Titan Machinery Inc. - Quarter Report: 2022 July (Form 10-Q)

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 July 31, 2022

☐ 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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	TITN	The 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 filer

☐

Smaller 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 August 31, 2022, 22,567,932 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	3
ITEM 1.	FINANCIAL STATEMENTS	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Income	5
	Condensed Consolidated Statements of Stockholders' Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	36
ITEM 4.	CONTROLS AND PROCEDURES	36
PART II.	OTHER INFORMATION	37
ITEM 1.	LEGAL PROCEEDINGS	37
ITEM 1A.	RISK FACTORS	37
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	37
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	37
ITEM 4.	MINE SAFETY DISCLOSURES	37
ITEM 5.	OTHER INFORMATION	37
ITEM 6.	EXHIBITS	37
Exhibit Index		38
Signatures		39

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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)


	July 31, 2022		January 31, 2022

Assets
Current Assets
Cash	$	142,057	$	146,149
Receivables, net of allowance for expected credit losses	96,369		94,287
Inventories, net	556,383		421,758
Prepaid expenses and other	17,736		28,135


Total current assets	812,545		690,329
Noncurrent Assets
Property and equipment, net of accumulated depreciation	188,964		178,243
Operating lease assets	51,888		56,150
Deferred income taxes	2,239		1,328
Goodwill	9,535		8,952
Intangible assets, net of accumulated amortization	11,480		10,624
Other	1,220		1,041
Total noncurrent assets	265,326		256,338
Total Assets	$	1,077,871	$	946,667

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	28,344	$	25,644
Floorplan payable	274,244		135,415

Current maturities of long-term debt	6,650		5,876
Current operating lease liabilities	9,465		9,601
Deferred revenue	91,819		134,146
Accrued expenses and other	42,856		59,339
Income taxes payable	6,289		4,700
Total current liabilities	459,667		374,721
Long-Term Liabilities
Long-term debt, less current maturities	86,500		74,772
Operating lease liabilities	50,998		55,595
Deferred income taxes	1,991		2,006
Other long-term liabilities	4,438		4,374
Total long-term liabilities	143,927		136,747
Commitments and Contingencies (Note 15)
Stockholders' Equity
Common stock, par value $.00001 per share, 45,000 shares authorized; 22,695 shares issued and outstanding at July 31, 2022; 22,588 shares issued and outstanding at January 31, 2022	—		—
Additional paid-in-capital	255,188		254,455
Retained earnings	225,415		182,916
Accumulated other comprehensive loss	(6,326)		(2,172)
Total stockholders' equity	474,277		435,199
Total Liabilities and Stockholders' Equity	$	1,077,871	$	946,667

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 July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Revenue
Equipment	$	375,216	$	272,733	$	731,582	$	548,713
Parts	77,693		65,317		146,255		127,942
Service	33,365		29,676		62,887		57,379
Rental and other	10,269		9,904		16,825		16,300
Total Revenue	496,543		377,630		957,549		750,334
Cost of Revenue
Equipment	323,988		240,332		634,222		484,008
Parts	52,706		46,089		100,015		90,529
Service	11,072		9,771		21,832		19,065
Rental and other	6,078		6,420		10,087		10,737
Total Cost of Revenue	393,844		302,612		766,156		604,339
Gross Profit	102,699		75,018		191,393		145,995
Operating Expenses	68,828		57,074		132,980		113,516

Impairment of Intangible and Long-Lived Assets	—		1,498		—		1,498

Income from Operations	33,871		16,446		58,413		30,981
Other Income (Expense)
Interest and other income	873		654		1,365		1,320
Floorplan interest expense	(245)		(350)		(499)		(768)
Other interest expense	(1,349)		(1,118)		(2,545)		(2,222)
Income Before Income Taxes	33,150		15,632		56,734		29,311
Provision for Income Taxes	8,191		4,383		14,235		7,515
Net Income	$	24,959	$	11,249	$	42,499	$	21,796

Earnings per Share:
Basic	$	1.10	$	0.50	$	1.88	$	0.97
Diluted	$	1.10	$	0.50	$	1.88	$	0.97

Weighted Average Common Shares:
Basic	22,387		22,261		22,350		22,209
Diluted	22,392		22,276		22,357		22,220

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 July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Net Income	$	24,959	$	11,249	$	42,499	$	21,796
Other Comprehensive Income (Loss)
Foreign currency translation adjustments	(2,963)		937		(4,153)		(1,441)
Comprehensive Income	$	21,996	$	12,186	$	38,346	$	20,355

See Notes to Condensed Consolidated Financial Statements

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TITAN MACHINERY INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

(in thousands)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares Outstanding	Amount
BALANCE, January 31, 2021	22,553	$	—	$	252,913	$	116,869	$	1,499	$	371,281
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	(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, 2021	22,520	$	—	$	252,547	$	127,416	$	(880)	$	379,083
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	76	—		(2)		—		—		(2)
Stock-based compensation expense	—	—		584		—		—		584
Net Income	—	—		—		11,249		—		11,249
Other comprehensive income	—	—		—		—		938		938
BALANCE, July 31, 2021	22,596	—		253,129		138,665		58		391,852


	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares Outstanding	Amount
BALANCE, January 31, 2022	22,588	$	—	$	254,455	$	182,916	$	(2,172)	$	435,199
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	(19)	—		(685)		—		—		(685)
Stock-based compensation expense	—	—		620		—		—		620
Net income	—	—		—		17,540		—		17,540
Other comprehensive loss	—	—		—		—		(1,191)		(1,191)
BALANCE, April 30, 2022	22,569	$	—	$	254,390	$	200,456	$	(3,363)	$	451,483
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	126	—		(5)		—		—		(5)
Stock-based compensation expense	—	—		803		—		—		803
Net income	—	—		—		24,959		—		24,959
Other comprehensive income	—	—		—		—		(2,963)		(2,963)
BALANCE, July 31, 2022	22,695	—		255,188		225,415		(6,326)		474,277

See Notes to Condensed Consolidated Financial Statements

TITAN MACHINERY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended July 31,
	2022		2021
Operating Activities
Net income	$	42,499	$	21,796
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	10,987		10,602
Impairment	—		1,498
Deferred income taxes	(1,005)		(1,645)
Stock-based compensation expense	1,423		1,193
Noncash interest expense	121		110


Other, net	4,583		5,235
Changes in assets and liabilities
Receivables, prepaid expenses and other assets	5,444		(12,384)
Inventories	(137,708)		(17,166)
Manufacturer floorplan payable	105,415		56,436
Deferred Revenue	(43,530)		(21,063)
Accounts payable, accrued expenses and other and other long-term liabilities	(9,182)		(16,051)


Net Cash Provided by (Used for) Operating Activities	(20,953)		28,561
Investing Activities
Rental fleet purchases	(6,020)		(8,946)
Property and equipment purchases (excluding rental fleet)	(8,487)		(10,888)
Proceeds from sale of property and equipment	1,628		420
Acquisition consideration, net of cash acquired	(7,675)		—
Other, net	(182)		12
Net Cash Used for Investing Activities	(20,736)		(19,402)
Financing Activities
Net change in non-manufacturer floorplan payable	35,716		(22,731)

Proceeds from long-term debt borrowings	8,415		6,451
Principal payments on long-term debt and finance leases	(3,879)		(5,117)
Payment of debt issuance costs	—		—
Other, net	(689)		(976)
Net Cash Provided by (Used for) Financing Activities	39,563		(22,373)
Effect of Exchange Rate Changes on Cash	(1,966)		(192)
Net Change in Cash	(4,092)		(13,406)
Cash at Beginning of Period	146,149		78,990
Cash at End of Period	$	142,057	$	65,584
Supplemental Disclosures of Cash Flow Information
Cash paid during the period
Income taxes, net of refunds	$	11,116	$	17,378
Interest	$	2,851	$	2,797
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities	$	2,667	$	9,014
Long-term debt to acquire finance leases	$	6,776	$	7,454
Net transfer of assets from (to) property and equipment to (from) inventories	$	(2,849)	$	1,269

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 six-months ended July 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2023. The information contained in the consolidated balance sheet as of January 31, 2022 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, 2022 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, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming and its European stores are located in Bulgaria, Germany, Romania, and Ukraine.

