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Titan Machinery Inc. - Quarter Report: 2021 October (Form 10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 FORM 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended October 31, 2021
OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____
 
Commission File No. 001-33866
 
TITAN MACHINERY INC.
(Exact name of registrant as specified in its charter)
Delaware 45-0357838
(State or Other Jurisdiction of
Incorporation or Organization)
 (IRS Employer
Identification No.)

644 East Beaton Drive
West Fargo, ND 58078-2648
(Address of Principal Executive Offices)
 
Registrant’s telephone number (701) 356-0130

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00001 par value per shareTITNThe Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer ☒
Non-accelerated filerSmaller reporting company ☐
Emerging growth company ☐

    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES     NO  

As of November 29, 2021, 22,590,916 shares of Common Stock, $0.00001 par value, of the registrant were outstanding.


Table of Contents
TITAN MACHINERY INC.
QUARTERLY REPORT ON FORM 10-Q
 
Table of Contents
 Page No.
PART I.
FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
 Condensed Consolidated Balance Sheets
 Condensed Consolidated Statements of Operations
 Condensed Consolidated Statements of Comprehensive Income
 Condensed Consolidated Statements of Stockholders' Equity
 Condensed Consolidated Statements of Cash Flows
 Notes to Condensed Consolidated Financial Statements
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
ITEM 4.
MINE SAFETY DISCLOSURES
ITEM 5.
OTHER INFORMATION
ITEM 6.
EXHIBITS
Exhibit Index
Signatures

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PART I. — FINANCIAL INFORMATION
 
ITEM 1.                FINANCIAL STATEMENTS
 
TITAN MACHINERY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
October 31, 2021January 31, 2021
Assets
Current Assets
Cash$90,540 $78,990 
Receivables, net of allowance for expected credit losses85,842 69,109 
Inventories 412,674 418,458 
Prepaid expenses and other15,121 13,677 
Total current assets604,177 580,234 
Noncurrent Assets
Property and equipment, net of accumulated depreciation 175,328 147,165 
Operating lease assets59,950 74,445 
Deferred income taxes6,726 3,637 
Goodwill1,433 1,433 
Intangible assets, net of accumulated amortization6,535 7,785 
Other1,070 1,090 
Total noncurrent assets251,042 235,555 
Total Assets$855,219 $815,789 
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable$24,312 $20,045 
Floorplan payable 174,659 161,835 
Current maturities of long-term debt5,667 4,591 
Current operating lease liabilities9,922 11,772 
Deferred revenue35,207 59,418 
Accrued expenses and other49,133 48,791 
Income taxes payable6,783 11,048 
Total current liabilities305,683 317,500 
Long-Term Liabilities
Long-term debt, less current maturities 70,502 44,906 
Operating lease liabilities59,264 73,567 
Other long-term liabilities6,192 8,535 
Total long-term liabilities135,958 127,008 
Commitments and Contingencies (Note 16)
Stockholders' Equity
Common stock, par value $.00001 per share, 45,000 shares authorized; 22,592 shares issued and outstanding at October 31, 2021; 22,553 shares issued and outstanding at January 31, 2021
— — 
Additional paid-in-capital253,782 252,913 
Retained earnings160,482 116,869 
Accumulated other comprehensive income (loss)(686)1,499 
Total stockholders' equity 413,578 371,281 
Total Liabilities and Stockholders' Equity$855,219 $815,789 
 See Notes to Condensed Consolidated Financial Statements
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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
Revenue
Equipment$329,814 $240,901 $878,528 $662,060 
Parts80,521 76,778 208,464 194,846 
Service32,026 30,696 89,405 84,282 
Rental and other11,614 12,497 27,914 33,357 
Total Revenue453,975 360,872 1,204,311 974,545 
Cost of Revenue
Equipment288,576 215,770 772,584 593,048 
Parts55,654 53,556 146,184 136,205 
Service10,249 10,254 29,314 28,263 
Rental and other7,016 8,741 17,754 23,379 
Total Cost of Revenue361,495 288,321 965,836 780,895 
Gross Profit92,480 72,551 238,475 193,650 
Operating Expenses62,943 54,115 176,460 160,252 
Impairment of Goodwill— 1,453 — 1,453 
Impairment of Intangible and Long-Lived Assets— 1,102 1,498 1,318 
Income from Operations29,537 15,881 60,517 30,627 
Other Income (Expense)
Interest and other income (expense)616 (360)1,935 333 
Floorplan interest expense(259)(757)(1,027)(2,811)
Other interest expense(1,071)(940)(3,292)(2,884)
Income Before Income Taxes28,823 13,824 58,133 25,265 
Provision for Income Taxes7,007 3,912 14,521 6,691 
Net Income$21,816 $9,912 $43,612 $18,574 
Earnings per Share:
Basic$0.97 $0.44 $1.93 $0.83 
Diluted$0.97 $0.44 $1.93 $0.83 
Weighted Average Common Shares:
Basic22,213 22,132 22,228 22,089 
Diluted22,222 22,137 22,238 22,091 
 
See Notes to Condensed Consolidated Financial Statements

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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
 
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
Net Income$21,816 $9,912 $43,612 $18,574 
Other Comprehensive Income (Loss)
Foreign currency translation adjustments(744)2,181 (2,185)2,431 
Comprehensive Income$21,072 $12,093 $41,427 $21,005 
 
See Notes to Condensed Consolidated Financial Statements

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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Shares OutstandingAmount
BALANCE, January 31, 202022,335 $— $250,607 $97,717 $(3,220)$345,104 
Cumulative-effect adjustment of adopting ASC 326, Financial Instruments - Credit Losses— — — (204)— (204)
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax(21)— (201)— — (201)
Stock-based compensation expense— — 645 — — 645 
Net Income— — — 2,262 — 2,262 
Other comprehensive loss— — — — (528)(528)
BALANCE, April 30, 202022,314 — 251,051 99,775 (3,748)347,078 
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax239 — — — — — 
Stock-based compensation expense— — 536 — — 536 
Net Income— — — 6,400 — 6,400 
Other comprehensive income— — — — 778 778 
BALANCE, July 31, 202022,553 — 251,587 106,175 (2,970)354,792 
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax— (8)— — (8)
Stock-based compensation expense— — 691 — — 691 
Net Income— — — 9,912 — 9,912 
Other comprehensive income— — — — 2,181 2,181 
BALANCE, October 31, 202022,555 $— $252,270 $116,087 $(789)$367,568 
Common StockAdditional Paid-In CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Total Stockholders' Equity
Shares OutstandingAmount
BALANCE, January 31, 202122,553 $— $252,913 $116,869 $1,499 $371,281 
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax(33)— (975)— — (975)
Stock-based compensation expense— — 609 — — 609 
Net income— — — 10,547 — 10,547 
Other comprehensive loss— — — — (2,379)(2,379)
BALANCE, April 30, 202122,520 — 252,547 127,416 (880)379,083 
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax76 — (2)— — (2)
Stock-based compensation expense— — 584 — — 584 
Net income— — — 11,249 — 11,249 
Other comprehensive income— — — — 938 938 
BALANCE, July 31, 202122,596 — 253,129 138,665 58 391,852 
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax(4)— (4)— — (4)
Stock-based compensation expense— — 657 — — 657 
Net income— — — 21,816 — 21,816 
Other comprehensive income— — — — (744)(744)
BALANCE, October 31, 202122,592 $— $253,782 $160,482 $(686)$413,578 
See Notes to Condensed Consolidated Financial Statements
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TITAN MACHINERY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 Nine Months Ended October 31,
 20212020
Operating Activities
Net income$43,612 $18,574 
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Depreciation and amortization16,336 17,731 
Impairment1,498 2,771 
Deferred income taxes(3,116)2,117 
Stock-based compensation expense1,850 1,872 
Noncash interest expense163 125 
Noncash lease expense7,558 8,613 
Other, net690 (694)
Changes in assets and liabilities
Receivables, prepaid expenses and other assets(18,463)4,479 
Inventories3,181 76,495 
Manufacturer floorplan payable45,801 (46,466)
Accounts payable, deferred revenue, accrued expenses and other and other long-term liabilities(18,532)(15,555)
Operating lease liabilities(8,303)(9,248)
Net Cash Provided by Operating Activities72,275 60,814 
Investing Activities
Rental fleet purchases(12,159)(6,799)
Property and equipment purchases (excluding rental fleet)(17,534)(9,406)
Proceeds from sale of property and equipment667 795 
Acquisition consideration, net of cash acquired— (6,790)
Other, net20 (16)
Net Cash Used for Investing Activities(29,006)(22,216)
Financing Activities
Net change in non-manufacturer floorplan payable(30,104)(40,779)
Proceeds from long-term debt borrowings6,380 5,326 
Principal payments on long-term debt and finance leases(6,593)(4,417)
Payment of debt issuance costs— (700)
Other, net(998)(209)
Net Cash Used for Financing Activities(31,315)(40,779)
Effect of Exchange Rate Changes on Cash(404)268 
Net Change in Cash11,550 (1,913)
Cash at Beginning of Period78,990 43,721 
Cash at End of Period$90,540 $41,808 
Supplemental Disclosures of Cash Flow Information
Cash paid during the period
Income taxes, net of refunds$22,130 $31 
Interest$4,091 $5,813 
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities$15,795 $8,555 
Long-term debt to acquire finance leases$7,761 $— 
Net transfer of assets from (to) property and equipment to (from) inventories$2,168 $2,731 

