million, which translates to a diluted earnings per share contribution in the range of 10 to 15.
When factoring in financing and integration related expenses.
Speaker 4: Adding the acquisition to our guidance, the ranges arise to $4.60 to $5.25.
Adding the acquisition into our guidance the range is a rise to $4 60.
To $5 25.
Speaker 4: Seasonality in the O'Connor's business is similar to historical Titan seasonality in that O'Connor's about 45% of revenues have historically come in the first half of the year and 55% come in the second half of the year.
Seasonality in Neocon as business is similar to historical tightened seasonality in that four o'connor's about 45% of revenues have historically come in the first half of the year at 55% comp in the second half of the year.
Bryan Knutson: Our dedicated inventory procurement team continues to work tirelessly to obtain as many of those units as we can from our OEM partners, other dealers, lead returns, and through the used market. Most other categories of equipment have returned to more normalized levels, and this same inventory procurement team has been monitoring inventory trends, and it made the appropriate adjustments to purchasing volumes to optimize inventory levels, and will continue to do so on a forward-looking basis.
Speaker 4: Oconnors Business for Fiscal Year ended June 30, 2023, produced revenue of $258 million, pre-tax income of $18.7 million, and EBITDA of $21.4 million.
O'connor's business for fiscal year ended June 30th 2023 produced revenue of $258 million pre tax income of $18 $7 million and EBITDA of $21 $4 million.
Speaker 4: Adding estimated financing and integration expenses for the first 12 months of ownership to these results provides for a run rate pro form of pre-tax income of $13 million or 40 cents of earnings per due to chair.
Adding estimated financing and integration expenses for the first 12 months of ownership to these results provides for run rate pro forma pretax income of $13 million or 40 cents of earnings per diluted share.
Bryan Knutson: While we remain focused on pre-sell, especially for cash crop equipment, we feel good about where we have landed, and are happy to have replenished stocking levels for many equipment categories that we can serve our customers well, despite not yet being able to procure enough equipment in our key cash crop product categories. We also have a team dedicated to our inventory valuation process in regards to ongoing market market, as well as determining what price we should offer a customer for a trade in unit.
Speaker 4: We're excited to welcome the O'Connor's team members to tighten and look forward to providing further updates on this business segment on future earnings calls.
We're excited to welcome Neocon as team members to tightened and look forward to providing further updates on this business segment on future earnings calls.
Speaker 4: This concludes our prepared comments and we are now ready to take questions.
This concludes our prepared comments and we are now ready to take questions.
Speaker 1: At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will end-
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Bryan Knutson: This team also intensely monitors internal and external market trends, and is continually adjusting our trade in pricing on a real-time basis to ensure healthy margins on future used equipment sales. Our used equipment inventories are in a very healthy position, due to our industry leading inventory management processes, which are the result of our scale, decades of experience, and continuous improvements. Looking to the balance of fiscal 2024 for agriculture segment, we remain on track with the modeling assumptions that we laid out at the beginning of the year.
Speaker 1: to allow for as many questions as possible. We ask the you eat keep to one question and one follow.
To allow for as many questions as possible, we ask that you each keep to one question and one follow up thank you.
Speaker 1: Our first question comes from the line of Ben Cleave with Lake Street Capital Market.
Our first question comes from the line of Ben Please.
Lake Street capital markets. Please proceed with your question.
Speaker 5: All right, thanks for taking my questions and congratulations on a great quarter and looks like a great acquisition as well. I'd like to start with the acquisition. I'm curious kind of the genesis of this acquisition. Well, let's have a function of you guys actively looking to move into Australia considering a lot of options or what's Conner's kind of a unique opportunity that you decided to act.
Alright, Thanks for taking my questions and congratulations on a great quarter and looks like a great acquisition as well I'd like to start with the acquisition I'm curious kind of the Genesis of this acquisition was this a function of you guys.
We'll be looking to move into Australia, considering a lot of options or was counters kind of.
A kind of unique opportunity that you decided to act on.
Bryan Knutson: Net farm income remains well above historical averages, and continues to support demand for equipment purchases. Further, with healthy farmer profitability remaining in place, coupled with continued tax incentives throughout section 179 and bonus depreciation, the environment is setting up well for a strong second half of the year. Although equipment shortages in cash crop categories are expected to persist, we do foresee an increase in available slots as we move through calendar year 2024. Nonetheless, long lead times coupled with strong fundamentals have our order board consistent with our prevailing expectation that the industry is well positioned heading into next year.
Speaker 3: Yeah, this is Dave. So, you know, I actually got to win the little bit. I think it's one of these classic situations where you had, you know, the two family owners, two brothers, you know, they had both retired. They've been out of the business. I know Dennis, I've gone, I think it's been off for 10 years and they put a professional management team in and really didn't have that family succession. So, so I do a couple of years ago that they were, you know, probably going to be looking, you know, for a...
Yeah. This is David so you'll I actually you got wind a little bit of I think it was one of these classic situations, where you had.
The other two family owners two brothers you know at both retired they've been out of the business I know Denis O'connor Theres been off for 10 years and they put a professional management team in and really didn't have that family succession. So so I do have a couple of your years ago. They were you all probably going to be looking for.
Speaker 3: So, you know, some of the things because I'm selling their shares of stock too. And, you know, I think as we call, you know, we just last year, you know, we were, you know, had this heart and egg system with some pretty important strategic acquisition. And we didn't, I didn't really want to convoope those two together, but once we, you know, got that completed, got that integrated. You know, I reached out to, you know, Dennis O'Connor earlier this year and, you know, tried to understand the business a little bit.
Some of that they could sell their shares of stock to and.
I think as you recall you know we just last year. We were you all had done some heartland AG systems, it's a pretty important and strategic acquisition and we didn't I didn't really want to kind of with those two together, but once we got that completely got that integrated now.
Bryan Knutson: Now shifting to our domestic construction segment. Construction activity was strong throughout our footprint during our fiscal second quarter, and we generated another great performance in all areas of the business, with same-store sales growth of 18.5%, an excellent pre-tax margin expansion of 60 basis points to 6.2%. We also achieved rental fleet dollar utilization of 30.2% and absorption of 91.2%. General construction activity remains strong. An infrastructure, energy and agriculture projects continues to support demand for construction equipment, which has resulted in your-to-date segment revenue growth of 13%, which is above the initial modeling assumptions we've provided at the beginning of the 2024 fiscal year.
You know I read Scott Denis O'connor earlier, this year and I'm trying to understand the business a little bit better.
Speaker 3: You know, when you get into that, you know, when you, you know, definitely if you, if you look at the case size business in Australia, you know, Connerd's was, was hands down, you know, the market leader in high horse bar equipment. Um, you know, we year all the, you know, Australian and,
When you get into that you don't want yeah, I'll definitely if you if you look at the case size business in Australia.
This was was hands down that you know that the market leader in high horsepower equipment.
However, your all the you know Australia and then <unk>.
Speaker 3: and do the Zeewin dealers that get together for an annual meeting and they have a top dealer award. Well, Conor is the one that for the last five years in a row. So, you know, you a couple of that with, you know, operating on the Solcethan part of the country and the grain belt and arguably, you know, the best farmland in Australia.
And New Zealand dealers as they get together for an annual meeting and to have a top dealer award will counter is the one that for the last five years in a row. So.
You couple that with some operating down in the southeastern part of the country in the grain belt and arguably the best farmland in Australia, and I think most important is that the proven and experienced professional management team that's been in place for well over five years now add all of that together. It really are really are no brainers.
Speaker 3: And I think most important is that proven in the experience, professional management team is putting in place for, well, it's over five years now, add all these together. It really, really an old brainer. So, you know, we met with the team, you know, Brian went down there and toured the dealerships. And it's just on county, how their metrics are financial metrics, their cultures, their people, you know, the products, everything, just almost identical to ours, and, you know, English language.
Bryan Knutson: Although equipment availability is also a limiting factor in the near term for certain types of construction equipment, we continue to see a favorable backdrop as a result. And as a result, our increasing our full year modeling assumptions for this segment today. And pre-text margin remained very healthy at 6.1%. Conditions varied across our European footprint with excellent growing conditions in Germany and Ukraine, contrasting with those of Bulgaria, which is experiencing dry growing conditions, which are also present in Southeast Germany, although to a lesser extent.
So you know we met with the team and O'brien with dawn or ensure the dealership some.
On County Hall held their metrics or financial metrics. Our cultures are people you know the products everything just almost identical to ours and you know the English language.
Speaker 3: you know, English-based law, you know, lowering the corruption scale. I mean, you know, it was just, it really made a lot of sense for us.
English based law law and the corruption scale I mean, just it was just some really made a lot of sense for us.
Speaker 5: Yeah, sounds like it. That's very helpful, Color. Thank you.
Yeah.
Yes, it sounds like it.
That's very helpful color. Thank you.
Speaker 5: Follow up unrelated to all Conners, but just kind of general sentiment, farmer sentiment. I appreciate your comments on kind of the state of the state and your backyard and understand the inventory dynamics that you guys are facing. But I'm wondering if farmer sentiment and buying patterns are being impacted right now or all by the interest rate environment. If you can elaborate on how interest rates are the last, especially six months, are impacting their buying patterns.
