Q3 2024 Titan Machinery Inc Earnings Call
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Greetings and welcome to the Titan Machinery, Inc. Third 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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Minder. This conference is being recorded I would now like to turn the conference over to your host Mr. Jeff Sonic of ICR. Please go ahead Sir.
Thank you good morning, ladies and gentlemen, and welcome to Titan machinery third quarter fiscal 2024 earnings conference call on the call today from the company are David Myers, Chairman and Chief Executive Officer, Brian Knutson, President and Chief operating Officer, and Bo Larsen Chief Financial Officer.
By now everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2023, which went out earlier. This morning at approximately 645 a M. Eastern time, if you've not received the release it's available on the Investor Relations page of Titans website at IR Dot Titan machinery dotcom.
This call is being webcast and replay is available on the company's website as well. In addition, we are providing a presentation to accompany today's prepared remarks, you may access the presentation by going to Titans website again at IR Dot tightened machinery dotcom presentation is available directly below the webcast information in the middle of it.
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You'll see on slide two of the presentation, our safe Harbor statement.
To remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
These forward looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the risk factors section of Titans. Most recently filed annual report on Form 10-K.
Updated in subsequent filed quarterly reports on Form 10-Q.
Risk factors contained a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements, except as may be required by applicable law Titan assumes no obligation to update any forward looking statements that may be made in today's release or call.
The call will last approximately 45 minutes at the conclusion of our prepared remarks, we'll open the call to take your questions with.
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 third quarter of fiscal 'twenty 'twenty four earnings conference call.
On today's call I will provide a summary of our results. So I'm going to loosen, our current president and Chief operating officer, who will be transitioning to the C. E O pulse on February 1st we'll give an overview for each of our business segments.
Well, our syn <unk>, our CFO will conclude the call with a review of our financial results for the third quarter of fiscal 'twenty 'twenty four and some commentary around our updated fiscal 'twenty 'twenty four for your expectations.
We accomplished a great deal this quarter completing our acquisition of the Australia based O'connor Scoop in October and solidifying our leadership succession plan. What's your malls are not ones last months, while delivering solid financial results.
Brian and his team have been instrumental in Jumpstarting, our integration with all corners, and we couldn't be more pleased with the quality. It was all corners team.
We recognized an alignment of our strategies during they'll counters due diligence process in the first couple months of operations of proven at Holwell, our organization's mesh.
Thrilled to have them on board and look forward to a bright future together.
As it relates to see you all succession I'm very proud of what our team at Titan machinery has achieved since my early days in a dealership nearly 50 years ago and the breadth and depth of our operation is a testament to the talent that we've attracted to the organization.
So it was a process of planning for this transition over the last several years with our board of directors. We felt it was critical to fill the role or someone who is deeply understands the dealership business and our customers.
Brian is a natural leader with a successful track record has proven its ability to access all across all aspects of the business at our company culture and our employee engagement has never been better.
Seem to be confident and Brian its capabilities and watches development over the last 20 years as he has excelled in both store and the central leadership roles, which makes him uniquely qualified to lead Titan machinery in our next stage of growth.
Moving to our fiscal third quarter financial performance, we achieved record revenues of $694 million or their maintenance per share of $1.32.
These results came in below our full potential due to delayed OEM deliveries prioritizing customer uptime throughout the harvest and the end of the season construction projects and increased preparation time to complete pre delivery inspections of new machinery.
This dynamic is also visible in our inventory balance at the end of the quarter.
Mantovani on pre sold inventory you've been trapped in our service shops continues to trend above normal levels.
Notwithstanding customer uptime is our top priority and our team did a great job of meeting our customers' immediate service needs and minimizing downtime during the all important fall season.
Heading into year end, we continue to see demand in excess of OEM production for high horsepower tractors and wheel loaders, which we expect will continue through at least till first half of calendar year 'twenty 'twenty four.
Well, we are positioned well for a strong fourth quarter, our recognition of equivalent revenue will be dependent on both the timing of new machinery received from the Oems as well as our ability as a managed service Department work falls, we continue to experience substantially longer preparation time to complete their quality pre delivery inspection and setup process.