See Notes to Condensed Consolidated Financial Statements
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TITAN MACHINERY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
    The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s Agriculture, Construction and International customers. Therefore, operating results for the nine-month period ended October 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2022. The information contained in the consolidated balance sheet as of January 31, 2021 was derived from the audited consolidated financial statements of the Company for the fiscal year then ended. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021 as filed with the SEC.
Nature of Business
    The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe. The Company’s North American stores are located in Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, and Ukraine. 
Impact of the COVID-19 Pandemic
    In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines. The Company's products and services were determined to be essential in the markets we serve and accordingly operations have been allowed to continue throughout the pandemic. The extent and duration of the impact of COVID-19 on the operations and financial position of the Company and on the global economy is uncertain. Uncertainty remains regarding the magnitude and duration of the pandemic and resulting financial effects. Increased infection rates and any future responses to mitigate the spread of the virus, including any potential vaccination mandates that would apply to our employees, could impact our business and our financial results in future periods.
    Recently, the Department of Labor's Occupational Safety and Health Administration ("OSHA") announced an emergency temporary standard requiring all employers with at least 100 employees to ensure their employees are fully vaccinated or require weekly testing for unvaccinated employees. This standard became effective in November 2021, giving companies 30 days to comply with most requirements and 60 days to comply with the testing requirements. In response to a court ruling, in mid-November 2021, OSHA announced that it had suspended all activities related to implementation of this new regulation pending further litigation. The exact impact that this new regulation could have on our Company is uncertain at this time. However, it could result in employee attrition, difficulty in fulfilling future labor needs, additional costs related to compliance and may have an adverse effect on our future operating results.
    Additionally, some of the Company's supply vendors are facing production, supply chain and staffing challenges as they work to achieve production capacity and lead times consistent with pre-pandemic levels. As a result, the Company has experienced some disruptions and delays on delivery of certain inventory. The Company has assessed the impacts of the COVID-19 pandemic on its results of operations for the three and nine months ended October 31, 2021 and 2020, and although there have been logistical and other challenges, no material adverse impacts were identified.
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Estimates
    The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, goodwill, or indefinite lived intangible assets, collectability of receivables, and income taxes.
Principles of Consolidation
    The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.
Accounting Guidance Not Yet Adopted
    In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The Company is amending its credit agreements to include language regarding the successor or alternate rate to LIBOR, and a review of other contracts and agreements is on-going. The Company does not expect the guidance to have a material impact on its results of operations, financial position, cash flows, or disclosures.
NOTE 2 - EARNINGS PER SHARE
    The following table sets forth the calculation of basic and diluted earnings per share (EPS):
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
 (in thousands, except per share data)
Numerator:
Net income$21,816 $9,912 $43,612 $18,574 
Allocation to participating securities(309)(186)(655)(301)
Net income attributable to Titan Machinery Inc. common stockholders$21,507 $9,726 $42,957 $18,273 
Denominator:
Basic weighted-average common shares outstanding22,213 22,132 22,228 22,089 
Plus: incremental shares from vesting of restricted stock units10 
Diluted weighted-average common shares outstanding22,222 22,137 22,238 22,091 
Earnings Per Share:
Basic$0.97 $0.44 $1.93 $0.83 
Diluted$0.97 $0.44 $1.93 $0.83 

NOTE 3 - REVENUE
    Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services. Sales, value added and other taxes collected from our customers concurrent with our revenue activities are excluded from revenue.
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    The following tables present our revenue disaggregated by revenue source and segment:
Three Months Ended October 31, 2021Three Months Ended October 31, 2020
AgricultureConstructionInternationalTotalAgricultureConstructionInternationalTotal
(in thousands)(in thousands)
Equipment$205,230 $49,679 $74,905 $329,814 $146,410 $47,766 $46,725 $240,901 
Parts52,090 13,413 15,018 80,521 50,527 14,072 12,179 76,778 
Service23,003 6,819 2,204 32,026 22,316 6,497 1,883 30,696 
Other824 622 132 1,578 824 628 102 1,554 
Revenue from contracts with customers
281,147 70,533 92,259 443,939 220,077 68,963 60,889 349,929 
Rental359 9,202 475 10,036 548 10,067 328 10,943 
Total revenues$281,506 $79,735 $92,734 $453,975 $220,625 $79,030 $61,217 $360,872 
Nine Months Ended October 31, 2021Nine Months Ended October 31, 2020
AgricultureConstructionInternationalTotalAgricultureConstructionInternationalTotal
(in thousands)(in thousands)
Equipment$530,895 $148,511 $199,122 $878,528 $396,759 $130,497 $134,804 $662,060 
Parts132,515 37,449 38,500 208,464 123,077 38,548 33,221 194,846 
Service63,908 19,773 5,724 89,405 59,466 19,514 5,302 84,282 
Other2,301 1,477 413 4,191 2,386 1,871 325 4,582 
Revenue from contracts with customers
729,619 207,210 243,759 1,180,588 581,688 190,430 173,652 945,770 
Rental803 22,076 844 23,723 1,638 26,432 705 28,775 
Total revenues$730,422 $229,286 $244,603 $1,204,311 $583,326 $216,862 $174,357 $974,545 
Unbilled Receivables and Deferred Revenue
    Unbilled receivables from contracts with customers amounted to $21.8 million and $12.9 million as of October 31, 2021 and January 31, 2021, respectively. This increase in unbilled receivables is primarily the result of a seasonal increase in the volume of our service transactions in which we recognize revenue as our work is performed and prior to customer invoicing.
    Deferred revenue from contracts with customers amounted to $34.1 million and $57.7 million as of October 31, 2021 and January 31, 2021, respectively. Our deferred revenue most often increases in the fourth quarter of each fiscal year due to a higher level of customer down payments or prepayments and longer time periods between customer payment and delivery of the equipment asset, and the related recognition of equipment revenue, prior to its seasonal use. During the nine months ended October 31, 2021 and 2020, the Company recognized $55.8 million and $40.9 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2021 and January 31, 2020, respectively. No material amount of revenue was recognized during the nine months ended October 31, 2021 or 2020 from performance obligations satisfied in previous periods.
    The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for parts installed and services performed. The contracts for which the practical expedient has been applied include (i) equipment revenue transactions, which do not have a stated contractual term but are short-term in nature, and (ii) service revenue transactions, which also do not have a stated contractual term but are generally completed within 30 days. For such service contracts, we recognize revenue over time in the amount for which we have the right to invoice for services completed to date.
NOTE 4 - RECEIVABLES
    The Company provides an allowance for expected credit losses on its nonrental receivables. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics as shown in the table below.
    Trade and unbilled receivables from contracts with customers have credit risk and the allowance is determined by applying expected credit loss percentages to aging categories based on historical experience that are updated each quarter. The rates may also be adjusted to the extent future events are expected to differ from historical results. In addition, the allowance is adjusted based on information obtained by continued monitoring of individual customer credit.
    Trade receivables from finance companies, other receivables due from manufacturers, and other receivables have not historically resulted in any credit losses to the Company. These receivables are short-term in nature and deemed to be of good
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credit quality and have no need for any allowance for expected credit losses. Management continually monitors these receivables and should information be obtained that identifies potential credit risk, an adjustment to the allowance would be made if deemed appropriate.
    Trade and unbilled receivables from rental contracts are primarily in the United States and are specifically excluded from the accounting guidance in determining an allowance for expected losses. The Company provides an allowance for these receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts.
October 31, 2021January 31, 2021
(in thousands)
Trade and unbilled receivables from contracts with customers
Trade receivables due from customers$36,280 $31,664 
Unbilled receivables21,842 12,909 
Less allowance for expected credit losses2,600 2,994 
55,522 41,579 
Trade receivables due from finance companies14,899 14,133 
Trade and unbilled receivables from rental contracts
Trade receivables5,520 4,329 
Unbilled receivables1,025 520 
Less allowance for expected credit losses1,892 1,939 
4,653 2,910 
Other receivables
Due from manufacturers9,200 8,720 
Other1,568 1,767 
10,768 10,487 
Receivables, net of allowance for expected credit losses$85,842 $69,109 
    Following is a summary of allowance for credit losses on trade and unbilled accounts receivable by segment:
AgricultureConstructionInternationalTotal
(in thousands)
Balance at January 31, 2021$228 $1,074 $1,690 $2,992 
Current expected credit loss provision30 68 (2)96 
Write-offs charged against allowance17 84 38 139 
Credit loss recoveries collected— — 
Foreign exchange impact— — (50)(50)
Balance at April 30, 2021241 1,062 1,600 2,903 
Current expected credit loss provision84 50 (225)(91)
Write-offs charged against allowance33 64 21 118 
Credit loss recoveries collected— 
Foreign exchange impact— — 19 19 
Balance at July 31, 2021299 1,049 1,373 2,721 
Current expected credit loss provision(3)26 (8)15 
Write-offs charged against allowance87 29 122 
Credit loss recoveries collected— 
Foreign exchange impact— — (19)(19)
Balance at October 31, 2021$211 $1,049 $1,340 $2,600 
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AgricultureConstructionInternationalTotal
(in thousands)
Balance at February 1, 2020$181 $1,016 $1,746 $2,943 
Current expected credit loss provision14 113 226 353 
Write-offs charged against allowance71 133 209 
Credit loss recoveries collected40 50 
Foreign exchange impact— — (29)(29)
Balance at April 30, 2020230 1,062 1,816 3,108 
Current expected credit loss provision16 95 265 376 
Write-offs charged against allowance47 78 98 223 
Credit loss recoveries collected— — 
Foreign exchange impact— — 23 23 
Balance at July 31, 2020208 1,079 2,006 3,293 
Current expected credit loss provision30 12 (256)(215)
Write-offs charged against allowance44 21 48 114 
Credit loss recoveries collected18 — 20 
Foreign exchange impact— — 67 67 
Balance at October 31, 2020$196 $1,088 $1,769 $3,053 
    The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts:
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
(in thousands)
Impairment losses (recoveries) on:
Receivables from sales contracts$20 $(213)$340 $307 
Receivables from rental contracts54 (59)24 92 
$74 $(272)$364 $399 
NOTE 5 - INVENTORIES
October 31, 2021January 31, 2021
 (in thousands)
New equipment$235,585 $206,683 
Used equipment87,741 131,369 
Parts and attachments86,711 78,982 
Work in process2,637 1,424 
$412,674 $418,458 

