Q1 2025 Titan Machinery Inc Earnings Call
Greetings.
Operator: Welcome to Titan Machinery's first quarter fiscal 2025 earnings conference call. At this time, all participants are in listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, today's conference is being recorded. I'll now turn the call over to Jeff Sonnek with ICR. Jeff, you may now begin.
Speaker Change: Welcome to Titan machinery first quarter fiscal 2025 earnings conference call.
At this time, all participants are in listen only mode.
And answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Speaker Change: Please note today's conference is being recorded.
Speaker Change: I'll now turn the call over to Jeff Sonic with ICR, Jeff you May now begin.
Jeff Sonnek: Thank you. Welcome to Titan Machinery's first quarter fiscal 2025 earnings conference call. On the call today from the company are Bryan Knutson, President and Chief Executive Officer, and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2024.
Speaker Change: Thank you welcome to Titan machinery first quarter fiscal 2025 earnings conference call on the call today from the company are Brian <unk>, President and Chief.
Speaker Change: Executive Officer, and Bo Larsen Chief Financial Officer by now everyone should have access to the earnings release for the fiscal first quarter ended April 32024.
Jeff Sonnek: If you've not received the release, it's available on the Investor Relations tab of Titan's website at ir.titanmachinery.com. Today's 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, which can be found on Titan's website, again at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page.
Speaker Change: Not received the release, it's available on the Investor Relations tab of Titans website at IR Dot Titan machinery Dot Com. This call is being webcast and replay will be available.
Speaker Change: On the calls on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks, which can be found on Titans website again at IR that Titan machinery Dot com. The presentation is directly below the webcast information in the middle of the page.
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 question. 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 Titan's most recently filed annual report on Form 10-K.
Like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward looking statements are based on current expectations of management and involve inherent risks in them.
Speaker Change: Certainties included including.
Speaker Change: Including those identified in the risk factors section of Titans. Most recently filed annual report on Form 10-K. These risk factors contained a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements.
Jeff Sonnek: These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statement. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period to period.
Speaker Change: Except as may be required by applicable law Titan assumes no obligation to update any forward looking statements that may be made in today's release or call. Please note that during today's call. We may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis.
Speaker Change: And greater transparency into Titans ongoing financial performance, particularly when comparing underlying results from period to period.
Speaker Change: We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures in today's release.
Speaker Change: 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 president and CEO, Mr. Bryan to Knutson, Brian. Please go ahead.
Jeff Sonnek: We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures in today's release. At the conclusion of our prepared remarks, we will open the call to take your questions. With that said, I'd now like to introduce the company's president and CEO, Mr. Bryan Knutson. Bryan, please go ahead.
Jeff Sonnek: Thank you Jeff.
Bryan J. Knutson: Morning, everyone.
Bryan J. Knutson: I'll begin today's call by providing a brief summary of the current market environment. Then I will offer some thoughts on our results and updated fiscal 2025 outlook before passing the call to Bo for his financial review and incremental thoughts on our modeling assumptions.
Bryan J. Knutson: I'll begin today's call by providing a brief summary of the current market environment.
Bryan J. Knutson: Then I will offer some thoughts on our results and updated fiscal 'twenty twenty-five outlook before passing the call to bowl for his financial review any incremental thoughts on our modeling assumptions.
Bryan J. Knutson: Our first quarter results reflect an industry transition to a more challenging market environment. We have rapidly moved out of a period characterized by restricted supply and high demand into one that reflects lower demand and an excess supply of inventory in many product categories. This shift is mainly a product of two influencing factors. First, manufacturing delivery times have rapidly returned to normal following multiple years of supply chain constraints that significantly limited their production volume.
Bryan J. Knutson: Our first quarter results reflect an industry transition to a more challenging market environment.
Bryan J. Knutson: We have rapidly moved out of a period characterized by restricted supply and high demand and two one that reflects lower demand and excess supply of inventory in many product categories.
Bryan J. Knutson: This shift is mainly a product of two influencing factors.
Bryan J. Knutson: First manufacturing delivery times have rapidly returned to normal following multiple years of supply chain constraints that significantly limited their production volumes.
Bryan J. Knutson: Second, we are seeing a softening of demand across our geographic footprint as ag fundamentals weaken. The combination of suppressed net farm incomes, extended duration of higher interest rates, and broader macroeconomic uncertainty is impacting farmer sentiment and, in some cases, delaying equipment purchasing decisions.
Second we are seeing a softening of demand across our geographic footprint as AG fundamentals weekend.
Bryan J. Knutson: The combination of suppressed net farm incomes.
Bryan J. Knutson: And the duration of higher interest rates and broader macroeconomic uncertainty is impacting farmer sentiment and in some cases delaying equipment purchasing decisions.
Bryan J. Knutson: As a result of these incremental headwinds, we experienced a slower than expected start to fiscal 2025, which contrasts with the strong demand for equipment purchases that persisted throughout fiscal 2024. So while the normalization of supply chains and production schedules among our suppliers has enabled us to convert sales from our backlog, which in some cases have been delayed by more than a year, we are sensitive to the increase in new equipment inventory available for sale as well as used equipment stemming from trading.
Bryan J. Knutson: As a result of these incremental headwinds we experienced a slower than expected start to fiscal 2025, which contrasts with the strong demand for equipment purchases that persisted throughout fiscal 2024.
Bryan J. Knutson: So while the normalization of supply chains and production schedules among our suppliers has enabled us to convert sales for our backlog, which in some cases have been delayed by more than a year.
Bryan J. Knutson: We are sensitive to the increase of new equipment inventory available for sale as well as used equipment stemming from trade ins.
Bryan J. Knutson: Therefore, we are adopting more aggressive tactics to manage our inventories down to healthier levels more aligned with softening industry demands. Big picture and longer term, we are laser-focused on managing to healthy inventory levels, which correspond with Holgood inventory turns in the 2.2 to 3.2 times range and minimizing our floor plan interest expense. As we described on our Q4 FY24 earnings call, we believe the path to achieve targeted inventory levels will likely carry through into our fiscal year 2026. But we have a direct line of sight into what we need to do.
Bryan J. Knutson: Therefore, we are adopting more aggressive tactics to manage our inventories down to healthier levels more aligned with softening industry demand.
Bryan J. Knutson: Big picture and longer term, we are laser focused on managing to healthy inventory levels, which correspond with whole good inventory turns in the 2.2 to 3.2 times range and minimizing our floor plan interest expense.
Bryan J. Knutson: As we described on our Q4 FY 'twenty four earnings call. We believe the path to achieve targeted inventory levels will likely carry through into our fiscal year 2026.