S required before delivery to our customers do do the supply chain challenges.
Overall, we expect year over year revenue growth in each of our segments in the fourth quarter and we have narrowed the range of our revenue modeling assumptions to reflect our latest expectations for fourth quarter OEM deliveries and demands on our service departments.
Looking forward, both our agency customers are experiencing the carryover of three exceptionally strong years, putting them in an excellent financial position and creating optimism as I look to the future.
Additionally over the last 24 months, we have completed some high quality strategic acquisitions, which will strengthen our bottom line as they get fully integrated into our system with that I'll turn the call over to Brian concerned for the segment review.
Thank you David and good morning, everyone.
Today, I will provide a recap of our fiscal third quarter segment drivers and then review some of our high level expectations for the balance of fiscal year 'twenty 'twenty four across their respective segments.
I'll begin with our domestic agriculture segment.
We achieved another record revenue performance on top of last year's outstanding results driven by a combination of positive same store sales and contribution from the pioneer acquisition from earlier in the year.
As you heard from David These results were constrained by a few factors.
While improving limited OEM production remains a factor preventing us from meeting the existing demand for high horsepower tractors and self propelled sprayers.
And for those new units that we are receiving our service team is having to spend more preparation time on each pre sold new unit before delivering into our customers due to supply side challenges.
While this isn't a new phenomenon for us.
The additional prep time has been something we face throughout this fiscal year.
Our service Department capacity was stretched in the third quarter, given the seasonally higher volumes and the need to prioritize our supportive existing customer equipment throughout harvest.
Now that our customers are mostly done with harvest activities, we expect to catch up on delivering some of the incremental buildup of pre sold units throughout the fourth quarter.
Bolstering our service network and capacity remains a key priority for our organization.
As such we will continue to focus on recruiting hiring and training skilled technicians.
With respect to harvests and customer sentiment favorable crop development in the later part of the growing season produced average to above average yields throughout our footprint.
Although corn pricing has softened throughout the year, there was quite a bit of corn that was forward contracted in the five to $6 per bushel range and current prices for soybeans sugar beets, potatoes, and edible beans remains very attractive as well as cattle prices.
Yield trends continue to be positive and some input costs have been decreasing and with three consecutive years of historically high net farm income.
Farmers balance sheets are in great shape with debt to equity ratios historically, low and a further aided by increasing land values.
Overall, our customers are in a great position to post another solid year of income.
Looking to the balance of fiscal 'twenty 'twenty four for our agriculture segment remain in a position to deliver a strong fourth quarter based on positive fundamentals such as healthy farmer cash receipts, which is supporting net farm income at levels well above historical averages.
Continued tax incentives surrounding section 179, and bonus depreciation and the additional backlog of pre sold units awaiting pre delivery inspection and final delivery to our customers.
Shifting to our domestic construction segment similar dynamics to what I. Just described for agricultural segment are also relevant here.
OEM wheel loader production does not yet meet demand preparation time to get new units ready for delivery to customers is longer than normal and with a busy fall construction season to complete projects ahead of winter. Our service departments were balancing competing demands, but always keeping existing customer machinery running as the top pre.
Alrighty.
I'd also note that there was a shift in timing of equipment deliveries this year versus last which has some influence on the comparable growth rates.
For instance, last year, we had a really strong third quarter performance, whereas we expect a stronger fourth quarter performance in the current year.
As a result, we realized a year over year same store sales decrease of 10, 3% in the third quarter of this year.
Despite third quarter year over year comparisons, we achieved rental fleet dollar utilization of 33, 2% and absorption of 88.5% both of which are very high compared to historical levels for this segment and show the sustained improvement in these areas.
General construction activity across our footprint remains at healthy levels and infrastructure energy and agriculture activity continue to support demand for construction equipment.
Looking ahead to the fourth quarter, we expect the timing dynamic I mentioned to be a tailwind for us and as a result and result in year over year growth on a same store basis and finished this fiscal year at a high note for our construction segment.
Now moving to an overview of our Europe segment, which was formerly known as our international segment prior to our acquisition of O'connor's in Australia.
