Titan Machinery Inc.

Greetings and welcome to the Titan Machinery third quarter fiscal 2026 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 with ICR. Thank you. You may begin.

Thank you. Welcome to the Titan Machinery third quarter fiscal 2026 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 third quarter ended October 31st, 2025, which is also available on Titan's investor relations website at ir.titanmachinery.com. In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with the webcast and replay information, which can also be found on Titan's Investor Relations website, within the Events and Presentations 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. Statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statement section of today's earnings release and the company's filings with the SEC, including the risk factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. These risks and uncertainties 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 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 and supplemental presentations. 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, Brian Knudson. Please go ahead, Brian.

Thank you, Jeff, and good morning to everyone on the call. I'll start by providing an update on our inventory optimization progress and operational focus areas. and then discuss the current environment across our segments before turning the call over to Beau for his financial review and comments on our fiscal 2026 modeling assumptions. Nine months into the fiscal 2026, we're making meaningful progress on our inventory optimization initiatives, which will position us to emerge from this cycle leaner and stronger. Our team did an excellent job executing in what remains a very challenging market environment. As we head into the final quarter of the year, our focus is on finishing strong and continuing to drive inventory optimization while maintaining the customer relationships and service excellence that differentiate us in the market. We've made substantial progress through the first nine months of the fiscal year, reducing total inventory by $98 million. As I just mentioned, I'm extremely proud of the disciplined work our teams have been doing all year to move equipment in a very difficult demand environment, and we are confident we'll significantly exceed our $100 million full-year reduction target. As such, we are raising our inventory reduction target to $150 million. The quality of our inventory also continues to improve. It's fresher and has an increased mix of more high-demand categories. But we're not stopping there. We still have excess inventory in certain seasonal new equipment categories, as well as our overall used equipment level. Our focus remains on finishing this fiscal year in a healthier inventory position so that we can return to the more normalized equipment margins that we've historically achieved. Regarding equipment margins, they beat expectations for the quarter, driven largely by a more favorable sales mix and our improved inventory position. Bo will provide further details, but I do expect equipment margins to moderate somewhat in the fourth quarter, given less favorable sales mix and additional inventory optimization efforts as we finish the year. The work we're doing now on inventory optimization is about setting ourselves up properly for next year over maximizing near-term margins. Our customer care initiative continues to demonstrate its strategic value and remains central to our operating strategy. While equipment demand remains under pressure at this phase of the cycle, our parts and service businesses are generating well over half of our gross profit dollars. The stabilizing force of our parts and service business is essential in times like these. keeping us closely engaged with our customers, allowing us to add value to their operations, and positioning us well for when equipment demand eventually recovers. This relentless focus on our customers dovetails with our recent activity surrounding footprint optimization, both domestically and abroad. As you may recall, we acquired Heartland Ag Systems in 2022, which allowed us to gain access to the full product line of Case IH application equipment. including self-propelled sprayers and fertilizer applicators, along with incremental sales opportunities to the commercial application segment of the market. As a part of the integration process of that business, we have recently divested certain stores outside of our core footprint and sold them to local C&H dealers in the respective areas. This change will allow us to focus our resources on markets where we can best leverage our broader service network to provide best in class service and support to our customers and deliver improved shareholder returns. In that same vein, we have also taken an objective look at our international operations to ensure we are allocating capital to high performing markets. Our German operations have faced challenges that have historically weighed on returns within our year operating segment. And as such, we are in the process of divesting our dealership operations located in Germany, working in close coordination with C&H and local New Holland dealers in the region. An additional part of our footprint optimization is continuing to build upon the dual brand strategy that we previously implemented in approximately one-third of our U.S. store network over the years. For instance, in Australia, we recently gained access to the New Holland distribution rights in six of our 15 rooftops. While we're not adding new rooftops in country, we now have both Case H and New Holland brands available in these markets, helping us provide better scale and customer service through improved coverage to drive increased market share while capturing synergies from both brands. We remain focused on organic growth through market share gains and focusing on our customer care strategy to drive higher parts and service revenues. At the same time, we are well positioned to continue to execute on M&A opportunities that align within our strategy that focuses on leveraging our service network to provide best-in-class customer service while driving scale and efficiencies to achieve higher levels of profitability. With that, I'll now turn to our segments. In domestic ag, the quarter performed within our expected range. despite an environment that remains challenging for our farmer customers. While the harvest season is now largely complete and yields were generally solid across our footprint, farmers continue to face multiple headwinds. These include depressed commodity prices, which is the fundamental issue pressuring farm profitability, as well as the government shutdown, which slowed payments to farmers, adding to current cash flow challenges, along with higher interest expense. While we have seen some improvement in commodity prices recently, they generally remain below break-even levels for our customers. And while it's encouraging to see China committing to resume soybean purchases, it's unlikely that this will result in a sustainable inflection in commodity prices in the near term. Further, while the reinstatement of 100% bonus depreciation is a positive for those customers who find themselves in a taxable position, Many simply don't have the income to take advantage of it this year. The bottom line is that without a significant improvement in commodity prices or substantial additional government support, equipment demand is likely to remain at trough-type levels for the near term. Now turning to our construction segment, which continues to face some softness reflecting the broader economic uncertainty. Equipment margins remain subdued, pressured by some of the same variables that are impacting our domestic ag segment. Infrastructure and data center projects are providing a baseline level of activity, while the overall demand environment remains somewhat softer than the highs of recent years, but still at healthy levels. Europe had a strong third quarter as Romania continued to drive segment performance as customers capitalized on EU subvention funds up to the September deadline. However, absent this temporary stimulus, the underlying demand in the region remains soft and is tied to the broader ag cycle. Australia continues to experience a similar backdrop as their domestic ag business with industry volumes below prior trough levels. However, the third quarter also reflected some difficult comparables relative to the prior year. The market remains challenging, but the fourth quarter revenues should be closer to what we saw in the prior year. In closing, we've accomplished a great deal over the past year, reducing total inventory by over $500 million from peak levels in Q2 of prior year. This has been a full team effort, and I want to express my appreciation for how our people have maintained exceptional customer service while executing these initiatives by outperforming the market. The agricultural equipment market remains challenging, and the industry is not expecting a near-term recovery. However, we are staying disciplined in our execution, managing what we can control, and positioning the business to perform well when market conditions eventually improve. With that, I'll turn the call over to Beau for his financial review.