Russia/Ukraine Geopolitical Conflict

In February, 2022, the ongoing Russia/Ukraine conflict significantly intensified, and the sustained conflict and disruption in the region is ongoing. Titan Machinery Ukraine, LLC ("Titan Machinery Ukraine"), the Company's wholly owned Ukrainian subsidiary, has ten locations throughout Ukraine primarily in western and central Ukraine. The conflict has caused disruptions in our Ukrainian operations, with our revenues for the six-months ended July 31, 2022 down 37.7% from the prior year period. These disruptions have not been material to the Company's consolidated financial statements. However, if the conflict intensifies in western and central Ukraine, it could significantly increase the adverse effect on the Company in future periods.

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.

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NOTE 2 - EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted earnings per share (EPS):


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income	$	24,959	$	11,249	$	42,499	$	21,796
Allocation to participating securities	(291)		(156)		(502)		(334)
Net income attributable to Titan Machinery Inc. common stockholders	$	24,668	$	11,093	$	41,997	$	21,462
Denominator:
Basic weighted-average common shares outstanding	22,387		22,261		22,350		22,209
Plus: incremental shares from vesting of restricted stock units	5		15		7		11
Diluted weighted-average common shares outstanding	22,392		22,276		22,357		22,220

Earnings Per Share:
Basic	$	1.10	$	0.50	$	1.88	$	0.97
Diluted	$	1.10	$	0.50	$	1.88	$	0.97

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.

The following tables present our revenue disaggregated by revenue source and segment:


	Three Months Ended July 31, 2022								Six Months Ended July 31, 2022
	Agriculture		Construction		International		Total		Agriculture		Construction		International		Total
	(in thousands)								(in thousands)
Equipment	$	270,472	$	43,184	$	61,560	$	375,216	$	521,565	$	87,002	$	123,015	$	731,582
Parts	52,548		11,816		13,329		77,693		97,054		23,879		25,322		146,255
Service	24,730		6,302		2,333		33,365		46,683		12,125		4,079		62,887
Other	880		500		246		1,626		1,679		803		451		2,933
Revenue from contracts with customers	348,630		61,802		77,468		487,900		666,981		123,809		152,867		943,657
Rental	326		8,220		97		8,643		522		13,177		193		13,892
Total revenues	$	348,956	$	70,022	$	77,565	$	496,543	$	667,503	$	136,986	$	153,060	$	957,549


	Three Months Ended July 31, 2021								Six Months Ended July 31, 2021
	Agriculture		Construction		International		Total		Agriculture		Construction		International		Total
	(in thousands)								(in thousands)
Equipment	$	156,408	$	54,020	$	62,305	$	272,733	$	325,664	$	98,832	$	124,217	$	548,713
Parts	40,742		11,928		12,647		65,317		80,425		24,036		23,481		127,942
Service	21,150		6,585		1,941		29,676		40,904		12,954		3,521		57,379
Other	758		490		188		1,436		1,478		855		281		2,614
Revenue from contracts with customers	219,058		73,023		77,081		369,162		448,471		136,677		151,500		736,648
Rental	306		7,920		242		8,468		444		12,873		369		13,686
Total revenues	$	219,364	$	80,943	$	77,323	$	377,630	$	448,915	$	149,550	$	151,869	$	750,334

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Unbilled Receivables and Deferred Revenue

Unbilled receivables from contracts with customers amounted to $24.4 million and $17.1 million as of July 31, 2022 and January 31, 2022, 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 $90.7 million and $132.2 million as of July 31, 2022 and January 31, 2022, 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 six months ended July 31, 2022 and 2021, the Company recognized $105.1 million and $50.8 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2022 and January 31, 2021, respectively. No material amount of revenue was recognized during the six months ended July 31, 2022 or 2021 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 at the time we perform the work, 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 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.

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	July 31, 2022		January 31, 2022
	(in thousands)
Trade and unbilled receivables from contracts with customers
Trade receivables due from customers	$	37,271	$	30,041
Unbilled receivables	24,435		17,129
Less allowance for expected credit losses	2,722		1,979
	58,984		45,191

Trade receivables due from finance companies	15,096		17,937

Trade and unbilled receivables from rental contracts
Trade receivables	3,832		3,055
Unbilled receivables	1,057		538
Less allowance for expected credit losses	375		469
	4,514		3,124
Other receivables
Due from manufacturers	14,556		22,979
Other	3,219		5,056
	17,775		28,035
Receivables, net of allowance for expected credit losses	$	96,369	$	94,287

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Following is a summary of allowance for credit losses on trade and unbilled accounts receivable by segment:


	Agriculture		Construction		International		Total
	(in thousands)
Balance at January 31, 2022	$	244	$	193	$	1,542	$	1,979
Current expected credit loss provision	79		35		846		960
Write-offs charged against allowance	30		97		61		188
Credit loss recoveries collected	16		4		—		20
Foreign exchange impact	—		—		(49)		(49)
Balance at July 31, 2022	$	309	$	135	$	2,278	$	2,722


	Agriculture		Construction		International		Total
	(in thousands)
Balance at January 31, 2021	$	228	$	1,074	$	1,690	$	2,992
Current expected credit loss provision	114		118		(227)		5
Write-offs charged against allowance	50		147		60		257
Credit loss recoveries collected	7		5		—		12
Foreign exchange impact	—		—		(31)		(31)
Balance at July 31, 2021	$	299	$	1,050	$	1,372	$	2,721

The increase in the credit loss provision in the International segment, during the six months ended July 31, 2022, was driven by a $0.7 million bad debt provision placed on the accounts receivables due from customers of Titan Machinery Ukraine, primarily due to the ongoing Russia-Ukraine conflict.

