Q2 2025 Titan Machinery Inc Earnings Call
Speaker Change: Greetings and welcome to Titan Machinery Inc. 2nd quarter fiscal 2025 earnings call.
Speaker Change: At this time, I'll participate in a listen-only mode. A question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Sonnek. Thank you. You may begin.
Speaker Change: Thank you. Welcome to Titan's Sheenries 2nd Quarter Fiscal 25 earnings conference call on today's call from the company, our Brian Knutson, President and CEO and Bo Larsen, CFO.
Speaker Change: by now everyone should have access to earnings release, dated July 31, 2024, you've not received the release available on the Investor Relations tab of Titans website at IR.Titan Machinery.com.
Speaker Change: This call is being webcast and replay will be available on the company's website as well. In addition, we're providing a presentation to a company today's prepare remarks, which can also be found in Titan's Investual Relations website directly below the webcast information in the middle of the page.
Speaker Change: We'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions.
Speaker Change: Will statements do not guarantee future performance and therefore undo reliance should be placed upon them.
Speaker Change: These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the risk factor section of Titan the most recently filed in report on Form 10K.
Speaker Change: 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 statements. Except as may be required by applicable law, tighten assumes no obligation to update any forward-looking statements that may be made in today's release or call.
Speaker Change: Please note that during today's call we made discussed non-gap financial measures, including results on an adjusted basis.
Speaker Change: We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into tight and ongoing financial performance, particularly when comparing underlying results from period periods.
Speaker Change: We've included reconciliations of these non-gap financial measures to their most comparable gap financial measures in today's release and presentation.
Speaker Change: and the conclusion of our prepare remarks. We'll open the call to take your questions. And with that, I'd now like to introduce the company's President of CEO, Mr. Bryan Knutson. Bryan, please go ahead.
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Bryan Knutson: Our second quarter performance and our near-term outlook.
Bryan Knutson: Then I will pass the call to Beau for his financial review and incremental thoughts on our modeling assumptions for the remainder of the year.
Speaker Change: As we shared two weeks ago in our second quarter pre-announcement, the agriculture equipment industry is adjusting to the softening demand. As the agriculture fundamentals have materially weakened, driven by the anticipated decrease in net farming come and sustain higher interest rates.
Beau: The decrease in neck farming comes largely being driven by significantly lower commodity prices for most key cash crops in our footprint, which have steadily declined since the beginning of the year.
Beau: These elements combined with mixed growing conditions across our footprint are negatively impacting farmer sentiment and have manifested in lower retail demand for equipment purchases.
Beau: Through this period of softening demand, we have shifted to a much more proactive and aggressive approach, as we actively work to reduce inventory to targeted levels. Especially on the use equipment side, we'll in turn reducing floor plan interest expense.
Beau: This strategy requires compression to our near-term equipment margins.
Beau: However, the actions we are implementing will inherently shorten the impact on our performance during this period of lower demand and will accelerate our return to a more normalized margin profile as the industry cycle progresses.
Beau: As we navigate the current cycle, it's worth highlighting the significant differences from the last downturn, which underscored the improved health and preparedness of the entire sector.
Beau: Unlike the previous cycle, we are seeing a coordinated proactive approach to inventory management across the industry, by both dealers and the OEMs.
Titan: At Titan, we are particularly focused on efficiently aligning inventory with demand by carefully analyzing market trends, adjusting pricing strategies and working closely with our suppliers on financing terms for our customers.
Titan: The result of these collective actions will not only reduce the inventory, but will also reduce our interest expense.
Titan: Importantly, I would like to drive home that is the early recognition and quick implementation of these strategies that mark a significant adjustment in our approach relative to previous cycles.
Titan: While inventory levels in terms of absolute dollars are currently higher than we want them to be.
Titan: On a unit's per store basis, it is important note that we have significantly less inventory than we did heading into the last downturn.
Titan: At the end of the second quarter, we had an average of approximately $8.9 million of inventory per store.
Titan: This is up approximately 6% from the high watermark of the prior cycle.
Titan: However, as I mentioned, we have significantly less units per store as OEM price increases over the past decade have been substantial.
Titan: For example, the cost of a four-wheel drive tractor is up approximately 80% since the last downturn.
Titan: Another key difference between this cycle and last is that industry fundamentals heading into the cycle are much healthier.
Titan: Farmers entered this cycle coming up consecutive years with excellent profitability and stronger balance sheets further bolstered by more favorable land values, providing them some buffer against the current headwinds.
Titan: Secondly, please recall the supply chain disruptions that severely limited OEM production volumes over the past two years.
Titan: In aggregate, these production levels were closer to that of mid-cycle averages.
Titan: Thus, the flea age in North America continues to support replacement purchases as we progress through the cycle.
Titan: Thirdly, and as I mentioned earlier, both viewers and OEMs are aligned in aggressively managing inventory levels to demand.
Titan: and are being more proactive earlier in the downturn.
Titan: Forth, as mentioned on previous calls, we do not have short-term leet returns, which further exacerbated the impact of the last cycle.
Titan: And finally, I would note that precision agriculture solutions were not as developed in the previous cycle. And that today's solutions are helping farmers garner higher returns in their operations for their supporting future equipment investment.
Titan: Well, inventory remains our primary focus. We are also taking decisive actions to control costs and grow the other areas of our business.
Titan: We continue to lean into our customer care strategy to fuel our reoccurring high margin parts and service businesses.
Titan: This is an area where we believe we can not only drive growth this year, but more importantly, create long-term sustainable growth.
Titan: These factors combined with the efficiencies and process improvements we've integrated since the last downturn will undoubtedly enhance our ability to compress the impacts of this cycle.
Titan: That said, we know that to achieve through cycle performance.
Titan: of our Optimized Business.
Titan: It is imperative that we reach targeted inventory levels as quickly as possible.
Speaker Change: Now I'd like to change gears and provide an update on crop conditions within our footprint.
Speaker Change: As previously mentioned, there has been a normally wide variations on growing conditions within each of our regions.
Speaker Change: in North America, significant spring rainfall delayed the planting season, and in some cases fields were too wet to plan all together.
Speaker Change: Or Diggy Planet
Speaker Change: Then drowned out and did not recover.
Speaker Change: Overall in North America, all of this will lead to widely varying yields from even one store to another.
Speaker Change: In Australia, plenty full rainfall in some areas of our footprint is leading to an exceptional crop, while other areas are experiencing drought conditions, and in those areas are looking to produce average to below average yields.
Speaker Change: In Europe, Romania, Bulgaria, continue to be negatively impacted by severe drought conditions.
Speaker Change: Where did it go?
Speaker Change: Conditions are overall much better in Germany and Ukraine.
Speaker Change: and we're looking to produce average to above average yields.
Speaker Change: Finally, regarding our construction business environment, we believe underline industry fundamentals have moderated somewhat of a recent highs due to the extended period of higher financing costs at uncertainty around the economy.
Speaker Change: However, our revenue outlook for our construction segment is stable versus a prior year and is supported by equipment availability and new product introductions from our suppliers.
Speaker Change: In closing, I want to reiterate that we are taking decisive actions to navigate the cycle effectively. And we remain committed to delivering long-term value to our shareholders and to providing best-in-class service to our customers.
Speaker Change: I want to sincerely thank our employees for their hard work and dedication to support our customers during these more challenging times.
Speaker Change: Their efforts have been crucial to the success of our customer care strategy, and I'm highly confident that with our lessons learned from the previous cycle, combined with the actions we have taken, which have made us a stronger company.
Speaker Change: and the actions we are now taking will ensure we can effectively navigate through this downturn.
Speaker Change: With that, I will turn the call over to Beau for his financial review.
Beau: Thanks, Bryan. Good morning everyone.
Beau: Starting with our consolidated results for the fiscal 2025 Second Quarter, total revenue was $633.7 million.
Beau: a decrease of 1.4% compared to the prior year period.
Beau: Underlying this performance, was a same store-celled decrease of 12.5% driven by lower demand for equipment purchases due to the expected decline of net farming come this growing season.
Beau: This was largely offset by the acquisition of O'Connor's that we completed in October 2023.
Beau: Gross Profit for the second quarter was $111 million and Gross Profit margin contracted by $310 basis points a year over year to 17.7%.
Beau: Driven primarily by lower equipment margins resulting from higher levels of inventory across the industries we serve and our proactive stance on managing our inventory down to targeted levels as Bryan discussed earlier.
Speaker Change: Operating expenses were $95.2 million for the second quarter of fiscal 2025. From period to 88.8 million dollars in the prior year period.
Speaker Change: The year-over-year increase of 7.2% was led by acquisitions that we've executed in the last 12 months.
Speaker Change: This year's second quarter operating expenses, also included a $1.5 million non-cash impairment expense related to certain assets in our European segment.
Speaker Change: Floor Plan and other interest expense was $13 million.
Speaker Change: As compared to $3.7 million for the second quarter of fiscal 2024.
Speaker Change: with the increase led by a higher level of interest-branding inventory, including the usage of existing floor plank capacity to finance the O'Connor's acquisition.
Speaker Change: Gap reported net loss for the second quarter of fiscal 2025, was $4.3 million, or a 19-sense loss per diluted share and compared to last year's second quarter net income of $31.3 million, or $1.38 per diluted share.
Speaker Change: The current quarter's reported net income, includes $11.2 million or $36 per diluted share impact related to the one time non-cash sales leaves back financing expense we incurred in the quarter.
Speaker Change: Excluding this impact, net income on an adjusted basis was $4 million or $17 per diluted share.
Speaker Change: reported net income for this year's second quarter, also includes a $2.7 million game related to the completion of a new market tax credit program, which was anticipated and included in our forecast throughout the year.
Speaker Change: As we mentioned previously, the Lisa Cannon expense reflects our entering into agreement for the future purchase of 13 of our lease facilities on expiration of the current leases.