Thanks, Brian, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 third quarter, total revenue was $644.5 million, compared to $679.8 million in the prior year period, reflecting a 4.8% decrease in same-store sales driven by weaker demand in our domestic ag, construction, and Australia segments, largely offset by stimulus difference strength in our European segment, as Brian discussed earlier. Despite the sales headwind in the third quarter, gross profit was essentially flat at $111 million, compared to $110.5 million in the prior year period. While gross profit margin expanded to 17.2%, as compared to 16.3% in the prior year. This was largely driven by a 70 basis point improvement in our equipment margins for the third quarter versus the prior year comparative period. Notably, equipment margins for our domestic ag segment were 7% in this year's third quarter, which is a significant improvement from the 3.1% that was achieved in the first half of this fiscal year. This improvement is largely driven by our improved inventory position and a favorable sales mix, but also benefited from a $3.7 million accrual for the manufacturer incentive plans for which nothing was accrued in the first half of the year. Operating expenses were $100.5 million for the third quarter of fiscal 2026, compared to $98.8 million in the prior year period. Our headcount in discretionary spending is down year over year as a result of disciplined expense management. However, the small increase in total operating expense was led by higher variable compensation and some transaction-related expenses. Lower plan and other interest expense was $10.9 million as compared to $14.3 million in the prior year period, reflecting our continued efforts to reduce interest-bearing inventory over the past year. In the third quarter of fiscal 2026, net income was $1.2 million, with earnings per diluted share of 5 cents, compared to net income of $1.7 million, or earnings per diluted share of 7 cents for the same period last year. Now turning to a brief overview of our segment results for the third quarter. Our domestic ag segment realized a same-store sales decrease of 12.3%, which took segment revenue to $420.9 million. Segment pre-tax income was $6.1 million compared to pre-tax income of $1.8 million in the third quarter of the prior year, reflecting the positive equipment margin dynamics that I discussed earlier, as well as lower operating expenses and lower floor plan interest expense as compared to the prior year. In our construction segment, Same-store sales decreased 10.1% to $76.7 million, which was driven by lower equipment sales. Pre-tax loss was $1.7 million, compared to a pre-tax loss of $0.9 million in the third quarter of the prior year. In our Europe segment, same-store sales increased 88% to $117 million, which includes a $6.1 million positive foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue increased 78%, which was primarily driven by Romania as customers capitalized on EU subvention funds ahead of the September deadline. Pre-tax income for the segment increased to $3.5 million compared to a pre-tax loss of $1.2 million in the third quarter of last year. In our Australia segment, Same-store sales decreased 40% to $29.9 million, which included a 1.3% negative foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue decreased 39%. This decrease reflects the continued normalization of sprayer deliveries in fiscal 2026 after having caught up on a multi-year backlog of deliveries during fiscal 2025. Pre-tax loss was $3.8 million compared to a pre-tax loss of $0.3 million in the third quarter of last year. Now on to our balance sheet and inventory position. We had cash of $49 million and adjusted debt to tangible net worth ratio of 1.7 times as of October 31, 2025, which is well below our bank covenant of 3.5 times. Regarding inventory, as Brian mentioned, we reduced our total inventory by $98 million through the first nine months of the year to $1 billion. Of that $98 million reduction, approximately $15 million came from equipment sold through three domestic divestitures we completed. The vast majority of the reduction reflects the disciplined work our team has been doing to move equipment in a challenging demand environment. Our cumulative total inventory reduction from peak levels in Q2 of the prior year now stands at $517 million. Beyond the headline inventory reduction number, we're also seeing a meaningful improvement