A follow up unrelated to o'connor's, but just kind of general kind of sentiment farmer sentiment I appreciated your comment on on kind of the state of the state in your in your backyard and understand the inventory dynamics that you guys are facing but I'm wondering if farmer sentiment.
And buying patterns are being impacted right now at all by the interest rate environment, you can elaborate on how interest rates over the last especially six months are impacting their buying patterns that would be helpful.
Bryan Knutson: As a part of our footprint build-out strategy in our current German market, we acquired an adjacent two-store dealership complex in Germany during the second quarter. Looking forward to the balance of the year, we are updating our modeling assumptions to reflect somatic conservatism given our year-to-date growth of 7.8%, which was at the low end of our prior range. We continue to expect European egg fundamentals to moderate with flat industry volumes, given the ongoing conflict in Ukraine, and the challenges with equipment availability that we see across the other segments of our business.
Speaker 4: Yeah, this is Brian . You know, we're still actually having a historically higher amount of cash transactions right now. And then on a larger, a lot of these larger ticket items we do have manufacturer supported programs as well. And especially as you get into some of the lower horsepower or the more real lifestyle products.
Yeah. This is Brian Yeah, we're still actually are having.
Historically higher amount of cash transactions right now.
And then.
On a larger a lot of these larger ticket items, we do have.
Manufacturers supported programs as well.
And especially as you get into some of the lower horsepower or the more.
Royal Lifestyler products and so definitely is an impact in some of their farmers are producers are watching it is.
Speaker 4: So definitely it's an impact and some of their farmers, our producers are watching it is, cutting into their net farm income a little bit. It's one of the contributing factors along with just a lot of other things which have the price up.
Bryan Knutson: Before it turn the call over to Bo, I'd like to echo David's comments with respect to the O'Connor's team. A few months back, I had the privilege of touring all their stores and traveled their entire footprint. Doing so, confirm my expectations of their highly productive agriculture landscape, and I met a number of wonderfully talented people who make their organizations so special. Throughout my visit, I was very encouraged by how similar our company cultures are, which is a testament to the focus that their leadership team has brought to their business over the years.
Cutting into their net farm income a little bit it's one of the contributing factors along with just a lot of other things, which have the price up.
Speaker 4: But, you know, Urea and fertilizer being down is helping and we're still on pace for, you know, a really good year. You know, maybe a lot of different estimates out there around between 15 and 20% below last year's records, depending on where...
But urea and fertilizer being down is helping and we're still on pace for it.
Really good years, maybe a lot of different estimates out there around between 15 and 20% below last year's record.
Oh, where yields come in.
Speaker 4: But still, you know, on pace for a really good year, they did push a lot of income into this year from last year. And there's a lot of tax incentives still in place. And we're anticipating that farmers are even gonna be pushing income from this year and next year. And there was a lot of forward contracting. So.
But.
Bryan Knutson: We are extremely excited to welcome them to the Titan family and look forward to a smooth integration. With that, I just want to thank all the members of our Titan family for their hard work and dedication to our customers, which have produced fantastic year-to-date results.
Phil.
On pace for a really good year.
They did push a lot of income into this year from from last year.
And Theres a lot of tax incentives still in place and we're anticipating that farmers are even going to be pushing income from this year into next year and there was a lot of forward contracting so still pretty robust still a fair amount of cash out there, but yes interest rates are on People's minds, and we do have a lot of different financing tools to help with that.
Bo Larson: Now, I will turn the call over to Bo to review our financial results in more detail. Thanks, Brian, and good morning, everyone. Starting with our consolidated results for the fiscal 2024 second quarter, total revenue was $642.6 million, an increase of 29.4% compared to the prior year period. Our equipment revenue increased 28% versus the prior year period, led by incremental revenue from our recent acquisitions, as well as double-digit, same-store sales growth across all three of our reporting segments, which combined for a 12.1% increase on the same-store basis.
Speaker 4: Still pretty robust, still a fair amount of cash out there, but yes, interest rates are on people's minds, and we do have a lot of different financing tools to help with that. Yeah, the only thing I'd-
Yeah, the only thing I'd add to that.
Speaker 6: The only thing I'd add to that too, and I think some of the OEMs, maybe earlier, that's the broke down pretty nicely. Interest expenses is a fairly small portion of the cost when you're talking about the equation for farm income. So while it has increased, there's other factors that are much more at play.
The only thing I'd add to that too and I think some of the Oems maybe earlier in SDN broken down pretty nicely interest expenses is a fairly small portion of the cost. When you are talking about the equation for farm income so while it has increased.
Theres other factors that are much more at play here.
Speaker 5: Yeah, no doubt about that. Very good, well that's all very helpful. I appreciate you guys taking my questions. Congratulations again on a great quarter, and I'll get back in queue.
Yes, no doubt about that.
Very good well that's all very helpful. I. Appreciate you guys, taking my questions. Congratulations again on a great quarter and I'll get back in queue.
Bo Larson: This growth was also visible across our other revenue streams, as well, with our parts revenue increasing 39.7%, service up 27.3%, and rental and other revenue up 11.6% versus the prior year period. Rose profit for the second quarter increased 29.9% to $133 million, gross profit margin increased by 10 basis points to 20.8 percent driven primarily by a slight mixed shift to higher margin parts cells relative to equipment cells. Operating expenses were 88.8 million dollars for the second quarter of fiscal 2024 compared to 68.8 million dollars in the prior year.
Thanks Pat.
You bet.
Speaker 1: Thank you. Our next question comes from the line of Alex Rigel with Be Rial of Securities. Please.
Thank you. Our next question comes from the line of Alex.
Wireless Securities. Please proceed with your question.
Speaker 3: Thank you and good morning gentlemen and congratulations on the counter-transaction. Vorniel, the questions here. You talk a lot about
Thank you and good morning, gentlemen, and congratulations on the transaction.
Good morning, all the questions here.
You talked a lot about inventory and that was all very very helpful.
Taking a quick step back.
Why do you think.
Speaker 3: Being at a target inventory level that's comparable to historical levels is appropriate in this higher rate environment.
Being at a target.
Inventory level, that's comparable to historical levels.
Is appropriate in this higher rate environment that we're in right now.
Bo Larson: The year-rear increase of 28.9 percent was primarily additional operating expenses due to acquisitions that have taken place in the past year as well as an increase in variable expenses associated with the increased sales. That said, we are pleased to achieve the modest operating leverage of 10 basis points versus the prior year as a percentage of sales. Floor plan and other interest expense was $3.7 million dollars as compared to 1.6 million dollars for the second quarter of fiscal 2023.
Speaker 6: I would start with saying that the levels we're talking about aren't compared to comparable test articles. If you want to take it back to a prior peak which I think some people are naturally doing and comparing our total inventory level, I think you have to factor in the cost per unit. So we're talking about a significantly smaller number of units.
I would start with saying that the levels, we're talking about aren't compared comparable to historical sorry, if you want to take it back to a prior peak, which I think some people are naturally doing and comparing our total inventory level. I think you guys have to factor in the cost per unit right. So we're talking about a significantly smaller.
Number of units per location than we were a decade ago. If you simply you ran the math on a 3% increase over a decade you'd be talking about at a like for like equipment being 35% higher.
Speaker 6: per location then we were a decade ago. If you simply ran the math on a 3% increase over a decade you'd be talking about a like for like equipment being 35% higher.
Bo Larson: Primarily due to higher interest bearing floor plan borrowings driven by higher inventory levels. Net income for the second quarter of fiscal 2024 was $31.3 million dollars or $1.38 per diluted share and compared to last year's second quarter net income of $25 million dollars or $1.10 per diluted share.
Speaker 6: And we know with the pricing that we've seen over the past couple years, it's been much larger than that. So even on a very conservative basis, you're talking about one third less number of units out at the location.
And we know with the pricing that we've seen over the past couple of years, it's been much larger than that so even on a very conservative basis Youre talking about one third less number of units out at a at the locations.
Speaker 6: And then from there, as we talk about targeted levels, right, we're really focused on our main categories and it's making sure, again, that we have one or two.
And then from there as we talk about targeted level that we're really focused on our main categories and it's making sure again that we have one or two.
Speaker 6: that are available for demonstration, loner, or display units. And that's just what you need.
Bo Larson: Now turning to our segment results for the second quarter. In our agriculture segment, sales increased 34.4 percent to $469.1 million dollars. This growth was driven by our acquisitions of heartland ag systems and pioneer equipment as well as same-store sales growth of 10 percent, which was achieved on top of a strong performance in the prior year period.
That are available for demonstration loaner or display units and Thats, just what you need in order to drive the high volume of sales right and so that's really what we're talking about we're missing out on sales opportunities because we don't have those high horsepower items on our lots and if we did ourselves would be even.
Speaker 6: in order to drive the high volume of cells, right? And so that's really what we're talking about. We're missing out on cells opportunities because we don't have those high horsepower items on our lots, and if we did, our cells would be even higher than they are today. So taking a step back, I think it's important to keep all of that in perspective. So we continue to improve our business model, and we want to be as efficient as possible, and we certainly want to focus on presale activities, and all of that is good business practices that will continue to do going forward.
Higher than they are today, so taking a step back I think it's important to keep all of that in perspective. So we continue to improve our business model and we want to be as efficient as possible and we certainly want to focus on presale activities and all of that is good business practices that will continue to do going forwards.