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NOTE 6 - PROPERTY AND EQUIPMENT
October 31, 2021January 31, 2021
 (in thousands)
Rental fleet equipment$81,676 $77,530 
Machinery and equipment23,570 23,354 
Vehicles59,222 55,884 
Furniture and fixtures43,717 43,678 
Land, buildings, and leasehold improvements117,606 90,730 
325,791 291,176 
Less accumulated depreciation150,463 144,011 
$175,328 $147,165 
    The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in Cost of Revenue, which was $2.6 million and $3.1 million for the three months ended October 31, 2021 and 2020 and $6.4 million and $7.8 million for the nine months ended October 31, 2021 and 2020, respectively. All other depreciation expense is included in Operating Expenses, which was $2.9 million for the three months ended October 31, 2021 and 2020 and $8.9 million and $8.5 million for the nine months ended October 31, 2021 and 2020, respectively.
    The Company reviews its long-lived assets for potential impairment whenever events or circumstances indicate that the carrying value of the long-lived asset (or asset group) may not be recoverable. During the three months ended October 31, 2021, the Company identified no such asset group and no impairment was recorded. The Company recognized $0.2 million million in impairment charges for the three months ended October 31, 2020. For the nine months ended October 31, 2021 and October 31, 2020, the Company recognized impairment charges of $0.4 million and $0.5 million, respectively.
NOTE 7 - INTANGIBLE ASSETS
Indefinite-Lived Intangible Assets
    The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of the changes in indefinite-lived intangible assets, by segment, for the nine months ended October 31, 2021:
AgricultureConstructionInternationalTotal
(in thousands)
January 31, 2021$6,265 $72 $1,161 $7,498 
Foreign currency translation— — (22)(22)
Impairment— — (1,139)(1,139)
October 31, 2021$6,265 $72 $— $6,337 
    The Company performs impairment testing, at least annually, of its indefinite-lived distribution rights intangible assets. There were no indicators of impairment in the three months ended October 31, 2021. The Company did not recognize any impairment charges for the three months ended October 31, 2021 and recognized $1.1 million in impairment charges for the nine months ended October 31, 2021, as it fully impaired the remaining indefinite-lived intangible assets of the German reporting unit in the second quarter.
NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT
    As of October 31, 2021, the Company had floorplan lines of credit totaling $753.0 million, which is primarily comprised of three significant floorplan lines of credit: (i) a $450.0 million credit facility with CNH Industrial, (ii) a $185.0 million line of credit under the Third Amended and Restated Credit Agreement (the "Bank Syndicate Agreement"), and (iii) a $50.0 million credit facility with DLL Finance LLC.
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    The Company's outstanding balances of floorplan lines of credit as of October 31, 2021 and January 31, 2021, consisted of the following:
October 31, 2021January 31, 2021
(in thousands)
CNH Industrial$123,303 $86,792 
DLL Finance8,899 10,667 
Other outstanding balances with manufacturers and non-manufacturers42,457 64,376 
$174,659 $161,835 
    As of October 31, 2021 and January 31, 2021, the U.S. floorplan payables were generally all non-interest bearing. As of October 31, 2021, foreign floorplan payables carried various interest rates primarily ranging from 1.40% to 4.48%, compared to a range of 1.40% to 4.82% as of January 31, 2021. The Company had non-interest bearing floorplan payables of $147.2 million and $98.8 million, on October 31, 2021 and January 31, 2021, respectively. The Company has a compensating balance arrangement under one of its foreign floorplan credit facilities, which requires a minimum cash deposit to be maintained with the lender in the amount of $5.0 million for the term of the credit facility.
Bank Syndicate Credit Agreement
    On June 4, 2021, the Bank Syndicate Agreement was amended to add a benchmark replacement reference rate when the LIBOR Rate is no longer published. The identified replacement reference rate is the secured overnight financing rate (SOFR). The benchmark transition event will occur at the earliest to occur of (i) the date that all available tenors of LIBOR have permanently ceased to be reported, (ii) June 30, 2023, or (iii) the date of agreement by the banks party to the Bank Syndicate agreement and the Company to replace the LIBOR Rate. The SOFR Rate is based upon one month, two month, three month, six month, and 12 month SOFR plus between 11.4 basis points and 71.5 basis points depending on the available tenor used. In no event will the SOFR Rate be less than zero. The applicable margin is determined based on excess availability under the Bank Syndicate Agreement and ranges from 1.5% to 2%. The Company does not believe implementation of this new benchmark rate will have a material effect on its results of operations. In addition, the amendment reduced the current floor of the LIBOR Rate from 0.5% to 0.0%
DLL Finance Floorplan Payable Line of Credit
    In August 2021, the Company entered into an amendment to the credit facility with DLL Finance LLC. The amendment reduced the available borrowings under this facility from $60.0 million to $50.0 million, increased the variable interest rate on outstanding balances from three-month LIBOR plus an applicable margin of 2.85% per annum to three-month LIBOR plus an applicable margin of 3.0% per annum, and eliminated the 0.15% non-utilization fee. DLL Finance LLC may terminate the facility in its sole discretion at any time.
CNH Industrial Floorplan Payable Line of Credit
    Effective October 1, 2021, CNH updated their interest rate structure on the Company's credit facility to a tier-based rate program. The new interest rate that will be payable by the Company on outstanding borrowings will be dependent on the Company's Retail Finance Market Share and will range from 0.5% to 2.75% plus the prime rate. Previously, the credit facility charged interest at a rate equal to the prime rate plus 3.25% for the financing of new and used equipment inventories and rental fleet assets.
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NOTE 9 - LONG TERM DEBT
    The following is a summary of long-term debt as of October 31, 2021 and January 31, 2021:
DescriptionMaturity DatesInterest RatesOctober 31, 2021January 31, 2021
(in thousands)
Mortgage loans, securedVarious through May 2039
2.1% to 5.1%
$52,419 $22,916 
Sale-leaseback financing obligationsVarious through December 2030
3.4% to 10.3%
13,246 16,505 
Vehicle loans, securedVarious through September 2027
2.1% to 3.9%
10,504 9,999 
OtherJanuary 2021
2.6%
— 77 
Total debt76,169 49,497 
Less: current maturities5,667 4,591 
Long-term debt, net$70,502 $44,906 
    The Company purchased buildings and real estate assets of eleven of its U.S. dealer locations in the first quarter of fiscal 2022 and financed these purchases with long term debt of $17.7 million. In the third quarter of fiscal 2022, the Company purchased buildings and real estate assets of an additional eleven of its U.S. dealer locations and financed these purchases with $10.2 million of long term debt. All of these dealer locations were previously leased from third party lessors.
NOTE 10 - DERIVATIVE INSTRUMENTS
    The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations.
    From time to time, the Company uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net income. The Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter. The notional value of outstanding foreign currency contracts as of January 31, 2021 was $8.0 million. There were no outstanding foreign currency contracts as of October 31, 2021.
    As of January 31, 2021, the fair value of the Company's outstanding derivative instruments was not material. Derivative instruments recognized as assets are recorded in prepaid expenses and other in the condensed consolidated balance sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the condensed consolidated balance sheets.
    The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the nine months ended October 31, 2021 and 2020. Gains and losses are recognized in Interest and other income in the consolidated statements of operations:
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
 (in thousands)
Foreign currency contract gain (loss)$— $471 $(159)$660 
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NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
    The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the nine month periods ended October 31, 2021 and October 31, 2020:
Foreign Currency Translation AdjustmentNet Investment Hedging GainTotal Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, January 31, 2021$(1,212)$2,711 $1,499 
Other comprehensive loss(2,379)— (2,379)
Balance, April 30, 2021(3,591)2,711 (880)
Other comprehensive income938 — 938 
Balance, July 31, 2021(2,653)2,711 58 
Other comprehensive loss(744)— (744)
Balance, October 31, 2021$(3,397)$2,711 $(686)
Foreign Currency Translation AdjustmentNet Investment Hedging GainTotal Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, January 31, 2020$(5,931)$2,711 $(3,220)
Other comprehensive loss(528)— (528)
Balance, April 30, 2020(6,459)2,711 (3,748)
Other comprehensive income778 — 778 
Balance, July 31, 2020(5,681)2,711 (2,970)
Other comprehensive income2,181 — 2,181 
Balance, October 31, 2020$(3,500)$2,711 $(789)