in the quality of our inventory. We continue to focus on reducing aged inventory, which we define as equipment that has been on our lots for more than 12 months. Aged equipment inventory peaked in May of this fiscal year And we have been able to reduce this by a total of $94 million over the last five months. This aged inventory reduction is critical to returning to more normalized equipment margin levels. Given the progress we have made and the programs we have in place to continue to drive sales in the fourth quarter, we have confidence in making further progress on aged inventory and inventory levels overall. As such, as Brian mentioned previously, we are increasing our inventory reduction target to $150 million for the full fiscal year. Turning to our fiscal 2026 modeling assumptions, we are refining our revenue expectations for both the construction and Europe segments based on our year-to-date performance, while keeping our assumptions for domestic ag and Australia intact. We are now expecting construction to be down 5% to 10% compared to our prior expectation of down 3 to 8 percent. And Europe is expected to be up 35 to 40 percent, an improvement from our prior range of up 30 to 40 percent, reflecting the strong performance in Romania during the third quarter. From an equipment margin perspective, I want to provide some additional context for the fourth quarter. As Brian mentioned, our third quarter consolidated equipment margins of 8.1% benefited from our improved inventory position and favorable sales mix. Given a less favorable sales mix and additional inventory optimization efforts in the fourth quarter, we anticipate consolidated equipment margins to moderate back to approximately 7% for the fourth quarter. This reflects three primary factors. First, The fourth quarter is traditionally a big quarter of delivery of multi-unit deals for larger ticket cash crop equipment, and generally speaking, those tend to have moderately lower margins than other transactions. Second, we continue to work through aged inventory as part of our optimization efforts. And third, we anticipate some moderation in Europe following the September expiration of subvention fund availability in Romania. Consistent with our prior expectations, operating expenses are expected to decrease year-over-year on an absolute basis, and I continue to expect them to be approximately 16% of sales for the full fiscal year. Lower plan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization and we should see some of those benefits in the fourth quarter given the reduction in aged inventory we have seen in recent months. As a preface to our earnings per share expectations, I want to call out the anticipated recognition of a non-cash valuation allowance that is expected to be recognized in the fourth quarter and result in an increase in our reported tax expense by approximately $0.35 to $0.45 per share. reflecting a variable that was not considered in our previous assumptions. This is dictated by accounting guidance and is influenced by the degree to which our profitability is being impacted by the broader cycle. It's something that we had to recognize in the prior downturn as well and then subsequently reversed as the industry recovered from the prior trough. I expect a subsequent reversal at some point in the future this time as well. However, This will result in an increase to tax expense for the time being. Based on guidance from regulators, we do not plan to adjust this incremental tax expense out of our presentation of full-year adjusted earnings per share. So I mention it here so you can better appreciate the magnitude that the underlying equipment margin improvement is having on our results in the second half of the fiscal year. To be clear, our margin improvement is being negated by this valuation allowance, and as a result, we are reaffirming our adjusted diluted loss per share guidance in a range of a loss of $1.50 to $2. In summary, we are pleased with the progress we have made in a challenging demand environment with industry volumes below prior trough levels, and we are poised to make further progress in the fourth quarter. Our team's hard work advancing our inventory reduction and footprint optimization initiatives are positioning the business for improved financial performance as we move into fiscal 2027. This concludes our prepared comments. Operator, we are now ready for the question and answer session of our call.

Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Liam Burke with B. Reilly Securities. Please proceed with your question.

Thank you. Good morning, Brian. Good morning, Bob. Morning. Good morning. We saw very nice results on parts, excuse me, service was down 4%. Is that just normal quarter to quarter seasonality or is there something within that number on that down year over year number that's influenced it?

Yeah, so there's some noise there from a quarter to quarter perspective. The way service is reflected does get impacted by how much new equipment we're delivering and how much of their Labor is going towards PDI, which ultimately shows up as whole good versus service revenue. Overall, in big picture, service, generally speaking, you know, flattish this year in a world where large ag new equipment's down about 30%. Pretty happy with that. Certainly driving initiatives and expecting over the long term, as we've talked about for a while now, to to be able to drive sustainable growth. But again, stability in this environment will take for now as we work on some underlying things such as driving higher take rates on extended warranties, preventative maintenance agreements and the like to really help us accomplish what we want. And that is to see something more like mid single digit growth on average over a longer period of time. Still feeling good about all that. Great.

And then on the construction, same store stills just don't seem to be recovering more in line with ag. We would think that there'd be less decline, but it seems to be either the same or getting worse when most of the larger infrastructure players and larger construction players are doing okay.

Yeah, the first thing I would say, and I'm sure Brian will add to it as well, underneath that for us, I'd say that there's some specific factors that aren't necessarily reflective of the market. Specifically, last year was a big year for us recovering and catching up on the delivery of wheel loaders. That extends back to the COVID production supply chain constraints. So last year, we received a lot in. We delivered a lot of them. Q3 was a big quarter for that specifically. So that was less about the market conditions and more about catching up on that backlog. Underneath that, we do see more stability ourselves and kind of reflective of what the overall market environment is like. I don't know if you wanted to add anything. Okay.

Yeah, just as it relates maybe to the overall infrastructure impact, we certainly don't play as much in that market as, say, a Caterpillar would, but a better portion of our business is tied to ag in general with, as Bo mentioned, wheel loaders and a lot of the material handling equipment, as well as res, which with the interest rates where they are has still been lagging. But we are certainly seeing some good stability in data center projects up here in the Midwest. And again, it's basically hanging in there. Mainly what you're seeing in the comparables is what Bo mentioned with just the year-over-year comparison to the change in the wheel loader backlog shipment that we had. But we're expecting, you know, potentially here rate cut in December, which could be positive news and a lot of our contractors are, you know, I'll say cautiously optimistic here as they start to look at their 2026 schedules. And so, you know, we're looking at potential uplift for next year in that market.

Great. Thank you, Brian. Thank you, Bob. Yep.

Thank you.

Our next question comes from the line of . Please proceed with your question.

Good morning and congratulations on really good progress your team seems to be making here. So, I guess my first question, I'd like to talk a little bit about Europe. And appreciate the guidance raised here, but if I heard you correctly, the tailwind in Romania from those subsidies is going to dissipate, went away in September. What are you seeing in that region more broadly? And I guess really the essence of my question is, at this point, all of us really kind of focus on fiscal 27, you know, the current fiscal year is pretty much done. What's the right way to think about this portion of the business for fiscal 27, recognizing that the comparisons here are really difficult?