Speaker Change: The purchase closing date for each lease facility will occur on or before the expiration of the respective lease, all of which expire over the next several years through calendar year 2030.
Speaker Change: While the initial impact of this purchase agreement, temporarily reduces gap reported earnings.
Speaker Change: This is a non-cash expense, and I'd like to emphasize that the transaction is financially strategic and supports the company's long-term customer care strategy by investing in facilities and shop space required for continued growth in a high-modular and high-modular and high-modular services.
Speaker Change: Now, turning to a brief overview of our segment results for the second quarter.
Speaker Change: In our agriculture segment, sales decreased 9.6% to $424 million.
Speaker Change: which included a same store sell decline of 11.2% in the second quarter.
Speaker Change: Agriculture's segment adjusted pre-tax income was $6.7 million and compared to $33 million in the second quarter of the prior year.
Speaker Change: This adjusted figure excludes $6.1 million of non-cash sales lease back financing expense that I mentioned previously.
Speaker Change: The underlying year-to-year decrease in profitability reflects the softer retail demand environment, which manifested in lower equipment sales, lower equipment margins.
Speaker Change: High-Rain-Metorial levels and a higher floor plan interest expense.
Speaker Change: and our construction segment, St. Thore Sales declined 3.2% to 80.2 million dollars versus an increase of 18.5% in the prior year.
Speaker Change: We are generally seeing year-over-year stability in this segment. However, supply chain catch-up has driven inventory-level tire for both the construction industry as a whole and for Titan.
Speaker Change: So we are proactively managing inventory down the targeted levels, and are seeing margin compression in this segment as well.
Speaker Change: I've just did pre-taxing come for the segment, was point $2 million, which compares to pre-taxing come a $5.2 million in the second quarter of the prior year.
Speaker Change: This adjusted figure excludes $5.1 million of non-cash, supposedly spec financing expense that I mentioned previously.
Speaker Change: In our Europe segment, sales decrease 24.8% to 68.1 million dollars, which included a same store sales decline of 27.7% versus 15.9% growth in the prior year.
Speaker Change: So, via drought conditions in Eastern Europe started to impact retail demand in the back half of last year.
Speaker Change: These subdued demand levels have persisted through the first half of fiscal 2025. And we expect that to continue through the rest of this fiscal year.
Operator: 2025 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Speaker Change: Pretext last for the segment was $2.3 million, which compares to $5.6 million income in the second quarter of fiscal 2024.
Operator: If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
Speaker Change: The current year-second quarter results for Europe include approximately $1.5 million of non-cashive permanent expense related to certain assets.
Jeff Sonnek: It is now my pleasure to introduce your host, Jeff Sonnek. Thank you. You may begin. Thank you.
Speaker Change: Excluding these impacts, pretext last for the segment was 0.8 million dollars in the second quarter.
Jeff Sonnek: Welcome to Titan Machinery's second quarter fiscal fiscal 25 earnings conference call on today's call from the company are Bryan Knutson, President and CEO and Bo Larson, CFO. By now, everyone should have access to earnings release dated July 31st, 2024. If you've not received the release, the available on the investor relations tab of Titan's website at ir.tightmachinery.com. This call is being webcast and replay will be available on the company's website as well.
Speaker Change: The underlying year we are decrease in profitability reflects similar dynamics as I just mentioned with our domestic excitement regarding the softer retail demand environment, higher inventory levels, and higher floor plan interest expense.
Speaker Change: and our Australia segment sells for $61.3 million and pre-tax income was $1.4 million.
Speaker Change: This segment is facing very similar customer and customer dynamics as our domestic act segment.
Jeff Sonnek: In addition, we're providing a presentation to a company. Today's prepared remarks, which can also be found on Titan's investor relations website directly below the webcast information in the middle of the page. We'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The statements do not guarantee future performance and therefore undue reliance should be placed upon them. These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties.
Speaker Change: But with the substantial mix of pre-cells, which is helping maintain cell figures similar to the prior year comparative period, which was pre-acquisition.
Speaker Change: Now on to our balance sheet and inventory position.
Speaker Change: We had cash of $31 million and adjusted debt to tangible net worth ratio of 1.8 times as of July 31st, which is well below our bank covenant of 3.5 times.
Speaker Change: Regarding inventory, we believe that our equipment inventory level has recently peaked at approximately $1.000.
Speaker Change: This alliance with our expectation from the beginning of the year regarding the normalization of lead times from our OEM partners and the timing of order arrives.
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 statements, except as may be required by applicable law. Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we 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. We've included reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures in today's release and presentation.
Speaker Change: We expect to begin demonstrating the results of our inventory reduction actions in the back half of this year, with inventories moving modestly lower in the second half of this fiscal year, before we realize more substantial decreases in fiscal 2026.
Speaker Change: With that, I'll finish by reviewing our fiscal 2025 full-year guidance.
Speaker Change: which we recently updated concurrent with our pre-announcement on October 15th to account for our second quarter performance. Our latest view on industry environment and to account for the one-time, non-cash, sadly spec financing expense we recognized in the second quarter.
Speaker Change: Current Market Conditions, chair directed by lower commodity prices, sustained high interest rates, and mixed growing conditions across our footprint of negatively impacted farmer sentiment.
Jeff Sonnek: At the conclusion of our prepared remarks, we'll open the call to take your questions.
Bryan Knutson: And with that, I'd now like to introduce the company's president, CEO, Mr. Brian Knitzen. Brian, please go ahead. Our second quarter performance and our near-term outlook. Then I will pass the call to Bo for his financial review and incremental thoughts on our modeling assumptions for the remainder of the year. As we shared two weeks ago in our second quarter pre-announcement, the agriculture equipment industry is adjusting to the softening demand. As agriculture fundamentals have materially weakened driven by the anticipated decrease in net farm income and sustained higher interest rates.
Speaker Change: This resulted in noticeably softer retail demand in the second quarter, compared to the expectations we shared during our first quarter earnings call.
Speaker Change: Given the current backdrop, we now see these more subdued demand levels persisting throughout the rest of the fiscal year.
Speaker Change: As such, for domestic agriculture, our revenue assumption is in the range of down 5 to 10%. Which includes the full-year contribution from our Scott Supply Acquisition, which closed in January of 2024.
Speaker Change: For the Europe segment, our assumption is for revenue to be down 12 to 17%.
Speaker Change: and for the Australia segment, we expect fiscal 2025 revenue to be in the range of 230 to 250 million dollars.
Speaker Change: Each of these segments assumptions reflects the more challenging environment we're facing, partially offset by RFers to stimulate demand.
Bryan Knutson: The decrease in net farming comes as largely being driven by significantly lower commodity prices for most key cash crops in our footprint, which have steadily declined since the beginning of the year. These elements combined with mixed growing conditions across our footprint are negatively impacting farmer sentiment and have manifested in lower retail demand for equipment purchases. We have shifted to a much more proactive and aggressive approach as we actively work to reduce inventory to targeted levels, especially on the used equipment side, while in turn reducing floor plan interest expense.
Speaker Change: Despite these headwinds, we expect we will continue to see growth in our service business in the high single digit range for the full fiscal year.
Speaker Change: For the construction segment, our updated assumption is for revenue to be flat-ish in the range of down to 0.5% to up to 0.5%.
Speaker Change: which similarly reflects a more cautious outlook than our prior assumptions given the overall macroeconomic environment, but generally stable compared to the prior year.
Speaker Change: Now for some broader commentary.
Speaker Change: From a gross margin perspective, we remain committed to improving our inventory position, particularly in use equipment.
Bryan Knutson: This strategy requires compression to our near term equipment margins. However, the actions we are implementing will inherently shorten the impact on our performance during this period of lower demand. And we'll accelerate our return to a more normalized margin profile as the industry cycle progresses.
Speaker Change: Given the excess supply of inventory in the channel, and softer equipment demand.
Speaker Change: We are now building in expectations for further equipment margin compression, such that are updated assumptions for consolidated equipment margins, are approximately 540 basis points lower in the back half of this year as compared to the back half of last fiscal year.
Bryan Knutson: As we navigate the current cycle, it's worth highlighting the significant differences from the last downturn, which underscore the improved health and preparedness of the entire sector. Unlike the previous cycle, we are seeing a coordinated proactive approach to inventory management across the industry by both dealers and the OEMs. At Titan, we are particularly focused on efficiently aligning inventory with demand by carefully analyzing market trends, adjusting pricing strategies and working closely with our suppliers on financing terms for our customers.
Speaker Change: For a comparison, consolidated equipment margins were approximately 330 basis points lower in the first half of this year compared to the first half of last fiscal year.
Bryan Knutson: The result of these collective actions will not only reduce to inventory, but will also reduce our interest expense. Importantly, I would like to drive home that is the early recognition and quick implementation of these strategies that mark a significant adjustment in our approach relative to previous cycles. While inventory levels in terms of absolute dollars are currently higher than we want them to be, on a unit's per store basis, it is important to note that we have significantly less inventory than we did heading into the last downturn.
Speaker Change: We now anticipate equipment margins for a domestic ag business to approach the historical lows we realized in fiscal years 2016 and 2017.
Speaker Change: While this will impact our short term performance, we believe this approach to managing inventory will shorten the duration of this downturn compared to the previous cycle.
Speaker Change: Regarding operating expenses, we are focused on implementing cost controls where we can, optimizing resources and being vigilant within your head count decisions.
Speaker Change: Our guidance now implies operating expenses to be about 14.4% of our revised sales outlet.
Speaker Change: Moving to Intro Sticks Sponsored.
Speaker Change: Given our revised revenue expectations and the commensurate impact on inventory levels that we are working to improve, we are in creating higher floor plan interests expense and previously anticipated.
Speaker Change: Although we continue to expect that improved interest returns will provide a tell one for interest expense in the back half of the year.