Bryan J. Knutson: Well, we have a direct line of sight into what we need to do and I will reiterate one more time. It is currently our highest priority and will remain so until we execute to the desired levels.
Bryan J. Knutson: And I will reiterate one more time, it is currently our highest priority and will remain so until we execute to these desired levels. Turning to some comments on our Q1 results. Although the first quarter performance was below our expectations, we were pleased to deliver positive same-store sales growth in our agriculture segment. And despite demand being incrementally softer than we anticipated heading into the year, we were able to generate first quarter revenue growth of over 10% to $629 million, a record number for the first quarter, even when excluding the contribution from the O'Connor's acquisition.
Bryan J. Knutson: We also experienced some margin compression due to our efforts to proactively manage inventory levels through this transition period. Although this was anticipated, when combined with higher operating expenses, higher floor plan interest expense, and lower sales demand, the combination resulted in an earnings and pre-tax margin performance below the levels we achieved over the last two years, albeit still significantly better than during the last down cycle.
Bryan J. Knutson: Turning to some comments on our Q1 results.
Bryan J. Knutson: Although the first quarter performance was below our expectations. We were pleased to deliver positive same store sales growth in our agriculture segment.
Bryan J. Knutson: Despite demand being incrementally softer than we anticipated heading into the year, we were able to generate first quarter revenue growth of over 10% to $629 million a record number for the first quarter, even when excluding the contribution from the <unk> acquisition.
Bryan J. Knutson: We also experienced some margin compression due to our efforts to proactively manage inventory levels through this transition period.
Bryan J. Knutson: Although this was anticipated when combined with higher operating expenses higher floorplan interest expense and lower sales demand. The combination resulted in an earnings and pre tax margin performance below the levels, we achieved over the last two years.
Bryan J. Knutson: Albeit it's still significantly better than compared to the last down cycle.
Bryan J. Knutson: That said, I want to emphasize that we are very cognizant of the impact that this cycle shift is having on our business, and we are scrutinizing all expenses while prioritizing our growth initiatives. For example, in the near term, we are being vigilant in the hiring of non-revenue-generating positions while making sure that we are supporting those areas of the business that are strategically important over the long term, such as our ongoing focus on bolstering the capacity of our service department.
Speaker Change: That said I want to emphasize that we are very cognizant of the impact that this cycle's shift is having on our business and we are scrutinizing all expenses, while prioritizing our growth initiatives.
Speaker Change: For example in the near term, we're being vigilant in the hiring of non revenue generating positions, while making sure that we are supporting those areas of the business that are strategically important over the long term.
Speaker Change: Such as our ongoing focus on bolstering our capacity of our service departments.
Bryan J. Knutson: Attracting and retaining skilled technicians is of critical importance given the industry-wide shortages and our desire to grow this recurring revenue aspect of our business. Nonetheless, throughout the duration of the cycle, we will continue to look for ways we can maximize operating leverage against the realities of the lower gross profit level. In response to the softer-than-anticipated market environment, we felt it was prudent to adjust our foliar modeling assumptions. Bo will cover this in greater detail, but in summary, we are lowering our revenue assumptions modestly while adopting a more aggressive stance than we previously had with respect to equipment margins to further ensure success in managing inventory levels. Our rationale here is straightforward.
Speaker Change: Attracting and retaining skilled technicians is of critical importance given the industry wide shortages and our desire to grow this reoccurring revenue aspect of our business.
Speaker Change: Nonetheless throughout the duration of the cycle, we will continue to look for ways, we can maximize operating leverage against the realities of the lower gross profit levels.
Speaker Change: In response to the softer than anticipated market environment, we felt it was prudent to adjust our full year modeling assumptions.
Speaker Change: Paul will cover this in greater detail, but in summary, we are lowering our revenue assumptions modestly while adopting a more aggressive stance and we previously had with respect to equipment margins to further ensure success in managing inventory levels.
Speaker Change: Our rationale here is straightforward staying ahead of the demand curve puts us in a position to be a fishing, regardless of what happens to industry volumes in FY 'twenty six.
Bryan J. Knutson: Staying ahead of the demand curve puts us in a position to be efficient regardless of what happens to industry volumes in FY26. Given the sluggishness in equipment, we continue to lean into our customer care strategy to fuel our recurring parts and service businesses. And this is an area where we believe we can continue to drive growth this year and create sustainable growth in the longer term. In terms of seasonal farming activity, at this stage in the year, planting progress among corn and soybeans is still in full swing.
Speaker Change: Given this sluggishness in equipment, we continue to lean into our customer care strategy to fuel our reoccurring parts and service businesses and this is an area where we believe we can continue to drive growth this year and creates sustainable growth longer term.
Speaker Change: In terms of seasonal farming activity at this stage in the year planting progress among corn and soybeans is still in full swing.
Bryan J. Knutson: While some of our southern markets got off to a strong start with the early spring, recent precipitation has slowed progress over the past few weeks. Within our European markets, both winter and spring crops look very healthy due to optimal moisture levels. And in Australia, while subsoil moisture levels are supportive of the growing season, recent precipitation has been sparse, and as such, rainfall is still needed in the near term to foster seed germination.
Speaker Change: Well some of our southern markets got off to a strong start with the early spring recent precipitation slow progress over the past few weeks.
Speaker Change: Within our European markets, both winter and spring crops look very healthy due to optimal moisture levels.
Speaker Change: And in Australia, while subsoil moisture levels are supportive of the growing season.
Speaker Change: Recent precipitation has been sparse and as such rainfall is still needed in the near term to foster seed germination.
Bryan J. Knutson: Overall, on a global level, our farmer customers remain in pretty good shape, both in terms of growing conditions as well as from a balance sheet perspective. Although net farm income is expected to decline this year, farmers' financial health remains strong, with favorable land values further supporting grower balance sheets.
Overall on a global level, our farmer customers remain in pretty good shape, both in terms of growing conditions as well as from a balance sheet perspective.
Although net farm income is expected to decline this year Farmers' financial health remains strong with favorable land values further supporting grow our balance sheets.
Bryan J. Knutson: In closing, as the cycle progresses, our entire team remains focused on advancing our customer care strategy to ensure we meet our customers' needs and continue to grow our more stable recurring parts service and precision businesses while controlling the aspects of the business that we can, such as our fixed overhead and managing our inventory to align with demand. We believe that the combination of these levers will allow us to generate significantly improved financial results versus the prior down cycle, demonstrating the numerous strategic improvements we've made to our business over the past several years.
Speaker Change: In closing as the cycle progresses, our entire team remains focused on advancing our customer care strategy to ensure we meet our customers' needs and continue to grow our more stable reoccurring parts service and precision businesses, while controlling the aspects of the business that we can such as our fixed overhead and managing.