Yeah, no, I appreciate the question. And for sure, Romania, you know, this year essentially doubled up year over year. And kudos to the team for executing on that and capitalizing on all the opportunity that was there. You know, first of all, just in terms of what we're seeing in the region today, both for Romania and Bulgaria. I would say they haven't had the best weather conditions in both calendar 2024 and 2025. So whereas more broadly in Europe, some of the yields were better, they weren't as well off there. So that's a bit of a headwind. Obviously, the funds kind of helped us mask some of that and overperform there. From a next year backdrop perspective, I would say, and again, this is directionally speaking because we'll provide guidance when we get on our March call, but for Romania, the pullback, you know, 30 to 40%, we'll sharpen our pencil on that, but that's not out of the range of reasonable given the backdrop that they have and the significant growth they had this year. For Bulgaria and Ukraine, I would say more stable and opportunity for growth So ex-Germany, of course, which we're talking about divesting of, mix all that in. You're talking about something, again, directionally speaking, we'll sharpen the pencil, but some high teens, maybe 20% down year over year for Europe, ex-Germany.

That's really helpful. And, you know, you guys are not hearing of any other stimulus packages or anything of the sort that might be going on in that region outside of Romania. you know, Ukraine as well. Obviously, those guys have been for a lot.

So it does actually continue a bit. And again, we'll continue to sharpen our pencil. But there are still funds in play, even in Romania through 2027 for certain categories of equipment. They're pretty prescriptive. We feel like we're in a decent position to continue to take or to execute on those opportunities. So we'll continue to sharpen our pencil, provide more clarity. But again, I would say, you know, an amazing job by the team to double up the business year over year. Some pullback expected. We'll continue to sharpen. Funds are there, maybe not as significant as we saw this year.

Sure. Reverting back to the U.S. business, It sounds like you guys are doing some work on the footprint, which, you know, you've done in prior downturns as well. I guess the commentary, as I heard it from Vijay in the prepared remarks, was pretty subdued as we think about fiscal 27. And again, directionally, I'm sort of wondering a couple of things here. Should we plan for another year of decline in fiscal 27 based on what you know today about your North American business? And if that's the case, what's the right way to think about margins? As you produce the inventory, are we to the point where we can see on the equipment side more normalized margins, even if we have to deal with another year of top line or volume compression? And then I'll have one final follow-up.

Yeah, from a margin perspective, and then I'll turn it over to Brian to talk more about just about footprint in general there. So, yeah, back half of the year, obviously, you saw pretty significant inflection. So I'm talking domestic ag here, setting aside the other segments, which haven't had as much volatility. First half of the year, equipment margins were about 3.1%. Back half of the year, equipment margins about 6.5%. If you set aside manufacturer incentives, which we're generally accruing and recognizing in the back half of the year as we gain certainty, but back half of the year margins would be more like five and a quarter. So if we go into next year and there's an assumption that industry volume is down again and kind of setting a new historical low, at least for the past couple of decades, that five and a quarter is maybe a decent proxy to start with for the first half of next year. And then continue to see us driving improvement from there. I don't know if you wanted to add any on the industry in general.