Speaker Change: We believe this benefit will be more than offset by the industry dynamics at play and it will take more substantial decreases in inventory as we progress through next fiscal year before we begin to see more normalized levels of floor plan interest expense.
Bryan Knutson: At the end of the second quarter, we have an average of approximately $8.9 million of inventory per store. This is up approximately 6% from the high watermark of the prior cycle. However, as I mentioned, we have significantly less units per store as OEM price increases over the past decade have been substantial. For example, the cost of a four-wheel drive tractor is up approximately 80% since the last downturn. Another key difference between this cycle and last is that industry fundamentals heading into the cycle are much healthier.
Speaker Change: Our assumption for floor plan and other interest expense for the full year is now approximately $47 million. And compares to approximately $21 million in fiscal 2024.
Speaker Change: Taking all of these factors into account, our guidance for fiscal 2025, GAP, Deluded Ernings for Share, contemplates a range between a loss of 36 cents to earnings of 14 cents.
Bryan Knutson: Farmers entered this cycle coming off consecutive years with excellent profitability and stronger balance sheets further bolstered by more favorable land values providing them some buffer against the current headwinds. Secondly, please recall the supply chain disruptions that severely limited OEM production volumes over the past two years. In aggregate, these production levels were closer to that of mid-cycle averages. Thus, the fleet age in North America continues to support replacement purchases as we progress through the cycle.
Speaker Change: On an adjusted basis, excluding the 36-cent non-cash impact of the sales lease back financing expense, recognized in the second quarter, which was not originally contemplated in a modeling assumptions.
Speaker Change: We expect adjusted deluded earnings per share to be in the range of break even to 50 cents.
Speaker Change: We believe the decisive actions we are taking with respect to managing inventory will help shorten the impact of this cycle on our performance, potentially accelerating to our return of a more normalized margin profile, and that is what we are focused on delivering.
Speaker Change: This concludes our prepared comments. Operator, we are now ready for the question and answer session of our call.
Bryan Knutson: Thirdly, and as I mentioned earlier, both dealers and OEMs are aligned in aggressively managing inventory levels to demand, and are being more proactive earlier in the downturn. Fourth, as mentioned on previous calls, we do not have short-term lease returns, which further exacerbated the impact of the last cycle. And finally, I would note that precision agriculture solutions were not as developed in the previous cycle, and that today's solutions are helping farmers garner higher returns in their operations, further supporting future equipment investment.
Speaker Change: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Hey, confirmation, total, indicate your line is in the question queue. You may press start to to remove yourself from the queue.
Speaker Change: For Prejudices and Speaker Equipment, it may be necessary to pick up the handset before pressing the start keys. One moment please while we pull for questions.
Bryan Knutson: While inventory remains our primary focus, we are also taking decisive actions to control costs and grow the other areas of our business. We continue to lean into our customer care strategy to fuel our reoccurring, high margin parts and service businesses. This is an area where we believe we can not only drive growth this year, but more importantly, create long-term sustainable growth. These factors, combined with the efficiencies and process improvements we've integrated since the last downturn, will undoubtedly enhance our ability to compress the impacts of this cycle. That said, we know that to achieve through cycle performance of our optimized business, it is imperative that we reach targeted inventory levels as quickly as possible.
Speaker Change: Thank you. Our first question comes from Ted Jackson from Northland Securities. Please proceed.
Ted Jackson: Thanks very much.
Ted Jackson: Two questions. My first question is just with regards to ag spending in seasonality. When you look at the second half of 24, do you think that it's likely that we will still see some level of
Speaker Change: Flush or Spend in the fourth order as this typical and typical kind of seasonal pattern or are you thinking that the market is so challenged that we will not see that kind of seasonal flush that we typically get. That's my first question.
Speaker Change: Thank you, Ted, and good morning. Yeah, so we're still anticipating, you know, fourth quarter spending here by farmers and contractors, you know, as they see how the years shaped up meet with their accounts.
Bryan Knutson: Now I'd like to change gears and provide an update on crop conditions within our footprint. As previously mentioned, there has been normally wide variations on growing conditions within each of our regions. In North America, significant spring rainfall delayed the planting season, and in some cases fields were too wet to plan altogether, or did get planted, then drowned out and did not recover. Overall, in North America, all of this will lead to widely varying yields from even one store to another.
Speaker Change: and as we go back to those very crop conditions that we talked about, you know, certain areas of our footprint if you look in the western half of South Dakota, all throughout Nebraska, pockets of Minnesota, North Dakota and Iowa, there's really, really good yields.
Speaker Change: So those farmers, even with the subdued prices, will.
Bryan Knutson: In Australia, plenty full rainfall in some areas of our footprint is leading to an exceptional crop, while other areas are experiencing drought conditions, and in those areas are looking to produce average to below average yields. In Europe, Romania, Bulgaria continue to be negatively impacted by severe drought conditions, whereas conditions are overall much better in Germany and Ukraine, who are looking to produce average to above average yields.
Speaker Change: We'll have some spending needs as well and we'll be looking to update some equipment Also because of the...
Speaker Change: you know the supply constraints that we had.
Speaker Change: You know, a lot of those growers weren't able to update certain equipment the past couple of years.
Speaker Change: Those growers that do get the yields we will see.
Speaker Change: some traditional good purchasing from them, but some dude to the levels that we've got in the model in here. So I think the trend that timing patterns will be very similar, but just yes, definitely lower than the normal life.
Bryan Knutson: Finally, regarding our construction business environment, we believe on underlying industry fundamentals have moderated somewhat off a recent highs due to the extended period of higher financing costs and uncertainty around the economy. However, our revenue outlook for our construction segment is stable versus the prior year, and is supported by equipment availability and new product introductions from our suppliers.
Speaker Change: Purchases here in the towards the end of the year.
Speaker Change: Yes, as you take a look at the guidance and then look at the back half of the year in terms of what's implied as he said, he's now lead.
Speaker Change: is very similar there. So, you know, if you drill down to our Domestic Ag Business specifically, you know, we've got a full year total equipment sales being down about 11%.
Bryan Knutson: In closing, I want to reiterate that we are taking decisive actions to navigate this cycle effectively and we remain committed to delivering long-term value to our shareholders and to providing best-in-class service to our customers. I want to sincerely thank our employees for their hard work and dedication to support our customers during these more challenging times. Their efforts have been crucial to the success of our customer care strategy and I'm highly confident that with our lessons learned from the previous cycle, combined with the actions we have taken which have made us a stronger company and the actions we are now taking will ensure we can effectively navigate through this downturn.
Speaker Change: In the first half of the year, that was down about 4%, but again, we were coming into the year with a lot of pre-cells there, right?
Speaker Change: were essentially applying about a 15% decrease in the back half of the year, which is a little bit more of a decrease than we saw in the second quarter, but not significantly. So kind of stabilized at this point in terms of year over year, comps, but the cyclicality and timing of purchases remains.
Speaker Change: Okay, my next question is just on inventory and so actually I thought it was that good news to hear that you think you're at peak inventory and you'll start to see that come down and with it accelerating in 25.
Speaker Change: Will you look into your crystal ball?
Bo Larson: With that, I will turn the call over to Bo for his financial review. Thanks, Brian. Good morning, everyone.
Speaker Change: and I'm sure sharp and clear like a high definition television.
Speaker Change: When do you think you can get your inventory to what would be, you know, a normalize level, visa, the demand? Is that something that we could expect to see before we get, you know, in by the second half of 25 or is that something that's going to take longer? And then actually do it one more by this.
Bo Larson: Starting with our consolidated results for the fiscal 2025 second quarter, total revenue was $633.7 million. A decrease of 1.4% compared to the prior year period. Underlying this performance was a same-store sales decrease of 12.5% driven by lower demand for equipment purchases due to the expected decline of net farm income this growing season. This was largely offset by the acquisition of O'Connor's that we completed in October of 2023. Gross profit for the second quarter was $112 million and gross profit margin contracted by 310 basis points a year over year to 17.7%. Driven primarily by lower equipment margins resulting from higher levels of inventory across the industries we serve and are proactive stance on managing our inventory down to targeted levels as Brian discussed earlier.
Speaker Change: Yeah, I mean, I'll let's go take down on Ted, but maybe just to set the stage, you know, a couple of points that are...
Speaker Change: Now working into our rearview mirror is...
Speaker Change: leading up to this, you look at just the unprecedented confluence of abnormal factors that came together to lead to this inventory spike, you know, driven by that.
Speaker Change: The COVID supply chain issues, the plant strike at CNH, which all led to record long lead times.
Speaker Change: and really, and my nearly two dozen years of doing this, the most unpredictable order boards over the past 18 months or more that we had.
Bo Larson: Operating expenses were $95.2 million for the second quarter of fiscal 2025 compared to $88.8 million in the prior year period. The year-over-year increase of 7.2% was led by acquisitions that we've executed in the last 12 months. This year's second quarter operating expenses also included a $1.5 million non-cash impairment expense related to certain assets in our European segment. Floor plan and other interest expense was $13 million as compared to $3.7 million for the second 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's acquisition.
Speaker Change: Now we have much more clear order boards shorter lead times and...
Speaker Change: Secondly, we have not placed an order for inventory stock in over six months.
Speaker Change: However, what we've been facing in the end of last year, all throughout this year is finished working through those orders that in many cases were placed back in 2022.
Speaker Change: And so we are now just starting to receive the last of those orders. So now it can actually start to plan the business accordingly. And the task at hand is very clear now as we...
Speaker Change: Just have to work through what we've got and we don't have any more of these old orders if you will that were placed before things started changing coming in to deal with and work through.
Bo Larson: Gap reported net loss for the second quarter of fiscal 2025 was $4.3 million or a 19 cents loss per diluted share and compared to last year's second quarter net income of $31.3 million or $1.38 per diluted share. The current quarter's reported net income includes $11.2 million or $36 per diluted share impact related to the one-time non-cash sales lease back financing expense we incurred in the quarter. Excluding this impact, net income on an adjusted basis was $4 million or 17 cents per looted share.
