Q4 2025 Titan Machinery Inc Earnings Call
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Jeff Sonic: If anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my question to introduce your host Jeff Sonic with ICR. Please go ahead welcome to Titan machinery fourth quarter fiscal 2025 earnings conference call on the call today from the company are Brian <unk>.
Bo Larsen: President and Chief Executive Officer, and Bo Larsen Chief Financial Officer.
Bo Larsen: By now everyone should have access to the earnings release for the fiscal fourth quarter ended January 31st 2025.
Bo Larsen: If you've not received the release, it's available on the Investor Relations tab of Titans website at <unk>.
Bo Larsen: Our Titan machinery Dot com.
Bo Larsen: This call is being webcast and replay will be available on the company's website as well.
Bo Larsen: In addition, we're providing a presentation to accompany today's prepared remarks, which can also be found on Titans IR website.
Dentation is directly below the webcast information in the middle of the page.
Bo Larsen: We would like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions.
Bo Larsen: And do not guarantee future performance and therefore undue reliance should not be placed upon them.
Bo Larsen: These forward looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in today's earnings release and presentation and in the risk factors section and other portions portions of Titans reports filed with the SEC.
Bo Larsen: The risk factors contained a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward looking statements, except as may be required by applicable law Titan assumes no obligation to update any forward looking statements that may be made in today's release or call.
Bo Larsen: Note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis.
Bo Larsen: We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency in the Titans ongoing financial performance, particularly when comparing underlying results from period to period.
Bo Larsen: These included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release.
Bo Larsen: At the conclusion of our prepared remarks, we will open the call to take your questions.
Bo Larsen: I'd now like to introduce the company's president and CEO, Mr. Bryan Knudsen, Brian. Please go ahead.
Speaker Change: Thank you, Jeff and good morning to everyone on the call.
Speaker Change: I'll start today by covering the significant progress we've made on our short term goals with an emphasis on our inventory reduction efforts followed by our view of the current market environment and performance across each of our operating segments.
Speaker Change: Then pass the call to bowl for his financial review and incremental thoughts on our modeling assumptions for fiscal 2026.
Speaker Change: Let's start with inventory.
Speaker Change: I'm pleased to report that we significantly accelerated our pace of inventory reduction in the fourth quarter, achieving a $304 million sequential decrease which brings our total reduction to $419 million.
Speaker Change: Inventories peaked in our fiscal second quarter of this past year.
Speaker Change: This is the direct result of decisive actions, we took to significantly reducing come in inventory as well as an aggressive approach to pricing and internally subsidize finance programs to capitalize on seasonal year end buying activity within our domestic footprint.
Speaker Change: I'm very proud of how our entire team executed the plan, which significantly improved our position heading into this next fiscal year.
Speaker Change: While these collective actions further pressured equipment margins and eroded our profitability in the fourth quarter. It was a critical step that allows us to transition sooner to the next phase of our inventory initiatives.
Speaker Change: Given the magnitude of the inventory reduction we achieved in fiscal 2025, our primary focus can now shift from general inventory reduction to one that further optimizes, our inventory mix, while proactively addressing the influx of used trade ins.
Speaker Change: More specifically, we are focused on select categories of slower turning equipment that are aging and require right sizing both domestically and abroad. While at the same time investing in other categories of new equipment that are projected to be below our targeted inventory stocking levels across our footprint.
Speaker Change: Executing these initiatives throughout fiscal 'twenty, 'twenty, six well position us in fiscal 'twenty 'twenty seven to operate in more alignment with market fundamentals and deliver more normalized profitability.
Speaker Change: Turning to our domestic AG segment performance in the quarter.
Speaker Change: Overall equipment demand was subdued as a result of industry headwinds. We delivered continued growth in our service business, resulting in a same store sales increase of 8.2% for the full year.
Speaker Change: This growth reflects the continued success of our customer care strategy and increased service capacity following our efforts to invest in our existing team members as well as increase our overall service technician head count.
Speaker Change: Both of which we expect will continue to drive growth in the future.
Speaker Change: Looking ahead, although our customer's input costs have come down they have not decreased proportionately with the change in commodity prices, which has in turn resulted in lower overall net farm income over the past two years.
Speaker Change: Farm cash receipts are expected to decline again in 2025.
Speaker Change: Ever helping to offset this decrease is the potential of increased government assistance programs, which is the driver of the Usda's recent forecasted increase in net farm income.
Speaker Change: With the uncertainty in the timing and magnitude of government assistance as well as potential impacts of the new administration's tariff policies the.
Speaker Change: The expectation is that demand for new equipment will be significantly lower in calendar 2025.
Speaker Change: Recent industry forecast suggests that demand for large AG equipment in North America will be down approximately 30% versus the prior year, resulting in total industry volumes for high horsepower cash crop equipment that are expected to be similar to calendar years 2016 and 2017.
Speaker Change: Which was the low point in the previous cycle.
While this sets up a very challenging demand backdrop for our industry. Our team's execution. This past year has us positioned to achieve our short term initiatives in the year ahead.
Speaker Change: Now turning to our European operations, which were similarly impacted by lower commodity prices and sustained high interest rates, which negatively impacted equipment demand.
Speaker Change: However, the segment came in largely within our expectations for the fourth quarter as we diligently manage through very challenging conditions, particularly in Romania, where severe drought during the critical part of the growing season reduce crop yields to the lowest levels in over a decade.
Speaker Change: With help from Europeans subvention funds and the prospect for more normalized rainfall this upcoming growing season, we expect Romania to experience increased stabilization, if not an improvement and as a result, we could see modest revenue growth in our European segment in FY 'twenty six.