Our Europe segment represents our business within the countries of Bulgaria, Germany, Romania and Ukraine.
Rainfalls throughout the growing season varied across these countries, which helped drive above average yields in Germany in Ukraine.
Dry conditions in Bulgaria, and Romania caused yields to be below average.
These lower yields negatively impacted farmer profitability and as a result, we saw a softening in demand for new equipment purchases in these two countries.
Overall same store sales decreased seven 5% in our fiscal third quarter.
Looking to expectations for the rest of the year, we continue to expect European AG fundamentals to moderate.
However, last year's fiscal fourth quarter was significantly impacted by limited equipment availability and did not follow normal revenue seasonality patterns for our Europe segment.
This dynamic should normalize this year and is the basis for our expectation to achieve year over year growth in this year's fourth quarter.
Last but not least is our new Australia segment, although we closed on the alcohol counters acquisition October those results won't be consolidated into our financials until the fourth quarter.
Harvest has now started in Australia and is providing evidence that the o'connor's footprint is one of the most consistent areas in the country.
Growers in our footprint are seeing above average yields as they began harvest activities well the same cannot be said for much of the rest of the country.
Recent moisture is presenting some challenges to the current harvest, but it is helpful to restoring moisture levels in the region for next year's crop.
We continue to be extremely excited about the Australian market and the opportunity to build upon what the o'connor's team has accomplished we.
We are working through our integration strategy and are grateful for the entire team's eagerness as we come together.
With that I just want to thank all the members of our Titan family for their hard work and focus as we kept growers and contractors up and running during the important fall season.
Now I will turn the call over to Bo to review our financial results in more detail.
Yeah.
Thanks, Brian Good morning, everyone.
Starting with our consolidated results for the fiscal 2024 third quarter total revenue was $694 $1 million.
An increase of three 8% compared to the prior year period.
Our equipment revenue increased two 5% versus the prior year period.
Led by incremental revenue from our recent acquisitions as well as positive same store sales growth in our agriculture segment.
Growth was also visible across our other revenue streams as well with our parts revenue increasing five 7%.
Service up 14, 9% and rental and other revenue up four 2% versus the prior year period.
Gross profit for the third quarter was $138 million and as expected gross profit margin decreased.
By 100 basis points to 19, 9%.
Primarily by lower equipment, and parts margins, partially offset by higher service and rental margins.
It's worth noting that the equipment gross profit in the prior year benefited from the recognition of a $2 million accrual on the expected achievement of annual manufacturer incentive programs.
Which is not included in this year's third quarter results.
As a reminder, we recognized $6 $4 million of manufacturer incentives in the prior fiscal year spread across Q2, Q3 and Q4.
Our guidance, which I'll talk about further in a few minutes and close the similar level of manufacturing incentives for the current fiscal year.
All of which if earned will be recognized in the fourth quarter.
The difference in timing relates to the progress on achieving related targets.
Thus our updated guidance includes the full year's impact of manufacturer incentives to be recognized in the fourth quarter and part of the reason for keeping our EPS guidance unchanged.
Operating expenses were $92 $1 million for the third quarter of fiscal 2024.
Compared to $84 $9 million in the prior year.
The year over year increase of eight 5% was led by additional operating expenses due to acquisitions that have taken place in the past year as well as an increase in variable expenses associated with increased sales.
Additionally, the inconsistent OEM deliveries and longer preparation time for pre delivery inspection of new equipment have created some temporary inefficiencies that we are tackling with an eye toward returning to normal conditions in these areas as soon as possible.
On a consolidated basis I would expect operating expenses as a percentage of sales in the fourth quarter to be similar to or modestly lower than the 13, 3% realized in the third quarter.
Over the past two years, we have made seven acquisitions that accounted for approximately $670 million in annualized revenue.
Overall and as is typical those acquisitions came with the higher operating expense as a percentage of sales than our base business, albeit some with favorable gross margin offsets.
As David and Brian have touched on already we are focused on integration activities and resource reallocation. So the business is optimized to deliver operational efficiencies through the cycle.
We have a long track record of acquiring businesses and improving their financial metrics over time to be in line with our overall financial targets and I'd expect that we'll be able to demonstrate that in the future as well.