Speaker Change: Yeah, and then maybe a little bit more color. So as I talked about in the opening comments, we're about 1.3 billion in total equipment inventory.
Speaker Change: You know, roughly speaking, call it 900 million would be a good targeted level, that would assume about a 2.5-times turn on the domestic side and then there's some regional differences in terms of how that shakes, but so call that about a $400 million difference as we look through the rest of the year.
Speaker Change: You know, working towards executing on and achieving close toward a hundred million dollar decrease for the year.
Speaker Change: We've been about $300 million to go. We'll have to provide more commentary at the end of the year in terms of what the next year really looks like. But I mean the idea to be able to get to those target levels by the end of next fiscal year, I think is a good base point for us.
Bo Larson: Reported net income for this year's second quarter also includes a $2.7 million gain related to the completion of a new market tax credit program, which was anticipated and included in our forecast throughout the year. As we mentioned previously, the lease accounting expense reflects our entering into agreement for the future purchase of 13 of our lease facilities on expiration of the current leases. The purchase closing date for each lease facility will occur on or before the expiration of the respective lease, all of which expire over the next several years through calendar year 2030.
Speaker Change: You know, I just as a comparison looking back in history.
Speaker Change: If we went back to the last downturn in FY-14, so at the end of FY-14.
Speaker Change: By the time we got to FY16, we drove an inventory reduction of about $350 million.
Speaker Change: So about $50 million less than we're talking about here. And what we're talking about doing is being more proactive, right, in driving that 50 million incremental change in an 18-month period of time instead of a 24-month period of time.
Bo Larson: While the initial impact of this purchase agreement temporarily reduces gap reported earnings, this is a non-cash expense and I'd like to emphasize that the transaction is financially strategic and supports the company's long-term customer care strategy by investing in facilities and shop space required for continued growth in our high margin parts and service businesses.
Speaker Change: So, yeah, it's something that we've done in the past, we know the playbook to execute and that's the guidance I would give you today and we'll certainly provide more color on that as we have progressed through this year and then as we set the stage for guidance for next year.
Speaker Change: Okay, and I'm going to just skip my last question. It's irrelevant. Thanks for the time. Talk to you soon.
Bo Larson: Now turning to a brief overview of our segment results for the second quarter. In our agriculture segment, sales decreased 9.6% to 424 million dollars, which included a same-store sales decline of 11.2% in the second quarter. Agriculture's segment adjusted pre-tax income with $6.7 million and compared to $33 million in the second quarter of the prior year. This adjusted figure excludes $6.1 million of non-cash sales lease back financing expense that I mentioned previously.
Speaker Change: Our next question comes from Meg Dobre from Bad, please proceed.
Meg Dobre: Good morning, I guess I'd like to maybe just start with a couple of points of clarification about the quarter itself. So two items here, if I'm looking at the margin in, in, in, in,
Meg Dobre: Rental and other the gross margin there was...
Speaker Change: quite a bit lower than we had in the prior year, and I'm trying to understand what's happening with that sub-segment and how you see that progressing going forward. And also related to the quarter, we've seen a higher level of other expense.
Bo Larson: The underlying year-to-year decrease in profitability reflects the softer retail demand environment, which manifested in lower equipment sales, lower equipment margins, higher inventory levels, and higher floor plan interest expense. In our construction segment, same-store sales declined 3.2% to $80.2 million versus an increase of 18.5% in the prior year. We are generally seeing year-over-year stability in this segment. However, supply chain catch-up has driven inventory levels higher for both the construction industry as a whole and for Titan.
Speaker Change: I think it's north of a million if I'm not mistaken and I'm kind of curious as to what that line I have specifically and how that plays out in the back out.
Speaker Change: Yeah, not appreciate the question and the chance to clarify that. That's 7 million is essentially for all intensive purposes.
Speaker Change: It's the net of the $11.2 million cell lease back expense netted against that.
Speaker Change: 3.5 million dollar new market tax credit completion. So that gets you to that 7 million and really there shouldn't be a significant amount of activity in that account otherwise. So that's what you're seeing there.
Bo Larson: So we are proactively managing inventory down the targeted levels and are seeing margin compression in this segment as well. Adjusted pre-tax income for the segment was $0.2 million, which compares to pre-tax income of $5.2 million in the second quarter of the prior year. This adjusted figure excludes $5.1 million of non-cash sales lease back financing expense that I mentioned previously. In our Europe segment, sales decreased 24.8% to $68.1 million, which included a same-store sales decline of 27.7% versus 15.9% growth in the prior year.
Speaker Change: from the margin of perspective on the rental and other side. I would say, probably similar to what you've seen elsewhere. Rental fleet utilization is certainly downforce this year. It's something that we're focused on in managing fleet size.
Speaker Change: and we would expect that persists through the back half of this year. Again, we're doing similar things to what you've heard others in industry. We'll probably work to manage the fleet down somewhat as we finish developing our outlook as we get into next year as well.
Bo Larson: Severe drought conditions in Eastern Europe started to impact retail demand in the back half of last year. These subdued demand levels have persisted through the first half of fiscal 2025, and we expect that to continue through the rest of this fiscal year. Pretax last for the segment was $2.3 million, which compares to $5.6 million income in the second quarter of fiscal 2024. The current year's second quarter results for Europe include approximately $1.5 million of non-cash impairment expense related to certain assets.
Speaker Change: And why is it that your utilization is down at rental? Can you remind me if you've experienced a significant increase in fleet?
Speaker Change: or other factors here.
Speaker Change: Fire, our fleet is basically flat.
Speaker Change: So, it's purely a function of the physical utilization make.
Speaker Change: So just in that tide, you know, directly to the softening in the construction industry, you know, softening in residential and warehouse and some of the areas other areas that especially our rental business really plays.
Bo Larson: Excluding these impacts, Pretax last for the segment was $0.8 million in the second quarter. The underlying year of year decrease in profitability reflects similar dynamics, as I just mentioned, with our domestic egg segment regarding the softer retail demand environment, higher inventory levels, and higher floor plan interest expense. In our Australia segment, sales were $61.3 million, and Pretax income was $1.4 million.
Speaker Change: You know, good news about the rental sector for us is it can be a very high margin business and very much a function of utilization. So a slight dip in utilization can lead to a pretty big swing in margin and vice versa.
Speaker Change: just really got to keep pushing and keep the machines out there working on the job sites. But that's what you'll typically see when there's a softening. Our contractor customers have their core fleets.
Bo Larson: This segment is facing very similar customer and customer dynamics as our domestic egg segment, but with a substantial mix of pre-sales, which is helping maintain sales figures similar to the prior year comparative period, which was pre-acquisition.
Speaker Change: and when things really swing up quicker or stronger economy, that's where they really rent and then as it's often they pull back in and use their core fleets and so I think you're seeing some similar swings with the United and some belts of the world.
Bo Larson: Now on to our balance sheet and inventory position. We had cash of $31 million and adjusted debt to tangible network ratio of 1.8 times as of July 31, which is well below our bank covenant of 3.5 times. Regarding inventory, we believe that our equipment inventory level has recently peaked at approximately $1.6 million. This aligns with our expectation from the beginning of the year regarding the normalization of lead times from our OEM partners and the timing of order arrivals.
Speaker Change: So that, and I think he's pretty much got it covered there, but underlying that, right, is the rental is largely a construction. It's been a set of rental fleet sizes about 80 million and it's pretty much flat.
Bo Larson: We expect to begin demonstrating the results of our inventory reduction actions in the back half of this year, with inventories moving modestly lower in the second half of this fiscal year, before we realize more substantial decreases in fiscal 2026.
Speaker Change: Very helpful up.
Speaker Change: May you go and back to the equipment inventory discussion. Appreciate the color in terms of how you see progression down a hundred million in a backpack and then more work to do in fiscal 26th.
Speaker Change: But I'm sort of curious to see why we're only seeing a hundred million of Vimden Tori that here. Can you?
Speaker Change: Can you maybe help me understand?
Bo Larson: With that, I'll finish by reviewing our fiscal 2025 full-year guidance, which we recently updated concurrent with our pre-announcement on October 15 to account for our second quarter performance, our latest view on industry environment, and to account for the one-time non-cash sales lease back financing expense we recognized in the second quarter. Current market conditions characterized by lower commodity prices, sustained high interest rates, and mixed growing conditions across our footprint have negatively impacted farmer sentiment.
Speaker Change: What's going on with the shipment that you're getting from the OEM in the back after this year?
Speaker Change: You know, related to this, the margin compression is you talk about is pretty notable on a relatively small inventory decline.
Speaker Change: What is it that you actually have to do to generate this inventory decline, such as it is in the back half of fiscal 2018?
Speaker Change: Yeah, so in terms of...
Speaker Change: I'll make sure that we address both of those points, right? But in terms of how this plays out, right?
Bo Larson: This resulted in noticeably softer retail demand in the second quarter, compared to the expectations we shared during our first quarter earnings call. Given the current backdrop, we now see these more subdued demand levels persisting throughout the rest of the fiscal year. As such, for domestic agriculture, our revenue assumption is in the range of down 5 to 10%, which includes the full-year contribution from our Scott supply acquisition, which closed in January of 2024.
Speaker Change: At the beginning of the year, we talked about the orders that we had placed going back in time, Brian earlier mentioned on the X.
Speaker Change: Extension and then compression lead time. So, I think we're all familiar with that. But in March, if you go back and listen to the call, we talked about projecting forward, based on receiving those orders that we had already replaced, placed.
Speaker Change: Inventory increases in Q1 and Q2, and then we'd start to see an inventory decrease in the back half of the year. But first half of the year, pretty much played out how we had expected, you know, despite the revenue miss.