Speaker Change: In Australia. Our performance was also largely in line with expectations as we manage through a similar environment to our domestic AG segment.
Speaker Change: Julia However was further impacted by more challenging weather, including below average rainfall during the critical part of the growing season.
Speaker Change: These conditions negatively impacted yields across key growing regions in the southeast part of the country, which makes up a large portion of our Australian footprint.
Speaker Change: We expect that the resulting lower profitability levels for Australian customers. This past growing season will restrict demand in FY 'twenty six.
Speaker Change: Finally, our construction segment finished the year relatively flat compared to fiscal 2024.
Speaker Change: We also made good progress, reducing our construction equipment inventory in the fourth quarter and the margin impact was not as significant as what we experienced in our domestic AG segment due to less severe headwinds in the construction side.
Speaker Change: Our cleaner inventory position heading into fiscal 'twenty 'twenty six will allow us to be more responsive to market opportunities in this segment.
Speaker Change: We remain optimistic about constructions multiyear outlook as housing shortages in the federal infrastructure Bill provide healthy support for the industry long term well improved equipment availability and new product tinder reductions from our suppliers provide additional near term opportunities.
Speaker Change: However, uncertainty around the economy has impacted construction activity and as a result, we are expecting softening demand for construction equipment in fiscal 2026.
Speaker Change: In closing fiscal 2025 has been a pivotal year for Titan marked by decisive action and intentional execution.
Speaker Change: The accelerated progress we achieved in our inventory reduction initiative, particularly in the fourth quarter represents more than just the operational capabilities.
Speaker Change: It demonstrates our ability to take bold action when opportunities arise even amid challenging market conditions.
Speaker Change: As we navigate this cycle, we see some important differences from previous cycles.
Speaker Change: OEM production constraints, driven by global pandemic limited industry volumes and as such the North American Fleet age continues to support replacement demand.
Speaker Change: Replacement demand is bolstered by technology and precision advancements and is further supported by lower levels of lease returns and healthy customer balance sheets.
Speaker Change: It tightens, specifically, we've now strengthened our foundation through improved inventory management processes stronger corporate controls and a customer care strategy that continues building a more resilient recurring revenue stream with our parts and service businesses.
Speaker Change: In closing I'd like to express my sincere gratitude to our employees for their tremendous focus hard work and execution.
Speaker Change: Their ability to execute on our strategic initiatives, while maintaining our high standard of customer service has been commendable.
Speaker Change: While we expect market headwinds to persist in the near term we believe the improvements we've made to our business combined with our decisive actions during fiscal 'twenty twenty-five position us to navigate the current cycle and emerge stronger as the industry advances through the cycle.
Speaker Change: We remain confident in our ability to deliver long term value to our shareholders through our enhanced operational efficiency strategic positioning and continued commitment to our customers.
Bo Larsen: With that I will turn the call over to Bo for his financial review.
Bo Larsen: Thanks, Brian and good morning, everyone.
Bo Larsen: Starting with our consolidated results for the fiscal 2025 fourth quarter.
Bo Larsen: Total revenue was $759 9 million compared.
Bo Larsen: Compared to $852 1 million in the prior year period.
Bo Larsen: Afflicting, a 12% decrease in same store sales, partially offset by contributions from the acquisition of Scots supply in January 2024.
Bo Larsen: Gross profit for the fourth quarter was $51 million.
Bo Larsen: Compared to $141 million in the prior year period.
Bo Larsen: Gross profit margin was six 7%.
Bo Larsen: These decreases were driven primarily by lower equipment margins.
Bo Larsen: And our domestic AG segment and resulted from our accelerated actions to manage inventory to targeted levels sooner as Brian discussed.
Bo Larsen: On a different note the fourth quarters of fiscal 2025 in fiscal 2024 included benefits related to manufacturer incentive plans of $8 $9 million and $7 $8 million respectively.
Bo Larsen: Operating expenses were $96 $7 million for the fourth quarter of fiscal 2025.
Bo Larsen: Compared to a $103 million in the prior year period.
Bo Larsen: The year over year decrease of three 6% was driven by lower variable expenses and cost savings initiatives.
Bo Larsen: As a reminder, the o'connor's acquisition was consolidated into our operations in the fourth quarter of fiscal 2024, which provided a more consistent year over year comparison than in prior quarters.
Bo Larsen: Floor plan and other interest expense was $13 1 million as compared to $9 $3 million in the prior year period.
Bo Larsen: However, on a sequential basis floorplan and other interest expense decreased eight 5%, reflecting our efforts to reduce interest bearing inventory in the fourth quarter.
Bo Larsen: As we continue to make progress on inventory levels and mix optimization.
Bo Larsen: We should continue to see Floorplan interest expense decline throughout fiscal 2026.
Bo Larsen: Adjusted net loss for the fourth quarter of fiscal 2025 was $44 $9 million or $1.98 per diluted share.
Bo Larsen: This includes approximately 29 cents up benefits associated with manufacturer incentive plans.
Bo Larsen: This compares to last year's fourth quarter, net income of $24 million or $1 <unk> per diluted share.
Bo Larsen: Which included approximately 26 cents a benefits associated with manufacturing incentive plans.
Bo Larsen: Now turning to a brief overview of our segment results for the fourth quarter.
Bo Larsen: Our agricultural segment realized a sales decrease of 13, 8% to $534 7 million.
Bo Larsen: Driven by our same store sales decline of 15, 5%.
Bo Larsen: Partially offset by contributions from the acquisition of Scots supply in January 2024.