Bo Larson: The sprites, the strong quarterly performance, second quarter revenues continued to be constrained by the equipment availability of high demand cash crop product categories as already touched on during this call. Agriculture segment pre-tax income was $33 million dollars and compared to $24.9 million dollars in the second quarter of the prior year, which implies a pre-tax margin decrease of 10 basis points to 7 percent.
Speaker 3: very helpful. And then back in January , you had some delivery delays. I know it's kind of hard to quantify those, but do you think you're all caught up in those delivery?
That's very helpful. And then I think in January you had some delivery delays.
I know, it's kind of hard to quantify those but do you think youre all caught up in those delivery delays.
Bo Larson: Our construction segment continued its momentum in the second quarter and grew sales to $82.9 million, up 18.3 percent compared to the prior year period, benefiting from broad-based construction activity and improved equipment availability in some equipment categories. Pre-tax income was $5.2 million dollars and compared to $3.9 million dollars in the second quarter of the prior year. And our year-over-year pre-tax margin increased by approximately 60 basis points to 6.2 percent.
Speaker 4: No, not yet Alex. In fact, both spoke to his prepared comments. Our backlog is actually up a little bit sequentially.
No.
Not yet Alex in fact.
Both spoke to his prepared comments, our backlog is actually up a little bit sequentially. So.
Speaker 4: No, we anticipate, you know, likely at least another couple quarters before we can get caught up on that. Just our shops are really busy, which is a good thing, and we're selling a lot of iron, which is a good thing. And you know, it'll just take a little time yet, but bow anything to add on your end.
No we we anticipate.
Likely at least another couple of quarters before we can get caught up on that just are our shops are really busy which is a good thing and we're selling a lot of iron which is a good thing.
And.
Bo Larson: In our international segment, sales increased by 16.9 percent to 90.6 million dollars, which reflects a 2.1 percent currency tailwind on the strengthening year-old. That of the effect of these foreign currency fluctuations, the segment achieved sales growth of 14.9 percent, which included a modest year-reviewed decline in Ukraine as it remains impacted by the ongoing conflict. Pre-tax income was $5.6 million dollars and compared to $5.9 million dollars in the second quarter of fiscal 2023, which implies a pre-tax margin decrease of 150 basis points to 6.1 percent.
It'll just take a little time, yet, but bo anything to add on your end.
Speaker 6: No, I think that that's right. You know, we talk about our mix and available for cell inventory and wanting to normalize that backlog and we continue to see opportunity to focus on that, the back.
Yeah, I think that Thats right.
You talked about.
Our mix in available for sale inventory and wanting to normalize that backlog and we continue to see opportunity to focus on that the back half of the year.
Speaker 3: Yeah, and thank you very much. And one more comment on that too, you know, what was some of the supply side issues and some of the conditions, some of the equipment when it's coming out of the factories too, it's taking its substantial longer per unit to get them through our shop right now. And we're seeing that it started to improve a little bit and we do think that's going to be probably back to normal towards the end of the year too. So that'll help a lot.
Got it thank you very much.
And one more comment on that until you always with some of the supply side issues and some of the condition of some of the equipment when it's coming out of the factories to its taken us substantially longer per unit to get them through our shops right now and we're seeing that has started to improve a little bit and we do think that's going to be probably be back to normal towards the end of the year or two so that'll help a lot.
Bo Larson: Now on to our balance sheet and inventory position. We had cash for $53 million dollars and an adjusted debt to tangible net worth ratio of 1.0 as of July 31st, 2023, which is well below our bank covenant of $3.5. Our total inventory balance at the end of the second quarter was $979.4 million dollars, an increase of approximately $275.5 million during the first six months of this fiscal year. This increase can be a growth in equipment and parts inventories of $259.1 million and $15 million respectively.
Yeah.
Thank you.
Speaker 1: Thank you. Our next question comes from line up to Jackson with Northland Security. Please proceed with...
Thank you. Our next question comes from the line of Ted Johnson with Northland Securities. Please proceed with your question.
Speaker 3: Thank you and good morning. So I'm going to throw my two questions back as it relates to the O'Connor acquisition. And the first one is just maybe a little more color on the case, IH, Australia, and dealer networks. Can you give us some sense in terms of how many locations there are across Australia?
Thank you and good morning.
I'm going to throw my two questions back as it relates to the O'connor acquisition and the first one is just maybe a little more color on the case IH, Australia dealer network can you give us some sense in terms of how many locations there are across Australia.
Bo Larson: Of the total increase, $22 million is attributable to the pioneer acquisition, which was made during the first quarter. The primary driver of the increase is the improvement in new equipment availability from our OEM partners, as they largely caught up on production outside of those key high horsepower equipment categories that David and Bryan both mentioned, which are still on allocation. Overall, we are still a bit short of targeted stocking levels of available for sale inventory.
Speaker 3: you know, like kind of maybe the average locations per dealer, you know, kind of like who's the next largest dealer now that you have the largest, kind of who's number two, just some metrics to kind of give us a sense with regards to how it compares to the domestic dealer network for a case internet.
Like kind of the average locations per dealer kind of like who's the next largest deal or now that you are the largest kind of whose number two just some metrics to kind of give us a sense with regards to how it compares to the domestic dealer network for case International Harvester.
Okay.
Speaker 2: So, you know, in our discussions with the management team, they had a pretty well-defined, you know,
So our discussions with the management team there are doing all they had a pretty well defined.
Speaker 2: future growth strategy through acquisitions, looking at identified locations, they've been in conversations with different owners, but I'd say it's much different in the United States. You don't have a lot of really big dealer groups, at least on the case of each site. Maybe more so on some of the competition. So it's a lot of family business, smaller businesses.
Future growth strategy through acquisitions look at all of the identified locations. They have been in conversations with different owners, but I'd say, it's much different than United States.
Bo Larson: Driving by some of our ag store locations, the lack of high horsepower display units is clearly notable. To put it in perspective, we have 74 ag dealerships domestically, and at today's industry volumes and cost of equipment, we target a combined $7 million of new and used whole good inventory on average per location, which is the minimum we need to have one or two stocking units for sale, demonstration, or loner for a highest demand categories.
Got you don't have a lot of really big dealer groups. The lease on the case IH side, you know maybe so more so on the on some of the competition. So a lot of sweat and family businesses smaller businesses.
Speaker 2: You know, and, you know, right there, I think it's a much more robust consolidation story than what we've, you know, even experienced here in the United States. So, you know, and a lot of smaller groups, you know, family owned.
And why is that I think it's a much more robust consolidations story than what we've even experienced here in the United States. So.
And a lot of smaller groups of family owned.
Bo Larson: Add in a couple of weeks backlog to account for pre-delivery inspection work, and you get to our target of about $600 million versus the $540 million we are at today for our domestic ag segment, which implies a shortage of about $60 million. However, if you then consider that backlog remains above targeted levels while we continue to normalize both turnaround times, our available for sale inventory is actually about $100 million short of targeted levels.
Speaker 2: And I think that's just right for consolidation as you continue to.
And I think that's just ripe for for consolidations.
Consolidation as you continue to the adjacent from where they are now.
Speaker 2: that out adjacent from where they are now. And I think there's really good relationship, you know, between our team and some existing owners and some good camaraderie and so.
And I think there's really good relationships between our team and some of the existing owners and so good camaraderie and so we just wanted to do that.
Speaker 2: We just want to do that on a timely and managed approach, you know, but no, I think that's one of the, you know, positive about the story is a future M&A opportunity.
Timely and managed approach and all that.
No I think that's one of the.
Positives about the story.
Future M&A opportunities.
Bo Larson: As for other segments, while there are still key shortages impacting construction and international, their current inventory levels are more or less aligned with targeted levels. But again, do have a few key categories that are still short. Overall, we want to continue to normalize the amount of backlog in inventory and replenish stocking levels of those key equipment categories. Note that these targeted inventory levels take into consideration that we remain focused on those pre-sale activities that Brian touched on earlier. And pre-sale is an excellent opportunity to provide more visibility into future sales as well as maintaining higher levels of inventory turns.
Speaker 4: And Ted, I would just add on to Dave, I think you asked what's the next largest. And so, you know, Connor's footprint in the grain belt there would be, you know, there's a C&H dealership with six rooftops and then you asked what the average is. And so, the average is more around two to three locations.
Yes.
Ted I would just add on to Dave I think you asked what's the next largest and so connors footprint in the grain belt there would be a.
There's a C and H dealership with six rooftops and then you asked what the averages and so the average is more around two to three locations.
Kurt.
Speaker 3: Okay, and do you have any kind of sense in terms of just, I don't know, like the number of locations there are in Australia, just better curiosity, just the kind of whole size of that market, at least from like a, you know, location.
Okay, and do you have any kind of sense in terms of just I don't know the number of locations that are in Australia. Just out of curiosity, just kind of size of that market at least from Micah location standpoint.
Speaker 4: Yeah, we know the number definitely in the green belt and in O'Connor's footprint where we're
Bo Larson: With that, I'll share a few comments on our fiscal 2024 full-year guidance, which we have updated to reflect the year-to-date performance of our businesses and to include an assumption for the partial year impact of the O'Connor's acquisition, which we expect to report as a fourth business segment. The year-to-date performance of our agriculture segment has been consistent with our expectations, underpinned by strong organic growth and operating performance. We expect that to continue through the back half of this fiscal year.