Bo Larson: For the Europe segment, our assumption is for revenue to be down 12 to 17%. And for the Australia segment, we expect fiscal 2025 revenue to be in the range of 230 to 250 million dollars. Each of these segment assumptions reflect the more challenging environment we're facing, partially offset by our efforts to stimulate demand. Despite these headwinds, we expect we will continue to see growth in our service business in the high single-digit range for the full physical year.
Speaker Change: Back half of the year, right? We're going to finish, and the Q3 we're going to finish receiving kind of the rest of the orders that were placed previously, and then you really start to see that tail off. So what we'll be doing right is we'll be selling through that new equipment that we've received in the first half of the year and Q3, a lot of which is...
Speaker Change: Presoul, but you got to receive it and deliver it. Once you receive in that new, you sell it.
Bo Larson: For the construction segment, our updated assumption is for revenue to be flatish in the range of down 2.5% to up 2.5%, which similarly reflects a more cautious outlook than our prior assumptions, given the overall macroeconomic environment but generally stable compared to the prior year.
Speaker Change: You get a used trade-in. Once you sell that used, you get a used trade-in, right? So there's a bit of an effect where we'll see our new...
Speaker Change: Hold Goods, decrease more substantially, then the numbers we're prescribing here, but we're going to see that partially offset by an increase in use equipment, which is typical for us as you move into a downward portion of the cycle, right, and then for...
Bo Larson: Now for some broader commentary. From a gross margin perspective, we remain committed to improving our inventory position, particularly in use equipment, given the excess supply of inventory in the channel and software equipment demand, we are now building in expectations for further equipment margin compression, such that our updated assumptions for consolidated equipment margins are approximately 540 basis points lower in the back half of this year as compared to the back half of last fiscal year.
Speaker Change: You know, the next two years that used sales will be a larger portion of our equipment next.
Speaker Change: as you work through that and then get everything normalized in back to targeted levels. So that's exactly how it's going to play out and there's a bit of a two-stage effect to that. And I'm that sort of also answers, you know, why don't you see him more...
Speaker Change: described decrease in the back half of the year. Well, you know, going into the year, we would have, right? But certainly our latest guidance has taken quite a bit of sales out of the back half of the year. So assuming that that new outlook, that's why you're not seeing a larger decrease.
Bo Larson: For comparison, consolidated equipment margins were approximately 330 basis points lower in the first half of this year compared to the first half of last fiscal year. We now anticipate equipment margins for our domestic ag business to approach the historical lows we realized in fiscal years 2016 and 2017. While this will impact our short-term performance, we believe this approach to managing inventory will shorten the duration of this downturn compared to the previous cycle. Regarding operating expenses, we are focused on implementing cost controls where we can, optimizing resources and being vigilant with any headcount decisions. Our guidance now applies operating expenses to be about 14.4% of our revised sales outlook.
Speaker Change: Yeah, I know interesting, I would just add two of you. It's a function of the lead times very much as well. So we were dealing with unprecedented record-long lead times and so...
Maggie: You always they mention Maggie, just got a...
Speaker Change: You also have to work through these orders that have been coming in all year, since you shut the faucet off. So basically add that to it, you know, and that's what's all they did to our modeling and we've got...
Oliver Ementoria: Oliver Ementoria, aggressively priced, and that's also vacant, you know, that's in the modeling, the margin modeling as well. So we feel positioned very well to...
Bo Larson: Moving to interest expense. Given our revised revenue expectations and the commensurate impact on inventory levels that we are working to improve, we are incurring higher floor plan interest expense than previously anticipated. Although we continue to expect that improved industry terms will provide a tailwind for interest expense in the back half of the year, we believe this benefit will be more than offset by the industry dynamics at play and it will take more substantial decreases in inventory as we progress through next fiscal year before we begin to see more normalized levels of floor plan interest expense.
Oliver Ementoria: to hit the task at hand and hit our timeline goals that we have.
Speaker Change: And to your point, and unfortunately because of those long lead times and the orders said I'll add to that to come in after we've started down this path, it just takes longer than we all want.
Speaker Change: That'd be in the case as we're looking at Calon Bear 25 or in your case in your fiscal 26.
Speaker Change: You're basically saying that the bulk of your inventory, normalization is going to occur again, right? So it's going to occur next year. But you're already experiencing pretty significant margin pressure this year in the back after 25.
Bo Larson: Our assumption from floor plan and other interest expense for the full year is now approximately $47 million and compares to approximately $21 million in fiscal 2024. Taking all of these factors into account, our guidance for fiscal 2025 gap deluded earnings per share contemplates a range between a loss of 36 cents to earnings of 14 cents on an adjusted basis excluding the 36 cent non-cash impact of the sales lease back financing expense recognized in the second quarter which was not originally contemplated in a mildly assumption.
Speaker Change: So I guess the question is, if most of the D stock is happening in fiscal 26th.
Speaker Change: Shed Investor is expect.
Speaker Change: Further margin compression in 26, because frankly that's what most of your D stock is actually going to happen.
Speaker Change: I think that the dynamics will have in terms of needing to work targeted inventory down, you know, what we have in the back half of the year, persists into next year, right? But the biggest.
Bo Larson: We expect adjusted deluded earnings per share to be in the range of break even to 50 cents. We believe the decisive actions we are taking with respect to managing inventory will help shorten the impact of this cycle on our performance, potentially accelerating to our return of a more normalized margin profile, and that is what we are focused on delivering.
Speaker Change: Move this going to make in terms of the decrease in inventory is actually going to be less coming in at the top. So I think we'll see similar, you know, right now and we're not providing guidance for next year. But right now what I would prescribe is margins we're seeing in the back half of the year. Basically, it's assumed that those carry forward into next year and tell we...
Bo Larson: This concludes our prepared comments, operator, we are now ready for the question and answer session of our call. Thank you.
Speaker Change: Shall we see more of that inventory, the climb, but generally speaking.
Speaker Change: I would suggest it would be similar to what we're guiding to as opposed to more compressed.
Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment please while we pull for questions.
Speaker Change: and again, we're going to see a lot of the inventory decline next year come on the back of simply less substantially less inventory coming our way.
Operator: Thank you.
Speaker Change: and will really be focusing on that same population of use equipment, a good portion of which we'll already have in our inventory and price right here before we exit the year.
Speaker Change: Okay, last question for me. In terms of the orders that you're placing today with the OEM, given the circumstances and the industry that we already covered here.
Ted Jackson: Our first question comes from Ted Jackson from Northland Securities. Please proceed. Thanks very much. Two questions. My first question is just with regards to ag spending and seasonality. When you look at the second half of 24, do you think that it is likely that we will still see some level of flush or spend in the fourth quarter as is in a typical seasonal pattern? Are you thinking that the market is so challenged that we will not see that kind of seasonal flush that we typically get? That is my first question.
Speaker Change: are any of these orders.
Speaker Change: Ordering that are, you know, for your inventory or...
Speaker Change: Do you actually have a customer name associated with each one of these orders that you're placing? And again, these are orders that you're placing today for future delivery sometime into fiscal 20th takes or whenever.
Speaker Change: Yeah, very much a customer name, an extremely minimal amount make of stock units for loaner purposes to keep customers going in some demo units.
Speaker Change: Much, much less than any other year we would do. So the great majority of them are all pre-selled customer name. We're just not.
Bryan Knutson: Thank you, Ted. Good morning. We are still anticipating fourth quarter spending here by farmers and contractors. They see how the years shaped up meet with their accountants. As we go back to those very crop conditions that we talked about, certain areas of our footprint, if you look in the western half of South Dakota, all throughout Nebraska, pockets of Minnesota and North Dakota and Iowa, there are really, really good yields. So those farmers, even with the subdued prices, will have some spending needs as well and we will be looking to update some equipment.
Speaker Change: Ordering units for stock or display or for the walk-in sale, any of the stock units where ordering are extremely limited and very intentional again with the purpose of keeping customers going.
Speaker Change: And I think you heard that clearly and you asked a good clarifying question. I'm just to emphasize that, we're absolutely still focused on generating pre-selectivity. And that's what we always want to be leading on. So we're going to continue to place pre-sellers that have a customer's name on them and we have been throughout the year.
Speaker Change: and it was as Bryan mentioned and then you're asking about here, it's the stock side of things that we really pulled back on and there's little to no activity there. All of that kind of comes together right in the stock is what you get targeted and we'll take down as we progress through the next 18 months.
Bryan Knutson: Also because of the supply constraints that we had, a lot of those growers weren't able to update certain equipment the past couple of years. So those growers that do get the yields, we will see some traditional good purchasing from them. But subdued to the levels that we've got in the modeling here. So I think the trend, the timing patterns will be very similar, but just yes, definitely lower than normal purchases here towards the end of the year.
Speaker Change: And then, I'll just go back to one more thing on your margin question, really, you know, a function of...
Speaker Change: Order's coming in as, as, come, banked up against the inventory reduction targets.
Speaker Change: And so if you look at what we've done and what we've got baked into the back half of this year, we've been out painting the industry and we've needed to because of those legacy orders that are coming in.
Bryan Knutson: So as you take a look at the guidance and then look at the back half of the year in terms of what's implied. As he said, he's now very similar there. So if you drill down to our domestic ag business specifically, we've got a full year total equipment sales being down about 11%. And the first half of the year, that was down about 4%. But again, we were coming into the year with a lot of pre sales there, right?
Speaker Change: and so as we transition into next year because we haven't placed these stock orders and we don't have those legacy orders coming out to deal with, we can now start to tell in line with the industry and...
Speaker Change: Also, you'll not have that margin pressure that we have from all peace in the industry and still work our inventories down further.
Bryan Knutson: So we're essentially applying about a 15% decrease in the back half of the year, which is a little bit more of a decrease than we saw in the second quarter, but not significantly. So kind of stabilized at this point in terms of year over year comps, but the cyclicality and timing of purchases, remains. Okay, my next question is just on inventory and so actually I thought it was good news to hear that you think you're at peak inventory and you'll start to see that come down and with it accelerating in 25.