Floorplan and other interest expense was $5 $5 million as compared to $1.8 million for the third quarter of fiscal 2023.
Primarily due to higher interest bearing floorplan borrowings driven by higher inventory levels.
Additionally, we use the capacity of our existing baked syndicate floorplan facility to finance the O'connor is acquisition.
Yeah.
Net income for the third quarter of fiscal 2024 was $32 million or $1.32 per diluted share and compares to last year's third quarter net income of $41 $3 million or $1 82 per diluted share.
Now turning to our segment results for the third quarter.
In our agriculture segment sales increased seven 7% to $531.4 million.
This growth was driven by the acquisition of pioneer equipment as well as same store sales growth of three 5%.
Cheap on top of a very robust 46, 4% same store sales increase in the prior year.
And same store sales growth of 28% the year prior to that.
As previously discussed third quarter revenues retro strained by delayed OEM deliveries and capacity constraints in the service Department.
Agriculture segment pretax income was $35 $1 million compared to $42 million in the third quarter of the prior year, which implies a pretax margin decrease of 190 basis points to six 6%.
In our construction segment sales declined 10, 3% to $77 $5 million.
As Brian already mentioned the timing of equipment deliveries in the back half of this year versus the back half of last year creates some variability in the year over year comparability.
We expect this headwind to shift to a tailwind in the fourth quarter, where we anticipate generating year over year growth.
Pretax income was $41 million and compared to $6 $1 million in the third quarter of the prior year.
And our year over year pre tax margin decreased by approximately 180 basis points to five 2%.
In our Europe segment sales decreased by 4.3% to $85 $2 million, which reflects a 7.9% has the tailwind on the strengthening euro.
That is the effect that these foreign currency fluctuations revenue decreased 10, 4%, reflecting a softening of demand in Bulgaria and Romania.
Were negatively impacted by the aforementioned dry conditions and lower yields.
Pretax income was $5 $1 million and compares to $8 $5 million in the third quarter of fiscal 2023.
What's implied the pretax margin decrease of 350 basis points to 6%.
Given some of the timing and constraint related items, we mentioned, it's useful to look at year to date margins across our segments to get a better sense of things.
Through the first nine months of the year. The AG segments pre tax margin is six 5% or 70 basis points lower than the prior year.
<unk> pre tax margins of five 9%, which are flat with the prior year.
And Europe's pre tax margins are six 8% or 90 basis points lower than the first nine months of the prior year.
Now onto our balance sheet and inventory position.
We had cash of $70 million and an adjusted debt to tangible net worth ratio of one one times as of October 31st 2023, which is well below our bank covenant of three five times.
Equipment inventory increased $98 $8 million in the third quarter.
As we discussed in detail during our second quarter earnings call. Our domestic AG segment was still a little short of targeted inventory levels at that time and.
And we expected inventories to increase modestly during the third quarter based on planned OEM ship dates and projected customer deliveries.
We also expect it to start working down the amount of pre sold equipment and inventory back toward normal levels.
However, as David touched on earlier, given the dynamics of longer preparation times and prioritization of service for customers existing equipment, our progress on reducing the amount of pre salt equipment and inventory stocks.
Given that we are largely past the busy fall season, we should have more time to dedicate towards delivering pre salt equipment to customers in the fourth quarter.
But the inventory balance at the end of the fiscal year will be dependent on both the timing of incremental equipment deliveries from Oems as well as the pace of our pre delivery inspection work.
Overall, we expect there will be like there will likely be an increase in our total ending inventory on the balance sheet similar to the increase we saw in the third quarter and then stabilize within a range thereafter as things normalize.
We'll also see the o'connor's balance she added to our financials in the fourth quarter as well.
With that I'll finish Shang by I'll finish by sharing a few comments on our fiscal 2020 for full year guidance, which we have updated to reflect the year to date performance of our businesses.
We are positioned well for a strong fourth quarter and we have narrowed the range of expected revenue for each segment contemplating the continuation of limited availability of a few key equipment categories and the lager prep times for pre delivery inspections, we have been experiencing.