Yeah, I'll maybe just add a little bit on footprint and then secondly on industry next year. So with footprint, we work very hand in hand with C&H. They don't get surprised by any acquisition we do, nor do they with any divestiture that we do. And so we've done a lot of work in recent years here on our strategic plan, and we're just really continuing to work that plan. So if you look at some of the larger acquisitions that we've done, and as we refine those now, such as some of the divestitures we've done related to our Heartland application business, we'll continue to refine that. And again, we're working hand-in-hand with C&H and our fellow C&H dealers on that. And we believe that's a great solution for our customers in the end. And we're very pleased with that acquisition, again, as we continue to refine it. Secondly is just continuing to get ready for additional acquisitions that will be accretive and in line with our strategic plan. And so we'll continue to refine our footprint and optimize in the areas where we perform the best and can really maximize our customer care strategy And then third, you'll see us doing a lot with the multi-brand strategy with C&H. As you saw, we just added the contract at five or six of our rooftops in Australia where we didn't actually add any rooftops, but we added the new Holland contract to six of our 15, as well as we've got a third of our North American footprint that's dual branded. And there's a lot of value there that we can unlock for shareholders and for our customers and give better customer service as we do that. So we're going to continue to execute on that strategy as well. And just with the overall demand making, I think as you know there's a lot of variables in play here. We'll see what continues to happen with soybean sales and soybean consumption. So really on the demand side and as we continue to look at stock to use ratios here. Also with Renfuel standards as we get into January here, I think we'll see some further development on that. Things around E15 and biodiesel especially. And then, you know, really if you look at the government stimulus is going to be the big wild card here. So with the shutdown, you know, no assistance came. We'll see what comes yet in 2025. Of course, we're running out of time in the calendar year. And so 2026, I think that's going to be the big question as at today's commodity prices, even though we've had a recent uptick, many of the farmers are still not at profitable levels here, even with the good yields that we had. So that's going to, I believe, be another big wild card for next year here that we should get a lot more Color on here as especially the February WASDE report comes out and as insurance rates get locked in at the end of February and so forth.

All right. And then my last question, you know, from an inventory standpoint, maybe you can comment a little bit as to how you think about that. And I know I've asked this question before that you report dollar inventories, right? But we got to sort of keep in mind that the price of the equipment that you have in inventory has gone up a lot over the years. And, you know, your store count has increased as well. Is there a way to maybe help us understand or maybe frame for us where you are in terms of unit counts of inventories and, you know, maybe relative to the prior cycle or really any way that you think shareholders might find it helpful? Thank you.

Yeah, and to start with, certainly inventory being a big topic, trying to think about the best ways to provide transparency without overcomplicating things there. And certainly super impactful to talk about the price increase. Over the last year, we had talked about the cost of a four-wheel drive going up more than 80% since 2014. We've talked directionally speaking, again, in the last year, that as we Versus where we started the last downturn, we had about one-third as many used combines, which is an important indicator in terms of how much work there is to be done on the used equipment side of things. We'll keep working on the best ways to portray that info, but it's pretty... Pretty easy to quickly just think about it in terms of like half the number of units. And yeah, we are much better positioned than we previously were. And that's really shown in just what happened with our equipment margins in Q3, for example, versus the first half of the year. Our stance has been to aggressively manage our inventory, including the value in which it sits on our balance sheet, That's pulled forward some of that P&L pain, and that's where we saw lower margins than we had seen historically, but then you saw that significant inflection here in the third quarter. We feel really good about where things are priced, the number of units we still have to move, and exactly what we need to continue to accomplish this year to set ourselves up for success next year. We feel really good about where we're going to be to end the year, and then in a, you a market where North America is potentially down a bit again from there. It's going to be a continued focus on managing that aging profile, but we're just going to be in a lot better position to execute at the market instead of trying to be more aggressive out there. And so we should continue to see progress on those equipment margins and, of course, on that reduction in floor plan interest.

Yeah, Mick, I would just add, you know, good point on your part. As you said, as we've had equipment prices per unit in some categories nearly double in less than 10 years here, you know, dollars is not in and of itself a good way to look at it purely, and as you mentioned, also increasing our store count as well. So, you know, as you know, inventory turns is a really good way to look at that, and also interest expense in general. You know, those are some of the key things for us is just as we go forward to manage our interest expense, mitigate that as much as possible, maximize our manufacturer floor plan terms, et cetera, and ultimately pre-sell with customers. So the high dollar... cash crop, high-ticket equipment is pre-sold and not sitting on our balance sheet for any longer than possible, and especially accruing interest expense. So, you know, we'll continue to monitor turns and interest expense are a couple big indicators there.

All right. Very helpful. Thank you, guys. Thank you, Mick.

Thank you.

Our next question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question.

Thanks. Good morning. Morning. Morning, Ted. So I wanted to start out and just kind of ask a few questions around inventory just to make sure I kind of understand everything and it'll drive a few other things. So you commented, so your inventory year to date is down 98 million, but it would be down 75 million if you hadn't done the divestitures. Is that correct?

Yeah, that's correct.