Speaker Change: Thank you for taking my questions.
Meg Dobre: Thank you, Meg.
Speaker Change: Our next question comes from Ben Kleeve from Lake Street Capital Market. Please proceed.
Ben Kleeve: Thanks for taking my questions. A couple from me. First of all, one more on the equipment margin front. You know, you talk about, come on, explicit focus on, on your inventory control being one of the contributing factors to margin compression. I'm wondering if you can kind of talk about the range of equipment margins, you know, from maybe those categories that you are, you know, kind of almost intentionally driving down in the current environment.
Bryan Knutson: When you look into your crystal ball and I'm sure it's sharp and clear like a high definition television, when do you think you can get your inventory? Is that something that we could expect to see before we get you know by the second half of 25 or is that something that's going to take longer than actually do it one more behind this?
Speaker Change: on the high end of the categories that are much more balanced from the supply demand perspective, perhaps from the precision side. It's a range of margins and equipment, material expanding as a high end staying firm or using compression really across the board throughout your product line.
Bo Larson: Yeah, I'll let both take that one.
Speaker Change: Yeah, uh...
Speaker Change: Sure, thanks Ben. It's, you know, it is generally across the board on the equipment.
Bryan Knutson: But maybe just to set the stage, you know, a couple of points that are now working into our rear view mirror is leading up to this. You look at just the unprecedented confluence of abnormal factors that that came together to lead to this inventory spike, you know, driven by the COVID supply chain issues, the plant strike at C&H, which all led to record long lead. And really in my nearly two dozen years of doing this, the most unpredictable order boards, you know, over the past 18 months or more that we had.
Speaker Change: however, you know again I go back to it's a function of which which
Speaker Change: specific product categories were a little longer on is where we're being more aggressive to outpace the market so depending on what degree we need to outpace the market to reduce those faster there is a little more margin compression in those categories and then
Speaker Change: Theotypicallyer, your higher cash crop products would have.
Speaker Change: you know, a lower margin percentage.
Speaker Change: but hired a dollar ticket item, so hired dollars overall. And then third is just, there are still, again, I go back to the...
Bryan Knutson: So now we have much more clear order boards shorter lead times. And secondly, we have not placed an order for inventory stock in over six months. However, what we've been facing in the end of last year all throughout this year is finished working through those orders that in many cases were placed back in 2022. And so we are now just starting to receive the last of those orders. So now can actually start to plan the, you know, the business accordingly.
Speaker Change: A amount of inventory in a category. So there are still some products that, you know, we're really underproduced that are still in demand and, you know, still seeing some decent margins on some of those product categories.
Speaker Change: So we're being very prescriptive on that. And again, really looking at every product category, every bucket, and being more aggressive, certainly in some areas than others depending on how quickly we need to help pace the market here.
Bryan Knutson: And the task at hand is is very clear now as we just have to work through what we've got. And we don't have any more of these old orders, if you will, that were a place before things started changing coming in to deal with and work through.
Speaker Change: and you are asking a little bit on the precision side and I think we alluded to it a bit, certainly, you know, automation, continued precision technology that's
Speaker Change: Help drive inefficiencies and profitability for farmers is something that is a net positive in terms of driving purchasing decisions.
Bo Larson: Yeah, and then maybe a little bit more color. So as I talked about in the opening comments were about 1.3 billion in total equipment inventory. You know, roughly speaking, call it 900 million would be a good targeted level. That would assume about a 2.5 times turn on the domestic side. And then there's some regional differences in terms of how that shakes. But so call that about a $400 million difference. As we look through the rest of the year, you know, working towards executing on and achieving close toward a $100 million decrease for the year, leaving about $300 million to go.
Speaker Change: and we see you really good take rates on that, I'm that.
Speaker Change: You know, relative dollars wise to the whole good equipment themselves, you don't necessarily see it as much in what we're talking about here. But it's absolutely a positive factor. I'm not something that's going to continue to grow as we progress over the next several years, just like all the OEMs have alluded to.
Speaker Change: Very good. Okay, that's very helpful. And one of the one for me, you know, it's good to see, you still being so optimistic about the state of a service business, wondering in this kind of weak, you know, the kind of impact of, you know, this, this economy is on that business, both in terms of, you know, are you seeing farmers, you know, in any way, you know, left compelled to outsource.
Bo Larson: We'll have to provide more commentary at the end of the year in terms of what next year really looks like. But I mean, the idea to be able to get to those targeted levels by the end of next fiscal year, I think is a good base point for us.
Bo Larson: You know, I just as a comparison, looking back in history, if we went back to the last downturn in FY 14. So at the end of FY 14, by the time we got to FY 16, you know, we drove an inventory reduction of about $350 million. So about $50 million less than we're talking about here. And what we're talking about doing is being more proactive right in driving that $50 million incremental change in an 18-month period of time instead of a 24-month period, at the time.
Speaker Change: Service, you know, and is this at all a benefit for you in, you know, securing much-needed labor, you know, given the, you know, given the challenging environment that, you know, that individual are facing come throughout the ag economy.
Speaker Change: Yes, yes. So, yeah, then it's, you know, certainly their mindset and their bankers mindset is to spend as little as possible right now so they are not wanting to do as much in repairs. However,
Bo Larson: So, yeah, it's something that we've done in the past since we know the playbook to execute and that's the guidance I would give you today and we'll certainly provide more color on that as we progress through this year and then as we set the stage for guidance for next year.
Speaker Change: They're certainly mindful of the stakes or so high, the planting windows and the harvest windows are so short Construction side, you know, the job sites, one piece of equipment goes down, can tie everything up and the deadlines and the penalties And so, again, downtime is...
Speaker Change: So expensive for them and they get that and we've really, um
Speaker Change: You know, done a great job partnering with our customers and they really see the value in us working with them on that.
May Dobre: May Dobre from Baird, please proceed. Good morning. I guess I'd like to maybe just start with a couple of points of clarification about the quarter itself.
Speaker Change: and that combined with, you know, for quite a few years now we have not.
Speaker Change: been able to keep up in our shops and that's why we've had such a push to add technician. So even if it falls off a little bit, our shops are still generally really full across the board.
Bo Larson: So, two items here. If I'm looking at the margins in rental and other, the gross margin there was quite a bit lower than what we had in the prior year and I'm trying to understand what's happening with that sub segment and how you see that progress and going forward and also related to the quarter. We've seen a higher level of other expense. I think I think it's north of 7 million if I'm not mistaken and I'm kind of curious is to what that line item is specifically and how that plays out in the back.
Speaker Change: and then third is a general economy, has tightened and you've seen some changes in the job markets.
Speaker Change: and the unemployment rates and so on. That has helped. We are getting some additional applicants.
Speaker Change: You combine that with the actions that we're doing and Titan, we've got the...
Speaker Change: You know, first-ever diesel camp program which has been huge success.
Speaker Change: First internship program in our industry, we've got our student-tech sponsorship program that's been, we pioneered this been industry leading that's led to about 80 new technicians for us this year.
Bo Larson: Yeah, now I appreciate the question and the chance to clarify that that 7 million is essentially for all intensive purposes. It's the net of the 11.2 million dollar sales lease back expense netted against that three and a half million dollar new market tax credit completion. So, that gets you to that 7 million and really there shouldn't be a significant amount of activity in that account otherwise. So, that's what you're seeing there.
Speaker Change: We've got the first ever accredited federal apprenticeship program in our industry, which we're getting a lot of good candidates in there, and so we're really starting to see some of the fruits of our labor there, and that's been our biggest constraint to our service revenues.
Bo Larson: From a market perspective on the rental and other side, I would say probably similar to what you've seen elsewhere rental fleet utilization is certainly down for us this year. It's something that we're focused on in managing fleet size and we would expect that persist through the back half of this year. Again, we're doing similar things to what you've heard others in industry will probably work to manage the fleet down somewhat as we finished developing our outlook as we get into next year as well.
Speaker Change: So, we feel optimistic again about that being a long-term growth initiative for us. And again, the customer just really see the value of it because the down time is so critical.
Speaker Change: Got it, it's very helpful. I'm very good at what appreciate you taking my questions. That's a lot here in the back half of the football year and I'll get back to you.
Speaker Change: Our next question comes from Alex Ragle from B-Riley Securities. Please proceed.
men: Hi there, good morning, this is actually men on for Alex. Just a couple of quick questions, I dare. Just first, I know this will probably come out in the queue, but what was the average rate on your floor plan financing?
Bo Larson: And why is it that your utilization is down at rental? Can you maybe remind me if you've experienced a significant increase in fleet or are there other factors here? Our fleet is basically flat so it's purely a function of the physical utilization make. So, just in that tide directly to the softening in the construction industry, softening and residential and warehouse in some of the areas other areas that especially our rental business really plays.
Speaker Change: in the quarter.
Speaker Change: Yeah, I mean, it's roughly 7.5, 7.45.
Speaker Change: Okay.
Speaker Change: And also, just given that you were the largest CNH kind of dealership, do they provide you or have they in the past provide you with any additional confession in a down market like extending the non-interest bearing timeframe or just anything there? I know, you know, you guess I might obviously have strong relationship with them.
Bo Larson: Good news about the rental sector for us is it can be a very high margin business and very much a function of utilization. So, a slight dip in utilization can lead to a pretty big swagon in margin and vice versa. So, it's just really got to keep pushing and keep the machines out there working on the job sites. But that's what you'll typically see when there's a softening are contractor customers have their core fleets.
Speaker Change #100: Yeah, you know, seeing each certainly wants to see their dealers healthy and to see their dealers be able to perform through this down cycle and...
Speaker Change #101: You'll be able to reinvest in the business and again, stay strong and profitable and healthy. So, yeah, they certainly partner with us where they can.