Yes, we know the number definitely in.
The grain belt in o'connor's footprint.
Where.
Speaker 4: You know, where our interest level is. There's just, as David mentioned, I'll just go back to...
You know what.
Our interest level is.
Theres just as David mentioned I'll just go back to.
Speaker 4: There will likely be a fair amount of consolidation in that area over time here. And we're seeing that with the beer site as well. You know, the audio equipment that is headquartered out of Fargo here as well, that's a very large John Deere dealer, has 25 locations in Australia. Has for a long time, you know what? I remember.
There will likely be a fair amount of consolidation in that area over time here and we're seeing that with the dealer side as well.
Audio equipment that is headquartered out of Fargo here as well Thats, a very large John Deere dealer.
Bo Larson: Our construction segment has been exceeding expectations, and we expect construction activity to continue to support that trend for the rest of the year. As for our international segment, it is performing well but toward the lower end of our previous guidance range. As such, we are reaffirming our assumptions for our agriculture segment of up 20 to 25%. Increasing our assumption for construction to be up 5 to 10% as compared to the previous guidance of flat to up 5%.
<unk> has 25 locations in Australia has for a long time I remember.
Speaker 4: way back when they entered the Australian market and they continued to add locations and continue to build their presence every year in Australia. And then service equipment that large John Deere dealer just north of us here in Canada has 15 locations. So they're now on basically either side of us. There is a fair amount of North American presence there now between us and
Way back when they entered the Australia market and they continue to add locations and continue to build their presence every year in Australia, and then service equipment.
A large John your dealer.
Just north of US hearing Canada has 15 locations.
So theyre now on basically either side of us.
Bo Larson: And modifying our international segment assumption to be up 5 to 10%, as compared to the previous guidance of up 8 to 13%. This adjustment for Europe brings us more in line with industry volume forecasts for that region. Before adding the partial year impact of the Oconners transaction, we are maintaining our expectation for diluted earnings for share with the mid-point of $4.80.
There is a fair amount of North American presence, there now between us and <unk> and service.
Speaker 3: My second question is in terms of O'Connor's revenue mix, and when you look at it from equipment parts, services, rental, et cetera. I mean, is it a mix that's similar to your domestic business here in AI, or is it more like the international?
My second question just in terms of O'connor's revenue mix and when you look at it from sort of equipment parts services rental et cetera, I mean would you is it.
Mix, that's similar to your domestic business year in AG or is it more like the international business.
Bo Larson: Our first half performance has added to our confidence in achieving the numbers that we presented at the beginning of the fiscal year, and we remain focused on execution for the remainder of the year. With respect to the anticipated partial year impact of the Oconners transaction, we expect for it to close in the fourth quarter of this calendar year. And for purposes of this estimate, we are assuming a closing date of October 1st.
Speaker 3: I mean, not that they're that much different, but you have a bit more of a few towards equipment relative to some of the higher margin stuff internationally than you do domestically. So I'm just kind of curious if you could get some color on kind of the mix of O'Connor's businesses.
Not that there's that much different but.
You have a bit more.
Skewed towards equipment relative to some of the higher margin stuff internationally than you do domestically and so I'm just kind of curious if you could give some color on.
Kind of a mix of o'connor's business, and then ill get into queue again. Thanks.
Speaker 6: It's pretty similar to our domestic ag business. The supplemental deck that we posted on our website breaks that down pretty nicely. So, you know, looking at a three year historical average, their equipment sales mix was 82% versus, you know, on the US side, it hardens more like 77.78. So a couple of percentage points different, but very similar. And that's, you know, just one of the many similarities that their business profile and metrics have to our domestic ag business. So this is the system that you intended for the an Addra Pak.
Yes, it's pretty similar to our domestic AG business.
A supplemental deck that we posted on our website breaks that down pretty nicely. So we're looking at a three year historical average their equipment sales mix was 82% versus you know on the U S side as hard as it is more like 70 778, so a couple of percentage points different but very similar and that's just one of the many similarities.
Bo Larson: Their results will be reported on a one-month lag, so these assumptions would result in three months of activity being reported in our fiscal 2024 results. With all of that said, we have provided an initial revenue estimate of $70 to $90 million, which translates to a diluted earnings for share contribution in the range of $10 to $0.15, when factoring in financing and integration of related expenses. Adding the acquisition to our guidance, the ranges arise to $4.60 to $5.25.
Their business profile metrics have to our domestic ad business.
Okay, congrats on the quarter and the acquisition.
Speaker 1: Thank you. Our next question comes from line of Daniel Embra with Stephen James. Please be seated.
Thank you. Our next question comes from the line of Daniel <unk> with Stephens Inc. Please proceed with your question.
Bo Larson: Seasonality in the Oconners business is similar to historical tight and seasonality in that Oconners about 45% of revenues have historically come in the first half of the year, and 55% come in the second half of the year. Oconners business for fiscal year ended June 30, 2023, produced revenue of $258 million, pre-tax income of $18.7 million, and EBITDA of $21.4 million. Adding estimated financing and integration expenses for the first 12 months of ownership to these results, provides for a run rate, pro form of pre-tax income of $13 million, or $0.40 of earnings per diluted share.
Speaker 7: Hey guys, this is Read on Friganiel. Just a couple questions on margins here.
Hey, guys. This is Ryan on for Daniel.
A couple of questions on margins here.
Speaker 7: As you noted, we're seeing a lot lower inventory, which should translate to better growth margin. And that should...
As you noted we're seeing.
A lot lower inventory, which should translate to a better gross margin and that should benefit your SG&A to gross margin ratio is this a sustainable ratio going forward, assuming inventory stays low or how should we be thinking about that.
Speaker 7: Is this a sustainable ratio going forward assuming inventory...
Speaker 6: I mean, talking about the back half of the year and our expectations, you know, we touched on the fact that we do expect some moderation in the gross margin perspective, but from the operating expense perspective.
And talking about the <unk>.
Back half of the year.
Our expectations, we've touched on the fact that we do expect some moderation in the gross margin perspective, but from an operating expense perspective, we.
Speaker 6: We expect to remain in line or below prior years of percentage of sales. And for the full year that same story would be true at this point is to be in line or prior a little bit below last year's percentage of sales from those operating.
Bo Larson: We're excited to welcome the Oconners team members to tighten and look forward to providing further updates on this business segment on future earnings calls.
We expect to remain.
In line or below prior year as a percentage of sales and for the full year that same story. It would be true at this point is to be in line or probably a little bit below last year's percentage of sales from those operating expenses.
Operator: This concludes our prepared comments and we are now ready to take questions. Thank you.
Operator: At this time we'll be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, we ask the U.E, to keep to one question and one follow up. Thank you.
Speaker 7: Thank you. And on the O'Connor's acquisition, it looks like last fiscal year day, finished with gross margins slightly, but let's...
Okay. Thank you and on the O'connor acquisition, it looks like last fiscal year the day.
With gross margins slightly below y'all do you all expect to see some synergies.
Speaker 7: uplift that growth margin or can you touch on it?
Uplift that gross margin or can you touch on maybe some margin synergies just a little more color there would be great.
Speaker 6: Yeah, so in the financials that we provided in the supplemental deck, they had gross margin of 18.7%, I think that's what you're referencing. You'll slightly blow ours and then actually had a pre-dex margin of 7.2%.
Yeah, so the and ER and the financials that we provided in the supplemental deck. They had gross margin of 18, 7% I think that's what you're referencing are slightly below ours, and then actually I had a pre tax margin of seven 2%. So the profitability of their business is one of the many things that really attracted us.
Ben Cleve: Our first question comes from the line of Ben Cleve with Lake Street Capital Markets. Please proceed with your question. All right, thanks for taking my questions and congratulations on a great quarter and looks like a great acquisition as well.
Speaker 6: So the profitability of their business is one of the many things that really attracted us to the management team and their operating model. You know that margin, if you factor in the fact that they are a little bit more skewed to equipment sales, makes a lot of sense and is pretty similar to us.
David Meyer: I'd like to start with the acquisition. I'm curious kind of the genesis of this acquisition. Let's have a function of you guys actively looking to move into Australia considering a lot of options or those conners kind of a unique opportunity that you decided to act, on. Yeah, this is David. You know, so you know, I actually got to win the little bit. I think it's one of these classic situations where you had, you know, the two family owners, two brothers, you know, had both retired.
To the management team and their operating model that margin. If you factor in the fact that they are a little bit more skewed to equipment sales makes a lot of sense and is pretty similar to us.
Speaker 6: In terms of synergies, I mean what we're really looking at is focused on a consolidated executive leadership team, looking at the business from a global perspective. We want to continue to support that senior management team to execute on the growth strategy that they had in front of them.
In terms of <unk>.
Synergies I mean, what we're really looking at is focused on a consolidated executive leadership team looking at the business from a global perspective, we want to continue to support that senior management team to execute on and the growth strategy that they had in front of them.