NOTE 12 - LEASES
As Lessee
    The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; these leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintain property insurance on each of the leased premises. These payments are deemed to be variable lease payments as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion. In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability. Most often, the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability. The Company estimates its incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. The Company's lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.
    The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which it has ceased operations. All sublease arrangements are classified as operating leases.
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    The components of lease expense were as follows:
Three Months Ended October 31,Nine Months Ended October 31,
Classification2021202020212020
(in thousands)(in thousands)
Finance lease cost:
Amortization of leased assetsOperating expenses$227 $395 $915 $1,176 
Interest on lease liabilitiesOther interest expense49 108 201 351 
Operating lease costOperating expenses and rental and other cost of revenue3,632 4,541 11,132 13,329 
Short-term lease costOperating expenses66 81 198 270 
Variable lease costOperating expenses502 739 1,755 2,109 
Sublease incomeInterest and other income(226)(136)(643)(419)
$4,250 $5,728 $13,558 $16,816 
    Right-of-use lease assets and lease liabilities consist of the following:
ClassificationOctober 31, 2021January 31, 2021
(in thousands)
Assets
Operating lease assetsOperating lease assets$59,950 $74,445 
Finance lease assets(a)
Property and equipment, net of accumulated depreciation5,856 12,426 
Total leased assets$65,806 $86,871 
Liabilities
Current
OperatingCurrent operating lease liabilities$9,922 $11,772 
FinanceAccrued expenses and other4,078 9,823 
Noncurrent
OperatingOperating lease liabilities59,264 73,567 
FinanceOther long-term liabilities1,692 2,911 
Total lease liabilities$74,956 $98,073 
(a)Finance lease assets are recorded net of accumulated amortization of $1.7 million as of October 31, 2021 and $3.0 million as of January 31, 2021.    
    Maturities of lease liabilities as of October 31, 2021 are as follows:
OperatingFinance
LeasesLeasesTotal
Fiscal Year Ended January 31,(in thousands)
2022 (remainder)$3,546 $3,562 $7,108 
202313,480 845 14,325 
202412,591 520 13,111 
202511,978 439 12,417 
202611,822 301 12,123 
202711,091 270 11,361 
Thereafter19,933 572 20,505 
Total lease payments84,441 6,509 90,950 
Less: Interest15,255 739 15,994 
Present value of lease liabilities$69,186 $5,770 $74,956 
    The weighted-average lease term and discount rate as of October 31, 2021 are as follows:
October 31, 2021
Weighted-average remaining lease term (years):
Operating leases6.7
Financing leases2.3
Weighted-average discount rate:
Operating leases6.1 %
Financing leases5.7 %
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As Lessor
    The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, we may also provide short-term rentals of certain equipment inventory assets. Some rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.
    All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force.
    Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets, included in Property and equipment, net of accumulated depreciation in the condensed consolidated balance sheet, of our Construction segment as of October 31, 2021 and January 31, 2021:
October 31, 2021January 31, 2021
(in thousands)
Rental fleet equipment$81,676 $77,530 
Less accumulated depreciation28,744 28,916 
$52,932 $48,614 
NOTE 13 - FAIR VALUE MEASUREMENTS
    As of October 31, 2021 and January 31, 2021, the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, which is an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement.
    The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2021 as part of its long-lived asset impairment testing. The estimated fair value of such assets as of January 31, 2021 was $0.8 million. Fair value was estimated through an income approach incorporating both observable and unobservable inputs, and are deemed to be Level 3 fair value inputs. The most significant unobservable inputs include forecasted net cash generated from the use of the assets and the discount rate applied to such cash flows to arrive at a fair value estimate. In addition, in certain instances the Company estimated the fair value of long-lived assets to approximate zero as no future cash flows were assumed to be generated from the use of such assets and the expected value to be realized upon disposition was deemed to be nominal.
    The Company also has financial instruments that are not recorded at fair value in the consolidated balance sheets, including cash, receivables, payables and long-term debt. The carrying amounts of these financial instruments approximated their fair values as of October 31, 2021 and January 31, 2021. Fair value of these financial instruments was estimated based on Level 2 fair value inputs. The estimated fair value of the Company's Level 2 long-term debt, which is provided for disclosure purposes only, is as follows:
October 31, 2021January 31, 2021
(in thousands)
Carrying amount62,923 32,992 
Fair value64,300 34,185 
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NOTE 14 - INCOME TAXES
    Our effective tax rate was 24.3% and 28.3% for the three months ended October 31, 2021 and 2020, respectively and was 25.0% and 26.5% for the nine months ended October 31, 2021 and 2020, respectively. The effective tax rate for the three and nine months ended October 31, 2021 and 2020 were subject to variation due to various factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income, recognition of a valuation allowance on certain of our foreign deferred tax assets and foreign currency gains and losses.
NOTE 15 - BUSINESS COMBINATIONS
Fiscal 2021
    On May 4, 2020, the Company acquired certain assets of HorizonWest Inc. This acquired CaseIH agriculture dealership complex consisted of three agriculture equipment stores in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming, which expanded the Company's agriculture presence in Nebraska and into Wyoming. The total consideration paid for the acquired business was $6.8 million in cash.
    In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by HorizonWest Inc. Upon acquiring those inventories, the Company was offered floorplan financing by the manufacturer. In total, the Company acquired inventory and recognized a corresponding financing liability of $2.7 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination.
Purchase Price Allocation
    The above acquisition has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed. The accounting for the purchase price allocation was complete as of January 31, 2021. The following table presents the aggregate purchase price allocations for the HorizonWest acquisition completed as of January 31, 2021:
January 31, 2021
(in thousands)
Assets acquired:
Cash$
Inventories4,260 
Prepaid expenses and other48 
Property and equipment1,752 
Operating lease assets2,006 
Intangible assets245 
Goodwill484 
8,796 
Liabilities assumed:
Current operating lease liabilities159 
Operating lease liabilities1,847 
2,006 
Net assets acquired$6,790 
Goodwill recognized by segment:
Agriculture$484 
Goodwill expected to be deductible for tax purposes$484 
    The recognition of goodwill in the above business combination arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. For the business combination occurring during the fiscal year ended January 31, 2021, the Company recognized a non-competition intangible asset of $0.1 million and a distribution rights intangible asset of $0.2 million. The non-competition asset will be amortized over periods ranging from three to five years. The distribution rights assets are indefinite-lived intangible assets not subject to amortization. The Company estimated the fair value of the
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intangible assets using a multi-period excess earnings model, which is an income approach. Acquisition related costs were not material for the fiscal year ended January 31, 2021, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.
NOTE 16 - CONTINGENCIES
    The Company is engaged in legal proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of these various legal actions and claims will not have a material impact on its financial position, results of operations or cash flows. These matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable.
NOTE 17 - SEGMENT INFORMATION
    The Company has three reportable segments: Agriculture, Construction and International. Revenue between segments is immaterial. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resources assets primarily consist of cash and property and equipment.
    Certain financial information for each of the Company’s business segments is set forth below.
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
 (in thousands)(in thousands)
Revenue
Agriculture$281,506 $220,625 $730,422 $583,326 
Construction79,735 79,030 229,286 216,862 
International92,734 61,217 244,603 174,357 
Total$453,975 $360,872 $1,204,311 $974,545 
Income (Loss) Before Income Taxes
Agriculture$19,618 $13,575 $42,910 $26,490 
Construction3,564 1,448 6,518 (50)
International6,260 (2,424)9,498 (3,136)
Segment income before income taxes29,442 12,599 58,926 23,304 
Shared Resources(619)1,225 (793)1,961 
Total$28,823 $13,824 $58,133 $25,265 
 