Speaker Change: Inventory to align with demand.
Speaker Change: We believe that the combination of these levers will allow us to generate significantly improved financial results versus the prior down cycle.
Speaker Change: Administrative and numerous strategic improvements we've made to our business over the past several years.
Bryan J. Knutson: Before turning the call over to Bo, I want to sincerely thank our entire team who remain focused on serving our customers and operating the business with discipline as we face these shifting cycle dynamics. Additionally, our thoughts are with our employees and the communities that we operate in that have recently been impacted by tornadoes and flooding. Safety and health for all of them and their families is our priority as they recover from these recent weather events. I said that all of you keep them in your thoughts as well. With that, I will turn the call over to Beau for his financial review.
Speaker Change: Before turning the call over to Bo I want to sincerely. Thank our entire team who remain focused on serving our customers and operating the business with discipline as we face these shifting cycle dynamics.
Speaker Change: Additionally, our thoughts are with our employees and communities that we operate in that have recently been impacted by tornadoes and flooding.
Speaker Change: Safety and health for all of them and their families is our priority as they recover from these recent weather events.
Robert Larsen: I said I'll have you keep them in your thoughts as well.
Robert Larsen: With that I will turn the call over to Bo for his financial review.
Robert Larsen: Thanks, Bryan. Good morning, everyone.
Robert Larsen: Thanks, Brian Good morning, everyone.
Robert Larsen: Starting with our consolidated results for the fiscal 2025 first quarter total revenue was $628 7 million.
Robert Larsen: Starting with our consolidated results for the fiscal 2025 first quarter, total revenue was $628.7 million, an increase of 10.4% compared to the prior year period. Growth was driven by contribution from our economists and other acquisitions, with the balance reflecting a 1.1% increase in same-store sales, which was driven by our agriculture segment. Our equipment revenue increased 9%.
Robert Larsen: An increase of 10, 4% compared to the prior year period.
Robert Larsen: Growth was driven by contribution from our <unk> and other acquisitions with the balance reflecting a one 1% increase in same store sales, which was driven by our agriculture segment.
Robert Larsen: Our equipment revenue increased 9% parts revenue increased 12%.
Robert Larsen: Parts revenue increased 12%. Service revenue increased 29%, and rental and other revenue was down 16.1%, all compared with the prior year period. Gross profit for the first quarter was $122 million, and, as expected, gross profit margin contracted by 140 basis points year-over-year to 19.4 percent, driven primarily by lower equipment margin. Operating expenses were $99.2 million for the first quarter of fiscal 2025, compared to $81.3 million in the prior year period. The year-over-year increase of 21.9% was led by acquisitions that we've executed in the last 12 months, but it also reflects an increase in areas like salaries and benefits due to merit increases and incremental headcount as we continue to focus on increasing service capacity in support of our customer care strategy.
Robert Larsen: Service revenue increased 29% and rental and other revenue was down 16, 1% all versus the prior year period.
Robert Larsen: Gross profit for the first quarter was $122 million and as expected gross profit margin contracted by 140 basis points year over year to 19, 4% driven primarily by lower equipment margins.
Robert Larsen: Operating expenses were $99 2 million for the first quarter of fiscal 2025 compared to $81 $3 million in the prior year period.
Robert Larsen: The year over year increase of 21, 9% was led by acquisitions that we've executed in the last 12 months, but also reflects an increase in areas like salaries and benefits due to merit increases and incremental head count as we continue to focus on increasing service capacity and support of our customer care strategy.
Robert Larsen: Floor plan and other interest expense was $9.5 million, as compared to $2.5 million for the first quarter of fiscal 2024, with the increase led by a higher level of interest-bearing inventory, including the usage of existing floor plan capacity to finance the O'Connor acquisition.
Robert Larsen: Floorplan and other interest expense was $9 5 million as compared to $2 5 million for the first quarter of fiscal 2024.
Robert Larsen: With the increase led by higher level of interest bearing inventory, including the usage of existing floor plan capacity to finance deal kind of acquisition.
Robert Larsen: Net income for the first quarter of fiscal 2025 was $9.4 million, or $0.41 per diluted share, and compared to last year's first quarter net income of $27 million, or $1.19 per diluted share. Now, turning to our segment results for the first quarter. In our agriculture segment, sales increased 5.8% to $447.7 million. Growth was driven by a same-store sales increase of 4.3%, which was further supported by contributions from the acquisition of Scott Supply in January 2024.
Robert Larsen: Net income for the first quarter of fiscal 2025 was $9 4 million.
Robert Larsen: Our 41 cents per diluted share and.
Speaker Change: Compared to last year's first quarter net income of $27 million or $1 19 per diluted share.
Speaker Change: Now turning to our segment results for the first quarter.
Robert Larsen: Growth was constrained by softening of demand for equipment purchases due to the expected decline in net farm income this growing season, as well as the influence of other macroeconomic variables, including higher interest rates, which are weighing on farmer sentiment. However, underlying fundamentals remain sound, including efficiency gains from precision technology, elevated fleet age, and strong farmer balance sheets. The agriculture segment pre-tax income was $13 million, and it compared to $24.2 million in the first quarter of the prior year.
Speaker Change: In our agriculture segment sales increased five 8% to 447 seven.
Speaker Change: $7 million.
Speaker Change: Growth was driven by same store sales increase of four 3%, which was further supported by contributions from the acquisition of Scots supply in January 2024.
Speaker Change: Growth was constrained by softening of demand for equipment purchases due to the expected decline of net farm income this growing season.
Speaker Change: As well as the influence of other macroeconomic variables, including higher interest rates, which are weighing on farmer sentiment.
Speaker Change: However, underlying fundamentals remain sound, including efficiency gains from precision technology elevated fleet age and a strong farmer balance sheets.
Speaker Change: Agriculture segment pretax income was $13 million and compared to $24 2 million in the first quarter of the prior year.
Robert Larsen: In our construction segment, same-store sales declined 0.7% to $71.5 million. The slight decrease was a product of modest growth in equipment sales offset by lower part sales. With lower snowfall this past winter, we saw a decrease in seasonal demand for snow removal equipment and parts.
In our construction segment same store sales declined <unk>, 7% to $71 $5 million.
Speaker Change: The slight decrease was a product of modest growth in equipment sales offset by lower parts sales.
Speaker Change: With lower snowfall. This past winter, we saw decrease in seasonal demand for snow removal equipment and parts.