We now expect our AG segment to finish up 20% to 23%.
Our construction segment to be at four 7%.
In our Europe segment to be up four 7%.
With respect to our new Australia reporting segment.
We completed the O'canas transaction on October 2nd.
Similar to Europe. These results will be reported on a one month lag and as anticipated. This will result in three months of activity being reported in our fiscal 'twenty 'twenty four results.
With all of that said, we are refining our fiscal 'twenty 'twenty four revenue estimate.
To be 70 million to $80 million with a diluted EPS contribution in the range of 10 to 15 cents when factoring in financing and integration related expenses.
As a reminder, fourth quarter gross margins are typically a few hundred basis points lower sequentially than the third quarter.
Largely driven by mix and larger tax incentivized purchases with multi unit discounts.
The same is expected to hold true. This year. Additionally, we continue to expect modest normalization of equipment margins consistent with improved inventory levels and equipment availability.
Gross margin in the third quarter. It was about 100 basis points lower than the prior year's third quarter.
And I would expect a similar 100 basis point normalization year over year in the fourthquarter parse.
Partially offset by the anticipated incremental manufacturer incentives that I already mentioned.
Overall with margin strength offsetting slightly lower sales expectations for the year.
Our underlying EPS guidance, excluding the positive impact from the <unk> transaction remains unchanged as compared to the guidance that we established at the beginning of the fiscal year.
We look forward to finishing the year strong and delivering on the record results that we committed to nine months ago, and we are really proud of that.
This concludes our prepared comments and we are now ready to take questions.
Thank you at this time, we'll be conducting a question and answer session.
I'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 can you.
You May press star two if you'd like to remove your question from here.
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 that you each keep to one question and one follow up thank you.
Our first question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question.
Thank you good morning.
Good morning, Ed.
So I've got two questions. The first one is just going to.
The the issues with regards to prep time, which I just wanted to get a little more color around you know.
Is it is it is it a labor issue and you're trying you need more people is it.
Equipment that you have.
<unk> delivered in May.
These extra work for some reason because it's coming.
Yeah.
Right.
Let your state it as normal this kind of what's driving that.
Aspect, if you would with regards to the delay in topline.
Sure.
Yeah, I would tell it is really a combination of all the things that you mentioned you know if you are as an example were to fly over the global four wheel drive plans here in Fargo, you see a lot of units outside and typically what you're going to find is there either waiting on a truck for delivery due to the shortage of truckers out there right now and where they are.
Our missing a component you know some of the supply chain challenges that are still out there and they've got to keep the assembly line moving or the quality of the component that is teach received from one of the suppliers.
You know what didn't pass inspection, so again, they kept alive moving they caught it at the plan.
So there have been those delays on their side and that creates some of these timing issues. We've talked about then as we get those units.
Where is the additional prep time.
That we're seeing on our end is anytime you've had one of those units where he can't go through the normal build process and you've heard a lot of commentary from Deere and CNA generic one this in previous quarters.
You always have a risk.
Of quality issues or other things. So we just take a lot of pride in our commitment to our customers and excellence in the units when we deliver them to them and so on.
That's really increase that inspection time to make sure. We go through a multi point and inspection, we're catching things and its just then we got to fix those things in it and so it just adds time and then as we've also mentioned we do add a lot of different technology and things that's very common place for us to do for our customers and the.
The supply chain is still constrained constrained and deliveries are delayed on certain components are both within technology, but also with certain casting components like wastes and tires and wheels.
And so on so it's still a.
And you're waiting on some of those components, but collectively that all is what's leading to that significant increase in prep time.
Yeah, and I would just add to that.
General supply chain I think everybody sat over time has continued to improve and that's definitely the case you know as we look into next year and kind of get past. The first half of the year, we largely see a lot of these issues being behind us and getting back towards normalized conditions are we specifically called it out here because given the higher <unk>.
Now the volumes right. It did create a bit of a pinch point in terms of the amount of equipment, we could get delivered.
Prevented us from reaching the full potential for the quarter.
Yeah.
Okay, and then my I'm sorry I.
Woke up with something today, so well.