October 31, 2021January 31, 2021
 (in thousands)
Total Assets
Agriculture$393,775 $349,697 
Construction190,233 185,534 
International159,601 177,213 
Segment assets743,609 712,444 
Shared Resources111,610 103,345 
Total$855,219 $815,789 

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NOTE 18 - SUBSEQUENT EVENTS
    On December 1, 2021, the Company acquired certain assets of Jaycox Implement, Inc. The acquired business consisted of three agricultural equipment stores in Worthington and Luverne, Minnesota and Lake Park, Iowa. In its most recent fiscal year, Jaycox Implement, Inc. generated revenue of approximately $91 million. These locations will be included in the Company's Agriculture segment. The total cash consideration paid for the acquired business was $28.2 million. The Company has committed to acquire the real estate of Jaycox Implement, Inc., subject to customary closing conditions, for a purchase price of $5.5 million and anticipates completing the real estate acquisition by January 31, 2022. The Company has considered the disclosure requirements of ASC 805-10-50-2 and ASC 805-10-50-4 but has not included certain required disclosures in this report due to the timing of the transaction.
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ITEM 2.                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
    The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. 
Overview
    We own and operate a network of full service agricultural and construction equipment stores in the United States and Europe. Based upon information provided to us by CNH Industrial N.V. or its U.S. subsidiary CNH Industrial America, LLC, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the U.S. We operate our business through three reportable segments: Agriculture, Construction and International. Within each segment, we have four principal sources of revenue: new and used equipment sales, parts sales, service, and equipment rental and other activities.
    Demand for agricultural equipment and, to a lesser extent, parts and service support, are impacted by agricultural commodity prices and net farm income. Based on September 2021 U.S. Department of Agriculture publications, the estimate of net farm income for calendar year 2021 indicated an approximate 19.5% increase as compared to calendar year 2020, and an approximate 19.6% increase in net farm income for calendar year 2020 as compared to calendar year 2019.
    For the third quarter of fiscal 2022, our net income was $21.8 million, or $0.97 per diluted share, compared to a fiscal 2021 third quarter net income of $9.9 million, or $0.44 per diluted share. Our adjusted diluted earnings per share was $0.96 for the third quarter of fiscal 2022, compared to $0.53 for the third quarter of fiscal 2021. See the Non-GAAP Financial Measures section below for a reconciliation of adjusted diluted earnings per share to diluted earnings per share, the most comparable GAAP financial measure. Significant factors impacting the quarterly comparisons were:
Revenue in the third quarter of fiscal 2022 increased by 25.8% compared to the third quarter of fiscal 2021. Total company same store sales increased 29.9% compared to the prior year third quarter. Same store sales increased in each of the three reporting segments.
Gross profit in the third quarter of fiscal 2022 increased 27.5% compared to the third quarter of fiscal 2021. The increase in gross profit was primarily the result of strong equipment sales and equipment gross profit margins that increased to 12.5% in the third quarter of fiscal 2022 from 10.4% in the third quarter of fiscal 2021.
Floorplan and other interest expense decreased a combined 21.6% in the third quarter of fiscal 2022, as compared to the third quarter last year, due to lower borrowings.
Impact of the COVID-19 Pandemic on the Company
    As discussed in Note 1 to our condensed consolidated financial statements, the COVID-19 pandemic has significantly disrupted supply chains and business around the world. Uncertainty remains regarding the emerging variant strains of COVID-19 and regarding the length of time it will take for the COVID-19 pandemic to subside, including the time it will take for vaccines to be broadly distributed and accepted in the United States and the rest of the world, and the effectiveness of those vaccines in slowing or stopping the spread of COVID-19 and mitigating the economic effects of the pandemic.
    The Company continues to effectively execute its strategy while managing the ongoing effects of the COVID-19 pandemic. The Company's products and services were determined to be essential in the markets we serve and accordingly operations have been allowed to continue throughout the pandemic. Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been, and continues to be, our top concern.
    Recently, the Department of Labor's Occupational Safety and Health Administration ("OSHA") announced an emergency temporary standard requiring all employers with at least 100 employees to ensure their employees are fully vaccinated or require weekly testing for unvaccinated employees. In response to a court ruling, in mid-November 2021, OSHA announced that it had suspended all activities related to implementation of this new regulation pending further litigation. The exact impact that this new regulation could have on the our Company is uncertain at this time. However, it could result in employee attrition, difficulty in fulfilling future labor needs, additional costs related to compliance and may have an adverse effect on our future operating results.
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    Additionally, many of our supply vendors are facing production, supply chain and staffing challenges as they work to increase production capacity. We have been and expect to continue to be proactive in ordering inventory, parts, and components to seek to ensure work will continue without delay; however we have experienced price increases, disruptions and delays on delivery of certain products.
    Although there have been logistical and other challenges as a result of the COVID-19 pandemic, there were no material adverse impacts on the Company's results of operations for the three and nine months ended October 31, 2021 or 2020. However, due to the uncertainty of the economic outlook resulting from the COVID-19 pandemic, the Company continues to monitor the situation closely.
Acquisitions
Fiscal 2022
    On December 1, 2021, the Company acquired certain assets of Jaycox Implement, Inc. The acquired business consisted of three agricultural equipment stores in Worthington and Luverne, Minnesota and Lake Park, Iowa. These locations will be included in our agriculture segment upon closing, starting in the fourth quarter of fiscal 2022. In its most recent fiscal year, Jaycox Implement, Inc. generated revenue of approximately $91 million. The total cash consideration paid for the acquired business was $28.2 million.
Fiscal 2021
    On May 4, 2020, the Company acquired certain assets of HorizonWest Inc. This acquired Case IH agriculture dealership complex consisted of three agriculture equipment stores in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming, which expanded the Company's agriculture presence in Nebraska and into Wyoming. The total consideration paid for the acquired business was $6.8 million in cash, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities. The three HorizonWest dealerships are included within our Agriculture segment.
ERP Transition
    The Company is in the process of converting to a new Enterprise Resource Planning ("ERP") application. The new ERP application is expected to provide data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience. The Company integrated one pilot store on the new ERP system in the second quarter of fiscal 2021; we anticipate the remaining domestic stores to be converted to the ERP within the next 12 months.
Critical Accounting Policies and Estimates
    Our critical accounting policies and estimates are included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021. There have been no changes in our critical accounting policies and estimates since January 31, 2021.
Results of Operations
    The results presented below include the operating results of any acquisition made during these periods as well as the operating results of any stores closed or divested during these periods, up to the date of the store closure. The period-to-period comparisons included below are not necessarily indicative of future results. Segment information is provided later in the discussion and analysis of our results of operations.
    Same-store sales for any period represent sales by stores that were part of the Company for the entire comparable period in the current and preceding fiscal years. We do not distinguish between relocated or recently expanded stores in this same-store analysis. Closed stores are excluded from the same-store analysis. Stores that do not meet the criteria for same-store classification are described as excluded stores throughout this Results of Operations section.
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Comparative financial data for each of our four sources of revenue are expressed below.
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
 (dollars in thousands)(dollars in thousands)
Equipment  
Revenue$329,814 $240,901 $878,528 $662,060 
Cost of revenue288,576 215,770 772,584 593,048 
Gross profit$41,238 $25,131 $105,944 $69,012 
Gross profit margin12.5 %10.4 %12.1 %10.4 %
Parts
Revenue$80,521 $76,778 $208,464 $194,846 
Cost of revenue55,654 53,556 146,184 136,205 
Gross profit$24,867 $23,222 $62,280 $58,641 
Gross profit margin30.9 %30.2 %29.9 %30.1 %
Service
Revenue$32,026 $30,696 $89,405 $84,282 
Cost of revenue10,249 10,254 29,314 28,263 
Gross profit$21,777 $20,442 $60,091 $56,019 
Gross profit margin68.0 %66.6 %67.2 %66.5 %
Rental and other
Revenue$11,614 $12,497 $27,914 $33,357 
Cost of revenue7,016 8,741 17,754 23,379 
Gross profit$4,598 $3,756 $10,160 $9,978 
Gross profit margin39.6 %30.1 %36.4 %29.9 %
The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:
 Three Months Ended October 31,Nine Months Ended October 31,
 2021202020212020
Revenue  
Equipment72.7 %66.8 %72.9 %67.9 %
Parts17.7 %21.3 %17.3 %20.0 %
Service7.1 %8.5 %7.4 %8.6 %
Rental and other2.6 %3.5 %2.3 %3.4 %
Total Revenue100.0 %100.0 %100.0 %100.0 %
Total Cost of Revenue79.6 %79.9 %80.2 %80.1 %
Gross Profit Margin20.4 %20.1 %19.8 %19.9 %
Operating Expenses13.9 %15.0 %14.7 %16.4 %
Impairment of Goodwill— %0.4 %— %0.1 %
Impairment of Intangible and Long-Lived Assets— %0.3 %0.1 %0.1 %
Income from Operations6.5 %4.4 %5.0 %3.1 %
Other Income (Expense)(0.2)%(0.6)%(0.2)%(0.6)%
Income Before Income Taxes6.3 %3.8 %4.8 %2.6 %
Provision for Income Taxes1.5 %1.1 %1.2 %0.7 %
Net Income4.8 %2.7 %3.6 %1.9 %