Robert Larsen: However, underlying industry fundamentals remain stable, and as we look to the rest of the year, construction activity is expected to remain at healthy levels, supported by infrastructure projects, energy, livestock, and commercial construction. Pre-tax income for the segment was $0.3 million, which compares to $4.5 million in the first quarter of the prior year. In our Europe segment, sales decreased 12.5% to $65.1 million, which reflects a 1.3% favorable foreign currency impact. Despite the effect of these foreign currency fluctuations, revenue decreased 13.4%, reflecting a softening of new equipment demand, which was partially offset by growth in parts and service revenue.
However, underlying industry fundamentals remain stable and as we look to the rest of the year construction activity is expected to remain at healthy levels supported by infrastructure projects energy livestock and commercial construction.
Speaker Change: Pretax income for the segment was <unk> $3 million, which compares to $4 $5 million in the first quarter of the prior year.
Speaker Change: In our Europe segment sales decreased 12, 5% to $65 1 million.
Speaker Change: Which reflects a one 3% favorable foreign currency impact.
Speaker Change: The effect of these foreign currency fluctuations revenue decreased 13, 4%.
Speaker Change: Reflecting a softening of new equipment demand, which was partially offset by growth in parts and service revenue.
Robert Larsen: Year-over-year comparables are expected to be more favorable in the back half of the year as last year's second half saw a slowdown in demand which was driven by drought conditions in Romania and Bulgaria. Pre-tax income for the segment was $1.4 million, which compares to $6.4 million in the first quarter of fiscal 2024. In our Australia segment, sales were $44.4 million and a pre-tax loss of $0.5 million.
Speaker Change: Year over year comparable are expected to be more favorable in the back half of the year as the last year's second half saw a slowdown in demand, which was driven by drought conditions in Romania and Bulgaria.
Speaker Change: Pretax income for the segment was $1 $4 million, which compares to $6 $4 million in the first quarter of fiscal 2024.
Speaker Change: And our Australia segment sales were $44 $4 million and a pre tax loss of $5 million.
Robert Larsen: This revenue was in line with expectations and represents year-over-year growth versus the same period in the prior year, which was pre-acquisition. As a reminder, our Australia business seasonal trends are fairly similar to our domestic ag business, with about 45% of revenue coming in the first half of the fiscal year and 55% coming in the second half of our fiscal year. Now on to our balance sheet and inventory position. We had cash of $36 million and an adjusted debt to tangible net worth ratio of 1.6 times as of April 30, 2024, which is well below our bank covenant of 3.5 times.
Speaker Change: This revenue was in line with expectations and represents year over year growth versus the same period in the prior year, which was pre acquisition.
As a reminder, our Australia business seasonal trends are fairly similar to our domestic AG business with about 45% of revenue coming in the first half of the fiscal year and 55% coming in the second half of our fiscal year.
Speaker Change: Now onto our balance sheet and inventory position.
Speaker Change: We had cash of $36 million and an adjusted debt to tangible net worth ratio of one six times as of April 32024, which is well below our bank covenant of three five times.
Robert Larsen: Equipment inventory increased $132.5 million to $1.2 billion in the first quarter, in line with expectations we set on our last earnings call. Going into the year, we forecasted that the rapid normalization of lead times from our OEM partners would result in a significant portion of our outstanding orders arriving in the first half of the fiscal year, while our seasonality generally has the back half of our fiscal year being our highest sales quarter.
Speaker Change: Equipment inventory increased $132 $5 million to $1 $2 billion in the first quarter.
Speaker Change: In line with the expectations, we set on our last earnings call.
Speaker Change: Going into the year, we forecasted that the rapid normalization of lead times from our OEM partners would result in a significant portion of our outstanding orders to arrive in the first half of the fiscal year.
Speaker Change: While our seasonality generally has the back half of our fiscal year being our highest sales quarters.
Robert Larsen: We continue to expect inventory levels to peak around the end of the second quarter, with modest decreases through the back half of the year and more substantial decreases as we work through fiscal year 2026. With that, I'll finish by reviewing our Fiscal 2025 Full Year Guidance, which we are updating today to account for our year-to-date performance, as well as the industry's latest expectations of demand, in consideration of the incrementally softer demand than we initially anticipated when we provided our fiscal 2025 outlook.
Speaker Change: We continue to expect inventory levels to peak around the end of the second quarter with modest decreases through the back half of the year and more substantial decreases as we worked through fiscal year 2026.
Speaker Change: With that I'll finish by reviewing our fiscal 2025 full year guidance, which we are updating today to account prior year to date performance as well as the industry's latest expectations of demand.
Speaker Change: In consideration of the incrementally softer demand than we initially anticipated when we provided our fiscal 2025 outlook, we are modestly reducing our revenue assumptions across each of our segments and modifying our underlying assumptions for equipment margin variable operating expenses and floorplan interest expense.
Robert Larsen: We are modestly reducing our revenue assumptions across each of our segments and modifying our underlying assumptions for equipment margin, variable operating expenses, and floor plan interest expense. For agriculture, we have updated our revenue assumption to be in the range of down 2.5% to up 2.5%, which also includes the full year contribution from our Scott Supply Acquisition, which closed in January of 2024. As we've discussed, we remain focused on those areas that we can control while investing in our parts, service, and precision businesses, which all remain key priorities.
Speaker Change: Yeah.
Speaker Change: For agriculture, we have updated our revenue assumptions to be in the range of down two 5% to up two 5%.
Speaker Change: Which also includes the full year contribution from our Scotts supply acquisition, which closed in January of 2024.
Speaker Change: As we've discussed we remain focused on those areas that we can control while investing in our parts service and precision businesses, which all remain key priorities.
Robert Larsen: For the full year, we expect this will translate to growth in the mid to high single-digit range for this portion of our business. For the construction segment, our updated assumption is for revenue to be flat to up 5% in line with the expectation of sustained demand levels in my previous comment. For the European segment, our updated assumption is for revenue to be down 5% to flat. This revision is due to the softening of industry demand we have been discussing today. For the Australia segment, we now expect fiscal 2025 revenue to be in the range of $240 million to $260 million, with the change in assumption also incorporating the shifting farmer sentiment. Now for some broader commentary.
Speaker Change: For the full year, we expect this will translate to growth in the mid to high single digit range for this portion of our business.
Speaker Change: For the construction segment, our updated assumption is for revenue to be flat to up 5% in line with the expectation of sustained demand levels in my previous comments.
Speaker Change: For the Europe segment updated assumption is for revenue to be down 5% to flat. This revision is due to the softening of industry demand we have been discussing today.
Speaker Change: For the Australia segment, we now expect fiscal 2025 revenue to be in the range of $240 million to $260 million with the change in assumption also incorporating the shifting farmer sentiment.
Speaker Change: Now for some broader commentary.
