Titan Machinery Inc.

Greetings and welcome to the Titan Machinery fourth 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Sonick with ICR. Please go ahead.

Welcome to Titan Machinery's fourth quarter fiscal 2025 earnings conference call. On the call today from the company are Brian Knutson, President and Chief Executive Officer, and Bo Larson, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal fourth quarter ended January 31st, 2025. If you've not received the release, it's available on the Investor Relations tab of Titan's website at 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, which can also be found on Titan's IR website. The presentation is directly below the webcast information in the middle of the page. 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. 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 today's earnings release and presentation and in the risk factors section and other portions of TITAN's reports filed with the SEC. 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 directly comparable GAAP financial measures in today's release. At the conclusion of our prepared remarks, we will open the call to take your questions. And with that, I'd now like to introduce the company's president and CEO, Mr. Brian Knudson. Brian, please go ahead.

Thank you, Jeff, and good morning to everyone on the call. 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. I will then pass the call to Beau for his financial review and incremental thoughts on our modeling assumptions for fiscal 2026. Let's start with inventory. 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 since inventories peaked in our fiscal second quarter of this past year. This is the direct result of decisive actions we took to significantly reduce incoming inventory as well as an aggressive approach to pricing and internally subsidized finance programs to capitalize on seasonal year-end buying activity within our domestic footprint. I'm very proud of how our entire team executed the plan, which significantly improved our position heading into this next fiscal year. 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. 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. 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. Executing these initiatives throughout fiscal 2026, will position us in fiscal 2027 to operate in more alignment with market fundamentals and deliver more normalized profitability. Turning to our domestic ag segment performance in the quarter, while 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. 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 headcount, both of which we expect will continue to drive growth in the future. Looking ahead, although our customers' input costs have come down, they have not decreased proportionally with the change in commodity prices. which has in turn resulted in lower overall net farm income over the past two years. Farm cash receipts are expected to decline again in 2025. However, 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. With uncertainty in the timing and magnitude of government assistance, as well as potential impacts of the new administration's tariff policies, the expectation is that demand for new equipment will be significantly lower in calendar 2025. Recent industry forecasts suggest 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, 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. Now turning to our European operations, which were similarly impacted by lower commodity prices and sustained high interest rates, which negatively impacted equipment demand. However, this segment came in largely within our expectations for the fourth quarter as we diligently managed through very challenging conditions, particularly in Romania, where severe drought during the critical part of the growing season reduced crop yields to the lowest levels in over a decade. With help from European 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 FY26. In Australia, our performance was also largely in line with expectations as we managed through a similar environment to our domestic ag segment. Australia, however, was further impacted by more challenging weather, including below average rainfall during the critical part of the growing season. 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. We expect that the resulting lower profitability levels for Australian customers this past growing season will restrict demand in FY26. Finally, our construction segment finished the year relatively flat compared to fiscal 2024. 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 on the construction side. Our cleaner inventory position heading into fiscal 2026 will allow us to be more responsive to market opportunities in this segment. We remain optimistic about construction's multi-year outlook as housing shortages and the Federal Infrastructure Bill provide healthy support for the industry long-term, while improved equipment availability and new product introductions from our suppliers provide additional near-term opportunities. However, uncertainty around the economy has impacted construction activity, and as a result, we are expecting softening demand for construction equipment in fiscal 2026. In closing, fiscal 2025 has been a pivotal year for Titan, marked by decisive action and intentional execution. The accelerated progress we achieved in our inventory reduction initiative, particularly in the fourth quarter, represents more than just operational capabilities. It demonstrates our ability to take bold action when opportunities arise, even amid challenging market conditions. As we navigate this cycle, we see some important differences from previous cycles. OEM production constraints driven by global pandemic limited industry volumes, and as such, the North American fleet age continues to support replacement demand. Replacement demand is bolstered by technology and precision advancements and is further supported by lower levels of lease returns and healthy customer balance sheets. At Titan 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. In closing, I'd like to express my sincere gratitude to our employees for their tremendous focus, hard work, and execution. Their ability to execute on our strategic initiatives while maintaining our high standard of customer service has been commendable. 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 2025, position us to navigate the current cycle and emerge stronger as the industry advances through the cycle. 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. With that, I will turn the call over to Beau for his financial review.