Bo Larsen: Agriculture segment, adjusted pre tax loss was $56 $3 million compared to pre tax income of $28 $8 million in the fourth quarter of the prior year, resulting from softer retail demand and our accelerated inventory reduction measures both of which impacted equipment.
Bo Larsen: Yes.
Bo Larsen: In our construction segment same store sales decreased five 5% to $94 $6 billion.
Bo Larsen: This was consistent with our expectation going into the quarter as timing differences caused variability in the third and fourth quarter year over year comparability.
Bo Larsen: Similar to our domestic agriculture segment, our inventory reduction initiative weighed on equipment margin in this segment as well.
Bo Larsen: Well, we were pleased to maintain a segment equipment margin above 10%.
Bo Larsen: Which speaks to the more balanced inventory position.
Bo Larsen: Adjusted pretax loss was $1 $7 million compared to pre tax income of $4 $6 million in the fourth quarter of the prior year.
Bo Larsen: In our European segment.
Bo Larsen: Sales increased six 1% to $65 $4 million.
Bo Larsen: Which reflects a same store sales increase of five 7%.
Bo Larsen: Partially offset by a 0.4% negative currency impact.
Bo Larsen: On a constant currency basis revenue increased $4 million or six 5%.
Pretax loss for the segment was $1 $8 million compared to pre tax loss of <unk> $6 million in the fourth quarter of the prior year.
Bo Larsen: And our Australia segment.
Bo Larsen: There were $65 $3 million.
Bo Larsen: Compared to $69 8 million in the fourth quarter of last year.
Bo Larsen: Driven by our same store sales decrease of six 5%.
Bo Larsen: Partially asset by 0.9% favorable currency impact.
Bo Larsen: On a constant currency basis revenue decreased $5 1 million or seven 3%.
Bo Larsen: In addition to weather related impacts this segment is facing very similar and customer dynamics as our domestic AG segment.
Bo Larsen: Pre tax income for the fourth quarter of fiscal 2025 was $2 $3 million compared to $4 $1 million last year.
Bo Larsen: Briefly summarizing our full fiscal 2025 results.
Bo Larsen: Total revenue was $2 7 billion for fiscal 2025 compared to $2 8 billion for fiscal 2024.
Bo Larsen: Adjusted net loss for fiscal 2025 was $29 $7 million or $1.31 per diluted share.
Bo Larsen: This compares to the prior year's net income of $112 $4 million or $4 93 per diluted share.
Bo Larsen: Excluded from the adjusted results in fiscal 2025 is that 32 cents per share negative impact associated with our sales leaseback financing expenses.
Bo Larsen: There were no adjustments in fiscal 'twenty to 'twenty four.
Bo Larsen: Now onto our balance sheet and inventory position.
Bo Larsen: We had cash of $36 million and an adjusted debt to tangible net worth ratio of one eight times as of January 31 2025.
Bo Larsen: Which is well below our bank covenant of three five times.
Regarding inventory and as Brian discussed, we made significant progress in the fourth quarter.
Bo Larsen: Using our inventory by $304 million sequentially.
Bo Larsen: This accelerated introduction brought our total decrease to $419 million since inventory levels peaked in our fiscal second quarter, which substantially exceeded our previous expectations for the year.
Bo Larsen: The reduction was led by our domestic agriculture segment, which saw a decrease of approximately $300 million since the end of the second quarter.
Bo Larsen: We have achieved the original $400 million targeted decline in equipment inventory that I discussed on our second quarter earnings call.
Bo Larsen: Or given the expected further decline in retail demand. We are currently targeting another $100 million of additional equipment inventory reductions.
Bo Larsen: Which would come from a mix across each of our segments.
Bo Larsen: Our targeted inventory for the end of fiscal 'twenty six.
Bo Larsen: And it will be dependent on how demand continues to evolve throughout the year.
Bo Larsen: As well as how expectations for demand in fiscal 'twenty seven developed throughout the year.
Bo Larsen: In addition to the 100 million targeted reduction.
Bo Larsen: We're focused on optimizing the makeup of our equipment inventory.
Bo Larsen: Simply put we are focused on reducing pockets of aged inventory and moving towards an optimal mix of high demand in new and used equipment.
Bo Larsen: We'll have the additional benefit of further reducing floorplan interest expense as we work toward our objectives.
Bo Larsen: With that I'll finish by sharing our fiscal 2026 full year guidance.
Bo Larsen: Starting with our top line modeling assumptions across our segments.
Bo Larsen: For the domestic AG segment, we expect revenue to be down in the range of 20% to 25%.
Bo Larsen: Reflecting the previously discussed industry outlook.
Bo Larsen: North America large AG volume is expected to be down approximately 30% year over year and that is consistent with the midpoint of our expectations for equipment revenue.
Bo Larsen: However, we expect flat to modest growth across our parts and service businesses, which make up about a quarter of the revenue mix and well over half of our gross profit dollars in this year's guidance.
Bo Larsen: Drilling down a layer deeper on domestic AG whole good revenues.
Bo Larsen: Fiscal 2025 started out relatively strong and got weaker throughout the year.
Bo Larsen: So while the guidance for the full year contemplates a 30% decline.
Bo Larsen: We expect the year over year comparables to be less challenging as we progressed through the year.
Bo Larsen: More specifically, we expect Hogan revenue to be down more like 40% to 45% year over year in Q1.
Bo Larsen: And by the time, we get to Q4 that comparison is expected to be down more like 20% year over year.
Bo Larsen: Please note Q1 results may vary depending on the timing of our delivery of pre salt equipment to our customers, which by itself would not impact our overall expectations for the full fiscal year.
Bo Larsen: The construction segment is expected to be down in the range of 5% to 10%.