But my second my second question is around the old Congress in Australia, and you know I mean, I'm just kind of curious you don't get you narrowed your.
<unk> range, taking the top down by 10 million.
As a result of a change in the kind of macro dynamics within Australia is that a result of you know.
Having gotten further into the weeds with regards to the business and a better understanding of it just kind of a little color in terms of you know what prop.
Prompted you to take the top end of that range down.
Yeah, absolutely. Appreciate the question is is definitely the ladders really just getting in the weeds understanding what equipment is in inventory what equipment needs to get into country and expected timing of deliveries of customers. So really just being able to take the time as we got through close to just sharpened up.
Exactly what would unfold for these three months was just the narrowing on that range there.
Okay, Alright, I'll get out of either out of the queue. Thanks.
Thank you. Our next question comes from the line of Mig <unk> with Robert W. Baird. Please proceed with your question.
Good morning, everyone. Thank you. Thank you for taking my question.
Just a quick clarification.
I thought I heard you talk about inventories coming up again sequentially in <unk>.
And if I heard that correctly.
I guess, what I'm trying to figure out is when I when I look seasonally.
In your business typically inventories come down sequentially in the fourth quarter.
That feels a little bit different this.
This year end.
I'm also wondering if you sort of had these disruptions.
They're kind of prevented you from delivering.
So machines in Q3.
Can you be able to hopefully catch up on some of that in Q4.
Again at least in theory should bring inventories down sequentially.
Yeah, Hey, Matt Good morning, and thanks for the question.
First off to start with it maybe a clarifier right as we talk about pre sold equipment at a weighting of our delivery to customers. That's always turning right. So the unit that was there in the first quarter has been delivered to a customer it's not still sitting there units that were there in Q2 that's.
Still sitting there, but what we're seeing right is a continued delay.
Delivery from the Oems and where needed in our process everything through the chute. So definitely in the fourth quarter are we like to be able to chip away at that.
On a pre salt that we have in that inventory balance, but again as we looked at how our timing looks to be for everything with OEM deliveries right and the Oems are looking to finish their year strong.
And get as much out as they can I think we're still seeing a some push check it to make up for some of the supply chain challenges that had otherwise held them back in parts of the year. If you recall last year, we received a tremendous amount of equipment right towards the end of the calendar year are between you really crisp.
Send the end of December right, and then a short period of time to really be able to turn that around and deliver to customers. So it's really those factors that we're talking about you did hear it right. We expect another incremental increase on inventory, there and that kind of stabilizing in that range and looking to continue to normalize our that pre sold our backlog is as we.
Through the first part of next year.
Yeah.
Okay, I'll make I would just point out to this P J, adding youll connors to the balance sheet as Bo mentioned in the prepared remarks as well as our other acquisitions, but also just the timing that we've talked about here. So you are right here.
Historically.
We would come down by by fiscal year end.
But everything's kind of delayed.
Especially in certain products you know.
Quarter or so so I would build that in as you as you look with your modeling we we typically with MB.
No more flattish and then build back up throughout the year again, so I think just delay and in all of that as we get into the end of the year and into Q1.
Understood. Thank you for that.
So my follow up.
If we're if we're sort of looking at inventories.
Going up again in the fourth quarter, I guess I'm curious as to how you were thinking about fiscal 'twenty five and I'm not looking for you to provide your own guidance in terms of the top line.
But obviously your comments.
Commented on next year G and H.
Sure.
Thinking that.
Volumes are going to be down as well.
So I guess with.
The inventory build that you have if indeed volumes are going to be a little bit lower.
In your fiscal 'twenty five.
How do you think about managing that inventory and you know you're your own home.
Order, placing with Oems. Thank you.
Yeah, and you're right I think the Oems and their latest sending calls provided some color in deer being the end of their fiscal year provided some more granular color on their outlet for the next 12 months.
For US right I mean, it's not something we we've been continually managing and estimating where things are going year, you're always looking out a year ahead right. So in terms of dialing things in and what we're ordering for next year, that's that stuff that we've been working on already for quite a while and are feeling really good about where.
They're sitting in the dialogues that have been turning over time, you know, we will absolutely manage inventory and focus on that.