Robert Larsen: From a gross margin perspective, we remain committed to improving our inventory position, and as such, we are building in additional equipment margin compression of about 80 basis points compared to our prior expectations. We believe this is prudent, given the excess supply of dealer inventory in the channel, coupled with the industry's latest expectations for softer equipment demand. The number one objective here is to manage the targeted inventory levels to match industry demand and achieve the targeted KPIs that Bryan talked through earlier in the call.
Speaker Change: From a gross margin perspective, we remain committed to improving our inventory position and as such we're building in additional equipment margin compression of about 80 basis points compared to our prior expectation.
Speaker Change: We believe this is prudent given the excess supply of dealer inventory in the channel coupled with the industry's latest expectations for faster equipment demand.
Speaker Change: The number one objective here is to manage to a targeted inventory levels to match industry demand and achieve targeted kpis that Brian talked through earlier on the call.
Robert Larsen: Looking at operating expenses, we are focused on implementing cost controls where we can, optimizing resources, and being vigilant with any new headcount. Taking into account the full year operating expense contribution from acquisition activity that has occurred over the last year, our guidance implies operating expenses as a percentage of sales to be about 40 basis points higher than was realized in fiscal 2024 across the company as a whole, consistent with our initial modeling assumptions that we laid out in March.
Speaker Change: Looking at operating expenses, we are focused on implementing cost controls where we can.
Optimizing resources and being vigilant with any new head count.
Speaker Change: Taking into account the full year operating expense contribution from acquisition activity that has occurred over the last year, our guidance implies operating expenses as a percentage of sales to be about 40 basis points higher than was realized in fiscal 2024 across the company as a whole consistent with our initial modeling.
Speaker Change: Assumptions that we laid out in March.
Robert Larsen: Moving to interest expense, we are factoring in the reduced likelihood of interest rate cuts in the back half of the year to align with the market's latest expectations. However, we do continue to expect improvement in interest returns, which should benefit interest expense in the back half of the year relative to the first half. Taken together with our revised revenue expectations and the resulting impact on inventory that we are working to improve.
Speaker Change: Moving to interest expense, we are factoring in the reduced likelihood for interest rate cuts in the back half of the year to align with the market's latest expectations.
Speaker Change: We do continue to expect improvement of interest returns, which should benefit interest expense in the back half of the year relative to the first half.
Speaker Change: Taken together with our revised revenue expectations, and the resulting impact on inventory that we are working to improve.
Robert Larsen: We anticipate higher floor plan interest expense this year versus what was in our previous guidance. So, rolling all this up, we are updating our fiscal 2025 EPS range to $2.25 to $2.75, which reflects the more aggressive strategy we are employing to improve our inventory levels as efficiently as possible to ensure we are well-positioned moving forward. This concludes our prepared comments. Operator, we are now ready for the question and answer session of our call.
Speaker Change: We anticipate higher Floorplan interest expense this year versus what was in our previous guidance.
Speaker Change: So rolling all of this up.
Speaker Change: Dating our fiscal 2025 EPS range to $2 25.
Speaker Change: To $2 75.
Speaker Change: Which reflects the more aggressive strategy, we are employing to improve our inventory levels as efficiently as possible to ensure we are well positioned moving forward.
Speaker Change: This concludes our prepared comments operator, we are now ready for the question and answer session of our call.
Speaker Change: Thank you.
Operator: We will now be conducting the question and answer session. If you would like to ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Once again, that is star number one. Thanks. And our first question is from the line of Ben Klieve with Lake Street Capital. I am pleased to see you here.
Speaker Change: Well now be conducting a question and answer session.
Like to ask a question at this time. Please press star one from your telephone keypad and a confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you like through Australia question from the queue.
Speaker Change: For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please pull for questions once again of the star one thank you.
Speaker Change: Oh.
Benjamin David Klieve: Our first question is from the line of Ben <unk> with Lake Street Capital. Please proceed with your questions.
Benjamin David Klieve: All right. Thanks for taking my questions. There are plenty to talk about, but I'll just leave it with a couple here.
Benjamin David Klieve: Right. Thanks for taking my questions plenty to talk about I'll just leave you with a couple here first of all bow you lend out expectations for inventory decreases starting in the second half of this year with more substantial decreases I think is how you framed it in fiscal 'twenty six I'm wondering if you can first of all help us frame your expectations for inventory levels ending this fiscal year.
Benjamin David Klieve: First of all, Beau, you laid out expectations for inventory decreases starting in the second half of this year with more substantial decreases, I think that's how you framed it in fiscal 26. I'm wondering if you can, first of all, help us frame your expectations for inventory levels ending this fiscal year and maybe more notably ending fiscal 26.
Benjamin David Klieve: And maybe more notably ending fiscal 'twenty six.
Robert Larsen: Yeah, so in terms of how we see inventory continuing to progress, and probably not inconsistent with what we talked about on our earnings call in March, we see inventory levels exiting the year similar to where we started the year. So again, it will climb in the first two quarters, as we saw in Q1, and then kind of take back some of those increases and get back to about where we started. And then in terms of FY26, the reason for the more substantial decreases, right, is just the timing of inventory ordering and then when things are coming in.
Speaker Change: Yeah. So in terms of how we see inventory continuing to progress.
Speaker Change: Probably not inconsistent with what we've talked about on our earnings call in March we see inventory levels exiting the year similar to where we started the year. So again it will climb in the first two quarters as we saw in Q1.
Speaker Change: Then kind of take back some of those increases get back to about where we started.
Speaker Change: And then in terms of FY 'twenty six.
Speaker Change: The reason for the more substantial decreases right is just the timing of inventory ordering and then when things are coming in so going back to a year ago now.
Robert Larsen: So, going back to, you know, a year ago now, or even before that, kind of anticipating and turning down the dial in terms of order activity, and then it was a matter of playing it out, right? So, orders are coming in through the first half of this year pretty rapidly as lead times have compressed. Then we start to see that slow down in the back half of the year. And then, based on our order activity from here forward, that really dictates how much is coming in next year.
Speaker Change: Even before that kind of anticipating in turning down the dial in terms of order activity.
Speaker Change: And then it was a matter of playing it out right. So orders are coming in.
Speaker Change: Through the first half of this year pretty rapidly as lead times have compressed and then we start to see that slow down in the back half of the year and then based on our order activity from here forward that really dictates how much is coming in next year and with a really good visibility to where we think demand is and where we want to see target.
Robert Larsen: And with really good visibility into where we think demand is and where we want to see targeted inventory levels go, we're going to be able to see those levels decreasing faster again through FY26. In terms of the exact dollar figure, that's going to be dependent, right, on our view of where industry demand is going, because ultimately, the targets that we're looking for are exactly what Brian laid out a little bit earlier, aren't they?