The following table presents impairment losses (recoveries) on receivables arising from sales contracts with customers and receivables arising from rental contracts:


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
	(in thousands)
Impairment losses (recoveries) on:
Receivables from sales contracts	$	186	$	222	$	999	$	320
Receivables from rental contracts	43		3		32		(30)
	$	229	$	225	$	1,031	$	290

NOTE 5 - INVENTORIES


	July 31, 2022		January 31, 2022
	(in thousands)
New equipment	$	325,641	$	195,775
Used equipment	118,757		128,047
Parts and attachments	109,061		95,890
Work in process	2,924		2,046
	$	556,383	$	421,758

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NOTE 6 - PROPERTY AND EQUIPMENT


	July 31, 2022		January 31, 2022
	(in thousands)
Rental fleet equipment	$	73,014	$	65,117
Machinery and equipment	23,769		22,819
Vehicles	62,251		58,650
Furniture and fixtures	51,400		50,228
Land, buildings, and leasehold improvements	129,102		123,323
	339,536		320,137
Less accumulated depreciation	150,572		141,894
	$	188,964	$	178,243

The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in Cost of Revenue, which was $2.0 million and $2.1 million for the three months ended July 31, 2022 and 2021, and $3.5 million and $3.8 million for the six months ended July 31, 2022 and 2021, respectively. All other depreciation expense is included in Operating Expenses, which was $3.6 million and $3.0 million for the three months ended July 31, 2022 and 2021 and $7.1 million and $6.0 million for the six months ended July 31, 2022 and 2021, 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 July 31, 2022, the Company identified two such asset groups in the Agriculture segment, and performed an impairment test, and concluded that no impairment was present, thus the Company did not recognize any impairment for the three and six months ended July 31, 2022. The Company did recognize impairment of long-lived assets of $0.4 million in its International segment for the three and six months ended July 31, 2021.

NOTE 7 - INTANGIBLE ASSETS AND GOODWILL

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 six months ended July 31, 2022:


	Agriculture		Construction		Total
	(in thousands)
January 31, 2022	$	10,136	$	72	$	10,208
Arising from business combinations	842		—		842


July 31, 2022	$	10,978	$	72	$	11,050

Goodwill

The following presents changes in the carrying amount of goodwill, by segment, for the six months ended July 31, 2022:


	Agriculture		Total
	(in thousands)
January 31, 2022	$	8,952	$	8,952
Arising from business combinations	583		583


July 31, 2022	$	9,535	$	9,535

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NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT

As of July 31, 2022, the Company had floorplan lines of credit totaling $743.0 million, which is primarily comprised of three 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. Additionally, the Company amended its CNH Industrial floorplan line of credit as of August 1, 2022, increasing the total available domestic limit to $410 million and overall limit to $500 million.

The Company's outstanding balances of floorplan lines of credit as of July 31, 2022 and January 31, 2022, consisted of the following:


	July 31, 2022		January 31, 2022
	(in thousands)
CNH Industrial	$	177,983	$	94,054
Bank Syndicate Agreement Floorplan Loan	41,000		—
DLL Finance	9,187		8,558
Other outstanding balances with manufacturers and non-manufacturers	46,074		32,803
	$	274,244	$	135,415

In anticipation of closing the Heartland acquisition on August 1, 2022, the Company drew $41.0 million on its Bank Syndicate Floorplan Loan, which had a variable interest rate of 3.21% as of July 31, 2022. Generally, all U.S. CNH Industrial and DLL Finance amounts outstanding are non-interest bearing. As of July 31, 2022, foreign floorplan payables carried various interest rates primarily ranging from 1.92% to 8.36%, compared to a range of 1.40% to 6.11% as of January 31, 2022. The Company had non-interest bearing floorplan payables of $210.7 million and $106.8 million, on July 31, 2022 and January 31, 2022, 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.

NOTE 9 - LONG TERM DEBT

The following is a summary of long-term debt as of July 31, 2022 and January 31, 2022:


Description	Maturity Dates	Interest Rates	July 31, 2022		January 31, 2022
			(in thousands)
Mortgage loans, secured	Various through May 2039	2.1% to 5.1%	$	69,834	$	57,801
Sale-leaseback financing obligations	Various through December 2030	3.4% to 10.3%	11,826		12,382

Vehicle loans, secured	Various through September 2027	2.1% to 4.3%	11,490		10,465

Total debt			93,150		80,648
Less: current maturities			6,650		5,876
Long-term debt, net			$	86,500	$	74,772

NOTE 10 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the six month periods ended July 31, 2022 and July 31, 2021:


	Foreign Currency Translation Adjustment		Net Investment Hedging Gain		Total Accumulated Other Comprehensive Income (Loss)
	(in thousands)
Balance, January 31, 2022	$	(4,883)	$	2,711	$	(2,172)
Other comprehensive loss	(1,191)		—		(1,191)
Balance, April 30, 2022	(6,074)		2,711		(3,363)
Other comprehensive income	(2,963)		—		(2,963)
Balance, July 31, 2022	$	(9,037)	$	2,711	$	(6,326)

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	Foreign Currency Translation Adjustment		Net Investment Hedging Gain		Total 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 income	938		—		938
Balance, July 31, 2021	$	(2,653)	$	2,711	$	58

NOTE 11 - 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.

The components of lease expense were as follows:


		Three Months Ended July 31,				Six Months Ended July 31,
	Classification	2022		2021		2022		2021
		(in thousands)				(in thousands)
Finance lease cost:
Amortization of leased assets	Operating expenses	$	207	$	243	$	415	$	688
Interest on lease liabilities	Other interest expense	45		64		88		152
Operating lease cost	Operating expenses and rental and other cost of revenue	3,164		3,735		6,638		7,501
Short-term lease cost	Operating expenses	44		66		70		132
Variable lease cost	Operating expenses	473		639		1,018		1,252
Sublease income	Interest and other income	(360)		(219)		(729)		(416)
		$	3,573	$	4,528	$	7,500	$	9,309

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Right-of-use lease assets and lease liabilities consist of the following:


	Classification	July 31, 2022		January 31, 2022
		(in thousands)
Assets
Operating lease assets	Operating lease assets	$	51,888	$	56,150
Finance lease assets(a)	Property and equipment, net of accumulated depreciation	2,442		9,045
Total leased assets		$	54,330	$	65,195
Liabilities
Current
Operating	Current operating lease liabilities	$	9,465	$	9,601
Finance	Accrued expenses and other	554		7,466
Noncurrent
Operating	Operating lease liabilities	50,998		55,595
Finance	Other long-term liabilities	1,880		1,518
Total lease liabilities		$	62,897	$	74,180

(a)Finance lease assets are recorded net of accumulated amortization of $1.8 million as of July 31, 2022 and $1.7 million as of January 31, 2022.

Maturities of lease liabilities as of July 31, 2022 are as follows:


	Operating		Finance
	Leases		Leases		Total
Fiscal Year Ended January 31,	(in thousands)
2023 (remainder)	$	6,440	$	400	$	6,840
2024	12,484		607		13,091
2025	11,943		554		12,497
2026	11,552		460		12,012
2027	10,815		431		11,246
2028	9,394		297		9,691
Thereafter	9,839		343		10,182
Total lease payments	72,467		3,092		75,559
Less: Interest	12,005		657		12,662
Present value of lease liabilities	$	60,462	$	2,435	$	62,897

The weighted-average lease term and discount rate as of July 31, 2022 are as follows:


	July 31, 2022
Weighted-average remaining lease term (years):
Operating leases	6.3
Financing leases	5.2
Weighted-average discount rate:
Operating leases	6.2	%
Financing leases	8.2	%

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

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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 July 31, 2022 and January 31, 2022:


	July 31, 2022		January 31, 2022
	(in thousands)
Rental fleet equipment	$	73,014	$	65,117
Less accumulated depreciation	25,205		23,501
	$	47,809	$	41,616

NOTE 12 - FAIR VALUE MEASUREMENTS

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2022 as part of its long-lived asset impairment testing. The estimated fair value of such assets as of January 31, 2022 was $3.1 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, in the prior year, 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 July 31, 2022 and January 31, 2022. 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:


	July 31, 2022		January 31, 2022
	(in thousands)
Carrying amount	$	81,324	$	63,237
Fair value	$	72,516	$	68,267

NOTE 13 - INCOME TAXES

Our effective tax rate was 24.7% and 28.0% for the three months ended July 31, 2022 and 2021, respectively and was 25.1% and 25.6% for the six months ended July 31, 2022 and 2021, respectively. The effective tax rate for the six months ended July 31, 2022 and 2021 were subject 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, and recognition of a valuation allowance on certain of our foreign deferred tax assets.