David Meyer: They've been out of the business. I know Dennis O'Connor, I think, has been off for 10 years and they put a professional management team in and really didn't have that family succession. So, so I do, you know, a couple of years ago that they were, you know, probably going to be looking, you know, for, so, you know, some of the they could sell their shares of stock too. And, you know, I think as we call, you know, we just last year, you know, we were, you know, had this heart and egg system.
Speaker 6: And then there's some unique opportunities from a service model perspective and being able to provide customers 24, 7 type supports as we look at the different time zones that we're now operating in.
And then there are some unique opportunities from a service model perspective, and being able to provide customers $24 seven type support as we look at the different time zones that we're now operating in as well.
Alright, Thank you all for the color.
Okay.
Speaker 1: Thank you. Our next question comes from the line of Mick Dobry with Baird. Please pursue your question. Good morning and thank you for the question here. Mick. I want to go back to the inventory discussion. And I'm sort of curious as to how you think.
Thank you. Our next question comes from the line of Mig <unk> with Baird. Please proceed with your question.
David Meyer: It was a pretty important strategic acquisition. And we didn't, I didn't really want to convulp those two together. But once we, you know, got that completed, got that integrated. You know, I reached out to, you know, Dennis O'Connor earlier this year and, you know, tried to understand the business a little bit. But, you know, when you get into that, you know, when you, you know, definitely, if you look at the case size business in Australia, you know, O'Connor was, was, was hands down, you know, the, the market leader in high horse bar equipment.
Good morning, and thank.
Thank you for you for the question here.
I Meg.
I want to go back to the inventory discussion and I'm I'm sort of curious as to how you think inventories will progress for you for the remainder of the year.
It sounds like you would like more inventory if available. So you know as the supply chain and getting better for the OEM.
David Meyer: Um, you know, we year all the, you know, Australian and, and, um, New Zealand dealers, they get together for an annual meeting and they have a top dealer award. O'Connor is the one that for the last five years in a row. So, you know, you, you know, a couple of that with, um, you know, operating on, you know, on the south-eastern part of the country and the grain belt and arguably, you know, the, you know, the best farmland in Australia.
Are you sort of inferring here that youre going to continue to build inventories through three years and so I guess, that's part number one and then related to that.
Given that so much of your business is now pre sell can you comment at all about.
Your presale activity on model year 'twenty for equipment in North America, and then I'll have some follow ups. Thanks.
David Meyer: And I think most important is that, that proven in, um, experience, professional management team is playing in place for, well, it's over five years now, um, you know, add all these together. It really, really an old brainer. So, um, you know, we met with the team, you know, Brian went down there and drew the dealerships. Um, and it's just on County Hall, their metrics or financial metrics or cultures or people, you know, the products, everything, just almost identical to ours and, you know, English language, um, you know, English-based law, you know, low in the corruption scale. I mean, you know, I just, it was just, um, really made a lot of sense for us. Yeah, it sounds like if that, uh, that's very helpful color. Thank you.
Speaker 6: Now maybe start with the inventory question and Brian might touch on the pre-sale. So from an inventory perspective.
Yeah, I'll, maybe start with the inventory question and then Brian might touch on the pre sale. So from an inventory perspective, we would expect the inventories probably will increase sequentially in the third quarter, and then come down a little bit from there in the fourth quarter, we typically see that to be the case.
Speaker 6: We would expect the inventory is probably will increase sequentially in the third quarter and then come down a little bit from there in the fourth quarter. We typically see that to be the case.
Speaker 6: We did mention that largely speaking from a high horsepower perspective, that most of everything that we're gonna receive is retailed the customers.
We did mention that largely speaking from a from a high horsepower perspective that.
Most of everything that we're going to receive is retailed the customers of course, we need to turn that around with pre delivery inspection. So again, we'll see what we're able to do with normalizing that backlog and it does really the factors that are at play but from a bigger picture perspective in terms of the increase that we've seen year to date versus what we would expect.
Speaker 6: Of course, we need to turn that around with pre-delivery inspections. So again, we'll see what we're able to do with normalizing that backlog. And those are really the factors that are at play. But from a bigger picture perspective in terms of the increase that we've seen year to date versus what we would expect in the back half of the year.
Brian Knutson: Um, uh, follow up unrelated to all corners, but just just kind of general, uh, kind of sentiment, uh, farmer sentiment. I appreciate your comments on, on, on kind of the state of the state, uh, in your, in your backyard and, and understand the inventory dynamics that, uh, you guys are facing. But I'm wondering if farmer sentiment, um, and, and buying patterns are being impacted right now or all by the interest rate environment.
In the back half of the year the back half for.
Speaker 6: The back half should be a lot less than what we saw in the first half. And again, the first half is kind of...
Should be a lot less than what we saw in the first half and again. The first half is kind of a very welcome to see get us get us replenish levels on some of these other categories back half a smaller modest increase and again focusing on normalizing that backlog.
Speaker 6: Very welcome to see get us replenished levels on some of these other categories. Back half a smaller modest increase and again focusing on normalizing that back quite.
Brian Knutson: If you can elaborate on, on how interest rates are the last, especially six months, are impacting their buying patterns that would be helpful. Yeah, uh, this is Brian, you know, we're still actually, uh, having a historically higher amount of cash transactions right now, um, and, and then, uh, on a larger, a lot of these larger ticket items we do have, uh, manufacturer-supported programs as well, um, and especially as you get into some of the lower horsepower or the more, uh, rural lifestyle products.
Speaker 4: You gotta make this as bright. I would just add, you know, we're definitely trying to...
Yes, Mike This is Brian I would just add you know we're definitely trying to.
Speaker 4: be really clear that we are short in certain key product categories. And those are the areas that were...
Be really clear that we are short in certain key product categories and those are the areas that we're looking to get more in.
Speaker 4: looking to get more in. But as you know, there are other product categories where we're finally feeling pretty good about where we're at. We've been running low for quite a while now. And then there are a couple other product categories that we talked about last call that.
But as you know there are other product categories, where.
We're finally, feeling pretty good about where we're at.
Brian Knutson: And, so, uh, definitely, it's an impact, and, and some of their farmers are, are producers are watching. It is, you know, cutting into their net farm income, uh, a little bit. It's one of the contributing factors, uh, along with just a lot of other things which have the price up, but, uh, but, you know, Eurea and fertilizer being down is helping, and we're still on pace for, you know, a really good year.
<unk> been running low for quite a while now and then there are a couple of other product categories as we talked about last call that.
Speaker 4: you know we have a little bit excess of those smaller tractors and some of those and so I think you see it you know implied in our guidance is
We have a little bit of excess aveo smaller tractors in some of those and so I think you see it.
Implied in our guidance is.
Speaker 4: us being proactive about just in the second half here, cleaning up that mix a little bit. So we're positioned really well for next year and hope that some of these key product categories will open up. And so we're proactively addressing these few smaller categories.
US being proactive about just in the second half here cleaning.
Cleaning up that mix, a little bit we're positioned really well for next year and hope said some of these key product categories will open up and so we're proactively addressing these.
Brian Knutson: You know, maybe, uh, a lot of different estimates out there around between 15 and 20 percent below last year's record, uh, depending on where yields come in. But on pace for a really good year, they did push a lot of income into this year from last year and there's a lot of tax incentives still in place and we're anticipating that farmers are even going to be pushing income from this year in the next year and there was a lot of forward contracting so still pretty robust, still a fair amount of cash out there but yes interest rates are on people's minds and we do have a lot of different financing tools to help with that.
A few smaller categories, where we're a little long and Thats what you.
Speaker 4: where we're a little long and that's what you see in the anticipated margins that we've got reflected.
You see in the anticipated.
The margins that we've got reflected in <unk>.
Speaker 4: You know, most dealers that I know they wouldn't do that. They wouldn't be...
<unk> dealers that I know they they wouldnt do that they wouldn't be feeling the pressure yet that step is an aged and so we really just want to are cognizant of our healthy mix and are being proactive there and to your pre sell question as you know that the Oems are keeping the order books really tight here theyre not out very far.
Speaker 4: You know, feeling the pressure yet that stuff isn't aged. And so we really just want to our cognizant of our healthy mix and our being proactive there. And to your pre-cell question, as you know, the OEMs are keeping the order books really tight here. They're not out very far. These key product categories are on allocation. And so as Bulla said, you know, where we just finally are out into 24 now. And with our first trance of early orders there, we've got...
These key product categories are on allocation and so as both said you know where we just finally are out into 24 now and with our first tranche of early orders there we've got <unk>.
Brian Knutson: The only thing I'd add to that too and I think some of the OEMs maybe earlier this year broke down pretty nicely. Interest expenses is a fairly small portion of the cost when you're talking about the equation for farm income so while it has increased, there's other factors that are much more at play here. Yeah, no doubt about that. Very good. Well, that's all very helpful. I appreciate you guys taking my questions. Congratulations again on a great quarter and I'll get back in queue. Thank you, Ben. Thank you.
Speaker 4: We have got names on all those key product category units.
<unk> got names on all those key product category.
<unk>.
But again, you know do you get a sense that volumetric lead demand.
Speaker 3: Do you get a sense that volumetrically demand for Mali?
For model year, 'twenty four is up relative to.
Speaker 3: up relative to 23. And I asked the question because it matters within the context of inventories building on
223, and asked the question because it matters within the context of inventories building on your balance sheet in the industry more broadly.