Bo Larsen: As Brian touched on earlier, the federal infrastructure Bill continues to provide healthiest apart for industry fundamentals over the next few years, but we expect near term uncertainty about the economy to impact construction activity in fiscal 2026 and have worked that into the guidance.
Bo Larsen: Our European segment is expected to be flat to up 5%.
Bo Larsen: Driven by severe drought in eastern Europe, It already experienced a revenue decline of 16, 3% for full fiscal year 2025.
Bo Larsen: And expectations are the industry volumes will be flattish to down 5% across Europe, although that varies from country to country.
Bo Larsen: Given the drought driven significant pullback in our Romanian business this past fiscal year.
Bo Larsen: We anticipate a more stable environment with opportunity for modest growth year over year.
Bo Larsen: For our Australia segment, we expect revenue to be down in the range of 15% to 20%.
Bo Larsen: Reflecting similar market dynamics to our domestic AG segment.
Bo Larsen: However, Australian industry volumes were already significantly depressed in fiscal 2025.
Bo Larsen: So in addition to persistently soft demand are expected reduction in revenue is led by the normalization of self propelled sprayers deliveries, which are our higher ticket item.
Bo Larsen: Given supply chain constraints it wasn't until fiscal 'twenty five that our Australian business was able to catch up on about three years worth of sprayer backlog and.
Bo Larsen: And is headed into fiscal 'twenty six executing on annual retail demand for that equipment, that's providing a difficult year over year comparison.
Bo Larsen: From a margin perspective, our fiscal 'twenty six assumptions contemplate consolidated full year equipment margins to be approximately seven 7%.
Bo Larsen: Which compares to fiscal 'twenty fives full year consolidated equipment margin of six 7%.
Bo Larsen: This includes fairly consistent year over year equipment margins for the construction Europe and Australia segments.
As for our AG segment. This includes a full year equipment margin of approximately five 4%, which compares to fiscal 'twenty fives reported full year equipment margin of four 6%.
Bo Larsen: We anticipate AG segment equipment margins will likely be lowest in the first half of fiscal 'twenty six.
Bo Larsen: The first quarter equipment margins being around four 5%.
Bo Larsen: From there, we anticipate gradual margin improvement with equipment margins of around 6% in the back half of the fiscal year.
Bo Larsen: The 6% assumption will still remain well below times historical targets as we focus on optimizing our product mix throughout the full fiscal year.
Bo Larsen: The primary goal being to exit the year in a position where we can return toward more normalized margin levels relative to the demand environment that exists in fiscal 'twenty seven.
Bo Larsen: Operating expenses are expected to decrease year over year.
Bo Larsen: <unk> the lower revenue base are expected to be approximately 17, 3% of sales.
Bo Larsen: This reflects prudent expense management measures, while maintaining our continued investment in service technician head count and other strategic initiatives supporting our customer care strategy, which continues to drive growth in our parts and service businesses.
Bo Larsen: Moving to Floorplan interest expense the accelerated introduction of interest bearing inventory, we achieved in fiscal 'twenty five positions us to begin realizing benefits from lower interest expense, particularly in the second half of fiscal 'twenty six.
Bo Larsen: Overall, our fiscal 'twenty six assumptions contemplate a year over year reduction of floor plan related to interest expense of approximately 15% to 20%.
Bo Larsen: While inventory levels have decreased we need to optimize the aging profile before we begin to see more significant reductions at floor plan interest expense.
Bo Larsen: Executing on our inventory optimization initiatives will yield a more significant decrease in floorplan interest expense in fiscal 'twenty seven.
Bo Larsen: In addition to Floorplan interest expense, we have about $12 million of annualized interest expense related to the financing of facilities and vehicles.
Bo Larsen: Bringing it all together we are introducing a fiscal 'twenty six modeling assumption range of an adjusted loss of $1 25.
Bo Larsen: To $2 per diluted share.
Bo Larsen: While we will be working hard to minimize this loss. We believe it is prudent to set conservative expectations in this fluid environment, where demand is expected to be near historic lows.
Bo Larsen: Our aim is to ensure that we are well positioned heading into fiscal 'twenty, seven where we expect to drive toward more normalized levels of profitability relative to the demand environment at that time.
Bo Larsen: This concludes our prepared comments operator, we are now ready for the question and answer session of our call.
Speaker Change: Thank you we will now be conducting a question and answer session. If you would like you asked a question. Please press star one on your telephone keypad.
Speaker Change: Tone will indicate your line is in the question queue. You May Press Star two if you would like to remove yourself from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: First question comes from Todd Jackson with Northland Securities. Please go ahead.
Todd Jackson: Oh good morning, Thanks for taking my questions.
Speaker Change: Good morning, Ted.
Speaker Change: So my my my first question is just a little bit picky on the quarter. The service margin was.
Speaker Change: I'd, just say well below what I would've expected and I just wanted to get all the color in terms of.
Speaker Change: What was going on in that and I'm kind of assuming that that doesn't carry forward into the next fiscal year that'd be question number one and.
Speaker Change: I'll follow up after that.
Speaker Change: Yeah, I mean big picture Wise I'll start with the end there and we're actually expecting equipment margin to increase a little bit year over year. This past year, we added a significant amount of our stores onto our new ERP system and Theres, a little bit of a transition there.
Speaker Change: And a little bit of inefficiencies that will get worked out so year over year were prescribing that.
Speaker Change: Go up on a consolidated basis, you know a little less than 100 basis points from a fourth quarter perspective, and compared to year over year I really just comes down to a lot of different factors in terms of how much of it was.
Speaker Change: For our work for our customers how much of it was on equipment that was getting delivered.