Speaker Change #101: and help us out with exactly the levers that you mentioned. Our good examples, things like helping with floor plan interests or extended terms.
Bo Larson: And when things really swing up quicker or stronger economy, that's where they really rent. And then as it softens they pull back in and use their core fleets. And so, I think you're seeing some similar swings with the United and some belts of the world. So, I think he's pretty much got it covered there, but underlying that right is the rental is largely a construction business and our rental fleet size is about 80 million and it's pretty much flat.
Speaker Change #101: and partnering together on financing programs, etc. Yeah, and ultimately big picture, right? The win-win is to get inventory sold through in-game production.
Speaker Change #101: I'll be in the next step.
Speaker Change #102: I think what he's focused on, so we were also alluding earlier in the comments, you know, a lot of focus on providing financing for customers to drive that pull through, which is really what we want.
Bo Larson: Very helpful, maybe going back to the equipment inventory discussion, appreciate the color in terms of how you see progression down 100 million in a back half and then more work to do in fiscal 26. But I'm sort of curious to see why we're only seeing 100 million of inventory decline here. Can you maybe help me understand what's going on with the shipment that you're getting from the OEM in the back half of this year and related to this, the margin compression as you talk about is pretty notable on a relatively small inventory decline.
Speaker Change #103: Excellent. Also, in terms of your cost cutting initiative, I understand that you've cut a lot of costs in the last, last downturn. But can you quantify how much cost you're looking to take out, maybe in this fiscal year or the next, and are you considering any debesters at this point?
Speaker Change #104: And so from an overall expense perspective, you know, if you set Australia to the side
Speaker Change #105: We will have our forecast assumes about 2% increase in optics year over year, about $8 million and that's still even includes you know.
Speaker Change #106: our Scott supply acquisition and we're at which added a couple million dollars. So generally speaking we're saying...
Speaker Change #106: were flat year over year. You know, when you think about our cost structure, so much of our opx is people.
Bo Larson: What is it that you actually have to do to generate this inventory decline, such as it is in the back half and fiscal 25. Yeah, so in terms of a mixture that we address both of those points, right? But in terms of how this plays out right is at the beginning of the year we talked about the orders that we had placed going back in time, Brian earlier mentioned on the extension and then compression lead time.
Speaker Change #106: and our people aren't focused on producing equipment, right, with the producing our people are focused on selling the equipment that we have in providing the customer service and support. So we have some different dynamics that play than the OEMs do.
Speaker Change #106: and we want to make sure that we're maintaining that staff, but certainly we've got a sharp pencil, any discretionary spending.
Speaker Change #106: has certainly been whittled down and will continue to keep a tight eye on that, hiring. We're also looking at very closely and generally speaking, managing ahead count down somewhat.
Bo Larson: So I think we're all familiar with that. But in March, if you go back and listen to the call, we talked about projecting forward based on receiving those orders that we had already replaced, placed inventory increases in Q1 and Q2, and then we'd start to see an inventory decrease in the back half of the year. But first half of the year pretty much played out how we had expected, you know, despite the revenue miss back half of the year, right?
Speaker Change #106: as we progress through, say, the next 18 months, again, depending on where the industry continues to go. But not, no big moves there. We'll get better guidance on topics for next year as we get through the rest of this year.
Bo Larson: We're going to finish and the Q3, we're going to finish receiving kind of the rest of the orders that were placed previously and then you really start to see that tail off. So what we'll be doing right is we'll be selling through that new equipment that we've received in the first half of the year and Q3, a lot of which is pre sold, but you got to receive it and deliver it.
Speaker Change #107: That kind of lays the ground for a young while we're focused on, and I just wouldn't to expect some
Speaker Change #108: Drastic change there. You know, we need to continue to drive. We're seeing that high single digit growth in our service department. We need to continue to lean into our people in order to get that done. And so that's what I would say on operating expenses.
Bo Larson: Once you receive in that new, you sell it, you get to use trade in. Once you sell that used, you get to use trade in, right? So there's a bit of an effect where we'll see our new whole goods decrease more substantially than the numbers we're prescribing here, but we're going to see that partially offset by an increased and used equipment, which is typical for us as you move into a downward portion of the cycle, right?
Bo Larson: And then for, you know, the next two years that used sales will be a larger portion of our equipment mix as you work through that and then get everything normalized and back to targeted levels. So that's exactly how it's going to play out and there's a bit of a two-stage effect to that. And that sort of also answers, you know, why don't you see a more prescribed decrease in the back half of the year?
Speaker Change #109: Okay, no, that definitely makes sense and it also can you just remind us what percentage of your construction segment revenue comes from non-agriculture-related and the fails and rentals.
Speaker Change #110: Hey, just over half.
Speaker Change #111: Okay, and that's obviously the segment where you're somewhere you're still seeing some stability and hopefully some growth kind of going into fiscal 26 given all the infrastructure spending that hopefully will kind of start at that point.
Speaker Change #112: Yeah, yep.
Speaker Change #113: All right, that's it for me. Thank you very much.
Speaker Change #113: Thanks!
Speaker Change #113: Our next question comes from Steve Dyer from Craig Hallum. Please proceed.
Bo Larson: Well, you know, going into the year, we would have, right? But certainly our latest guidance has taken quite a bit of sales out of the back half of the year. So assuming that that new outlook, that's why you're not seeing a larger decrease. Yeah, I would just add to you, it's a function of the lead times very much as well. So we were dealing with unprecedented record long lead times. And so, you know, as I mentioned, Meg, you just got to, you also, we also have to work through these orders that have been coming in all year since you shut the faucet off.
Matthew Robb: Hi guys, this is Matthew Robb on First Steve, just one question on the P&S business. Thanks for the color on the service growth. Is that just second half or is that for fiscal year 25? And then secondly, any outlook for the parts business?
Speaker Change #115: Yeah, so no, I mean, we saw good service growth in the first half of this year as well.
Speaker Change #116: 2nd half is a bit of a repeat of what we saw in Jeff to clarify as well. Right, those growth assumptions are more of the same story.
Speaker Change #117: Basis, so Australia obviously had their own component as well. So now I mean, it's everything we've been building up on and talking about customer care strategy. It's driving increase in service tax. It's the focus on providing best.
Bo Larson: So basically add that to it, you know, and that's what's all baked into our modeling and we've got... You know, all of our inventory are aggressively priced and that's also baked in, you know, that's in the modeling, the margin modeling as well. So we feel positioned very well to hit the task at hand and hit our timeline goals that we have. And to your point, unfortunately, because of those long lead times and the orders that I'll add to that that come in, you know, after we've started down this path. It just takes longer than, than we all want.
Speaker Change #117: in class customer service and support. It's the people that we have in the field. It's making sure that we have the right parts.
Speaker Change #117: It's everything that the company has been working on for years that will continue to pay dividends.
Speaker Change #117: For the long term, and that's what we're really excited about, regardless of where you're at in the cycle, what we'll be able to deliver for our customers, and then ultimately what that means for our shareholders as we go forward.
Speaker Change #118: Yeah, it was kind of a good affirmation to see recently one of our competitors has laid out that one of their top three initiatives on the part side.
Bo Larson: Is that being the case as we're looking at calendar 25 or in your case, your fiscal 26, you're basically saying that the bulk of your inventory normalization is going to occur then, right? So it's going to occur next year. But you're already experiencing pretty significant margin pressure this year in the back half of 25. So I guess the question is, if most of the D stock is happening in fiscal 26 should investors expect further margin compression and 26 because frankly, that's what most of your D stock is actually going to happen.
Speaker Change #118: and especially to increase their...
Phil Rateson: They're Phil Rateson and have the parts in the right place at the right time and that's actually exactly one of the components of our customer care strategy that we've been aggressively going after here for quite a few years now and we're really starting to see the fruits of that.
Phil Rateson: and as I look at you know the industry numbers.
Art Corner: Art Corner Phil for St. Joseph's Earth.
Art Corner: are higher than what has been laid out and so industry leading there and that's our customers are really seeing the benefits of that too. So it's starting to pay off starting to get a reputation for having the right part and...
Bo Larson: Yeah, I think that the dynamics will have in terms of meeting to work targeted inventory down, you know, what we have in the back half of the year persists into next year, right? But the biggest move that's going to make in terms of the decrease in inventory is actually going to be less coming in at the top. So I think we'll see similar, you know, right now and we're not providing guidance for next year, but right now what I would prescribe is margins were seeing in the back half of the year.
Speaker Change #121: You know how been the parts on hand for them and competitive pricing too.
Speaker Change #122: Okay, thanks guys.
Bo Larson: Base cases, you assume that those carry forward into next year until we tell we see more of that inventory decline, but generally speaking, I would suggest it would be similar to what we're guiding to as opposed to more compressed and again, we're going to see a lot of the inventory decline. Next year come on the back of simply less substantially less inventory coming our way and we'll really be focusing on that same population of used equipment, a good portion of which we'll already have in our inventory and priced right here before we exit the year.
Speaker Change #123: This concludes our question and answer session. I would like to turn the floor back to management for closing remarks.
Speaker Change #124: Thank you for your interest in Titan, and we look forward to updating you with our progress on our next call. Have a great day everyone.
Speaker Change #125: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Bo Larson: Okay, last question for me in terms of the orders that you're placing today with the OEM given the circumstances in the industry that we already covered here. Are any of these orders orders that are, you know, for your inventory or do you actually have a customer name associated with each one of these orders that you're placing. And again, these are orders that you're placing today for future delivery sometime into fiscal 26 or or whatever.
Bo Larson: Very much customer name of an extremely minimal amount of stock units for, you know, loaner purposes to keep customers going and some demo units, but. Much, much less than any other year we would do so that the great majority of them are all presale customer name we're just not ordering units for stock or display or for the walk in sale any of the stock units were ordering are extremely limited very intentional again with the purpose of our keeping customers.