But overall right and as we've said we do feel good about where our levels are at you know on the AG side, we want more four wheel drive tractors on the CE side, we want some more wheel loaders, one data point for you just comparing it to say the prior cycle right. The number of combines that we have in inventory is about 55.
5% lower than it was in the prior peak.
I think some of that's reflective.
Of the industry and the constraints that were out there. But then also you know our back office team that's focused on managing inventory levels. Both what we're ordering from a new site and also you know the used equipment valuations. So.
The dollars that are people are making comparison to the two in terms of prior peak I think you need to consider that the decade of our price increases are the acquisitions that we've done.
And otherwise right I mean overall, we're we feel really good about the inventory levels, but I appreciate the comment and we will certainly you know as industry volumes.
Trended downwards will be managing our inventory accordingly, we want to keep inventory turns high we want to keep our interest free terms anywhere you want to keep our balance sheet really healthy.
Yes, I'd make it I would just add as you know and as Bo mentioned.
You're talking about six to 12 and greater months lead time here.
You better already have done the actions in place you know and we've done that and we feel really good about that and heading into next year. It and just as he mentioned our professional team that just focuses on that for a living and that's all they do really watch a lot of the analytics and metrics and running the dials on our inventory. So we we feel really good about.
The actions we've taken I think as we mentioned on our previous call and as Scott, While I mentioned on CAH call, you know theres, a little bit of pockets with some of that lower horsepower tractor inventory real lifestyler stuffs that were a little bit longer than we'd like but we've got actions in place on that as well to clean that up.
And then as we've mentioned with four wheel drives and wheel loaders and so on there's some pockets that we're still a little short on.
On some certain categories, but other than that we feel really good about where we're positioned to deliver the.
Fourth quarter results that we need to and then as we transition into next year and what we anticipate the market's going to do next year.
I appreciate it.
Thank you. Our next question comes from the line of Alex Rygiel with B Riley Securities. Please proceed with your question.
Thank you and good morning, gentlemen, a couple of quick questions here first on.
Your full EPS guidance includes a range of 65 cents of which 22 cents could be from the incentives.
So if you could maybe talk about some of the cat.
Catalysts being at the high end or low end of that 43% difference.
Okay.
Yeah.
Yeah, Yeah, I mean, well this isn't going to sound a overlay sophisticated high but it's related to the revenue and where that comes in in terms of whether it's towards the top end or the low end of the range, we feel pretty good in terms of where we're going to be operating from a margin perspective operating expenses are pretty well honed in right. So it really is just a function of.
How much of that equipment gets delivered.
That is helpful. And then as it relates to sort of inventory you kind of walk it up a little bit in the fourth quarter. I believe you might have thought that you would kind of tail off from the third quarter a decline into the fourth quarter, but now it sounds like you're expecting it to increase.
A little bit.
Maybe I guess my question is what has changed and then what.
What's the what's the mix of inventory across AG versus construction is is one higher or lower than where you'd like the optimal level of debate.
Yeah, maybe addressing the the latter first no I don't think so I mean in general.
We're feeling pretty good about our inventory levels on the CE side, you know the one that chart as well orders like we mentioned, but otherwise across the board in general it's good.
A couple of areas just like on the AG side for example, low horsepower tractors wherever you want to continue to look to trend just as we anticipate.
Trends going into next year.
On the Europe side also some areas there that we'd be looking at to try to trim as we're seeing some softness specifically in Bulgaria, and Romania, but on the whole there's not a you know a drastic difference in terms of our SaaS or level of health between AG and CE as you were asking there.
Very helpful. Thank you very much.
Thank you. Our next question comes from the line of Daniel <unk> with Stephens Inc. Please proceed with your question.
Hey, guys and thanks for the question I believe we were just wondering how much visibility do you all have and to these OEM deliveries, improving unless and until like the fourth and first quarter and.
Since we're kind of a similar dynamic to last year with maybe a heavier fourth quarter.
Do you foresee maybe delivery timing being a problem again in the first quarter.
Since you might get a large influx in the fourth quarter.