Speaker Change: Inventory levels go we're going to be able to see those levels decreasing faster again through FY 'twenty six in terms of the exact dollar figure that's going to be dependent on our view.
Speaker Change: On where industry demand is going because ultimately the targets that we're looking for are exactly what Brian laid out a little bit earlier right. So.
Robert Larsen: So, you know, one of the most important things is that you want to make sure that you're not incurring floor plan interest expenses because that's not a value-added activity. But from an inventory turns perspective, that range of 2.2 to 3.2, you know, clearly we want to be in the middle to the higher end of the range, but certainly the lower end of the range is reflecting transitionary periods that are slower in which you need to adjust inventory levels. So as we work through 26, get a good feel for what industry demand is at that point, that's the kind of target that we're looking to hit when we exit that year.
Speaker Change: One of the number one thing is as you want to make sure that you're not incurring floorplan interest expenses, that's not a value added activity, but from an inventory turns perspective that range of $2 two to $3. Two clearly we want to be in the middle to the higher end of the range, but certainly the lower ended up the range is reflecting.
Speaker Change: Transition hurry periods that are slower in which you need to adjust inventory levels. So as we work through 2006 get a good feel on what industry demand is at that point, that's the kind of target that were looking to hit exiting that year.
Robert Larsen: Okay, that's helpful. And then one other question for me, and I'll get back in line regarding Australia. You know, I understand all the various macro dynamics facing the entire industry broadly and Australia specifically, but can you comment on the performance of Australia in this quarter versus your expectations, and, in particular, if seasonality in this business is maybe more pronounced than you were maybe expecting?
Speaker Change: Okay.
Speaker Change: That's helpful.
Speaker Change: And then one other one from me and I'll get back in line regarding Australia.
Speaker Change: All of the various macro dynamics facing.
Speaker Change: Facing the entire industry broadly in Australia, specifically can you comment on the performance of Australia in this quarter versus your expectations and in particular.
Seasonality in this business is maybe more pronounced than than you were maybe expecting.
Robert Larsen: Well, I would say that from a seasonality perspective, the expectation is, and historically, it has been, the 45%, 55% split, perhaps a bit more pronounced in terms of the difference between Q1 and Q2 and then the difference between Q3 and Q4. So Q2 and Q4 being kind of outsized quarters, and Q1 and Q3 being a little bit slower quarters there. But overall, the first quarter came very much in line with expectations.
Speaker Change: Well I would say that from a seasonality perspective is the expectation is and historically it has been in the 45% 55% split.
Speaker Change: Perhaps a bit more pronounced in terms of the difference between Q1 and Q2 and then the difference between Q3 and Q4, so Q2, and Q4 being kind of outsized quarters in Q1, and Q3 being a little bit slower quarters, there, but overall.
Speaker Change: The first quarter came very much in line with expectations.
Robert Larsen: Entering the year, they had a significant amount of backlog in pre-sold equipment that was either on the ground or continuing to be delivered. So there's some good comfort in terms of a level of revenue that's going to be progressing through the year. And that's a matter of PDIing that equipment and getting it in customers' hands. So thus far, in line with expectations, loving the leadership team, excited about the branding launch this summer, and just moving forward to be on that, talking about longer synergies with 24-hour service call centers and the like.
Speaker Change: During the year they had a significant amount of backlog in pre sold equipment that was either on the ground or are continuing to be delivered so theres. Some good.
Speaker Change: Comfort in terms of our level of revenue that's going to be progressing through the year and that's a matter of PD Yang that equipment and getting it in customers' hands. So thus far in line with expectations loving the leadership team exciting it and excited about the branding launch this summer and just moving forwards beyond that I'm talking about.
Speaker Change: Longer synergies with $24 seven service call centers and and alike.
Bryan J. Knutson: Ben, you both covered it well. I would just add that we talked on the last call here and on the call before about how, very recently, in the back half of last year, and especially in the final quarter of last year, is when deliveries finally started catching up and really started rapidly increasing, and we've talked about how we'll see that continue through, especially in the first half of this year. Well, in Australia, there are still a couple of product categories that have been the slowest to recover, and then you add in the transportation time as well.
Speaker Change: Yes.
Speaker Change: <unk> covered it well I would just add.
Speaker Change: We talked last call here in a call before about very recently in the back half of last year and especially.
Speaker Change: And the final quarter of last year is when deliveries finally started catching up and really started rapidly increasing and we've talked to about how we'll see that continue through the especially the first half of this year well in Australia. There are still a couple of product categories that have been.
Bryan J. Knutson: So, as both pointed out, we do have a good amount of order backlog there and good pre-sells that have just been delayed a little bit, and then also the time to get those through the shop, as you know. They're coming a bit late, but so that'll all bode well for us for our Australia segment the rest of the year. All right, very good.
Speaker Change: The slowest to recover and then you add in the transportation time as well so as Bob pointed out we do have some.
Speaker Change: A good amount of order back log there and good pre sell that just been delayed a little bit and then also the.
Speaker Change: The time to get those through the shop as as you know it.
Speaker Change: They are coming a bit delayed, but so that'll that'll all bode well for us for Australia segment, the rest of the year.
Benjamin David Klieve: Very good. I appreciate that context. All right, very good. I'll get back in line. Best of luck here in the coming quarters.
Speaker Change: Alright, very good I appreciate that context.
Speaker Change: Alright, very good I'll get back in line best of luck here.
Speaker Change: In coming quarters.
Speaker Change: Thanks.
Operator: Our next question is from the line of Mig Dobre with Baird.
Speaker Change: Our next question is from the line of Mig <unk> with Baird. Please proceed with your questions.
Mircea Dobre: Yes, good morning. I've got a couple of questions on agriculture and some on construction as well. I guess I'm looking to clarify, first and foremost, your comments around equipment gross margin. Can you be maybe a little more specific in terms of what's embedded in the guidance for the full year?
Speaker Change: Yes.
Speaker Change: I got a couple of questions on AG and some on construction as well.
Speaker Change: Yes.
Speaker Change: I'm looking to clarify first and foremost your comments around around equipment.
Speaker Change: Gross margin.
Speaker Change: Can you be maybe a little more specific in terms of how your what's embedded into guidance for for the full year.
Robert Larsen: Yeah, absolutely. Specific to agriculture, our equipment gross margins embedded in the guidance are about 9%, which is a step back year over year of about 320 basis points. If you look at that historically, in the broader context, taking the past decade into consideration, that's really moving our assumed margins to the low end of what we've experienced over the last decade, with the exception of FY16 and FY17. But those particular years, we were in a significantly different inventory health position.
Speaker Change: Yeah, absolutely specific to AG, our equipment gross margins embedded in the guidance.