Speaker Change: And again I wouldn't there's nothing else there to really call out and like I said I'd expect it to increase somewhat next year.
Speaker Change: So and then I think so and then I actually I have two more questions. Just another one that's just what kind of tiny one with the the.
Speaker Change: The reduction in inventory, which was impressive in and congratulations on doing that because in the longer term, it's really a great move on your part.
Speaker Change: Are you able to accomplish that through your own.
Speaker Change: Dealers network or did you actually end up having to go to auction to clean some of that out.
Speaker Change: Our focus is on keeping those units local to our customers' Ted and and getting a future installed parts and service oh to them and and so yes.
Speaker Change: So within our own network.
Speaker Change: From time to time select units certainly.
Speaker Change: Certain aging profile.
Speaker Change: <unk> on when the timing of another option may be we'll we'll work with some of those partners, but so.
Speaker Change: So we did auction a few but very much by and large is through our own network and that's how we plan to continue going forward.
Speaker Change: A nice thing about that and keeping that equipment you know in our footprint as we can earn the right to provide parts and service on that going forward as well.
Speaker Change: Well, that's the answer I wanted to hear so glad and then my last question because I know the old plenty more is no get it given what's going on with the administration and the potential of all these tariff wars.
Speaker Change: You know you are you know the largest you know.
Speaker Change: How do you learn that for C. N H equipment, you have operations on three continents.
Speaker Change: How do you see that playing out.
Speaker Change: Across your business you know both through kind of how it impacts you know C. N H and then also just how it impacts you know just.
Speaker Change: You I mean is there anything that we should be paying attention to on that front as analysts I mean is there any you know.
Speaker Change: Part of your playbook, that's worth discussing there.
Speaker Change: We're we're watching the clock the tariffs closely Ted right now like everybody else.
Speaker Change: You know as CNA does a lot of production domestically here the largest chunk of our revenues come domestically as well, especially in the cash crop sector.
Speaker Change: Yes, sorry.
Speaker Change: We'll continue to just monitor that we've dealt with.
Speaker Change: Inordinate price increases before as recently here shortly after COVID-19 with some of the supply chain issues in.
Speaker Change: And and.
Speaker Change: Pass those through.
Speaker Change: Then the question always becomes what does that do to demand.
Speaker Change: Especially with a tougher backdrop that we have right now and I think it's no secret that you know.
Speaker Change: Any material price increases would likely further.
Speaker Change: Decreased demand or put put more pressure on on demand, but offsetting that you also have.
Speaker Change: The government payments that are theres some.
Speaker Change: $10 billion in pharma assistance in the commodity assistance.
Speaker Change: The applications are.
Speaker Change: Going in right now and they're looking to get those payments pretty quickly to customers and then another $20 billion.
Speaker Change: That's potentially out there in terms of again economic relief disaster relief et cetera.
Speaker Change: And we'll just see how that flows through throughout.
Speaker Change: The rest of the year here I haven't talked to a lot of growers that are.
Speaker Change: Banking on that are certainly.
Speaker Change: Factoring that into any of their equipment purchasing decisions at this point.
Speaker Change: Likely that'll be much later in the year here as we see how those flow through.
Speaker Change: But one of the other positives with those payments as you know that's not like crop that it can sit in the banner deferred to next year, they need to spend that money and they they often use that money to.
Speaker Change: [noise] bolster their operations. So so there is a lot going on.
Speaker Change: Between both.
Speaker Change: The general economy, and the tariffs and the government assistance in the farm Bill discussions in and so we'll certainly be monitoring all of that closely as we progress throughout the year.
Speaker Change: Alright, I'm going to step out of line I might jump back in if no. One asks for my other questions. Thanks.
Thanks, Ed.
Speaker Change: Next question Mig <unk> with Baird. Please go ahead.
Speaker Change: Hey, good morning, guys I wanted to I want to pick up where that butts off here.
Speaker Change: A discussion on government assistance.
Speaker Change: I was just looking back at the first Trump administration I think the cumulative.
Speaker Change: Payments to farmers.
Speaker Change: Or something close to $80 billion, so even even sort of more significant.
Speaker Change: What's being contemplated right now.
Speaker Change: And we all kind of remember how that played out right I mean like demand has remained weak.
Speaker Change: Really old.
Speaker Change: We didn't see that recovery until 2021, when commodity prices move higher.
Speaker Change: I guess my question to you is if you're sort of looking at these government payments come in farmers now.
Speaker Change: Do you have any reason to believe that behavior. At this time around is going to be different than what we have seen during that 2018 through 2020 timeframe.
Speaker Change: I think a few of the differences this time.
Speaker Change: Last time.
Speaker Change: Is that the trade tariff talks and so on with China. They were right in the middle of rebuilding their herds and.
And you know out of that did come the most purchases.
Speaker Change: They've done with the phase one and phase two agreements there.
Speaker Change: Soybeans from Us and so you know, we'll well those stocks resume and get get them back purchasing them to.
Speaker Change: To that level again of soybeans from the U S. You know that remains to be seen how those negotiations pan out.
Speaker Change: In any given year 'twenty 'twenty would have been the peak I believe and I think it was about 32 billion and change that.
Speaker Change: The total of government assistance was and keep in mind, you know you've got a.
Speaker Change: The food assistance food stamps are all of those programs are within that.
Speaker Change: And so you know that.
Speaker Change: The most that I've heard here is potentially 45 billion, but looking more like that 30 billion. So it would be in line with that.
Speaker Change: The 2020 timeframe 2019 numbers.
Speaker Change: And I would say it wasn't good spark you know al if you really let the dust settle and all of that the way I really looked at talking with our grower customers. It helped essentially offset.