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NOTE 14 - BUSINESS COMBINATIONS

Fiscal 2023

On April 1, 2022, the Company acquired certain assets of Mark's Machinery, Inc. The acquired business consisted of two agricultural equipment stores in Wagner and Yankton, South Dakota. These locations are included in the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $7.7 million.

In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Mark's Machinery, Inc. Upon acquiring such inventories, the Company was offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $3.2 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination.

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 are included in the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $28.2 million. The Company completed the real estate purchase on December 31, 2021 for a purchase price of $5.5 million, which was partially financed with long-term debt and the remainder was paid in cash.

In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Jaycox Implement, Inc. Upon acquiring such inventories, the Company was offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $5.3 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

Each of the above acquisitions 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. As of July 31, 2022, all business combinations completed in fiscal years 2023 and 2022 are preliminary. The following table presents the aggregate purchase price allocations for all acquisitions completed during the fiscal year ended January 31, 2022 and the period ended July 31, 2022:


	July 31, 2022		January 31, 2022
	(in thousands)
Assets acquired:
Cash	$	1	$	4
Receivables	478		1,197
Inventories	3,386		13,780
Prepaid expenses and other	66		47
Property and equipment	4,088		8,236

Intangible assets	917		4,121
Goodwill	583		7,519

	9,519		34,904

Liabilities assumed:



Deferred revenue	1,844		1,261





Net assets acquired	$	7,675	$	33,643

Goodwill recognized by segment:
Agriculture	$	583	$	7,519


Goodwill expected to be deductible for tax purposes	$	583	$	7,519

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The recognition of goodwill in the above business combinations arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. For the Mark's Machinery acquisition the Company recognized a non-competition intangible asset of $0.1 million and a distribution rights intangible asset of $0.8 million. For the Jaycox acquisition the Company recognized a non-competition intangible asset of $0.1 million and a distribution rights intangible asset of $3.9 million. The non-competition assets 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 intangible assets using a multi-period excess earnings model, which is an income approach. Acquisition related costs, amounted to $0.5 million for the period ended July 31, 2022, primarily related to the Heartland acquisition, and acquisition related costs for the period ended January 31, 2022, were not material. All acquisition related costs have been expensed as incurred and recognized as Operating Expenses in the condensed consolidated statements of operations.

NOTE 15 - 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 16 - 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 July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Revenue
Agriculture	$	348,956	$	219,364	$	667,503	$	448,915
Construction	70,022		80,943		136,986		149,550
International	77,565		77,323		153,060		151,869
Total	$	496,543	$	377,630	$	957,549	$	750,334

Income (Loss) Before Income Taxes
Agriculture	$	24,895	$	12,067	$	41,344	$	23,292
Construction	3,923		2,815		7,132		2,953
International	5,870		430		10,195		3,238
Segment income before income taxes	34,688		15,312		58,671		29,483
Shared Resources	(1,538)		320		(1,937)		(172)
Total	$	33,150	$	15,632	$	56,734	$	29,311


	July 31, 2022		January 31, 2022
	(in thousands)
Total Assets
Agriculture	$	559,722	$	481,190
Construction	196,085		157,846
International	175,921		155,275
Segment assets	931,728		794,311
Shared Resources	146,143		152,356
Total	$	1,077,871	$	946,667

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NOTE 17 - SUBSEQUENT EVENTS

On July 8, 2022, the Company entered into a definitive purchase agreement to acquire three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leverage Lender, LLC, collectively, the "Heartland Companies", which operate a twelve store CaseIH commercial application agriculture dealership complex . In its most recently completed fiscal year ended December 31, 2021, Heartland Companies generated revenue of approximately $214 million. The Company closed on the acquisition, on August 1, 2022 with cash consideration transferred of $94.5 million. The Company primarily used cash on hand for the funding of the purchase price and drew down on the floorplan loan with the Bank Syndicate for the remaining balance.

The acquisition will be accounted in accordance with Accounting Standards Codification ("ASC") Topic 805, "Business Combinations". As the acquisition was completed subsequent to July 31, 2022, the consolidated financials statements do not include the results or the financial position of the Heartland Companies. Because the Company has not completed the work of the purchase price allocation needed under ASC 805, the initial accounting for the business combination was incomplete at the time of the issuance of the financial statements, therefore, the Company did not include all of the information regarding the effect of the business combination as permitted by ASC 805-10-50-4 and ASC 805-30-50-3.

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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, 2022.

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 United States. 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, is impacted by agricultural commodity prices and net farm income. Based on February 2022 U.S. Department of Agriculture publications, the estimate of net farm income for calendar year 2022 indicated an approximate 4.5% decrease as compared to calendar year 2021, and an approximate 25.1% increase in net farm income for calendar year 2021 as compared to calendar year 2020.

For the second quarter of fiscal 2023, our net income was $25.0 million, or $1.10 per diluted share, compared to a fiscal 2022 second quarter net income of $11.2 million, or $0.50 per diluted share. Our adjusted diluted earnings per share was $1.10 for the second quarter of fiscal 2023, compared to $0.56 for the second quarter of fiscal 2022. 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 second quarter of fiscal 2023 increased by 31.5% compared to the second quarter of fiscal 2022. Total Company same store sales increased 32.1% compared to the prior year second quarter. Same store sales increased in each of our three reporting segments.

•Gross profit in the second quarter of fiscal 2023 increased 36.9% compared to the second quarter of fiscal 2022. The increase in gross profit was primarily the result of strong equipment sales and equipment gross profit margins increasing to 13.7% in the second quarter of fiscal 2023 from 11.9% in the second quarter of fiscal 2022.

•Gross profit was also positively impacted by strong parts sales, increasing by 30.0% from the prior year period, and strong parts gross profit margins, which increased to 32.2% in the second quarter of fiscal 2023 from 29.4% in the second quarter of fiscal 2022.

Supply Chain

Equipment availability continues to be challenging as supply chain disruptions throughout 2021 and continuing into 2022, along with increased domestic and global demand for equipment inventory, have caused many manufacturers to be unable to produce enough equipment to meet demand. Many manufacturers have partially built equipment at their factories waiting for certain parts and components in order to finish production and ship the equipment to dealers. The timing as to the receipt of those parts and components may move completion of that equipment and the resulting delivery to the end customer from quarter to quarter or in some cases, year to year, thereby potentially impacting when we are able to receive the inventory, enter into sales transactions with our customers, and recognize the revenue. These supply chain issues are further complicated by labor shortages including the ongoing strike at the CNH Industrial plants in Racine, Wisconsin and Burlington, Iowa, as well as the recent announcement by CNH Industrial that it will be implementing an equipment allocation methodology to determine production slots starting in late calendar year 2022. All of these factors may limit our ability to match customer demand on certain products in fiscal 2024. We will continue to work with our manufacturers to source future inventory to fulfill as much customer demand as possible.