Speaker Change: About 9%, which is a step back year over year of about 320 basis points.
Speaker Change: You look at that historically in the broader context.
Speaker Change: Taking the past decade into consideration, that's really moving our assumed margins to the low end of what we've experienced over the last decade with the exception of FY 16 in FY 17.
Speaker Change: Those particular years.
Speaker Change: We were in a significantly different.
Speaker Change: Inventory health position.
Robert Larsen: Specifically, at that point in time, we had inventory that was aged greater than 12 months at 50%. So half of our inventory was sitting on the lot for more than 12 months, whereas today, that's 9%. So a significantly different health of inventory. And that's why those two are a bit more of an outlier.
Speaker Change: Specifically at that point in time, we had inventory that was aged greater than 12 months at 50%. So half of our inventory was sitting on the lot for more than 12 months, whereas today.
Speaker Change: 9% right. So it is significantly different.
Speaker Change: The health of inventory and that's why those two are a bit more of an outlier.
Robert Larsen: But taking that into context, and again, looking at the past decade, we're really moving our margins to the low end of the range of what we've experienced, all in the name of driving the top line and getting to a healthier inventory position. Could you theoretically maintain higher equipment margins and a little bit lower sales and perhaps end up in the same spot from an earnings perspective? Probably.
Speaker Change: Taking that into context, and then again looking at the past decade, we're really moving iron margins to the low end of the range of what we experienced all in the name of driving the top line and getting to a healthier inventory position.
Speaker Change: Could you theoretically maintain higher equipment margins and a little bit lower sales and perhaps end up in the same spot from an earnings perspective, probably but in terms of what's best for the for the company going forward, that's really getting that inventory level to targeted levels as quickly as possible. That's why we're embedding this and the guy.
Robert Larsen: But in terms of what's best for the company going forward, that's really getting that inventory level to targeted levels as quickly as possible. That's why we're embedding this in the guidance. That's why we're wanting to get a bit more aggressive. One more data point.
Speaker Change: And so that's why we're wanting to get a bit more aggressive one more data point.
Robert Larsen: For the first quarter, and this is for the company as a whole, equipment margins were down about 230 basis points. Well, our guidance implies for the rest of the year that equipment margins will be down 330 basis points. So incrementally, about 100 basis points for the rest of the year. And again, that's reflective of the incremental softness on what we've seen on demand, but even more specifically, the actions that we want to drive to achieve our inventory output.
Speaker Change: For the first quarter and this is for the company as a whole.
Speaker Change: Equipment margins were down about 230 basis points, while our guidance implies for the rest of the year that equipment margins will be down 330 basis points. So incrementally about 100 basis points. The rest of the year and again, that's reflective of the incremental softness on what we've seen on demand, but even more specifically the acts.
Speaker Change: <unk> that we want to drive to achieve our inventory outcomes.
Speaker Change: Okay.
Speaker Change: Understood.
Mircea Dobre: understood. I guess what I'm personally struggling with a little bit, though, is if we're taking the gross margin on agriculture down to near decade lows. This is happening, though, as you're still not fully destocking in fiscal 25. I mean, you're basically saying that the destock is going to be a fiscal 26 event. So the margins are coming down, and while inventories are still going to be relatively elevated. I guess, how do you think about that? Like, what's the incremental risk here to margin going forward as you truly go into destock mode, should we maybe expect another move lower as we contemplate fiscal 26?
Speaker Change: I guess, what I'm, what I'm personally struggling with a little bit though is if we're taking.
Robert Larsen: or not. Well, the difference
The gross margin on AG down too.
Speaker Change: Near decade lows.
Speaker Change: This is happening, though as you are still not fully destocking in fiscal 'twenty five I mean, you're basically saying that the destocking is going to be a fiscal 'twenty six event.
Speaker Change: So the margins are coming down.
Speaker Change: While inventories are still going to be relatively elevated.
Speaker Change:
Speaker Change: I guess, how do you think about that like what's what's the incremental risk here to margin going forward.
Speaker Change: As you really go into destock mode should we maybe expect another move lower as we as we contemplate fiscal 'twenty six.
Speaker Change: Or not.
Robert Larsen: Well, the difference here, I think that maybe didn't quite articulate that, right, is the order volume coming in year over year. So the significant amount of order volume as lead times collapsed from 18 to 24 months down to the normal four to six month time frame is bringing in more than a year's worth of orders in a two or three quarter period of time. So now as we drastically change the order flow, next year is more about playing that through and seeing a significantly less inflow, and then the outflow will be what it is based on demand to get you to your objectives.
Speaker Change: Well the difference here I I think that maybe didn't quite articulate there right as the order volume coming in year over year.
Speaker Change: So the significant amount of order volume as lead times collapsed from 18 to 24 months down to the normal four to six month timeframe is bringing in more than a year's worth of orders in two or three quarter period of time. So now as we drastically change the order flow.
Speaker Change: Next year is more about playing that through and seeing a significantly less inflow and then the outflow will be what it is based on demand to get you to your objectives. This year, what we're saying.
Robert Larsen: This year, what we're saying is that we want to take those more aggressive actions at the expense of margin to get to the best end point that we possibly can, right? So more of that hit is this year to absorb all of those orders that, again, are more than a year's worth of order activity in a shorter period of time.
Speaker Change: Is that we want to take those more aggressive actions at the expense of margin to get to the best endpoint that we possibly can right. So more of that hit us this year to absorb all of those orders that again is more than a year's worth of order activity in a shorter period of time.
Speaker Change: Okay.
Speaker Change:
Mircea Dobre: Then I guess moving on to construction, there's a slide where you're kind of talking about market conditions in the outlook, and you mentioned in there that you're taking an aggressive stance to lower inventories. Maybe you can comment a little bit on that. I also thought it was quite interesting that the rental fleet utilization has been significantly lower, actually, 500 basis points, so maybe a little bit of context as to what's going on there as well.
Speaker Change: Then I guess moving moving onto construction.
Speaker Change: You know there is on a on a slide where you were kind of talking about market conditions and the outlook. You know you you you mentioned in there that.
Speaker Change: We're taking an aggressive stand to lower inventories, but maybe you can comment a little bit.
Speaker Change: On that I also thought it was quite interesting that the rental fleet utilization has been down has been lower significantly lower actually 500 basis points. So maybe.
Speaker Change: A little bit of context as to what's going on there as well.
Robert Larsen: Yep. So certainly, there are different extents across our segments. But from a CE perspective and in the industry in general, right, I mean, we are at that similar thematics in terms of moving past supply chain constraints and then equipment availability increasing significantly and the compression of lead time. So the same story applies, you know, to a different extent. So that's where we're just saying, similarly, we want to make sure that we get to the targeted inventory levels that we want for CE in a similar fashion. From a rental utilization perspective, maybe Bryan, you want to add some comments?