Okay, so when I think about the, and that's fabulous progress, by the way, so I wanted to make sure to say that, but when I think about the 150 guidance that's been put out, if you hadn't done any divestitures, what would that guidance be?

Well, and there's a couple of, through the end of the year, right, essentially what I'm saying is the Australia acquisition that we did will largely offset those divestitures. Then the other wrinkle, I guess, we have is the Germany divestiture that will be helpful there as well. But, yeah, I mean, somewhere in the 130, 140 range. But, again, there's some offsetting impacts. The other thing that was against us from a dollars perspective was just the FX market. on the Europe side, which added to inventory without actually adding units. And last thing I would say, just to gauge the progress, and again, this is dollars, so it's not exactly units, but in the last down cycle, it took us two years to decrease inventory 348 million. It took us three years to decrease inventory 543 million. You know, we're going to go past that in an 18-month period of time here. Again, it just speaks to the approach that we're taking and to manage this down faster to get positioned heading for the next year.

So putting it into context of when we were talking about inventories before and units and everything, the 150 to 100 on a unit basis, even if you will make it look organic, you're taking up your view of terms of what you're going to be able to take your inventory numbers down, let's call it on a unit basis. you know, at, you know, regardless of the divestitures that, you know, you're, you know, it's, it's, it's indeed a, a, a change. You see, I'm saying it's not, it's not being driven by a change in your footprint. It's being driven by a change in your view with regards to what you're going to be able to accomplish.

Oh yeah, absolutely. And I mean, the biggest thing that's been reduced here to make sure that you're appreciating it is aged used equipment, which is, you know, the biggest risk in terms of valuation. So just, I mean, couldn't be happier with the progress the team has made, excited about the additional progress we're going to be able to make. It reflects on the balance sheet in a given quarter. The reality is that this is something that we've been at for more than two years now, as we've seen how things have been evolving with lead times, when we're getting stuff in from the OEMs, how we're digesting that. So Really great progress, and we look to make more here in the next couple of months.

And then with regards to the change with your outlook for inventory, is that change by chance being done because you have a more pessimistic view of how this goal 26 looks to be? Or, you know, do you understand what I'm saying? I mean, is it, you know, like you, you know, if your view is that, you know, the market going forward is weaker than I expected, so I don't need as much inventory, so I'm going to try to get rid of more inventory. Do you see where I'm going with that? Is it a change in terms of, you know, how you kind of view the macro, or do you still kind of feel like we're bottoming out in, you know, in what's called calendar 25, and we should have a stable market in 26, and that view that has been, you know, generally expressed across, the ag market, the ag players for the last several quarters is still intact. Does that make sense?

Well, yeah, big picture wise, I don't think that things have shifted drastically. I mean, and the OEMs in the general space have been talking about North America potentially down somewhat next year, but not so much that it changes, you know, our trajectory of where we want to go. It's more a reflection of the work that we still feel like we have and can accomplish for the year. I would say, though, that as we flip the calendar into next year, so we're going to get to pretty darn good spot ending this year, all things considered. We do absolutely expect some seasonal build in the spring, kind of refreshing some categories ahead of the selling season. So I wouldn't expect further reduction in the back half of next year, but getting to a good spot at the end of this year, seasonal build in the first half of next year. And then depending on where we see the market shaping up, probably, you know, taking it back down a bit in the direction of kind of where we ended this year. That's kind of my base case scenario that I would lay out for you.

Yeah, and Ted, I would just add, you know, if we go back to the earlier discussion with Meg there around, you know, for our growers next year, unless we see a significant uptick here in commodity prices or, again, the wild card with government assistance, uh, next year, uh, looks like it could be challenging again for our growers. So we want to be, uh, you know, prudent about how we're, uh, stocking our inventory accordingly. And then also, as we talked about interest expense, you know, with interest rates as high as they are, it's important that we're mitigating the interest expense. And then the third thing I would say for next year and going forward is just a, again, a strategic change for us in, um, in our balance sheet management. And really, as we talk about our footprint optimization, one of the benefits of that is we continue to refine and get our tighter contiguous footprint, which allows us to leverage that footprint and leverage our scale and share inventory more freely amongst our stores and still be able to capture every sale. That's still the ultimate goal and keep our customers up and running and satisfy their equipment needs and make them more efficient. So to never miss a sale, but to do that with leaner inventories. And so that's where we're headed. Okay.