So we definitely anticipate a being a strong fourth quarter revenue wise compared to the prior year and even a bit if you do the math from where we were in the third quarter.
Obviously, we have more equipment available and we have backlog there right. So in terms of the confidence in the fourth quarter. We're feeling good about that stuff and I think at the same time, you know we have talked a little bit about today in terms of anticipating that the inventory increases a bit from where we're at so I think both of those were saying is what our.
Expectation is right and then where in terms of setting up for next year again, we're feeling like we're ending the year at a healthy spot inventory wise will provide more context, our guidance wise you know as we get into the March year end call.
Yeah.
That answered your question.
Yeah, Yeah, that's perfect and then on the.
Service to lay side that you said had mentioned wanting to hire more technicians.
How's that going how is the technician availability.
And are you, having any trouble there that could limit.
Your ability to catch up on on this throughput.
Yeah. Good question, Yeah, you know, there's a real shortage out there just technicians in general whether you're talking about the airline industry trucking industry or marine power sports wherever automotive and you know, we we really hit hard into this with our customer care strategy.
Several years ago and have just a lot of actions in place that we feel really good about and.
You know I have been the pilot in the cutting edge for many people in our industry that are trying to follow suit and keep up with us on a lot of the things. We're doing we we just have now came out with the first accredited apprentice program.
For our industry we have.
First a student text scholarship sponsorship program that we started years ago that we're really starting to see the fruits of now.
And then our internship programs as well as the recruiting efforts that we're doing the sponsoring that we're doing with tech schools and relationships, we have with the high schools and again those tech schools.
And so.
No. It it all takes time in and thankfully, we've put a lot of the actions in place that we did that we're now able to see some of the fruits of labor on because you got a lot of baby boomers a lot of our workers that are retiring now exiting the workforce and so as you can imagine it it takes in order to grow the base and add the amount of time.
<unk>, we need and then you have to offset the retirements Oh, it takes quite a bit and we feel good about the traction and momentum we've got in that that's going to remain an absolute friends center priority for us as we go forward.
Alright, thanks for the color guys.
Okay.
Thank you. Our final question. This morning comes from the line of Steve Dyer with Craig Hallum Capital Group. Please proceed with your question.
Hey, good morning, guys I'm curious on the $6 million of manufacturer incentives. They expect to achieve in Q4, I guess is that dependent on C. N H in your OEM partners meeting their delivery schedules to you or is that fully within your control.
And for competitive reasons and others, we don't really get into a lot of the mechanics on that but I guess, what I would say right is we have it in our guidance and that reflects our confidence in achieving the number.
But there are definite timing differences between this year and last year end and that's why we put a little bit more perspective on that.
Good then for second question what percent of equipment is leased versus sold today and I guess, how is that mix trended over the past several years.
Yeah right now we're in single digits on leasing versus sold are just a tremendously low amount being leased.
That has trended way down.
I think David mentioned also on their call you look at that as a big difference between two.
10 years ago, and today is not only the level of leasing, but the quality of the leases so one and two year leases.
Everybody was doing those they were all very problematic back then and then of course when the downturn. It had then those lease returns we're coming back in addition to a glut of supply of used from net overbilling overselling and knew that all happen and none of that trifecta is in place today. So we have.
Way less leases, we have the leases we do have our.
A minimum three year, mostly five year very quality leases and then again as Bob mentioned with the combine example, you just got a lot lower levels of used equipment in play today and then.
You know unfortunately, it constrained our revenue opportunity the the last year or two here, but the limited production capabilities, just didnt put out the amount of new units. So it results in our older fleet.
Most categories, except to a degree combines.
And so that helps with the dampening and then with less new sold you just didn't get the amount of used and so again back to the shortage of used supply so.
All of those components are tremendously healthy and very supportive factors as we go into next year.
Thanks Best of luck guys.
Thank you.
Hum.
Thank you, ladies and gentlemen that concludes our time allowed for questions I'll turn the floor back to Mr. Meier for final comments.
Okay, well. Thank you everybody for your your time today and your interest in Titan machinery.
Thank you that concludes today's conference call.
This concludes our conference call. Thank you for your participation you may now disconnect your lines.
Okay.