Alex Rygiel: Our next question comes from the line of Alex Rygiel with Be Ryla Securities. Please proceed with your question. Thank you and good morning gentlemen and congratulations on the counter-transaction. Good morning, all the questions here. You talked a lot about inventory and that was all very, very helpful but taking a quick step back. Why do you think being at a target inventory level that's comparable to historical levels is appropriate in this higher rate environment that we're in right now?
Uh huh.
Speaker 4: No, I would say demand is still very similar to how it's been in those key product categories, but importantly, demand has been all pacing, supply now for a long time on those. But and then normalized in the other product categories.
No I would say demand is still very similar to how it's been in those key product categories, but importantly demand has been outpacing supply now for a long time on those.
But and then normalized in the other product categories.
Speaker 4: So, yeah, I don't see demand increasing here as we've got, you know, a little bit lower net farm incomes and likewise on the construction side. But demand's still strong. And again, as I mentioned, our, our order boards in those key product categories were still selling everything we can get for the allocation we have so far.
So I don't see demand increasing here is we've got.
A little bit lower net farm incomes and likewise on the construction side.
Alex Rygiel: I would start with saying that the levels we're talking about aren't comparable to historical. If you want to take it back to a prior peak which I think some people are naturally doing and comparing our total inventory level, I think you have to factor in the cost per unit, right? So we're talking about a significantly smaller number of units per location than we were a decade ago. If you simply ran the math on a 3% increase over a decade, you'd be talking about a like for like equipment being 35% higher.
But demand is still strong and again as I mentioned, our order boards in those key product categories.
Alex Rygiel: And we know with the pricing that we've seen over the past couple years, it's been much larger than that. So even on a very conservative basis, you're talking about one third less number of units out at the locations. And then from there, as we talk about targeted levels, we're really focused on our main categories and it's making sure again that we have one or two that are available for demonstration, loner or display units.
Selling everything we can get for the allocation we have so far.
Speaker 2: I mean, Dave and I'll just reiterate my comment. I don't see us getting salt-peppled sprayers, wheel loaders or forward-eyed tractors, but in any quantities of stock until at the earliest, you know, the second half of 2024.
Thank you Amit this is Dave and I'll, just reiterate my comment I don't see us getting solved.
Salt propelled sprayers all wheel orders are for overdrive trackers, but at any quantities of stock until at the earliest.
The second half of 2024.
That's how tight it is.
Speaker 1: Thank you. Our next question comes from the line of Larry de Maria with William Blair. Please press you.
Thank you. Our next question comes from the line of Larry de Maria with William Blair. Please proceed with your question.
Speaker 8: Thanks, good morning. Hey, first question, let's just pick up a little bit of the other. The early auto program is in pre-sales. What is the message that you're were seeing on calendar 2024?
Hi, Thanks, good morning.
Hey.
First question.
Let's just pick up where we left off there.
Early order programs in pre sales and well you know.
What is the message that you're.
We're seeing it.
In calendar 2024, I mean, I understand that obviously disorders and their short supply. So first of all are there any cancellations out there that we're seeing and B J's question, Bob pointed out they are not getting stronger are we seeing I.
Alex Rygiel: And that's just what you need in order to drive the high volume of cells, right? And so that's really what we're talking about. We're missing out on cells opportunities because we don't have those high horsepower items on our lots. And if we did, our cells would be even higher than they are today. So taking a step back, I think it's important to keep all of that in perspective. So we continue to improve our business model and we want to be as efficient as possible. And we certainly want to focus on presale activities and all of that is good business practices that will continue to do going forwards.
Speaker 8: We've talked about a flat calendar, 2024 at this point. What's the specific messaging on what do order programs at town?
I don't know I'll be talking about a flat calendar 2024 at this point, what's the specific messaging on what order program to telling you about next year.
Yeah, I think so Larry.
Speaker 4: So, to answer your first question, no cancellations still.
So to answer your first question no cancellations still.
Speaker 4: And yeah, 24 is a long ways out at this point. And but that's, you know, flatish is kind of our anticipation at this point for demand perspective.
And.
And yes, 24 is a long ways out at this point and but that's flattish is kind of our anticipation at this point.
Alex Rygiel: That's very helpful. And then back in January, you had some delivery delays. I know it's kind of hard to quantify those, but do you think you're all caught up in those deliveries? No, not yet, Alex. In fact, both spoke to his prepared comments. Our backlog is actually up a little bit sequentially, so no, we anticipate, you know, likely at least another couple quarters before we can get caught up on that. Just our shops are really busy, which is a good thing and we're selling a lot of iron, which is a good thing.
For a demand perspective, but again.
Speaker 4: you got to work in the fact that we need production availability increase in these key product categories and we haven't been able to keep up there with the man and that fleet continues to get older in those certain product categories.
You got to work and the fact that we need production availability of increase in these key product categories, and we haven't been able to keep up there with demand and that fleet continues to get older in those certain product categories.
Okay. Thank you.
Speaker 2: Maybe what you're asking me a little bit, I'd say farmer's sediment might be tempered a little bit. Like you say there's a lot of noise out there, there's interest rates, things like that. But instead, there was so much demand before and in the production level, there were so much below the previous peaks that the demand is still good. But maybe farmer's sediment might be off a little bit.
Maybe what Youre asking me a little bit you know I'd say farmers sediment might be tempered a little bit like you say either you know theres a lot of noise out there there is interest rates things like that but it said there was so much demand before in their production levels were so much below previous peaks that that the demand is still good but maybe farmers.
Alex Rygiel: And, you know, it'll just take a little time yet, but bow anything out on your head. No, I think that that's right. You know, we talk about our mix and available for sell inventory and wanting to normalize that backlog and we continue to see opportunity to focus on that the back half of the year.
Farmers settlement might be off a little bit but.
Speaker 2: you know, I've a deal with farmers for over 40 years and they're always pretty, you know, negative. But there is some noise out there and that, but still the man's still all pacing supply and high horse power.
A good deal of farmers for over 40 years as there always pretty.
But there are there is some noise out there is that but it's still the demand is still outpacing supply and high horsepower yeah. Good point Dave.
Unnamed Speaker: Thank you very much. And one more comment on that too, you know, with some of the supply side issues and some of the conditions, some of the equipment when it's coming out of the factories too, it's taking a substantial longer per unit to get them through our shops right now. And we're seeing that it started to improve a little bit and we do think that's going to be probably back to normal towards the end of the year too, so that'll help a lot.
Speaker 8: Okay, thank you. And then can you give us some color on the second half?
Okay. Thank you.
Unnamed Speaker: Thank you.
Then can you give us some color on the second half obviously, a good quarter.
Speaker 8: quarter, construction looking stronger and actually a little lower. Seems like the core guide exoconis.
Construction looking stronger and actually a little lower it seems like the core guide ex O'connor.
Speaker 8: not being flat for the year, which would imply maybe lower second half than the expectations and you know consent.
Should be going up not staying flat for the year, which would imply maybe a lower second half than than the expectations and our consensus number. So can you talk about.
Expectations second half or is there a deceleration or is it just really about not getting production and you know we're not having confidence that production and then a fiscal <unk> sales split.
Speaker 8: about not getting production, and you know, not having confidence in production.
Code Jackson: Our next question comes from line of Code Jackson with Northland Securities. Please proceed with your question.
David Meyer: Thank you and good morning. So I'm going to throw my two questions back as it relates to the O'Connor acquisition. And the first one is just maybe a little more color on the case, IH Australia and dealer network. Can you give us some sense in terms of, you know, how many locations there are across Australia? You know, like kind of maybe the average locations per dealer, you know, kind of like who's the next largest dealer now that you have the largest kind of who's number two.
Speaker 6: Yeah, and a couple pieces of the commentary on that, right? I'd say from a top line perspective, if you look at, you know, St. Thors' El's growth on our domestic ag business, it's been about 7% first half of the year. We expect something similar in the second half of the year. Then you later on, any growth expected from a heartland perspective, which given some of the commentary about sprayer production, you know, we'd expect their growth to be north of those levels.
Yes.
A couple of pieces of commentary on there and I'd say from a top line perspective, if you look at same store sales growth on our domestic egg business. It's been about 7% first half of the year, we expect something similar in the second half of the year.
Venue later on.
Any growth expected from our Heartland perspective, which given some of the commentary about sprayer production, we would expect their growth to be north of those levels.
Speaker 6: you know mathematically speaking uh... from a margin perspective we've been touching on it right but that's where some of the math comes into play to get to the result so the top line uh... is very much what we've been discussing in reiterated the guidance and gross margin uh... moderation uh... is something we've been talking about since the beginning of the year so year over year in q3 and q4
David Meyer: Just some metrics to kind of give us a sense with regards to how it compares to the domestic dealer network for a case international harvester. So, you know, in our discussions with the management team there are, you know, they had a pretty well defined, you know, future, you know, growth strategy through acquisitions, looking on identified locations. They've been in conversations with different owners, but I'd say it's much different United States. You know, you've got, you don't have a lot of really big dealer groups at least on the case of each site.
Mathematically speaking from.
From a margin perspective, we've been touching on it right, but that's why some of the math comes into play to get to the results on the top line is.