Speaker Change: Yep.
Speaker Change: Certainly there is different extends across our segments, but from a CE perspective in the industry in general right. I mean, we are at that similar to <unk> in terms of moving past supply chain constraints, and then equipment availability increasing significantly and.
Speaker Change: The compression of lead time, so the same story applies to a different extent. So that's why we're just saying similarly, we want to make sure that we get to the targeted inventory levels that we want for CE.
Speaker Change: In similar fashion.
Speaker Change: From a rental utilization perspective, maybe Brian you want to add some comments.
Bryan J. Knutson: Yeah, I mean, just... You know, up in our footprint, a combination of, as Beau talked about, the lack of snow. Obviously, up here in the upper Midwest, snow is a big part of what we do, and so that impacted utilization. The lack of snow cover created some deep frost and cold temperatures we had throughout the winter, which caused a delay in a lot of the spring start to the construction season.
Bryan J. Knutson: Yes ill make just.
Speaker Change: Up in our footprint combination of as Bob talked about the.
Speaker Change: Lack of snow, obviously up here in the upper Midwest.
Speaker Change: <unk> is a big part of what we do.
Speaker Change: And so that impacted the utilization the lack of snow cover created.
Speaker Change: Some deep frost and cold temperatures, we had throughout the winter, which.
Speaker Change: Cause the delay to a lot of the springs.
Speaker Change: Bring start to the construction season.
Bryan J. Knutson: That's now well underway in full swing. And then just add in there, you know, some of the things around uncertainty around residential interest rates, some of the softening in commercial, and the like. And so a little bit of softening there is also impacting. So a combination of a late start, so we expect a good uptick in our rental as we go forward now, but also, it is overall a little softer environment than the last two years.
Speaker Change: That's now well under way in full swing.
Speaker Change: And then just add in there some of the things around uncertainty around residential interest rates some of the softening in commercial.
Speaker Change: And the like and so.
Speaker Change: A little bit of softening there.
Speaker Change: It's also impacting but.
Speaker Change: So a combination of a late start.
Speaker Change: We expect a good uptick here in our rental as we go forward now.
Speaker Change: But also it is overall.
Speaker Change: The softer environment and then the last two years.
Mircea Dobre: Thank you. Thank you. Thank you.
Speaker Change: Understood final question.
Mircea Dobre: Maybe another clarification on the action that you're taking here. When we're seeing the impact on margin, reflecting on the guide and the discussion, so I understand that, but I'm sort of curious as to what the actions per se are. I mean, does that mean that you're essentially cutting prices, or are there some incentives that are being offered in both construction and agriculture? How does that dynamic work on your end? What do you have to do to get this equipment moving off the lot? Yeah, I mean, all of the above.
Maybe another clarification on the action that you're taking here.
Speaker Change: When we're seeing the impact on margin, reflecting in the guidance discussion, so I understand that but I'm sort of curious as to as to what the actions per se or I mean does that mean that you're you're essentially cutting price or are there are some incentives that are being offered in both construction and AG, how do how does that.
Speaker Change: I'm at work on your end what do you have to do to get this equipment moving off the line. Thank you.
Bryan J. Knutson: Yeah, all of the above. That's what's embedded in a lot of different tools. As you know, I've been doing this a long time and been through downturns before, and I've personally sold a lot of iron. We've got an extremely good team that we've put together now, our leadership team, and our entire team that's experienced and has been through this. It's a very scripted approach
Speaker Change: Yes, all the above.
Speaker Change: That's what's embedded in.
Speaker Change: Lot of different tools.
Speaker Change: As you know I've been doing this a long time and been through downturns before and I've personally sold a lot of iron are we've got extremely good team that we've put together now.
Speaker Change: Our leadership team and our entire team that's experienced and been through this is a very scripted approach.
Bryan J. Knutson: You're going to pull different levers depending on what product category, what customer is, what their needs are. But yeah, some of those examples would be some things you mentioned, you know, whether it's an interest buydown, an interest waiver, a split rate program, whether it's an extended warranty, or, or sometimes just straight up price. But every one of those is going to ultimately map back in the accounting to the margins. And so that's what we've got embedded in it.
Speaker Change: If you're going to pull different levers, depending on what product category, what what customers what their needs are.
Speaker Change: But yes some of those examples would be some things you mentioned, whether it's an interest by down interest waiver split rate program.
Speaker Change: It's an extended warranty.
Speaker Change: Or or just sometimes just straight up price, but every one of those is going to ultimately mapped back in the accounting to the margins and so that's what we've got embedded in it and it's just.
Speaker Change: What is it that for the grower contractor.
Bryan J. Knutson: And it's just, what is it that the grower contractor, you know, works for them and their banker and, and, and makes their operation better by updating that piece of equipment? And again, a simple example can be moving from a current rate contract of 4% fixed or something into an interest-free contract or being out of warranty and moving into a machine that now has a warranty or technological advancements, making them more efficient, etc, etc.
Speaker Change: Okay.
Speaker Change: Works for them and their banker and and makes their operation better Bye bye updating that piece of equipment and again earnings simple example can be moving from.
Speaker Change: Current rate contract of a 4% fixed or something into an interest free contract or being out of warranty and moving into a machine that now has warranty or technology.
Speaker Change: Technology advancements, making them more efficient et cetera et cetera. So we're we're very cognizant of the army and our team with those tools communicating those tools and being very aggressive here and as I mentioned in my prepared remarks. It is our single.
Bryan J. Knutson: So we're very cognizant of that, cognizant of arming our team with those tools, communicating those tools, and being very aggressive here. And as I mentioned in my prepared remarks, it is our single biggest initiative right now.
Speaker Change: Biggest initiative right now.
Speaker Change: Yes.
Speaker Change: Thank you.
Operator: Our next question is from the line of Ted Jackson with Northland Securities. See you with your questions. And all my questions have been asked and answered. Thank you very much. Thank you. At this time, I will now turn the floor back to management for closing remarks.
Speaker Change: Next question is from the line of Ted Jackson with Northland Securities. Please proceed with your questions.
Edward Randolph Jackson: All my questions have been asked and answered.
Edward Randolph Jackson: Thanks very much.
Edward Randolph Jackson: Thank you.
Speaker Change: At this time I would now turn the floor back to management for closing remarks.
Bryan J. Knutson: Okay, thank you for your time today, everyone, and we look forward to talking to you all again on our Q2 call.
Speaker Change: Okay. Thank you for your time today, everyone and we look forward to talking to you all again in our Q2 call.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.
Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.