Russian-Ukrainian Conflict

Since the onset of the active conflict in February 2022, most of Titan Machinery Ukraine's customers have been able to continue their work, although at a reduced capacity and schedule. The Company's business systems in Ukraine have continued to function but could be negatively impacted in the future. Some of Titan Machinery Ukraine's back office employees have

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been able to relocate outside of Ukraine and continue to work, while the customer support and sales teams have remained in Ukraine. For the six months ended July 31, 2022, Titan Machinery Ukraine's revenues are down approximately 37.7% from the prior year period.

As of July 31, 2022, the Company had total assets of $33.1 million in Ukraine. The physical assets (e.g. inventory and fixed assets) are almost exclusively located in central and western areas of the country. Total assets in Ukraine as of January 31, 2022, was $32.7 million.

The situation is highly complex and continues to evolve. If the Company cannot provide efficient and uninterrupted services, this could worsen the conflict's adverse effect on the Company's operations and business in Ukraine. In addition, the Company's ability to maintain adequate liquidity for our operations in Ukraine is dependent on a number of factors, including Titan Machinery Ukraine's revenue and earnings, which have been and could continue to be significantly impacted by the conflict. Further, any additional military movement back into central and western Ukraine or any major threat to civilians in those areas or international banking disruption could materially impact the operations and liquidity of Titan Machinery Ukraine.

Acquisitions

Fiscal 2023

On August 1, 2022, the Company acquired all interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies") for $94.5 million in cash consideration. The Heartland Companies consist of twelve CaseIH commercial application agriculture locations, in Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, and Wisconsin. The Heartland Companies have been a successful CaseIH commercial application dealer group and our acquisition of these entities provides the Company the opportunity for synergies due to the overlap of our footprints, which will allow us to package deals that will include both commercial application equipment as well as other agricultural and construction equipment to commercial customers within our core footprint. In the most recent completed fiscal year, the Heartland Companies generated revenue of approximately $214 million.

On April 1, 2022, the Company acquired certain assets of Mark's Machinery, Inc. The acquired business consisted of two agricultural equipment stores in Wagner and Yankton, South Dakota. These locations are included in our Agriculture segment. In its most recent fiscal year, Mark's Machinery, Inc. generated revenue of approximately $34.0 million. The total cash consideration paid for the acquired business was $7.7 million.

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 are included in our Agriculture segment. 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 $33.6 million.

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 and also integrated the five stores acquired through the Jaycox Implement and Mark's Machinery acquistions in December 2021 and April 2022, respectively. In June, the Company began the phased roll-out integrating three existing location to the new ERP. We will continue our phased roll-out to the remaining domestic locations, over the second half of fiscal 2023 and continue into fiscal 2024.

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, 2022. There have been no changes in our critical accounting policies and estimates since January 31, 2022.

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Results of Operations

The results presented below include the operating results of any acquisition made during these periods, from the date of acquisition, 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.

Comparative financial data for each of our four sources of revenue are expressed below.


	Three Months Ended July 31,						Six Months Ended July 31,
	2022			2021			2022			2021
	(dollars in thousands)						(dollars in thousands)
Equipment
Revenue	$	375,216		$	272,733		$	731,582		$	548,713
Cost of revenue	323,988			240,332			634,222			484,008
Gross profit	$	51,228		$	32,401		$	97,360		$	64,705
Gross profit margin	13.7		%	11.9		%	13.3		%	11.8		%
Parts
Revenue	$	77,693		$	65,317		$	146,255		$	127,942
Cost of revenue	52,706			46,089			100,015			90,529
Gross profit	$	24,987		$	19,228		$	46,240		$	37,413
Gross profit margin	32.2		%	29.4		%	31.6		%	29.2		%
Service
Revenue	$	33,365		$	29,676		$	62,887		$	57,379
Cost of revenue	11,072			9,771			21,832			19,065
Gross profit	$	22,293		$	19,905		$	41,055		$	38,314
Gross profit margin	66.8		%	67.1		%	65.3		%	66.8		%
Rental and other
Revenue	$	10,269		$	9,904		$	16,825		$	16,300
Cost of revenue	6,078			6,420			10,087			10,737
Gross profit	$	4,191		$	3,484		$	6,738		$	5,563
Gross profit margin	40.8		%	35.2		%	40.0		%	34.1		%

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The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:


	Three Months Ended July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
Revenue
Equipment	75.6	%	72.2	%	76.4	%	73.1	%
Parts	15.6	%	17.3	%	15.3	%	17.1	%
Service	6.7	%	7.9	%	6.6	%	7.6	%
Rental and other	2.1	%	2.6	%	1.7	%	2.2	%
Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Total Cost of Revenue	79.3	%	80.1	%	80.0	%	80.5	%
Gross Profit Margin	20.7	%	19.9	%	20.0	%	19.5	%
Operating Expenses	13.9	%	15.1	%	13.9	%	15.1	%


Income from Operations	6.8	%	4.4	%	6.1	%	4.1	%
Other Income (Expense)	(0.1)	%	(0.2)	%	(0.2)	%	(0.2)	%
Income Before Income Taxes	6.7	%	4.1	%	5.9	%	3.9	%
Provision for Income Taxes	1.6	%	1.2	%	1.5	%	1.0	%
Net Income	5.0	%	3.0	%	4.4	%	2.9	%

Three Months Ended July 31, 2022 Compared to Three Months Ended July 31, 2021

Consolidated Results

Revenue


	Three Months Ended July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Equipment	$	375,216	$	272,733	$	102,483	37.6	%
Parts	77,693		65,317		12,376		18.9	%
Service	33,365		29,676		3,689		12.4	%
Rental and other	10,269		9,904		365		3.7	%
Total Revenue	$	496,543	$	377,630	$	118,913	31.5	%

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Total revenue for the second quarter of fiscal 2023 was 31.5% or $118.9 million higher than the second quarter of fiscal 2022 driven primarily by an increase in Company-wide same-store sales of 32.1% and our acquistions of Jaycox Implement and Mark's Machinery, completed in December 2021 and April 2022, respectively. The same-store sales increase was primarily driven by favorable commodity prices, higher net farm income and increased construction activity in our footprint.


	Three Months Ended July 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Gross Profit
Equipment	$	51,228		$	32,401		$	18,827		58.1	%
Parts	24,987			19,228			5,759			30.0	%
Service	22,293			19,905			2,388			12.0	%
Rental and other	4,191			3,484			707			20.3	%
Total Gross Profit	$	102,699		$	75,018		$	27,681		36.9	%
Gross Profit Margin
Equipment	13.7		%	11.9		%	1.8		%	15.1	%
Parts	32.2		%	29.4		%	2.8		%	9.5	%
Service	66.8		%	67.1		%	(0.3)		%	(0.4)	%
Rental and other	40.8		%	35.2		%	5.6		%	15.9	%
Total Gross Profit Margin	20.7		%	19.9		%	0.8		%	4.0	%
Gross Profit Mix
Equipment	49.9		%	43.2		%	6.7		%	15.5	%
Parts	24.3		%	25.6		%	(1.3)		%	(5.1)	%
Service	21.7		%	26.5		%	(4.8)		%	(18.1)	%
Rental and other	4.1		%	4.7		%	(0.6)		%	(12.8)	%
Total Gross Profit Mix	100.0		%	100.0		%

Gross profit for the second quarter of fiscal 2023 increased 36.9% or $27.7 million, as compared to the same period last year. Gross profit margin also improved to 20.7% in the current quarter from 19.9% 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, favorable end market conditions, and a $2.6 million benefit recognized on the expected achievement of annual manufacturer incentive programs. 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.