Bo Larson: I think you heard that clearly and you asked a good clarifying question. I just to emphasize that we're absolutely still focused on generating pre-cell activity and that's what we always want to be leading on. So we're going to continue to place pre-cell orders that have a customer's name on them and we have been throughout the year. And it was as Brian mentioned and then you're asking about here, it's the stock side of things that we really pulled back on and there's little to no activity there.
Speaker Change #125: [inaudible]
Bo Larson: And all of that kind of comes together right in the stock is what you get targeted and we'll take down as we progress through the next 18 months. And then, Meg, I'll just go back to one more thing on your margin question. It really, you know, a function of orders coming in as come banked up against the inventory reduction targets. And so if you look at what we've done and what we've got baked into the back half of this year, we've been outpacing the industry and we've needed to because of those legacy orders that are coming in.
Speaker Change #125: The
Bo Larson: And so as we transition into next year because we haven't placed these stock orders and we don't have those legacy orders coming out to deal with, we can now start to sell in line with the industry. And also, you'll not have that margin pressure that we have from all piece in the industry and still work our inventories down further.
Ben Klieve: Understood. Thank you for taking my questions. Thank you, Meg.
Bo Larson: Our next question comes from Ben, Cleve from Lake Street Capital Market. Please proceed. Thanks for taking my questions. A couple from me. First of all, one more on the equipment margin front. You know, you talk about kind of an explicit focus on on your inventory control being one of the contributing factors to margin compression. I'm wondering if you can kind of talk about the range of equipment margins, you know, from maybe those categories that you are, you know, kind of almost intentionally driving down in the current environment.
Bo Larson: To on the high end, the categories that are much more balanced from the supply demand perspective, you know, perhaps on the precision side. Is the range of margins and equipment, you know, material expanding is that high end, you know, staying firm or are you seeing compression really across the board, you know, throughout your product line? Yeah, sure. Thanks, Ben. It's, you know, it is generally across the board on the equipment. However, you know, again, I go back to it's a function of which, which specific product categories were a little longer on is where we're being more aggressive to outpace the market.
Bo Larson: So depending on to what degree we need to help pace the market to reduce those faster, there is a little more margin compression in those categories. And then, you know, typically your higher cash crop products would have, you know, a lower margin percentage, but higher dollar ticket items, so higher dollars overall. And then third is just there are still, again, I go back to the amount of inventory in a category. So there are still some products that, you know, we're really under produced that are still in demand and you'll still see some decent margins on some of those product categories.
Bo Larson: So we're being very prescriptive on that and again really look at every product category, every bucket and be more aggressive certainly in some areas than others depending on how quickly we need to help pace the market here. And you were asking a little bit on the precision side and I think we alluded to it a bit. Certainly automation continued precision technology that's helped drive inefficiencies and profitability for farmers is something that is a met positive in terms of driving purchasing decisions and we see really good take rates on that, you know relative dollars wise to the whole good equipment themselves you don't necessarily see as much of what we're talking about here but it's absolutely a positive factor and it's something that's going to continue to grow as we progress over the next several years just like all the OEMs have alluded to. Very good. Okay.
Bo Larson: That's very helpful and one other one for me you know it's good to see you still being so optimistic about the state of the service business wondering in this kind of weak you know ag environment here kind of what the impact of of you know this ag economy is on that business both in terms of you know are you seeing farmers you know in any way you know less compelled to outsource service you know and this is this at all a benefit for you in you know securing much needed labor you know given the you know given the challenging environment that you know that individuals are facing kind of throughout the ag economy. Yes and yes.
Bo Larson: So yeah Ben it's you know certainly their mindset and their bankers mindset is to spend as little as possible right now so they are not wanting to do as much in repairs. However there's certainly mindful of the stakes are so high the planting windows and the harvest windows are so short on construction side you know the job sites one piece of equipment goes down can tie everything up and and the deadlines and the penalties and so I again downtime is so expensive for them and they get that and we've really you know done a great job partnering with our customers and they really see the value in us working with them on that so that combined with you know for quite a few years now we have not been able to keep up in our shops and that's why we've had such a push to add technicians so even if it falls off a little bit you know our shops are are still generally really full across the board and then third as a general economy has tightened and you've seen some changes in the job markets and the unemployment rates and so on that has helped we are getting some additional applicants.
Bo Larson: You combine that with the actions that we're doing at Titan we've got the you know first ever diesel camp program which has been huge success first internship program in our industry we've got our student tech sponsorship program that's been we pioneered this been industry leading this led to about 80 new technicians for us this year we've got the first ever accredited federal apprenticeship program in our industry which we're getting a lot of good candidates in there and so we're we're really starting to see some of the fruits of our our labor there and that's been our biggest constraint to our service revenues so we feel optimistic again about that being a long-term growth initiative for us and again the customers just really see the value of it because the downtime is so critical Michael. Got it. It's very helpful. I'm very good. Well, I appreciate you taking my question. That's a lot here in the back half of the year and I'll get back to you. Thanks, Ben.
Alex Regal: Our next question comes from Alex Regal from Be Riley Securities. Please proceed. Hi there. Good morning. This is actually men on for Alex. I mean, there's a couple of quick questions. Hi there. Just first, I know that this will probably come out in the queue, but what was the average rate on your floor plan financing in the quarter? Yeah, I mean, it's roughly 7.5, 7.4 or 5. Okay.
Alex Regal: And also just given that you're the largest C&H kind of dealership, do they provide you or have they in the past provide you with any additional concessions in a down market, like extending, you know, the non-interest bearing time frame or just anything there. I know, you know, you guys have obviously a strong relationship with them. Yeah, you know, C&H certainly wants to see their dealers healthy and to see their dealers be able to perform through this down cycle and and you'll be able to reinvest in the business and against days strong and profitable and healthy.
Alex Regal: So, yeah, they certainly partner with us. Where they can and and help us out with exactly the levers that you mentioned and are good examples, things like helping with floor plan interest or extended terms and partnering together on financing programs, etc. Yeah, and ultimately big picture, right, the win-win is to get inventory sold through and manage production. I think what he's focused on. So, we were also alluded earlier in the comments. You know, a lot of focus on and providing financing for customers to drive that pull through, which is, which is really what we want. Excellent.
Bo Larson: Also, in terms of your cost cutting initiatives, I understand that you've cut a lot of costs since the last last downturn, but can you quantify how much cost you're looking to take out maybe in this fiscal year or the next? And are you considering any the best teachers at this point? Yeah, so from an overall expense perspective, you know, if you set Australia to the side, we will have our forecast assumes about 2% increase in OPEX year over year, about $8 million.
Bo Larson: And that still even includes, you know, our scots apply acquisition and we're at which added a couple million dollars. So, generally speaking, we're saying we're flat year over year. You know, when you think about our cost structure, so much of our OPEX is people, and our people aren't focused on producing equipment, right, which decreasing our people are focused on selling the equipment that we have and providing the customer service and support.
Bo Larson: So, we have some different dynamics that play than the OEMs do, and we want to make sure that we're maintaining that staff, but certainly we're got a sharp pencil any discretionary spending as certainly been whittled down and will continue to keep a tight eye on that hiring. We're also looking at very closely, and generally speaking, managing headcount down somewhat as we progress through, say, the next 18 months, again, depending on where the industry continues to go, but not no big moves there.
Bo Larson: We'll get better guidance on OPEX for next year as we get through the rest of this year, but that kind of lays the ground for you on what we're focused on. And I just wouldn't expect some drastic change there. You know, we need to continue driving. We're seeing that high single digit growth in our service department, we need to continue to lean into our people in order to get that done. And so, that's what I would say I'm operating. Okay, no, that definitely makes sense.
Bo Larson: And also, can you just remind us what percentage of your construction segment revenue comes from non-agriculture-related and the sales and rentals? It's just over half. Okay, and that's obviously the segment where you're still seeing some stability and hopefully some growth kind of going into fiscal 26 given all the infrastructure spending that hopefully will kind of start at that point. Yeah, yep.
Bo Larson: All right, that's it for me. Thank you very much. Thanks.
Matthew Robb: Our next question comes from Steve Dyer from Craig Hallum. Please proceed. Hi, guys.
Matthew Robb: This is Matthew Robb, I'm for Steve. Just one question on the PNS business. Thanks for the color on the service growth. Is that just second half? Or is that for fiscal year 25? And then secondly, any outlook for the parts business? Hi, yeah. So, no, I mean, we saw good service growth in the first half of this year as well. And so second half is a bit of a repeat of what we saw.
Matthew Robb: And just to clarify as well, right, those growth assumptions are more of the same store basis. So Australia, obviously at their own component as well. So now, I mean, if everything we've been building up on and talking about customer cash strategy, it's driving increase in service tax. It's the focus on providing best in class customer service and support. It's the people that we have in the field. It's making sure that we have the right parts.
Matthew Robb: It's everything that the company has been working on for years that will continue to pay dividends for the long term. And that's what we're really excited about. Regardless of where you're at in the cycle, what we'll be able to deliver for our customers, and then ultimately what that means for our shareholders as we go forward. Yeah, it was kind of a good affirmation to see recently one of our competitors has laid out that one of their top three initiatives is on the part side.
Matthew Robb: And especially to increase their fill rates and have the parts in the right place at the right time. And that's actually exactly one of the components of our customer care strategy that we've been aggressively going after here for quite a few years now. And we're really starting to see the fruits of that. And as I look at the industry numbers, our counter fill percentages are higher than what has been laid out.
Matthew Robb: And so industry leading there, and that's our customers are really seeing the benefits of that too. So it's starting to pay off, starting to get a reputation for having the right part and, you know, having the parts on hand for them and competitive pricing too. Okay, thanks guys. This concludes our question and answer session.
Jeff Sonnek: I would like to turn the floor back to management for closing remarks. Thank you for your interest in Titan, and we look forward to updating you with our progress on our next call. Have a great day, everyone. Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.