Speaker Change: The impact of commodity prices that happened during some of those trade discussions and got the farmers made backhaul again it was.
Speaker Change: Essentially.
Speaker Change: Almost a buck on corn and about $2 on soybeans is really roughly what that shook out to an <unk>.
Speaker Change: And then you know.
Speaker Change: That led to like you said following that was some.
Speaker Change: Better increases in industry volumes and an uptick in purchases in the subsequent years to follow in 'twenty, one 'twenty, two and 23 so.
Speaker Change: I actually look at that someone has a potential positive here depending on how all this.
Speaker Change: Plays out in <unk>.
Speaker Change: So again, we will continue to monitor that really closely.
Speaker Change: Well to be clear.
Speaker Change: Shipment purchases did not improve until commodity prices. It was not government payments that are driven by 100, absolutely agree absolutely agree.
Speaker Change: Saying that that was.
Speaker Change: Some certainly would argue that the government assistance that helped position are the U S. For those negotiations that led to more purchasing that then impacted the supply and demand curves Ed and brought up commodity prices then triggered.
Speaker Change: Equipment purchases, but again some would argue that was the beginning of when we saw commodity prices start to come up.
Speaker Change: In 'twenty, one there and certainly not the only factor of course of <unk>.
Speaker Change: Weather global weather and things.
Speaker Change: Many other factors were involved as you know.
Speaker Change: Understood.
Speaker Change: I wanted to talk about inventories as well and I echo the congrats on the very good progress that you have made but I guess as.
As we look forward I'm curious to learn how you think about the optimal amount of inventory that you should have given where demand is.
Speaker Change: Is there a way to frame it in terms of inventory turns and exactly what this guidance contemplates.
Speaker Change: As the year progresses.
Speaker Change: Because candidly I'd tell you another $100 million inventory reduction.
Speaker Change: Great.
Speaker Change: To me at least does not seem to fully factor in the erosion in demand that youre anticipating in fiscal 2006, I would think that it would be room to do.
Speaker Change: A little bit more maybe another 100 to maybe even up to 200 million more so you know tell.
Speaker Change: Tell me, how you think about it.
Speaker Change: Right.
Speaker Change: Yeah, and I mean, that's to start with right and I think in my initial comments will continue to see how the year plays out and I'd say, even more importantly than that.
Speaker Change: What we're looking.
Speaker Change: For as we get closer to what next year is going to look like and you know a little bit more specifics on that I would say that a.
Speaker Change: Big portion of that reduction will come more in the back half of the year, we have a lot of optimization work to get done.
Speaker Change: And as we've talked about in our comments and as we project forward through this year, even with these lower demand levels. There are areas, where we're going to be getting thin on that we are going to need that to backfill.
Speaker Change: Our strategy and we are largely a large AG company high horsepower cash crop equipment.
Speaker Change: To focus on pre sales with customers and over time, we'd like to see that continue to increase and why we wanted to do is leverage our footprint.
Speaker Change: To the highest extent that we can write and having a really efficient level of stock inventory.
Speaker Change: Then focus on that pre sell equipment.
Speaker Change: And that's where we're going and we continue to make progress on that.
You know every every month every quarter this year to get to your comments yeah. If you. If you want to play the math Alright, that's really implies an inventory turn of about 1.6 and that certainly below where we would want to be.
Speaker Change: But if you project forward, let's fast forward to next year. This is just an illustrative purpose nobody's providing guidance here right have you assumed that there's a 10% rebound on industry volumes and you keep that 825 million flat throughout that year.
Speaker Change: There are about $1 92, and Thats really at the bottom end of the range that we'd like to see.
Speaker Change: Historically, we've seen it get as high as three and a half times and that was due to the global supply chain constraints and really are there are some in the in availability problems. There. So realistically at the bottom of a cycle you know things change quickly. If you can still manage to keep at it too on the <unk>.
Speaker Change: And somewhere around three and average in two and a half for us that's a bit of a sweet spot in terms of inventory availability optima optimizing floorplan interest expense et cetera. So that's what we're going towards right and putting a lot of effort into ensuring that we can manage it closer to that too in a bottom of a cycle and these numbers kind of project to that too.
Speaker Change: Louis level next year, assuming a base case that we are still well below you know longer term mid cycle averages.
Speaker Change: Okay.
Speaker Change: And I.
Speaker Change: I don't know if youre going to be able to answer. This question I mean, I'm, hoping that.
Speaker Change: Aye.
Speaker Change: There is moving.
Speaker Change: The moving pieces here, maybe more than normal.
Speaker Change: I'm, comparing where you are inventory wise now versus the <unk> cycle.
Speaker Change: <unk>.
Speaker Change: Because you know by by my Math you have.
Speaker Change: Quite a bit of growth in store count you know you've got something like 38% more stores than you do.
Speaker Change: The exiting fiscal 'twenty.
Speaker Change: Pricing.
Speaker Change: Secondly, higher on new equipment, maybe like 30.
Speaker Change: Rocco some higher pricing.
Speaker Change: So in many ways. The dollars that are on your balance sheet of inventory that's.
Speaker Change: Would it have been distorted a little bit by the fact that you have more stores.
Speaker Change: And the unit is higher.
Speaker Change: So if we're trying to think about about how many units you actually of course store.
Speaker Change: Are you able to talk a little bit about that and sort of say hey, listen you know this is kind of what what would be normal for us in terms of in terms of units per store and this is kind of where we are today.
Speaker Change: We're hoping to absolutely in fiscal 'twenty.
Speaker Change: Sorry for the long question I'm, just trying to clarify that.
Speaker Change: Yeah, Yeah, no I mean.