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Three Months Ended October 31, 2021 Compared to Three Months Ended October 31, 2020
Consolidated Results
Revenue
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Equipment$329,814 $240,901 $88,913 36.9 %
Parts80,521 76,778 3,743 4.9 %
Service32,026 30,696 1,330 4.3 %
Rental and other11,614 12,497 (883)(7.1)%
Total Revenue$453,975 $360,872 $93,103 25.8 %
     Total revenue for the third quarter of fiscal 2022 was 25.8% or $93.1 million higher than the third quarter of fiscal 2021 driven primarily by increased demand for equipment, resulting in equipment revenue being 36.9% higher than the prior year period. The increased equipment demand was due to higher commodity prices, higher net farm income, and good growing conditions in our international footprint. Company-wide same-store sales in the third quarter of fiscal 2022 increased 29.9% versus the comparable period in fiscal 2021.
Gross Profit
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Gross Profit
Equipment$41,238 $25,131 $16,107 64.1 %
Parts24,867 23,222 1,645 7.1 %
Service21,777 20,442 1,335 6.5 %
Rental and other4,598 3,756 842 22.4 %
Total Gross Profit$92,480 $72,551 $19,929 27.5 %
Gross Profit Margin
Equipment12.5 %10.4 %2.1 %20.2 %
Parts30.9 %30.2 %0.7 %2.3 %
Service68.0 %66.6 %1.4 %2.1 %
Rental and other39.6 %30.1 %9.5 %31.6 %
Total Gross Profit Margin20.4 %20.1 %0.3 %1.5 %
Gross Profit Mix
Equipment44.6 %34.6 %10.0 %28.9 %
Parts26.9 %32.0 %(5.1)%(15.9)%
Service23.5 %28.2 %(4.7)%(16.7)%
Rental and other5.0 %5.2 %(0.2)%(3.8)%
Total Gross Profit Mix100.0 %100.0 %
     Gross profit for the third quarter of fiscal 2022 increased 27.5% or $19.9 million, as compared to the same period last year. Gross profit margin also improved to 20.4% in the current quarter from 20.1% in the prior year quarter. The increase in gross profit margin was primarily due to stronger equipment margins, which were positively impacted by a healthy inventory and favorable end market conditions. The increase in equipment margins, was partially offset by the gross profit mix shift, to lower margin equipment sales relative to parts, service, and rental sales.
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     Our Company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — increased to 97.8% for the third quarter of fiscal 2022 compared to 94.2% during the same period last year as the increase in gross profit from parts and service in the third quarter of fiscal 2022 combined with lower floorplan interest expenses more than offset the increase in operating expenses during the period.
Operating Expenses
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Operating Expenses$62,943 $54,115 $8,828 16.3 %
Operating Expenses as a Percentage of Revenue13.9 %15.0 %(1.1)%(7.3)%
    Our operating expenses in the third quarter of fiscal 2022 increased 16.3% as compared to the third quarter of fiscal 2021. The increase in operating expenses was primarily due to variable expenses associated with increased sales. Operating expenses as a percentage of revenue decreased to 13.9% in the third quarter of fiscal 2022 from 15.0% in the third quarter of fiscal 2021. The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.
Impairment Charges
Three Months Ended October 31,Increase/Percent
20212020(Decrease)Change
(dollars in thousands)
Impairment of Goodwill$— $1,453 $(1,453)(100.0)%
Impairment of Intangible and Long-Lived Assets— 1,102 (1,102)(100.0)%
    The Company did not recognize any impairment expense in the third quarter of fiscal 2022. In the third quarter of fiscal 2021, the Company recognized $1.5 million in impairment expense related to certain goodwill assets in our International segment. An additional $1.1 million in impairment expense was also recognized related to other intangible assets and long-lived assets primarily in our International segment in the third quarter of fiscal 2021.
Other Income (Expense)
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Interest and other income (expense)$616 $(361)$977 n/m
Floorplan interest expense(259)(757)(498)(65.8)%
Other interest expense(1,071)(940)131 13.9 %
    Interest and other income (expense) increased by $1.0 million in the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021, due to fluctuations in foreign currency exchange rates, primarily the Ukrainian currency. The decrease in floorplan interest expense of 65.8% was due to lower borrowings. The increase in other interest expense was primarily due to increased fixed rate, long term debt from real estate purchases throughout fiscal 2022.
Provision for Income Taxes
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Provision for Income Taxes$7,007 $3,912 $3,095 79.1 %
     Our effective tax rate was 24.3% and 28.3% for the three months ended October 31, 2021 and October 31, 2020. The effective tax rate for each of the three months ended October 31, 2021 and 2020 is subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income, recognition of a valuation allowance on certain of our foreign deferred tax assets and foreign currency gains and losses.

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Segment Results
    Certain financial information for our Agriculture, Construction and International business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.
 Three Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Revenue
Agriculture$281,506 $220,625 $60,881 27.6 %
Construction79,735 79,030 705 0.9 %
International92,734 61,217 31,517 51.5 %
Total$453,975 $360,872 $93,103 25.8 %
Income (Loss) Before Income Taxes
Agriculture$19,618 $13,575 $6,043 44.5 %
Construction3,564 1,448 2,116 146.1 %
International6,260 (2,424)8,684 n/m
Segment Income Before Income Taxes29,442 12,599 16,843 133.7 %
Shared Resources(619)1,225 (1,844)n/m
Total$28,823 $13,824 $14,999 108.5 %
Agriculture 
    Agriculture segment revenue for the third quarter of fiscal 2022 increased 27.6% compared to the third quarter of fiscal 2021. The higher revenue was driven primarily by increased equipment demand due to higher commodity prices and higher net farm income.
    Agriculture segment income before income taxes was $19.6 million for the third quarter of fiscal 2022 compared to $13.6 million for the third quarter of fiscal 2021. Higher equipment revenue along with increased gross profit margin on equipment drove the largest increase in gross profit. Decreased inventory levels resulted in lower floorplan and other interest expense for the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021, which also contributed to the improvement in segment results.
Construction
    Construction segment revenue for the third quarter of fiscal 2022 was flat compared to the third quarter of fiscal 2021. However, after taking into account the divestiture of the Phoenix and Tucson, Arizona stores in the fourth quarter of fiscal 2021, same-store sales in our Construction segment increased 11.1% for the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021. Higher same store sales were driven by increased construction activity throughout the footprint.
    Our Construction segment income before taxes was $3.6 million for the third quarter of fiscal 2022 compared to $1.4 million in the third quarter of fiscal 2021. The improvement in segment results was primarily due to increased equipment gross profit margin and decreased inventory levels which resulted in lower floorplan interest expense for the third quarter of fiscal 2022, as compared to the third quarter of fiscal 2021. An increase in rental fleet utilization, led to an increase in rental gross profit margin, which also contributed to the improvement in segment results. The dollar utilization — which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period — of our rental fleet increased from 25.7% in the third quarter of fiscal 2021 to 31.4% in the third quarter of fiscal 2022.
International
    International segment revenue, for the third quarter of fiscal 2022 increased 51.5% compared to the third quarter of fiscal 2021. Higher segment revenue was driven by many of the same macroeconomic factors as the Agriculture segment, as well as favorable growing conditions throughout most of the farming footprint we serve, which has improved customer sentiment and has had a positive impact on equipment sales. The increase was partially offset by the divestiture of our Novi Sad, Serbia location in the third quarter of fiscal 2022. Same-store sales in our International segment increased 62.5% for the third quarter of fiscal 2022 as compared to the third quarter of fiscal 2021, primarily driven by an increase in equipment sales.
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    Our International segment income before income taxes was $6.3 million for the third quarter of fiscal 2022 compared to segment loss before income taxes of $2.4 million for the same period last year. The increase in segment pre-tax income was primarily the result of increased equipment sales and equipment gross profit margin. The segment did not recognize any impairment in the third quarter of fiscal 2022 compared to $2.3 million of goodwill and other intangible asset impairment related charges in the third quarter of fiscal 2021.
Shared Resources/Eliminations
    We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur. Shared Resources loss before income taxes was $0.6 million for the third quarter of fiscal 2022 compared to income before income taxes of $1.2 million for the same period last year.
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Nine Months Ended October 31, 2021 Compared to Nine Months Ended October 31, 2020
Consolidated Results
Revenue 
 Nine Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Equipment$878,528 $662,060 $216,468 32.7 %
Parts208,464 194,846 13,618 7.0 %
Service89,405 84,282 5,123 6.1 %
Rental and other27,914 33,357 (5,443)(16.3)%
Total Revenue$1,204,311 $974,545 $229,766 23.6 %
    Total revenue for the first nine months of fiscal 2022 was up 23.6% or $229.8 million compared to the first nine months of fiscal 2021, with increases in revenue from our equipment, parts and service businesses. The 32.7% increase in equipment sales was the primary factor in the total sales increase from the prior year period with all three segments recognizing increases, compared to the prior year period. Company-wide same-store sales increased 25.8% over the comparable prior year period.
Gross Profit
 Nine Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Gross Profit
Equipment$105,944 $69,012 $36,932 53.5 %
Parts62,280 58,641 3,639 6.2 %
Service60,091 56,019 4,072 7.3 %
Rental and other10,160 9,978 182 1.8 %
Total Gross Profit$238,475 $193,650 $44,825 23.1 %
Gross Profit Margin
Equipment12.1 %10.4 %1.7 %16.3 %
Parts29.9 %30.1 %(0.2)%(0.7)%
Service67.2 %66.5 %0.7 %1.1 %
Rental and other36.4 %29.9 %6.5 %21.7 %
Total Gross Profit Margin19.8 %19.9 %(0.1)%(0.5)%
Gross Profit Mix
Equipment44.4 %35.6 %8.8 %24.7 %
Parts26.1 %30.3 %(4.2)%(13.9)%
Service25.2 %28.9 %(3.7)%(12.8)%
Rental and other4.3 %5.2 %(0.9)%(17.3)%
Total Gross Profit Mix100.0 %100.0 %
     Gross profit increased 23.1% or $44.8 million for the first nine months of fiscal 2022, as compared to the same period last year. The increase in gross profit was primarily the result of increased equipment sales and stronger equipment margins for the first nine months of fiscal 2022. These higher equipment sales and margins were driven by a healthy inventory and favorable end market conditions. The overall gross profit margin decreased slightly from 19.9% to 19.8% due to a shift in gross profit mix to lower margin equipment sales relative to parts, service, and rental sales.
    Our Company-wide absorption rate for the first nine months of fiscal 2022 increased to 86.7%, as compared to 82.7% during the same period last year, as the increase in gross profit from parts and service combined with lower floorplan interest expense more than offset the increase in operating expenses during the nine month period compared to that of the prior year nine month period.
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Operating Expenses
Nine Months Ended October 31,Increase/Percent
20212020(Decrease)Change
(dollars in thousands)
Operating Expenses$176,460 $160,252 $16,208 10.1 %
Operating Expenses as a Percentage of Revenue14.7 %16.4 %(1.7)%(10.4)%
    Our operating expenses for the first nine months of fiscal 2022 increased $16.2 million as compared to the first nine months of fiscal 2021. The increase in operating expenses was primarily due to variable expenses associated with increased sales. Operating expenses as a percentage of revenue decreased to 14.7% in the first nine months of fiscal 2022 from 16.4% in the first nine months of fiscal 2021. The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in the first nine months of fiscal 2022, as compared to the first nine months of fiscal 2021, which positively affected our ability to leverage our fixed operating costs.
Impairment Charges
Nine Months Ended October 31,Increase/Percent
20212020(Decrease)Change
(dollars in thousands)
Impairment of Goodwill$— $1,453 $(1,453)(100.0)%
Impairment of Intangible and Long-Lived Assets1,498 1,318 180 13.7 %
    We recognized $1.5 million in impairment charges in our International segment related to certain intangible and long-lived assets and $1.3 million of impairment charges on certain long-lived assets primarily in our International segment during the first nine months of fiscal 2022 and 2021, respectively. In addition, in the first nine months of fiscal 2021, we recognized $1.5 million in impairment charges related to certain goodwill assets in the International segment, but had no such impairment charges in the first nine months of fiscal 2022.
Other Income (Expense)
Nine Months Ended October 31,Increase/Percent
20212020(Decrease)Change
(dollars in thousands)
Interest and other income (expense)$1,936 $332 $1,604 n/m
Floorplan interest expense(1,027)(2,811)(1,784)(63.5)%
Other interest expense(3,292)(2,884)408 14.1 %
     Floorplan interest expense decreased 63.5% for the first nine months of fiscal 2022, as compared to the same period last year, primarily due to lower borrowings and a lower interest rate environment. The increase in other interest expense in the first nine months of fiscal 2022, as compared to the first nine months of fiscal 2021, is the result of increased long term debt on real estate purchased during fiscal 2022. The increase in interest and other income in the first nine months of fiscal 2022 as compared to the same period of fiscal 2021 is primarily due to foreign currency gains in fiscal 2022 due to the strengthening of the Ukrainian currency compared to losses in fiscal 2021 due to the devaluation of the Ukranian currency.