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 90.6% for the second quarter of fiscal 2023 compared to 86.2% during the same period last year as the increase in gross profit from parts, rental fleet, and service in the second quarter of fiscal 2023 combined with lower floorplan interest expenses more than offset the increase in operating expenses during the period.

Operating Expenses


	Three Months Ended July 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Operating Expenses	$	68,828		$	57,074		$	11,754		20.6	%
Operating Expenses as a Percentage of Revenue	13.9		%	15.1		%	(1.2)		%	(7.9)	%

Our operating expenses in the second quarter of fiscal 2023 increased 20.6% as compared to the second quarter of fiscal 2022. The increase in operating expenses was primarily the result of an increase in variable expenses associated with increased sales. Operating expenses as a percentage of revenue decreased to 13.9% in the second quarter of fiscal 2023 from 15.1% in the second quarter of fiscal 2022. The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the second quarter of fiscal 2023, as compared to the second quarter of fiscal 2022, which positively affected our ability to leverage our fixed operating costs.

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Impairment Charges


	Three Months Ended July 31,		Increase/	Percent
	2022	2021	(Decrease)	Change
	(dollars in thousands)

Impairment of Intangible and Long-Lived Assets	—	1,498	(1,498)	100.0	%

We did not recognize any impairment charges in the second quarter of fiscal 2023. In the second quarter of fiscal 2022, we recognized $1.5 million of impairment charges on certain intangible and long-lived assets in our International segment.

Other Income (Expense)


	Three Months Ended July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Interest and other income	$	873	$	654	$	219	33.5	%
Floorplan interest expense	(245)		(350)		(105)		(30.0)	%
Other interest expense	(1,349)		(1,118)		231		20.7	%

Interest and other income increased by $0.2 million in the second quarter of fiscal 2023, as compared to the second quarter of fiscal 2022, due to increased sublease rental income of facilities that were divested in January 2022. The decrease in floorplan interest expense of 30.0% was due to decreased levels of interest bearing inventory in the International segment. 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 July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Provision for Income Taxes	$	8,191	$	4,383	$	3,808	86.9	%

Our effective tax rate was 24.7% and 28.0% for the three months ended July 31, 2022 and July 31, 2021, respectively, and was 25.1% and 25.6% for the six months ended July 31, 2022 and 2021, respectively. The effective tax rate for each of the six months ended July 31, 2022 and 2021 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 and recognition of a valuation allowance on certain of our foreign deferred tax assets.

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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 July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Revenue
Agriculture	$	348,956	$	219,364	$	129,592	59.1	%
Construction	70,022		80,943		(10,921)		(13.5)	%
International	77,565		77,323		242		0.3	%
Total	$	496,543	$	377,630	$	118,913	31.5	%

Income Before Income Taxes
Agriculture	$	24,895	$	12,067	$	12,828	106.3	%
Construction	3,923		2,815		1,108		39.4	%
International	5,870		430		5,440		n/m
Segment Income Before Income Taxes	34,688		15,312		19,376		126.5	%
Shared Resources	(1,538)		320		(1,858)		n/m
Total	$	33,150	$	15,632	$	17,518	112.1	%

Agriculture

Agriculture segment revenue for the second quarter of fiscal 2023 increased 59.1% compared to the second quarter of fiscal 2022. The higher revenue was driven primarily by an increase in same-store sales of 45.7% and our acquistions of Jaycox Implement and Mark's Machinery, completed in December 2021 and April 2022, respectively. The same-store sales increase was primarily driven by favorable commodity prices and higher net farm income.

Agriculture segment income before income taxes for the second quarter of fiscal 2023 was $24.9 million compared to $12.1 million for the second quarter of fiscal 2022. The improvement in segment results was primarily the result of increased revenues and stronger equipment margins which were positively impacted by favorable end market conditions, healthy inventory, and a $2.6 million benefit recognized on the expected achievement of annual manufacturer incentive programs.

Construction

Construction segment revenue for the second quarter of fiscal 2023 decreased 13.5% compared to the second quarter of fiscal 2022. However, after taking into account the divestiture of the Billings, Great Falls, and Missoula, Montana, and Gillette, Wyoming stores in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023 divestiture of our consumer products store in North Dakota, same-store sales in our Construction segment increased 14.9% for the second quarter of fiscal 2023, as compared to the second quarter of fiscal 2022. The driving factor of the same-store sales increase was parts, service, and rental and other which increased 18.1%, 11.7%, and 20.0%, respectively, from the second quarter of fiscal 2023, as compared to the second quarter of fiscal 2022.

Our Construction segment income before taxes was $3.9 million for the second quarter of fiscal 2023 compared to $2.8 million in the second quarter of fiscal 2022. The improvement in segment results was primarily due to an increase in same store sales, as described above and an increase in rental fleet utilization, which led to an increase in rental gross profit margin. 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 26.6% in the second quarter of fiscal 2022 to 31.9% in the second quarter of fiscal 2023.

International

International segment revenue was $77.6 million for the second quarter of fiscal 2023 compared to $77.3 million in the second quarter of fiscal 2022. While segment revenue was essentially flat, a 25% decrease in total revenue from our Ukrainian subsidiary due to the Russia-Ukraine conflict, and the significant devaluation of the Euro, the functional currency in much of our international footprint, were more than offset by a same-store sales increase of 5.9% due to many of the same macroeconomic factors as the Agriculture segment, driving an increase in equipment sales.

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Our International segment income before income taxes was $5.9 million for the second quarter of fiscal 2023 compared to segment income before income taxes of $0.4 million for the same period last year. The increase in segment pre-tax income was primarily the result of improved equipment gross profit margin and an impairment of certain intangible and fixed assets in our German subsidiary in the second quarter of fiscal 2022.

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, unallocated balances may occur. Shared Resources loss before income taxes was $1.5 million for the second quarter of fiscal 2023 compared to income before income taxes of $0.3 million for the same period last year. The lower shared resources results were driven by $0.5 million of acquisition related expenses incurred for the Heartland Companies acquisition.

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Six Months Ended July 31, 2022 Compared to Six Months Ended July 31, 2021

Consolidated Results

Revenue


	Six Months Ended July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Equipment	$	731,582	$	548,713	$	182,869	33.3	%
Parts	146,255		127,942		18,313		14.3	%
Service	62,887		57,379		5,508		9.6	%
Rental and other	16,825		16,300		525		3.2	%
Total Revenue	$	957,549	$	750,334	$	207,215	27.6	%

Total revenue for the first six months of fiscal 2023 was up 27.6% or $207.2 million compared to the first six months of fiscal 2022, driven primarily by an increase in Company-wide same-store sales of 27.1% and our acquistions of Jaycox Implement and Mark's Machinery, completed in December 2021 and April 2022, respectively. The same-store sales increase was primarily driven by favorable commodity prices, higher net farm income and increased construction activity in our footprint.

