Titan Machinery Inc.

Greetings. Welcome to Titan Machinery Inc. Third Quarter Fiscal 2025 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, and welcome to Titan Machinery's third quarter fiscal 2025 earnings conference call. On the call today from the company are Brian Knudson, President and CEO, and Bolar CFO. By now, everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2024, which is also available on Titan's Investor Relations website at ir.titanmachinery.com. In addition, we are providing a supplemental presentation to accompany today's prepared remarks, along with the webcast and replay information, all of which can be found on Titan's Investor Relations website within the events and presentation section. 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. The statement did not guarantee future performance, and therefore, undue reliance should not be placed upon them. Forward-looking statements are based on management current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statement section of the earnings release and 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 to assume no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during the call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe the financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from the previous period. We included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures in today's release and supplemental presentation. 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 president and CEO, Brian Knudson. Please go ahead, Brian.

Thank you, Jeff, and good morning to everyone on the call. I'll start today by covering the current market environment, our priorities as we manage through this challenging market cycle, and some commentary on each of our operating segments. 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. As anticipated, the industry continues to experience softer demand conditions, reflecting the combination of challenging agricultural fundamentals, which include lower net farm income due to the decline in commodity prices across key cash crops, high input costs, and the lagging effect from higher interest rates. Our domestic agricultural segment performance was generally in line with our expectations and the weaker demand environment played out as anticipated. We continue to be highly focused on managing our inventory levels downward. We have made some early progress, but we are only just beginning to move the needle and still expect the majority of inventory reductions to be realized as we progress through fiscal 2026. Nonetheless, In the third quarter, we were able to decrease our total inventory by approximately $115 million. This result was achieved through our aggressive strategy geared toward enhanced sales incentives to drive retail demand. As anticipated, these proactive measures are compressing our equipment margins in the near term. And margins could see further compression as we move through the first half of calendar 2025. depending on market conditions, and if we see the opportunity to move more quickly toward our targeted equipment inventory levels. However, we believe these actions are critically important to lessen the impact that higher inventory and lower demand has on our financial performance, and eventually will accelerate our return to a more normalized margin profile as the industry cycle progresses. turning to our European operations, in which we experienced more challenging conditions in the third quarter than previously anticipated. This is particularly true in Romania, where demand continued to weaken due to severe drought conditions, which have reduced some crop yields to the lowest levels in more than a decade. Bulgaria and Ukraine have demonstrated more resilience relative to Romania, but Eastern Europe in general was soft and we continue to monitor these markets closely. In Australia, we experienced well below average rainfall and an early frost event during the critical growing season. This had a negative impact on yields, and as a result, we anticipate a softening of demand through the fourth quarter relative to our prior expectations. Finally, in our construction business, our performance reflects a more normalized demand environment which was consistent with our expectations. We achieved a 10% same store sales increase. However, much of that is timing related, and we still generally expect our construction business to finish the year flat as compared to the prior year. Looking further ahead, we remain optimistic on the segment's outlook as the federal infrastructure bill provides healthy support for the industry over the long term. while near-term support is provided by improved equipment availability and new product introductions from our suppliers. As we navigate the current industry cycle, we believe it is important to highlight several key differences from the last downturn in the mid 2010s that underscore why both the industry and our company are better positioned this time. At the industry level, Farmers entered this cycle with considerably healthier fundamentals. Stronger balance sheets following multiple consecutive years of good profitability and increased lamb values providing some buffer against current headwinds. Additionally, the North American fleet age continues to support replacement purchases and today's precision agriculture solutions are helping farmers achieve higher returns on their operations through greater productivity, further supporting equipment investment. It is also encouraging that each of the major agricultural manufacturers have been lowering production levels to help right-size inventory levels across the industry. At Titan specifically, although we can't control the demand environment, we've made structural improvements that enhance our resilience. Since the last downturn, we have had footprint optimization and other cost-out restructuring efforts, centralized inventory control, execute on strategic M&A that helps leverage our scale and drive higher levels of profitable growth, and we've doubled down on our customer care strategy, which has allowed us to build a more robust reoccurring revenue stream through our higher margin parts and service businesses. The fruits of this important initiative can be seen in absorption levels that have increased over time and will continue to improve moving forward. We've also taken earlier and more decisive action on inventory management this cycle, as I covered a few minutes ago. Finally, we are also evaluating a variety of prudent measures as we work through our budgeting process for fiscal 2026 to navigate this industry cycle while continuing to lean into our growth initiatives. In closing, we are encouraged by the early progress we are making with our inventory reduction strategy to reach targeted levels as quickly as possible. We are confident that the structural improvements to our business, combined with the decisive actions we are taking, position us well to navigate this cycle in a decidedly more efficient manner than in the past. I want to sincerely thank our employees for their dedication to supporting our customers during these more challenging times, as their efforts remain crucial to the success of our customer care strategy and our ability to deliver best-in-class service. With lessons learned from the previous cycle and our now stronger foundation, we are positioned well to deliver significant value to our shareholders over the long term. With that, I will turn the call over to Beau for his financial review.