Speaker Change: Just a kind of.
Speaker Change: Adding on to the thought process that you're going with there that's something that we've talked about I can't remember if it was last quarter or the prior quarter Youre absolutely right. Since FY 2014 for example, a four wheel drive tractors about 80% higher so not quite double.
Speaker Change: So while our inventory balance in dollars was a little bit higher than it was in say FY 14 realistically our units was quite a bit lower not quite half, but directionally speaking a lot closer like that.
Speaker Change: And if you look at the last cycle in terms of what we were able to do it took about two years to see a $350 million decrease from FY 2014 to FY 16.
Speaker Change: At about $400 million decrease in the last six months again.
Speaker Change: Less units to get that done but in a much shorter timeframe. So really happy about what we're doing there.
Speaker Change: From a number of units perspective, I mean, that's obviously going to vary by store and is based on their volume we have a pretty wide range in terms of our largest stores and that the amount of revenue and the number of units that they are selling versus some of our smaller stores that we're.
Speaker Change: We're going to continue to grow over time, and I think that that process also continues to evolve right Ed I think that as we look at driving efficiency levels I wanted to see lower levels of stock inventory and more of the inventory that's on the balance sheet at any given point.
Speaker Change: Is pre sold equipment, you know waiting for our PDI work and then getting into two delivered to customers.
Speaker Change: Understood last question for me is on.
Speaker Change: On your SG&A line item.
Speaker Change: And I know you have not provided specific comments.
Speaker Change: But I am wondering just came then I'll, let $390 million in fiscal 'twenty five.
Speaker Change: What's contemplated in guidance for fiscal 'twenty, I'm, presuming lower but how much lower and maybe you can comment first half versus second half as well. Thank you yeah, Yeah, I mean, what's contemplated in the midpoint of our guidance is it's about $380 million and that gets you to about 17, 3% of sales, which is also the midpoint of guidance.
Speaker Change: From a cadence perspective.
Speaker Change: Certainly lower than the first half versus the second half and that's a that's an obvious statement because it's about 10% of our expenses are commission based switches are ultimately very with equipment sales and we're kind of back half weighted from an equipment sales perspective.
Speaker Change: From a Q1 perspective of that 380 million I've got it at around $94 million.
Speaker Change: Yes that is an area obviously, the 380 that we build ground up thinking about everything we're trying to achieve where can we pull back on spend we will continue to assess that.
Speaker Change: But that I think is the prudent landing spot to start with and we'll continue to see how the year evolves.
Speaker Change: Yeah.
Speaker Change: Thanks for taking my questions.
Speaker Change: Yep.
Speaker Change: Next question <unk> with Lake Street Capital markets. Please go ahead.
Speaker Change: Alright, Thanks for taking my questions I've got a couple on the Floorplan payable first just a clerical one.
Speaker Change: Yeah, and this is something that Ah.
Speaker Change: Super Alvin I think prior for investors I, just wanted to call out for the broader community in our earnings deck on slide 15, there is an equipment inventory slide we break out new and used we also breakout interest bearing noninterest bearing and equity in inventory. So from an inventory financing perspective, and granted you wouldn't have perfect numbers, there, but interest bearing was.
Speaker Change: $385 million to end the year.
Speaker Change: That had come down about $150 million given the reduction in inventory in the fourth quarter, which implies about 50% of that reduction was on interest bearing units.
Speaker Change: So that that number puts us at about 40% interest bearing across our $925 million of inventory big picture optimal inventory that number should be more like 25% and that's certainly something that we're working towards.
Speaker Change: Okay, Yeah. Thanks, Bob.
Speaker Change: Got to my next question as you know, where this shakes where that number shakes out you know over the next I don't know 12.
Speaker Change: 12 to 18 months.
Speaker Change: I don't think there's any expectation that you're able to get back to the glory days of fiscal 'twenty, two or that was a $30 million balance, but but do you have a kind of line of sight into.
Speaker Change: The levels, you know pre pandemic, where that was another kind of $150 million to $200 million range. It sounded like from your comment right. There that you think you'd deal.
Speaker Change: Yeah, I think as we get into next year. So this year and again I'm really proud of the work that we've done we've since about this time last year. When we had our call we kind of prescribed a two year journey to get inventory to wherever you want it to be again really accelerated some of that but still playing out from an optimization perspective, taking through F.
Speaker Change: 26, so we are still working on aging in that aging profile. So a lot of this year is going to feel a bit more in a static perspective, but really set us up well for next year, where we get a lot closer to the levels that you were just mentioning there.
Speaker Change: So yes, if I could just play this out you know you could think about more of our floorplan interest expense at Directionally in half.
Speaker Change: Next fiscal year.
As long as we continue to execute on the plan that we've laid out.
Brian: And Ben This is Brian I, just go back to two a migs inventory questions Eddie pointed out.
Speaker Change: Are exactly in line with what we're doing here so.
Bo Larsen: Bo mentioned that the 100 million that says we get now very prescriptive cleaning up our specific talk pockets of aging in and certain specific seasonal product categories.
Speaker Change: And to really get our inventory dialed in this year, but as far as that $100 million number yes.
Speaker Change: It's likely more just like Mike mentioned, but as both said just for illustrative purposes, and that's that's predicated on.
Speaker Change: The minimum with where we think the industry is headed but we will absolutely work the levers accordingly, and if things get worse here like out of the gate Oh early in January and February a lot of time to recover yet, but the volumes have been down even more than the 30% that you know the Oems.
Speaker Change: Others have predicted so far so we'll see how that recovery throughout the year, we're monitoring and adjusting that on a monthly basis and.