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Provision for Income Taxes
Nine Months Ended October 31,Increase/Percent
20212020DecreaseChange
(dollars in thousands)
Provision for Income Taxes$14,521 $6,691 $7,830 117.0 %
     Our effective tax rate was 25.0% for the first nine months of fiscal 2022 and 26.5% for the same period last year. The effective tax rate for the nine months ended October 31, 2021 and 2020 is subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, the mix of domestic and foreign income, recognition of a valuation allowance on certain of our foreign deferred tax assets and foreign currency gains and losses.
Segment Results
    Certain financial information for our Agriculture, Construction and International business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.
 Nine Months Ended October 31,Increase/Percent
 20212020(Decrease)Change
 (dollars in thousands) 
Revenue
Agriculture$730,422 $583,326 $147,096 25.2 %
Construction229,286 216,862 12,424 5.7 %
International244,603 174,357 70,246 40.3 %
Total$1,204,311 $974,545 $229,766 23.6 %
Income (Loss) Before Income Taxes
Agriculture$42,910 $26,490 $16,420 62.0 %
Construction6,518 (50)6,568 n/m
International9,498 (3,136)12,634 n/m
Segment Income Before Income Taxes58,926 23,304 35,622 n/m
Shared Resources(793)1,961 (2,754)n/m
Total$58,133 $25,265 $32,868 130.1 %
Agriculture 
    Agriculture segment revenue for the first nine months of fiscal 2022 increased 25.2% compared to the same period last year. We experienced increases across our equipment, parts and service businesses. Equipment sales were driven by increased equipment demand due to higher commodity prices and higher net farm income. All sources of revenue in this segment benefited from the addition of the three HorizonWest locations (acquired in May 2020) that were not in the full prior year nine-month period. Same-store sales increased 23.8% for the first nine months of fiscal 2022, as compared to the same period last year.
    Agriculture segment income before income taxes was $42.9 million for the first nine months of fiscal 2022 compared to $26.5 million over the first nine months of fiscal 2021. The improvement in segment results was the result of higher equipment revenue along with higher gross profit margin on equipment driven by increased demand and healthy inventory. Decreased inventory levels resulted in lower floorplan and other interest expense for the nine months ended October 31, 2021, which also contributed to the improvement in segment results.
Construction
    Construction segment revenue for the first nine months of fiscal 2022 increased 5.7% compared to the same period last year, due to a same-store sales increase of 16.3%, which more than offset our divestiture of the Phoenix and Tucson, Arizona stores in the fourth quarter of fiscal year 2021. Higher equipment sales were driven by increased construction activity throughout the footprint.
    Our Construction segment income before income taxes was $6.5 million for the first nine months of fiscal 2022 compared to a loss before income taxes of $0.1 million for the first nine months of fiscal 2021. The increase in segment results
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was primarily due to increased construction activity as well as operational improvements within the segment. The segment also benefited from decreased inventory levels which resulted in lower floorplan and other interest expense for the nine months ended October 31, 2021. The dollar utilization of our rental fleet increased from 22.2% in the first nine months of fiscal 2021 to 25.8% in the first nine months of fiscal 2022.
International
    International segment revenue for the first nine months of fiscal 2022 increased 40.3% compared to the same period last year. Higher segment revenue is being driven by many of the same macroeconomic factors as the Agriculture segment as well as favorable growing conditions for much of our farming footprint which has had a positive impact on all sources of sales, but primarily equipment sales.
    Our International segment income before income taxes was $9.5 million for the first nine months of fiscal 2022 compared to a loss before income taxes of $3.1 million for the same period last year. The higher segment results were the result of increased equipment sales and equipment gross profit margin. Impairment charges of $1.5 million were recognized in the first nine months of fiscal 2022 compared to $2.3 million in the first nine months of fiscal 2021, related to the impairment of certain goodwill, other intangible and long-lived assets of our German reporting unit.
Shared Resources/Eliminations
    We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur. Shared Resources loss before income taxes was $0.8 million for the first nine months of fiscal 2022 compared to income before income taxes of $2.0 million for the same period last year.
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Non-GAAP Financial Measures
    To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include adjustments for items such as ERP transition costs for fiscal year 2021, impairment charges and foreign currency remeasurement gains/losses in Ukraine. We believe that the presentation of adjusted net income and adjusted Diluted EPS is relevant and useful to our management and investors because it provides a measurement of earnings on activities that we consider to occur in the ordinary course of our business. Adjusted net income and adjusted Diluted EPS should be evaluated in addition to, and not considered a substitute for, or superior to, the most comparable GAAP measure. In addition, other companies may calculate these non-GAAP measures in a different manner, which may hinder comparability of our adjusted results with those of other companies.
Change in Non-GAAP Financial Measures
    Beginning in the third quarter of fiscal 2022, the Company discontinued the use of the adjusted cash-flow measure and revised its presentation of two non-GAAP measures, Adjusted Net Income and Adjusted Diluted EPS, to better align with SEC guidance. The adjustment for income tax valuation allowance, a non-cash tax expense related to the use of deferred tax assets in certain jurisdictions, will no longer be included in these two non-GAAP measures. For comparability, references to prior periods' non-GAAP measures have also been updated to show the effect of omitting the valuation allowance from Adjusted Net Income and Adjusted Diluted EPS - see table below.
The following tables reconcile (i) net income, a GAAP measure, to adjusted net income and (ii) Diluted EPS, a GAAP measure, to adjusted Diluted EPS:
Three Months Ended October 31,Nine Months Ended October 31,
2021202020212020
(dollars in thousands, except per share data)
Adjusted Net Income
Net Income$21,816 $9,912 $43,612 $18,574 
Adjustments
ERP transition costs— 766 — 2,250 
Impairment charges— 2,555 1,498 2,771 
Ukraine remeasurement (gain) / loss(113)338 (296)973 
Total Pre-Tax Adjustments(113)3,659 1,202 5,994 
Less: Tax Effect of Adjustments (1)— 1,566 — 2,613 
Total Adjustments(113)2,093 1,202 3,381 
Adjusted Net Income$21,703 $12,005 $44,814 $21,955 
Adjusted Diluted EPS
Diluted EPS$0.97 $0.44 $1.93 $0.83 
Adjustments (2)
ERP transition costs— 0.03 — 0.10 
Impairment charges— 0.11 0.07 0.12 
Ukraine remeasurement (gain) / loss(0.01)0.02 (0.02)0.04 
Total Pre-Tax Adjustments(0.01)0.16 0.05 0.26 
Less: Tax Effect of Adjustments (1)— 0.07 — 0.12 
Total Adjustments(0.01)0.09 0.05 0.14 
Adjusted Diluted EPS$0.96 $0.53 $1.98 $0.97 
(1) The tax effect of U.S. related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate. Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.7 million for the three months ended October 31, 2020 and $1.3 million for the nine months ended October 31, 2020.
(2) Adjustments are net of amounts allocated to participating securities where applicable.