Gross Profit


	Six Months Ended July 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Gross Profit
Equipment	$	97,360		$	64,705		$	32,655		50.5	%
Parts	46,240			37,413			8,827			23.6	%
Service	41,055			38,314			2,741			7.2	%
Rental and other	6,738			5,563			1,175			21.1	%
Total Gross Profit	$	191,393		$	145,995		$	45,398		31.1	%
Gross Profit Margin
Equipment	13.3		%	11.8		%	1.5		%	12.7	%
Parts	31.6		%	29.2		%	2.4		%	8.2	%
Service	65.3		%	66.8		%	(1.5)		%	(2.2)	%
Rental and other	40.0		%	34.1		%	5.9		%	17.3	%
Total Gross Profit Margin	20.0		%	19.5		%	0.5		%	2.6	%
Gross Profit Mix
Equipment	50.8		%	44.3		%	6.5		%	14.7	%
Parts	24.2		%	25.6		%	(1.4)		%	(5.5)	%
Service	21.5		%	26.2		%	(4.7)		%	(17.9)	%
Rental and other	3.5		%	3.9		%	(0.4)		%	(10.3)	%
Total Gross Profit Mix	100.0		%	100.0		%

Gross profit increased 31.1% or $45.4 million for the first six months of fiscal 2023, 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 six months of fiscal 2023. These higher equipment sales and margins were driven by a healthy inventory and favorable end market conditions. Higher equipment margins were also benefited from a $2.6 million benefit recognized on the expected achievement of annual manufacturer incentive programs. The overall gross profit margin increase from 19.5% to 20.0% was primarily due to stronger equipment margins and rental margins, but was partially offset 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 six months of fiscal 2023 increased to 85.6%, as compared to 81.0% during the same period last year, as the increase in gross profit from parts, rental, and service combined with lower floorplan

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interest expense more than offset the increase in operating expenses during the six month period compared to that of the prior year six month period.

Operating Expenses


	Six Months Ended July 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Operating Expenses	$	132,980		$	113,516		$	19,464		17.2	%
Operating Expenses as a Percentage of Revenue	13.9		%	15.1		%	(1.2)		%	(7.9)	%

Our operating expenses for the first six months of fiscal 2023 increased $19.5 million as compared to the first six months of fiscal 2022. The increase in operating expenses was a result of an increase in variable expenses associated with increased sales. Operating expenses as a percentage of revenue decreased to 13.9% in the first six months of fiscal 2023 from 15.1% in the first six months of fiscal 2022. The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in the first six months of fiscal 2023, as compared to the first six months of fiscal 2022, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges


	Six Months Ended July 31,		Increase/	Percent
	2022	2021	(Decrease)	Change
	(dollars in thousands)

Impairment of Intangible and Long-Lived Assets	—	1,498	(1,498)	100.0	%

We did not recognize any impairment charges in the first six months of fiscal 2023. In the first six months of fiscal 2022, we recognized $1.5 million of impairment charges on certain intangible and long-lived assets in our International segment.

Other Income (Expense)


	Six Months Ended July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Interest and other income	$	1,365	$	1,320	$	45	3.4	%
Floorplan interest expense	(499)		(768)		(269)		(35.0)	%
Other interest expense	(2,545)		(2,222)		323		14.5	%

Floorplan interest expense decreased 35.0% for the first six months of fiscal 2023, as compared to the same period last year, primarily due to lower interest bearing inventory, primarily in our international segment. The increase in other interest expense in the first six months of fiscal 2023, as compared to the first six months of fiscal 2022, is the result of increased long term debt on real estate purchased during fiscal 2022 and 2023.

Provision for Income Taxes


	Six Months Ended July 31,				Increase/		Percent
	2022		2021		Decrease		Change
	(dollars in thousands)
Provision for Income Taxes	$	14,235	$	7,515	$	6,720	89.4	%

Our effective tax rate was 25.1% for the first six months of fiscal 2023 and 25.6% for the same period last year. The effective tax rate for the six months ended July 31, 2022 and 2021 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


	Six Months Ended July 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Revenue
Agriculture	$	667,503	$	448,915	$	218,588	48.7	%
Construction	136,986		149,550		(12,564)		(8.4)	%
International	153,060		151,869		1,191		0.8	%
Total	$	957,549	$	750,334	$	207,215	27.6	%

Income Before Income Taxes
Agriculture	$	41,344	$	23,292	$	18,052	77.5	%
Construction	7,132		2,953		4,179		141.5	%
International	10,195		3,238		6,957		n/m
Segment Income Before Income Taxes	58,671		29,483		29,188		99.0	%
Shared Resources	(1,937)		(172)		(1,765)		n/m
Total	$	56,734	$	29,311	$	27,423	93.6	%

Agriculture

Agriculture segment revenue for the first six months of fiscal 2023 increased 48.7% compared to the same period last year. The higher revenue was driven primarily by an increase in same-store sales of 35.8% for the first six months of fiscal 2023, as compared to the same period last year as well as the acquisitions of Jaycox Implement and Mark's Machinery in December 2021 and April 2022, respectively. The same-store sales increase was driven by increased equipment demand due to higher commodity prices and higher net farm income.

Agriculture segment income before income taxes was $41.3 million for the first six months of fiscal 2023 compared to $23.3 million over the first six months of fiscal 2022. The improvement in segment results was the result of higher equipment revenue along with higher gross profit margin on equipment driven by increased demand, healthy inventory, and a $2.6 million benefit recognized on the expected achievement of annual manufacturer incentive programs.

Construction

Construction segment revenue for the first six months of fiscal 2023 decreased 8.4% compared to the same period last year. However, when accounting for the divestitures of the Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming stores in January 2022, and the North Dakota consumer products store in March 2022, same-store sales increased 19.5%. Higher same-store sales were driven by increased construction activity throughout the footprint.

Our Construction segment income before income taxes was $7.1 million for the first six months of fiscal 2023 compared to income before income taxes of $3.0 million for the first six months of fiscal 2022. The increase in segment results was primarily due to increased construction activity within our footprint and an increase in rental fleet utilization. The dollar utilization of our rental fleet increased from 22.9% in the first six months of fiscal 2022 to 28.6% in the first six months of fiscal 2023.

International

International segment revenue for the first six months of fiscal 2023 increased 0.8% compared to the same period last year. Higher commodity prices are primarily driving demand for equipment sales. The increase in revenue was partially offset by a 9.0% devaluation of the Euro, the functional currency in much of our international footprint, in the first six months of fiscal 2023. The segment was also negatively impacted by a 38% decrease in revenues from our Ukrainian subsidiary due to the Russia-Ukraine conflict compared to the first six months of fiscal 2022.

Our International segment income before income taxes was $10.2 million for the first six months of fiscal 2023 compared to income before income taxes of $3.2 million for the same period last year. The higher segment results were

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primarily the result and equipment gross profit margin. There were no fixed or intangible asset impairment charges recognized in the first six months of fiscal 2023 while $1.5 million was recognized in the first six months of fiscal 2022, related to the impairment of certain intangible and long-lived assets of our German subsidiary.

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 $1.9 million for the first six months of fiscal 2023 compared to a loss before income taxes of $0.2 million for the same period last year. The lower shared resources results were driven by $0.5 million of acquisition related expenses incurred for the Heartland Companies acquisition.

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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 foreign currency remeasurement gains/losses in Ukraine and impairment charges. 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.