It's very much what we've been discussing and reiterated the guidance and gross margin.
Moderation.
It's something we've been talking about since the beginning of the year so year over year in Q3 and Q4.
Speaker 6: We would expect margins to be a lower than they were in the prior year.
We would expect margins to be lower than they were in the prior year.
Speaker 6: And that would be for a number of reasons, including what Brian was touching on a little bit earlier. And then from a split perspective, we would expect Q3 to be our highest quarter and Q4 to be a little less than that, but more than what we just saw in the second quarter. So that's also consistent with the expectations that we had put out there previously. You know, the other thing just to help you out and…
And that would be for a number of reasons, including what Brian was touching on a little bit earlier, and then from a split perspective, we would expect Q3 to be our highest quarter and Q4 to be a little less than that but more than what we just saw in the second quarter. So that's also.
David Meyer: You know, maybe so more so on some of the competition. So it's a lot of family business, smaller businesses, you know, and you know, right there. I think it's a much more robust consolidation story than what we've, you know, even experienced here in the United States. So, you know, and a lot of smaller groups, you know, family owned and I think that's just right for consolidation as you continue to out adjacent from where they are now.
Consistent with the expectations that we had put out there previously.
The other thing just to help you out in and doing your math and getting to where we come.
Speaker 6: and doing your math and getting to where we come out to from an expectation perspective is you did see other interest expense higher in the second quarter and we would expect that in the third and fourth quarter as well, certainly as you're comparing to the prior year period. So put all that together and take a step back. What we're really doing is reiterating a guidance midpoint of $4.80.
Come out too from an expectation perspective is you did see.
Other interest expense.
David Meyer: And I think that there's really good relationship, you know, between our team and some of the existing owners and some good camaraderie. And so we just want to do that on a timely and managed approach, you know, but no, I think that's one of the, you know, positives about this story is a future M&A opportunity. Yeah, and Ted, I would just add on to Dave, I think you asked what's the next largest and so you know Conner's footprint in the grain belt there would be, you know, there's a C&H dealership with six rooftops, and then you asked what the average is, and so the average is more around two to three locations per...
Higher in the second quarter, and we would expect that in the third and fourth quarter as well as certainly as youre comparing to the prior year period. So put all that together and take a step back what we're really doing is reiterating our guidance midpoint of $4 80.
Speaker 6: which is outside of the O'Connor's acquisition, which is on top of last year's record results. And if you really zoom out and talk about where we're at today, what the earnings power versus where we were in the prior peak, you know, we were talking about $2 per share looking good. So again, we've spoken this year about higher confidence in achieving average pre-tax margins north of 5% through the cycle.
Which is outside of the <unk> acquisition, which is on top of last year's record results and if you really zoom out and talk about where we're at today with our earnings power versus where we were in the prior peak, we were talking about $2 per share and looking good. So again, we've spoken this year about higher confidence in achieving our average pre.
Tax margins north of 5% through the cycle.
Speaker 6: The reasons why we have confidence in getting there, focusing on our organic growth through market share gains and continuing to execute on our pipeline. So for us, and I hope you hear it, you know, we're nothing but excited about how the rest of the year shapes up and how we're going to be well positioned to continue to execute next.
The reasons why we have confidence in getting there.
Focusing on our organic growth through market share gains and continuing to execute on our pipeline. So for us and I Hope you hear it we're nothing but excited about how the rest of the year shapes up and how we're going to be well positioned to continue to execute next year.
David Meyer: Okay, and do you have any kind of sense in terms of just, I don't know, like the number of locations there are in Australia, just better curiosity, just the kind of whole size of that market, at least from like a, you know, locations standpoint? Yeah, we know the number definitely in the grain belt and in O'Connor's footprint where we're, you know, where our interest level is, there's just, as David mentioned, I'll just go back to, you know, there will likely be a fair amount of consolidation in that area, you know, over time here, and we're seeing that with the beer side as well.
Okay.
Speaker 1: Thank you. Our final question this morning comes from the line of Steve Diet with Craig Hall and Capitol Group. Please proceed with your question. Thank you.
Thank you. Our final question. This morning comes from the line of Steve Dyer with Craig Hallum Capital Group. Please proceed with your question.
Good morning, Brian both Ryan on for Steve.
Speaker 9: Just want to follow the poll on that last date. And then I guess when you say Q3 highest, you've got the core business excluding the acquisition just made of Oconners, or is that all in Q3 will be the highest.
To follow up on the last day, and then I guess when you say Q3 highest.
The core business. Excluding the acquisition you just made of o'connor's or is that all in Q3 will be the highest revenue.
Speaker 6: Yeah, I know that's a great point and thanks for allowing me the opportunity to clarify that. You know, that was our expectation excluding the O'Connor's acquisition. So then we'd layer the O'Connor's acquisition on top of that. So, appreciate it.
Yes, no that's a great point and thanks for allowing me the opportunity to clarify that that was that was our expectation excluding the <unk> acquisition. So then what we'd layer.
David Meyer: You know, the audio equipment that is headquartered out of Fargo here as well, that's a very large John Deer dealer has 25 locations in Australia has for a long time, you know, I remember a way back when they entered the Australian market and they continued to add locations and continue to build their presence every year in Australia. And then service equipment that large John Deer dealer just north of us here in Canada has 15 locations, so they're now on basically either side of us.
The <unk> acquisition on top of that so I appreciate that.
Speaker 9: Good, and then just quick follow up. Do you realize any manufacturing incentive?
Okay.
Good and then just a quick follow up.
Any manufacturing incentives in Q2, and then what are your assumptions within guidance for the back half of the year regarding incentives.
Speaker 9: and then what are your assumptions within guidance for the back half of the year regarding? I'm sent...
Speaker 6: Yeah, another opportunity for me to clarify there. So last year we started to accrue for manufacturer and sentence in the second quarter to the tune of $2.6 million.
Yeah, another opportunity for me to clarify there. So last year, we started to accrue for manufacturer incentives in the second quarter to the tune of $2 $6 million. This year, we haven't yet done that just.
David Meyer: There is a fair amount of North American presence there now between us and RDO and service. My second question just is in terms of O'Connor's revenue mix and when you look at it from sort of equipment parts services rental, et cetera. I mean, would you, is it a mix that similar to your domestic business here in Ag or is it more like the international business, you know, I mean, not that they're that much different, but, you know, you, you have a bit more, you know, of a skew towards equipment, you know, relative to some of the higher margin stuff internationally.
Speaker 6: This year we haven't yet done that. Just, you know, aligning again with the cadence of production that we're expecting, and for that to continue to increase in the back half of the year, and we just talked about our expectations in the second half from a volume perspective, i.e., the second half being larger than the first half. So we definitely expect to recognize similar levels, overall, for the year. It'll just fall in the back half of the year, as opposed to, you know, starting incrementally last year to recognize that $2.6 million per year in the quarter.
Aligning again with the cadence of production that we're expecting in for that to continue to increase in the back half of the year and we just talked about are our expectations in the second half from a volume perspective, I E. The second half being larger than the first half. So we definitely expect to recognize similar levels overall for the year. It will just fall in the back half of the year.
As opposed to starting incrementally last year to recognize that $2 $6 million figure in the quarter.
Great. Thanks, Paul Good luck guys.
David Meyer: Then you do domestically and so I'm just kind of curious if you could get some color on your kind of the mix of O'Connor's business and then I'll get in queue again. Thanks. Yeah, it's pretty similar to our domestic Ag business, the supplemental deck that we posted on our website bricks that down pretty nicely. So, you know, looking at a three year historical average, their equipment sales mix was 82% versus, you know, on the US side of ours is more like 77 78. So, a couple of percentage points different, but very similar and that's, you know, just one of the many similarities that their business profile metrics have to our domestic Ag business.
Thank you.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Myers for any final comments.
Speaker 2: All right, thanks everybody for your participation and your interest in type machinery. And we look forward to updating you on our progress on our next call. So have a great day.
Alright, thanks, everybody for your participation and your interest in Titan machinery, and we look forward to updating you on our progress on our next call. So have a great day.
Thank you. This concludes our conference today you may disconnect. Your lines at this time. Thank you for your participation.
Unnamed Speaker: Okay, congrats on the quarter and the acquisition. Thank you.
Unnamed Speaker: Our next question comes from line of Daniel and brought with Stephen Dink. Please pursue with your question. Hey guys, this is Reid on for Daniel. Just a couple questions on margins here. As you know, we're seeing a lot lower inventory, which should translate to better growth points, and that should benefit your SNA to growth margin ratio. Is this a sustainable ratio going forward assuming inventory stays low? Or how should we be thinking about that?
Unnamed Speaker: I mean, in talking about the back half of the year and our expectations, you know, we touched on the fact that we do expect some moderation in the gross margin perspective but from an operating expense perspective, we expect to remain in line or below a prior year as a percentage of sales and for the full year that the same story would be true at this point is to be in line or prior a little bit below last year's percentage of sales from those operating expenses.
Bo Larson: Okay, thank you. And on the O'Connor's acquisition, it looks like last fiscal year, they finished with gross margin slightly below y'all. Do y'all expect to see some synergies uplift that gross margin or can you touch on maybe some margin synergies? Just a little more color there would be great. Yeah, so in the financials that we provided in the supplemental deck, they had gross margin of 18.7 percent. I think that's what you're referencing a slightly below ours and then actually had a pretext margin of 7.2 percent.