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Liquidity and Capital Resources
Sources of Liquidity
    Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan and other credit facilities. We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided that our borrowing capacity under our credit agreements is dependent on compliance with various covenants as further described in the "Risk Factors" section of our Annual Report on Form 10-K.
Equipment Inventory and Floorplan Payable Credit Facilities
    As of October 31, 2021, the Company had floorplan payable lines of credit for equipment purchases totaling $753.0 million, which is primarily comprised of a $450.0 million credit facility with CNH Industrial, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, and a $50.0 million credit facility with DLL Finance.
    Our equipment inventory turnover increased from 1.6 times for the rolling 12 month period ended October 31, 2020 to 3.1 times for the rolling 12 month period ended October 31, 2021. The increase in equipment turnover was attributable to an increase in equipment sales and a decrease in average equipment inventory over the rolling 12 month period ended October 31, 2021 as compared to the same period ended October 31, 2020. Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 46.0% as of October 31, 2021 from 52.1% as of January 31, 2021. The decrease was due to more inventory being financed with non-interest bearing floorplan lines of credit.
Adequacy of Capital Resources
    Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, and funding capital expenditures, including rental fleet assets. Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.
    As of October 31, 2021, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of October 31, 2021. While not expected to occur, if anticipated operating results were to create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.
Cash Flow
Cash Flow Provided by Operating Activities
    Net cash provided by operating activities was $72.3 million for the first nine months of fiscal 2022, compared to net cash provided by operating activities of $60.8 million for the first nine months of fiscal 2021. The change in net cash provided by operating activities is primarily the result of an increase in net income and an increase in the amount of inventory financed with non-interest bearing floorplan lines of credit from manufacturers which was partially offset by an increase in receivables and prepaid expenses for the first nine months of fiscal 2022.
Cash Flow Used for Investing Activities
    Net cash used for investing activities was $29.0 million for the first nine months of fiscal 2022, compared to $22.2 million for the first nine months of fiscal 2021. The increase in cash used for investing activities was primarily the result of an increase in property and equipment purchases as the Company purchased formerly leased buildings and bought out vehicle leases in the first nine months of fiscal 2022.
Cash Flow Used for Financing Activities
    Net cash used for financing activities was $31.3 million for the first nine months of fiscal 2022 compared to cash used for financing activities of $40.8 million for the first nine months of fiscal 2021. The decrease in cash used for financing activities was primarily the result of a decrease in repayments of non-manufacturer floorplan lines of credit partially offset by
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an increase of principal payments on long term debt in the first nine months of fiscal 2022 compared to the same period last year.
Information Concerning Off-Balance Sheet Arrangements
    As of October 31, 2021, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
FORWARD-LOOKING STATEMENTS
    The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Forward-looking statements are contained in this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our Annual Report on Form 10-K for the year ended January 31, 2021, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made or to be made by the Company).
    Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of the COVID-19 pandemic on our business, including the impact of OSHA's emergency regulations regarding vaccination or weekly testing of employees, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, and the adequacy of our capital resources. Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of our management. These forward-looking statements involve important risks and uncertainties that could significantly affect anticipated results or outcomes in the future and, accordingly, actual results or outcomes may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, the duration, scope and impact of the COVID-19 pandemic on the Company's operations and business, including the disruption of supply chains and associated impacts on the Company's supply vendors, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K. In addition to those matters, there may exist additional risks and uncertainties not currently known to us or that we currently deem to be immaterial that may materially adversely affect our business, financial condition or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    We are exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and foreign currency exchange rates.
Interest Rate Risk
    Exposure to changes in interest rates results from borrowing activities used to fund operations. For fixed rate debt, interest rate changes affect the fair value of financial instruments but do not impact earnings or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. We have both fixed and floating rate financing. Some of our floating rate credit facilities contain minimum rates of interest to be charged. Based upon our interest-bearing balances and interest rates as of October 31, 2021, holding other variables constant, a one percentage point increase in interest rates for the next 12-month period would decrease pre-tax earnings and cash flow by approximately $0.3 million. Conversely, a one percentage point decrease in interest rates for the next 12-month period would result in an increase to pre-tax earnings and cash flow of approximately $0.3 million. At October 31, 2021, we had floorplan payables of $174.7 million, of which approximately $27.4 million was variable-rate floorplan payable and $147.2 million was non-interest bearing. In addition, at October 31, 2021, we had total long-term debt, including finance lease obligations, of $81.9 million, of which all was fixed rate debt.
Foreign Currency Exchange Rate Risk
    Our foreign currency exposures arise as the result of our foreign operations. We are exposed to transactional foreign currency exchange rate risk through our foreign entities’ holding assets and liabilities denominated in currencies other than their functional currency. In addition, the Company is exposed to foreign currency transaction risk as a result of certain intercompany financing transactions. The Company attempts to manage its transactional foreign currency exchange rate risk through the use of derivative financial instruments, primarily foreign exchange forward contracts, or through natural hedging instruments. Based upon balances and exchange rates as of October 31, 2021, holding other variables constant, we believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates would not have a material impact on our results of operations or cash flows. As of October 31, 2021, our Ukrainian subsidiary had $1.2 million of net monetary assets denominated in Ukrainian hryvnia ("UAH"). We have attempted to minimize our net monetary asset position in Ukraine through reducing overall asset levels in Ukraine and at times through borrowing in UAH which serves as a natural hedging instrument offsetting our net UAH denominated assets. At certain times, currency and payment controls imposed by the National Bank of Ukraine have limited our ability to manage our net monetary asset position.
    In addition to transactional foreign currency exchange rate risk, we are also exposed to translational foreign currency exchange rate risk as we translate the results of operations and assets and liabilities of our foreign operations from their functional currency to the U.S. dollar. As a result, our results of operations, cash flows and net investment in our foreign operations may be adversely impacted by fluctuating foreign currency exchange rates. We believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates, holding all other variables constant, would not have a material impact on our results of operations or cash flows.
ITEM 4. CONTROLS AND PROCEDURES
(a)                                 Evaluation of disclosure controls and procedures. After evaluating the effectiveness of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company’s Chief Executive Officer and Chief Financial Officer, with the participation of the Company’s management, have concluded that the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are effective.
(b)                                 Changes in internal controls. There has not been any change in the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during its most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. - OTHER INFORMATION
 
ITEM 1.                LEGAL PROCEEDINGS
    We are, from time to time, subject to claims and suits arising in the ordinary course of business. Such claims have, in the past, generally been covered by insurance. There can be no assurance that our insurance will be adequate to cover all liabilities that may arise out of claims brought against us, or that our insurance will cover all claims. We are not currently a party to any material litigation.
ITEM 1A.             RISK FACTORS
    In addition to the other information set forth in this Quarterly Report, including the important information in “Forward-Looking Statements,” you should carefully consider the “Risk Factors” discussed in our Form 10-K for the fiscal year ended January 31, 2021, as filed with the Securities and Exchange Commission. Among other things, those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this report, and may materially adversely affect our business, financial condition, or results of operations. In addition to those factors, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition or results of operations.
ITEM 2.                UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 
None.
ITEM 3.                DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.                MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.                OTHER INFORMATION
None.
ITEM 6.                EXHIBITS
Exhibits - See “Exhibit Index” on page immediately prior to signatures.
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EXHIBIT INDEX
TITAN MACHINERY INC.
FORM 10-Q
 
No. Description
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
101Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended October 31, 2021, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income, (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
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SIGNATURES 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated:December 2, 2021 
 TITAN MACHINERY INC.
  
  
 By/s/ Mark Kalvoda
  Mark Kalvoda
  Chief Financial Officer
  (Principal Financial Officer)

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