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 July 31,				Six Months Ended July 31,
	2022		2021		2022		2021
	(dollars in thousands, except per share data)
Adjusted Net Income
Net Income	$	24,959	$	11,249	$	42,499	$	21,796
Adjustments


Impairment charges	—		1,498		—		1,498
Ukraine remeasurement (gain) / loss (1)	21		(53)		315		(183)
Total Pre-Tax Adjustments	21		1,445		315		1,315



Adjusted Net Income	$	24,980	$	12,694	$	42,814	$	23,111

Adjusted Diluted EPS
Diluted EPS	$	1.10	$	0.50	$	1.88	$	0.97
Adjustments (2)


Impairment charges	—		0.07		—		0.07
Ukraine remeasurement (gain) / loss (1)	—		(0.01)		0.01		(0.01)
Total Pre-Tax Adjustments	—		0.06		0.01		0.06



Adjusted Diluted EPS	$	1.10	$	0.56	$	1.89	$	1.03

(1) Due to the income tax valuation allowance on the Ukrainian and German subsidiaries, there are no tax adjustments of the Ukraine remeasurement (gain)/loss for the periods ended July 31, 2022 and 2021 or the impairment charge for the period ended July 31, 2021.
(2) Adjustments are net of amounts allocated to participating securities where applicable.

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 July 31, 2022, the Company had floorplan payable lines of credit for equipment purchases totaling $743.0 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 2.7 times for the rolling 12 month period ended July 31, 2021 to 3.6 times for the rolling 12 month period ended July 31, 2022. The increase in equipment turnover was attributable to an increase in equipment sales over the rolling 12 month period ended July 31, 2022 as compared to the same period ended July 31, 2021. Our

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equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 38.3% as of July 31, 2022 from 58.2% as of January 31, 2022. The decrease was primarily due to drawing on our floorplan loan with the Bank Syndicate, in anticipation of the Heartland acquisition.

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, and funding acquisitions. Based on our current operational performance and taking into account the use of cash to pay the purchase price on the Heartland acquisition, 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 July 31, 2022, 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 July 31, 2022. 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 (Used for) Operating Activities

Net cash used for operating activities was $21.0 million for the first six months of fiscal 2023, compared to net cash provided by operating activities of $28.6 million for the first six months of fiscal 2022. The change in net cash provided by (used for) operating activities is primarily the result of an increase in inventories partially offset by an increase in non-interest bearing floorplan lines of credit from manufacturers and higher net income for the first six months of fiscal 2023.

Cash Flow Used for Investing Activities

Net cash used for investing activities was $20.7 million for the first six months of fiscal 2023, compared to $19.4 million for the first six months of fiscal 2022. The increase in cash used for investing activities was primarily the result of the business acquisition of Mark's Machinery in the first six months of fiscal 2023.

Cash Flow Provided by (Used for) Financing Activities

Net cash provided by financing activities was $39.6 million for the first six months of fiscal 2023 compared to cash used for financing activities of $22.4 million for the first six months of fiscal 2022. The increase in cash provided by financing activities was primarily the result of increased non-manufactured floorplan payables in the first six months of fiscal 2023, as the Company drew on its Bank Syndicate floorplan loan in anticipation of the August 2022 acquisition of the Heartland Companies, compared to last year.

Information Concerning Off-Balance Sheet Arrangements

As of July 31, 2022, 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, 2022, and in other materials filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements 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 the performance of our Ukrainian subsidiary within our International segment, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of the COVID-19 pandemic on our business, the effectiveness of our new ERP system and the timing of the phased roll-out of the ERP system to the Company's domestic locations, the general market conditions of the agricultural and construction industries,

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equipment inventory levels, 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 impact of the Russia -Ukraine conflict on our Ukrainian subsidiary, our ability to successfully integrate and realize growth opportunities and synergies in connection with the Heartland acquisition, the risk that we assume unforeseen or other liabilities in connection with the Heartland acquisition and the impact of those conditions and obligations imposed on us under the new CaseIH dealer agreements for the commercial application equipment business, our substantial dependence on CNH Industrial, including CNH Industrial's ability to design, manufacture and allocate inventory to our stores in quantities necessary to satisfy our customer's demands, 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 July 31, 2022, 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 $0.6 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 $0.6 million. At July 31, 2022, we had floorplan payables of $274.2 million, of which approximately $63.5 million was variable-rate floorplan payable and $210.7 million was non-interest bearing. In addition, at July 31, 2022, we had total long-term debt, including finance lease obligations, of $94.8 million, all of which 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 July 31, 2022, 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 July 31, 2022, our Ukrainian subsidiary had $0.3 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. Many of the currency and payment controls the National Bank of Ukraine imposed in February 2022, have been relaxed, making it more practicable to manage our UAH exposure. However, the continuation of the Russia/Ukraine conflict could lead to more significant UAH devaluations, similar to the 24% devaluation that occurred in July 2022, or more stringent payment controls in the future. The inability to fully manage our net monetary asset position and continued UAH devaluations for an extended period of time, could have a significant adverse impact on our results of operations and cash flows.

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, 2022, 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

2.1						Amendment No. 1 to Securities Purchase Agreement, dated as of July 28, 2022, by and among Titan Machinery Inc.; Heartland Agriculture, LLC; Gordon Glade, Jeff Keller, Robert Caldwell and Michael Stopkotte; Michael Anderson, Barb Anderson, David Clare, Scott Reins, Shawn Sterling, The Constance Kent Revocable Trust and Lenco Enterprises, LLC; and Robert Caldwell, solely in his capacity as Seller Representative.

2.2						Amendment No. 1 to Securities Purchase Agreement, dated as of July 29, 2022, by and among Titan Machinery Inc.; Heartland Leverage Lender, LLC; Gordon Glade, Jeff Keller and Robert Caldwell; and Robert Caldwell, solely in his capacity as Seller Representative.

10.1						Amendment, dated August 1, 2022, to the Amended and Restated Wholesale Floor Plan Credit Facility and Security Agreement, dated November 13, 2007, by and between Titan Machinery Inc. and CNH Industrial Capital America LLC

10.2						Agreement to Grant Commercial Application Equipment Distribution Rights, dated as of August 1, 2022, by and between CNH Industrial America LLC and Titan Machinery Inc.

10.3						Form of CaseIH Agriculture Equipment Sales and Service Agreement between CNH Industrial America LLC and Titan Machinery Inc.

10.4						Revision 1 to the Case IH Agricultural Equipment Sales and Service Agreement between CNH Industrial America LLC and Titan Machinery Inc.

10.5						Joinder to Third Amended and Restated Credit Agreement, dated as of August 31, 2022, by and among Titan Machinery Inc., Heartland Agriculture, LLC, Heartland Ag Kansas, LLC and Bank of America, N.A.

10.6						Joinder to Third Amended and Restated Guaranty and Security Agreement, dated as of August 31, 2022, by and among Titan Machinery Inc., Heartland Agriculture, LLC, Heartland Ag Kansas, LLC and Bank of America, N.A.

31.1						Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2						Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1						Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101						Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended July 31, 2022, 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.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

104						Cover 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:	September 8, 2022
		TITAN MACHINERY INC.


		By	/s/ Mark Kalvoda
			Mark Kalvoda
			Chief Financial Officer
			(Principal Financial Officer)