And then my last question, it's maybe more just like actually for a little color. So, you know, I mean, a big thing with C&H is they really want to get their brands consolidated into, you know, under one roof. And you made a comment that in Australia, six of your 15 roofs now take both, you know, case and New Holland equipment. I was kind of curious when, if you could provide a similar kind of metric for the other regions and maybe talk about, you know, well, maybe it's too much, but, you know, area, you know, like how many, when you think about that, like, is there, first of all, how much of your footprint at a region is, you know, Is that consolidation already taking place? And I don't know, maybe to the extent that you can, how you think you're positioned for further consolidation of rooftops for C&H because it's such an important longer-term strategy for them. That's my last question.

Yes. Yeah, thank you. It is for sure. And so we're very much aligned with C&H and our fellow dealers in that strategy and we think there's a lot of value for our customers and our shareholders again there. And we can, it gives us a additional scale. It gives our customers most importantly, a lot of benefits as we do that and allowing us to give them quicker response times and, and less downtime ultimately. So we're, we're very focused on that. We have been for a long time. Um, we liked it that we've seen that, um, growing additional energy around that strategy, again, from other dealers and from C&H collectively. And we're going to continue to push on that. You asked how we're sitting now. So that 6 of 15 obviously brings us to just over a third in Australia, and we're going to keep pushing there. We are just about a third in the U.S., and we'll keep doing the same there. And then in Europe, again you're seeing that in kind of the earlier stages so working hand in hand with cnh uh in in germany um in in that case uh we ended up uh selling and we'll look to um again in other areas uh be a buyer as as uh things continue to move around here and and uh we leverage that that strategy so uh That's also part of, again, our strategic plan is we get some dry powder ready here and look to continue to execute on that strategy in coming years.

Okay. Hey, thank you very much for taking my questions.

Thanks, Ted.

Thank you. Our next question comes from the line of Steve Dyer with Craig Hallam Capital Group. Please proceed with your question.

Hey, thanks. This is Matthew Rahman for Steve. Just want to go back to the government payments. Are you starting to see that flow through to your farmers in the footprint, or is it just too early to tell? And then I guess with that, was there any impact in the quarter or on order books given those payments?

So earlier in the year, they received some, and then they received a little bit more in early summer. And then as we speak, they're receiving... a little bit more, which is the final 15%. They received the 85% of some of the first assistance back in approximately June. And now they're receiving the last of that. However, there was up to nearly 10 billion discussed for soybean assistance. We have not seen that yet. There's a verbal agreement with China that would potentially return them to about 25 million metric tons annually, which is about what they've historically produced, or that's about in line with their five-year average. So we'll see if... If it looks like they're going to execute on those purchases, then maybe we see prices come up and those funds don't need to come through and vice versa. So I think the government will continue to monitor that. Again, as we look at what's left here for 25, not optimistic about a lot more getting into our growers' hands other than what's already in motion. But certainly for 26, I think there's a lot to... to look at their, when you look at the pricing levels where they're at today, especially with the current price of wheat and corn and soybeans as an example. But really, generally, most of the commodities are pressured right now. And again, it does come back to that supply and demand ratios.

Understood. Thank you. And then on the footprint optimization, and then really think about Germany. Maybe, Beau, any sense you can give us in the overall contribution Germany was to the Europe segment from a top and bottom line standpoint? And then I guess with that, is that enough to move the needle as we think about next year and what that could mean from a sales perspective?

Yeah, so overall for Germany over the last several years, they've averaged roughly 40 million, low 40s million top line and pre-tax loss. of somewhere in the $4 to $6 million range. So beneficial to transition that off from a bottom line perspective in the context of our total whole goods revenues, not a massive impact there.

That's great. Thank you very much.

Thank you. That concludes our question and answer session.

I'll turn the floor back to management for any final comments.

Well, thank you, everybody, for your time this morning, and we look forward to updating you on our next call.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.