Bo Larson: So the profitability of their business is one of the many things that really attracted us to the management team and their operating model. You know, that margin if you factor in the fact that they are a little bit more skewed to equipment sales makes a lot of sense and is pretty similar to us. In terms of synergies, I mean, what we're really looking at is focus on a consolidated executive leadership team looking at the business from a global perspective.
Bo Larson: We want to continue to support that senior management team to execute on the growth strategy that they had in front of them. And then there's some unique opportunities from a service model perspective and being able to provide customers, you know, 24-7 type support as we look at the different time zones that we're now operating in as well.
Unnamed Speaker: All right.
Unnamed Speaker: Thank you all for the color.
Mick Dobry: Thank you. Our next question comes from the line of Mick Dobry with Beard. Please proceed with your question. Good morning and thank you for the question here. I want to go back to the inventory discussion. And I'm sort of curious as to how you think inventories will progress for you for the remainder of the year. It sounds like you'd like more inventory if available. So, you know, is the supply chain and is getting better for the OEM?
Mick Dobry: Are you sort of inferring here that you're going to continue to build inventories through through your end? So, I guess that's part number one. And then, you know, related to this, given that so much of your businesses now pre-sell, can you comment at all about your pre-sell activity on model year 24 equipment in North America? And then I'll have some follow-ups. Thank you.
Bo Larson: Yeah, I'll maybe start with the inventory question and then Brian might touch on the pre-sell. So, from an inventory perspective, we would expect the inventories probably will increase sequentially in the third quarter and then come down a little bit from there in the fourth quarter. We typically see that to be the case. We did mention that, you know, largely speaking from a high horse power perspective that most of everything that we're going to receive is retailed the customers.
Bo Larson: Of course, we need to turn that around with pre-delivery inspections. So, again, we'll see what we're able to do with normalizing that backlog. And those are really the factors that are at play, but from a bigger picture perspective in terms of the increase that we've seen year-to-date versus what we would expect in the back half of the year, the back half should be a lot less than what we saw in the first half.
Bo Larson: And, again, the first half is kind of very welcome to see, get us replenished levels on some of these other categories, back half a smaller modest increase and, again, focusing on normalizing that backlog. Yeah, I'd make this as Bryan, I would just add, you know, we're definitely trying to be really clear that we are short in certain key product categories. And those are the areas that we're looking to get more in.
Bo Larson: But as you know, there are other product categories where we're finally feeling pretty good about where we're at. We've been running low for quite a while now. And then there are a couple other product categories that we talked about last call that, you know, we have a little bit excess of, you know, smaller tractors in some of those. And so I think you see it, you know, implied in our guidance is us being proactive about just in the second half here, cleaning up that mix a little bit.
Bo Larson: So we're positioned really well for next year and hope that some of these key product categories will open up. And so we're proactively addressing these. You know, a few smaller categories where we're a little long and that's what you see in the anticipated margins that we've got reflected. You know, most dealers that I know they wouldn't do that. They wouldn't be feeling the pressure yet that stuff isn't aged. And so we really just want to our cognizant of our healthy mix and are being proactive there.
Bryan Knutson: And your presale question, as you know, the OEMs are keeping the order books really tight here. They're not out very far. These key product categories are on allocation. And so, as both said, you know, where we just finally are out into 24 now. And with our first tranche of early orders there, we've got, we've got names on all those key product category units. But again, you know, do you get a sense that volumetrically demand for model year 24 is up relative to 23?
Bryan Knutson: And ask the question because it matters within the context of inventories building on your balance sheet and in the industry more broadly. No, I would say demand is still very similar to how it's been in those key product categories. But, you know, importantly, demand has been all pacing supply now for a long time on those. But, and then normalized in the other product categories. So, yeah, I don't see demand increasing here as we've got, you know, a little bit lower net farm incomes and likewise on the construction side.
Bryan Knutson: But demand is still strong. And again, as I mentioned, our order boards in those key product categories, we're still selling everything we can get for the allocation we have so far. Yeah, I mean, Dave, and I'll just reiterate my comment.
Unnamed Speaker: I don't see us getting salt call sprayers or wheel loaders or forward-eyed tractors, but in any quantities of stock until at the earliest, you know, the second half of 2024, that's how tight it is. Thank you.
Larry De Maria: Our next question comes from the line of Larry de Maria with William Blair. Please proceed. Thank you for your question. So Larry, to answer your first question, no cancellations still. And yeah, 24 is a long ways out at this point. But that's flatish is kind of our anticipation at this point for demand perspective. But again, you got to work in the fact that we need production availability, increase in these key product categories. And we haven't been able to keep up there with demand and that fleet continues to get older in those certain product categories.
David Meyer: Okay, thank you. Maybe what you're asking me a little bit, I'd say farmer's sediment might be tempered a little bit. Like you say there's a lot of noise out there, there's interest rates, things like that. And said there was so much demand before in the production levels were so much below the previous peaks that the demand is still good. But maybe farmer's sediment might be off a little bit, but I've a deal with farmers for over 40 years and they're always pretty nail. But there is some noise out there and that but still the demand is still all peace and supply and high horse power. Yeah, good point.
Bo Larson: Okay, thank you. And then can you give us some color on the second half? Obviously, you know, a good quarter, construction looking stronger in the actual little lower. It seems like the core guide, Exocon, should be going up, not staying flat for the year, which would imply maybe a lower second half than the expectations and the consensus numbers show. So keep talk about, you know, expectation, second half, is there a deceleration or is it just really about not getting production and not having confidence of production.
Bo Larson: And then a fiscal, you know, three cures, four cures, but thanks. Yeah, not a couple of pieces of commentary on that, right? I'd say from a top line perspective, if you look at, you know, stainless-thorsed L's growth on our domestic egg business, it's been about seven percent first half of the year. We expect something similar in the second half of the year. Then you later on, any growth expected from a heartland perspective, which given some of the commentary about sprayer production, you know, we'd expect their growth to be north of those levels.
Bo Larson: You know, mathematically speaking, from a margin perspective, we've been touching on it, right? But that's where some of the math comes into play to get to the result. So the top line is very much what we've been discussing and reiterated the guidance and gross margin moderation is something we've been talking about since the beginning of the year. So year over year in Q3 and Q4, we would expect margins to be a lower than they were in the prior year.
Bo Larson: And that would be for a number of reasons, including what Brian was touching on a little bit earlier. And then from a split perspective, we would expect Q3 to be our highest quarter and Q4 to be a little less than that, but more than what we just saw in the second quarter. So that's also consistent with the expectations that we had put out there previously. You know, the other thing just to help you out and doing your math and getting to where we come out to from an expectation perspective is you did see, you know, other interest expense higher in the second quarter and we would expect that in the third and fourth quarter as well, certainly as you're comparing to the prior year period.
Bo Larson: So put all that together and pick a step back. What we're really doing is re reiterating, you know, a guidance midpoint of $4.80, which is outside of the O'Connor's acquisition, which is on top of last year's record results. And if you really zoom out and talk about where we're at today with our earnings power versus where we were in the prior peak, you know, we were talking about $2 per share, looking good.
Bo Larson: So again, we've spoken this year about higher confidence in achieving average pretext margins north of 5% through the cycle. The reasons why we have confidence in getting there, focusing on our organic growth through market share gains and continuing to execute on our pipeline.
Bo Larson: So for us, and I hope you hear it, you know, we're nothing but excited about how the rest of the year shapes up and how we're going to be a well-positioned and continue to execute next year.
Steve Dyer: Thank you.
Steve Dyer: Our final question this morning comes from the line of Steve Dyer with Craig Hall and Capitol Group. Please proceed with your question.
Bryan Knutson: Morning, Dave, Bryan Knutson, Bryan Knutson for Steve. Just want to follow up to the goal on that last date and then I guess when you say Q3 highest, is that the core business excluding the acquisition just made of economists or is that all in, Q3 will be the highest revenue? Yeah, now that's a great point and thanks for allowing me the opportunity to clarify that. You know, that was our expectation excluding the O'Connor's acquisition. So then we'd layer the O'Connor's acquisition on top of that. So appreciate that. Good.
Bo Larson: And then just quick follow up, would you realize any manufacturing incentives in Q2 and then what are your assumptions within guidance for the back half of the year regarding incentives? Yeah, another opportunity for me to clarify there. So last year we started to approve for manufacture and incentives in the second quarter until the tune of $2.6 million. This year we haven't yet done that just, you know, aligning again with the cadence of production that we're expecting and for that to continue to increase in the back half of the year.
Bo Larson: And we just talked about our expectations in the second half from a volume perspective. IE the second half being larger than the first half. So we definitely expect to recognize similar levels overall for the year. It'll just fall in the back half of the year as opposed to, you know, starting incrementally last year to recognize that $2.6 million per year in the quarter. Great. Thanks, folks. Good luck guys. Thank you.
David Meyer: Please, gentlemen, back concludes our question and answer session. I'll turn this back to Mr. Meyer for any final comments. All right. Thanks, everybody, for your participation and your interest and type machinery. And we look forward to updating you on our progress on our next call. So have a great day.