Titan Machinery Inc.

Greetings and welcome to the Titan Machinery fourth quarter fiscal 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonick of ICR. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to Titan Machinery's fourth quarter fiscal 2023 earnings conference call. On the call today from the company are David Meyer, chairman and CEO, Bo Larson, CFO, and Brian Knudson, president and COO. By now, everyone should have access to the earnings release to the fiscal fourth quarter ended January 31, 2023, which went out this morning at approximately 6.45 a.m. Eastern time. If you've not received the release, it's available on the investor relations tab of Titan's website, IR.TitanMachinery.com. This call is being webcast, and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks. We suggest you access the presentation now by, again, going to the Titan's website at IR.TitanMachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on slide two of the presentation our safe harbor statement. 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. Statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in the risk factors section of TITAN's most recently filed annual report on Form 10-K. 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'll 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 directly comparable GAAP measures in today's release. At the conclusion of our prepared remarks, we'll open the call to take your questions. And with that, I'd now like to introduce the company's chairman and CEO, Mr. David Meyer. David, please go ahead.

Thank you, Jeff. Good morning, everyone. Welcome to our fourth quarter fiscal 2023 earnings conference call. On today's call, I will provide a summary of our results, and then Brian Knutson, our president and chief operating officer, will give an overview of each of our business segments. Bo Larson, our CFO, will then review financial results for the fourth quarter and full year of fiscal 2023 and conclude with some commentary around our fiscal 2024 modeling assumptions. Fiscal 2023 was a record year for us, driven by strong execution and our continued commitment to outstanding customer service. We generated sales of $2.2 billion and record adjusted earnings per share of $4.52, reflecting solid organic growth and operating leverage. We are operating the business with discipline and efficiency, as demonstrated by the consolidated pre-tax margin of 6.1%, that we delivered for the full year, with each of our operating segments driving strong pre-tax margin growth. This is a direct reflection of the hard work that we put into the business over the last decade to ensure that Titan Machinery would be in position to drive higher levels of profitability and cash flow throughout the cycle. We're a much stronger company today, with earnings per share more than double that of the prior peak. Our record performance was further supported by a strong year of acquisition activity, Altogether, looking at the past 14 months, we have added 22 new store locations to our footprint, representing approximately $400 million of annualized revenue, marking one of our most productive stretches of acquisition activity in company history. Just last month, we closed on our acquisition of the Idaho dealership assets of Pioneer Farm Equipment. This was the first acquisition that leveraged our expanded commercial application footprint following the addition of Heartland's distribution territory in August of 2022. The Pioneer Transaction adds five full-line case-aged agricultural dealerships located in the Snake River Valley of southeastern Idaho, two of which are also case construction equipment dealerships, and will help us generate a holistic presence to service the local growers, contractors, and commercial applicators in the region. Most importantly, we share similar cultures that are focused on attentive personal customer service, and we look forward to a successful future together. From a segment perspective, our agriculture segment led the way, benefiting from high levels of demand that is being supported by a favorable farm economy. Equipment was the primary driver in terms of growth and dollar contribution for the full year, with parts and service also making strong contributions to the bottom line. Our construction international segments each had a great year as well, highlighted by a significant expansion in pre-tax margin in fiscal 2023, finishing the full year at a 6% and 6.8% respectively. Looking at the fourth quarter results, the quarter was negatively impacted by delayed new equipment shipments. This abnormal congestion at the very end of the fiscal year limited our ability to deliver equipment to customers at recognized revenue which resulted in an increase of pre-sold units hitting the inventory at year end. While this impacted our financial performance in the fourth quarter, it is ultimately a timing nuance as we expect to catch up on the backlog as we progress through fiscal 2024. We are carrying significant demand into fiscal 2024 and continue to believe that we are experiencing an extended cycle that is being supported by strong ag fundamentals which should drive sustained demand throughout the fiscal year. Equipment availability will likely remain a limiting factor in the near term, but we are focused on those elements we can control and have an incredible foundation for another strong year as laid out in the modeling assumptions that we are introducing today. Before turning the call over to Brian, I want to take a moment to reflect on where we are today and why we're excited about the future. As you may recall, at our 2017 Investor Day, in conjunction with our 10-year anniversary as a public company, we shared with you a long-term objective of achieving an average annual pre-tax margin of 5%. In fiscal 2023, we achieved a consolidated pre-tax margin of 6.1%, and each of our segments achieved a pre-tax margin of 6% or greater. We anticipate advantageous industry fundamentals as the market continues to consolidate and and we see an increase in dealership groups supported by professional management teams. Furthermore, as we continue to execute our customer care strategy, our customers will benefit from the increased value this brings, and Titan Machining will benefit from an increase in sustainable, higher margin parts and service revenues, which are less cyclical in nature. We have also been able to strengthen the balance sheet by significantly reducing aged inventory and increased inventory returns over three times, which is largely attributed to our focus on pre-sale initiatives. With these pieces in place, we expect our average pre-tax margins to trend at these higher levels over the long term. Additionally, we foresee a continued revenue growth trajectory driven by both organic and acquisition growth, creating a bright future for Titan Machinery our employees, and the customers we serve. I will now turn the call over to Brian to review our three segments in more detail.