Speaker Change: You could see another 150 or $200 million reduction here.
Bo Larsen: Throughout the year, if that's what we believe is needed and again as we look to FY 'twenty seven is Beau mentioned earlier as well and then also as Mike mentioned.
Bo Larsen: I was glad you pointed that out in terms of a unit basis versus dollar basis, because over the last 10 years, even five years prices have changed so incredibly much here that.
Bo Larsen: We do an extremely prescriptive bottom up.
Bo Larsen: Plans with with every one of our branches.
Bo Larsen: And so.
Bo Larsen: It is really more about the number of units and finally, the more we drive pre sell which is a big initiative of ours. The lowered the interest cost starts to come down and again the quicker that turns come up and so that's something as a company we're going to continue to to push in and you saw some.
Bo Larsen: Tailwind that we got as you mentioned in FY 'twenty two.
Bo Larsen: Give a glimpse of what those numbers can look like when you're really executing on pre sale.
Speaker Change: Very good I appreciate the color. Thanks to you both for taking my questions.
Bo Larsen: Thanks Ben.
Jackson: Hi, Jackson with Northland Securities. Please go ahead.
Speaker Change: Thanks, I just have one final question.
Speaker Change: Or to talk just about cadence of demand and not even about what with the outlook directly but just sort of as we have gone into the first part of 2025 and I guess, what I'm asking is you.
Speaker Change: Sure.
Speaker Change: The lack of a better term kind of late in the reporting cycle for putting your numbers out because of the way your fiscal year ends up and I've I've just noticed over the course of this reporting cycle that.
Speaker Change: The companies that I talk to that reported later in the cycle.
Speaker Change: Generally commented that the.
Speaker Change: The tenor of demand going into calendar 'twenty five changed noticeably.
Speaker Change: As they got to the back part of January.
Speaker Change: Typically in.
Speaker Change: In response to.
Speaker Change: The Trump administration's.
Speaker Change: Moves on tariffs and government downsizing and many of them basically found that their pipelines of business kind of dried up that.
Speaker Change: They had business that orders, where they had deferrals I mean.
Speaker Change: I know with the egg business. The first quarter is probably not a good proxy.
Speaker Change: No.
Speaker Change: I'm just curious.
Speaker Change: Base, the rest of the year on but just out of curiosity.
Speaker Change: <unk> gone through the year to date.
Speaker Change: Have you seen a change in kind of the macro view of your the demand at your business relative to what you saw as you were going into the year like some of these other companies that I cover and communicate with that's my last question.
Speaker Change: Yeah.
Ted: For Us Ted.
Speaker Change: On the on the construction side of our business, we've seen a little bit more of that.
Ted: We're describing.
At the same time.
Ted: Many optimistic.
Ted: Points of view out there amongst our our client tell about where the economy could be headed and less regulations and and.
Ted: And so on on.
Ted: On the AG side for our grower customers, Yeah, nothing is more impactful than commodity prices and yields I mean, it just always boils down to those two things certainly.
Ted: Inputs come into play there but.
Ted: Yeah.
Ted: They're good at what you're going to see how a moisture shapes up here and weather conditions throughout the growing season, especially the critical parts of the growing season in each of our markets and then we'll continue to see what commodity prices do especially that.
Ted: June timeframe is always an important time of year.
Ted: That's often win.
Ted: We get to.
Ted: Get a better visibility on on.
Ted: Where it was he reports looking in how crop is progressing again and all of that so.
Ted: For sure those are the biggest two factors I would say.
Ted: Be well beyond anything else on on the AG side for our growers.
Ted: <unk>. He was just saying there it's certainly way too early from an AG side.
Ted: Q1 for US is about delivering on purchase decisions that they made quite a while ago you really got to get into the end of Q2 and then we're talking about how we feel like demand is looking for this year.
Ted: And that kind of speaks to what I was talking about before.
Ted: So yeah, I think it's relevant and topical on our construction for AG for us would be it's too early to speak about that and how it would imply for the full year.
Ted: Okay, alright, thanks very much.
Speaker Change: Thank you our last question comes from Steve Dyer with Craig Hallum. Please go ahead.
Speaker Change: Hey, Thanks, guys. This is Matthew Roberts on for Steve.
Speaker Change: Can you can you just talk a little bit about parts and service.
Speaker Change: How's traffic been holding up given the given the macro any have you noticed any.
Speaker Change: Notable movements across the footprint, maybe if you could touch on kind of traffic versus ticket that'd be great. Thanks.
Speaker Change: Yes, a couple of comments on that I mean from a full year perspective, we're kind of guiding flattish.
Speaker Change: On parts and service.
Speaker Change: For Q1, specifically, we are expecting that to be down a bit.
Speaker Change: That was if you looked at same store growth last year in Q1 for AG. It was up like 22% just really hot a lot of activity so kind of a pull back on that and yeah. In general I think we are seeing a little bit slower activity to start the year plenty of time to make up for it got a lot of initiatives behind there. It got a lot of momentum behind us ourselves.
Speaker Change: Again AG full year same store last year was 8.2, so coming out of the gate, a little bit slower expecting it to love flattish definitely thrown a lot of effort at it and feeling good about our long term trajectory and averaging kind of mid single digits over a longer period of time, but.
Speaker Change: To start the year, we're seeing a little bit of slowness there.
Speaker Change: Thanks, guys I appreciate it.
Speaker Change: I would like to turn the floor over to management for closing remarks.
Speaker Change: Thank you everybody for your interest in Titan machinery, and we look forward to updating you on our Q1 earnings call.
Speaker Change: Thank you. This does conclude today's teleconference. We thank you for your participation you may now disconnect your lines.
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