titn-20221031

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 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 December 1, 2022, 22,706,865 shares of Common Stock, $0.00001 par value, of the registrant were outstanding.

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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	22
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	37
ITEM 4.	CONTROLS AND PROCEDURES	37
PART II.	OTHER INFORMATION	38
ITEM 1.	LEGAL PROCEEDINGS	38
ITEM 1A.	RISK FACTORS	38
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	38
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	38
ITEM 4.	MINE SAFETY DISCLOSURES	38
ITEM 5.	OTHER INFORMATION	38
ITEM 6.	EXHIBITS	38
Exhibit Index		39
Signatures		40

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TITAN MACHINERY INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except per share data)


	October 31, 2022		January 31, 2022

Assets
Current Assets
Cash	$	45,852	$	146,149
Receivables, net of allowance for expected credit losses	111,849		94,287
Inventories, net	630,377		421,758
Prepaid expenses and other	15,625		28,135


Total current assets	803,703		690,329
Noncurrent Assets
Property and equipment, net of accumulated depreciation	215,954		178,243
Operating lease assets	52,091		56,150
Deferred income taxes	2,937		1,328
Goodwill	32,022		8,952
Intangible assets, net of accumulated amortization	16,852		10,624
Other	1,211		1,041
Total noncurrent assets	321,067		256,338
Total Assets	$	1,124,770	$	946,667

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	43,338	$	25,644
Floorplan payable	273,083		135,415

Current maturities of long-term debt	6,895		5,876
Current operating lease liabilities	9,671		9,601
Deferred revenue	56,812		134,146
Accrued expenses and other	56,980		59,339
Income taxes payable	15,918		4,700
Total current liabilities	462,697		374,721
Long-Term Liabilities
Long-term debt, less current maturities	91,055		74,772
Operating lease liabilities	50,737		55,595
Deferred income taxes	1,974		2,006
Other long-term liabilities	7,020		4,374
Total long-term liabilities	150,786		136,747
Commitments and Contingencies (Note 15)
Stockholders' Equity
Common stock, par value $.00001 per share, 45,000 shares authorized; 22,707 shares issued and outstanding at October 31, 2022; 22,588 shares issued and outstanding at January 31, 2022	—		—
Additional paid-in-capital	256,073		254,455
Retained earnings	266,672		182,916
Accumulated other comprehensive loss	(11,458)		(2,172)
Total stockholders' equity	511,287		435,199
Total Liabilities and Stockholders' Equity	$	1,124,770	$	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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
Revenue
Equipment	$	508,996	$	329,814	$	1,240,579	$	878,528
Parts	108,719		80,521		254,974		208,464
Service	38,960		32,026		101,847		89,405
Rental and other	12,098		11,614		28,923		27,914
Total Revenue	668,773		453,975		1,626,323		1,204,311
Cost of Revenue
Equipment	436,156		288,576		1,070,378		772,584
Parts	72,146		55,654		172,162		146,184
Service	13,456		10,249		35,288		29,314
Rental and other	7,435		7,016		17,522		17,754
Total Cost of Revenue	529,193		361,495		1,295,350		965,836
Gross Profit	139,580		92,480		330,973		238,475
Operating Expenses	84,861		62,943		217,841		176,460

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

Income from Operations	54,719		29,537		113,132		60,517
Other Income (Expense)
Interest and other income	1,804		616		3,169		1,935
Floorplan interest expense	(588)		(259)		(1,087)		(1,027)
Other interest expense	(1,257)		(1,071)		(3,802)		(3,292)
Income Before Income Taxes	54,678		28,823		111,412		58,133
Provision for Income Taxes	13,421		7,007		27,656		14,521
Net Income	$	41,257	$	21,816	$	83,756	$	43,612

Earnings per Share:
Basic	$	1.82	$	0.97	$	3.70	$	1.93
Diluted	$	1.82	$	0.97	$	3.70	$	1.93

Weighted Average Common Shares:
Basic	22,393		22,213		22,365		22,228
Diluted	22,399		22,222		22,372		22,238

See Notes to Condensed Consolidated Financial Statements

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TITAN MACHINERY INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
Net Income	$	41,257	$	21,816	$	83,756	$	43,612
Other Comprehensive Income (Loss)
Foreign currency translation adjustments	(5,132)		(744)		(9,285)		(2,185)
Comprehensive Income	$	36,125	$	21,072	$	74,471	$	41,427

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, 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 loss	—	—		—		—		(2,963)		(2,963)
BALANCE, July 31, 2022	22,695	—		255,188		225,415		(6,326)		474,277
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	12	—		—		—		—		—
Stock-based compensation expense	—	—		885		—		—		885
Net income	—	—		—		41,257		—		41,257
Other comprehensive loss	—	—		—		—		(5,132)		(5,132)
BALANCE, October 31, 2022	22,707	$	—	$	256,073	$	266,672	$	(11,458)	$	511,287


	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 issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	(4)	—		(4)		—		—		(4)
Stock-based compensation expense	—	—		657		—		—		657
Net income	—	—		—		21,816		—		21,816
Other comprehensive income	—	—		—		—		(744)		(744)
BALANCE, October 31, 2021	22,592	$	—	$	253,782	$	160,482	$	(686)	$	413,578

See Notes to Condensed Consolidated Financial Statements

TITAN MACHINERY INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine Months Ended October 31,
	2022		2021
Operating Activities
Net income	$	83,756	$	43,612
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	18,356		16,336
Impairment of intangible and long-lived assets	—		1,498
Deferred income taxes	(1,835)		(3,116)
Stock-based compensation expense	2,308		1,850
Noncash interest expense	182		163


Other, net	7,072		8,248
Changes in assets and liabilities, net of effects of acquisitions
Receivables, prepaid expenses and other assets	168		(18,463)
Inventories	(115,734)		3,181
Manufacturer floorplan payable	78,972		45,801
Deferred revenue	(83,029)		(35,894)
Accounts payable, accrued expenses and other and other long-term liabilities	2,650		9,059


Net Cash Provided by (Used for) Operating Activities	(7,134)		72,275
Investing Activities
Rental fleet purchases	(8,601)		(12,159)
Property and equipment purchases (excluding rental fleet)	(16,829)		(17,534)
Proceeds from sale of property and equipment	2,110		667
Acquisition consideration, net of cash acquired	(100,471)		—
Other, net	(176)		20
Net Cash Used for Investing Activities	(123,967)		(29,006)
Financing Activities
Net change in non-manufacturer floorplan payable	32,212		(30,104)

Proceeds from long-term debt borrowings	8,415		6,380
Principal payments on long-term debt and finance leases	(5,596)		(6,593)
Payment of debt issuance costs	—		—
Other, net	(698)		(998)
Net Cash Provided by (Used for) Financing Activities	34,333		(31,315)
Effect of Exchange Rate Changes on Cash	(3,529)		(404)
Net Change in Cash	(100,297)		11,550
Cash at Beginning of Period	146,149		78,990
Cash at End of Period	$	45,852	$	90,540
Supplemental Disclosures of Cash Flow Information
Cash paid during the period
Income taxes, net of refunds	$	15,711	$	22,130
Interest	$	4,595	$	4,091
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities	$	5,436	$	15,795
Long-term debt to acquire finance leases	$	7,119	$	7,761
Net transfer of assets from (to) property and equipment to (from) inventories	$	(4,686)	$	2,168

See Notes to Condensed Consolidated Financial Statements

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TITAN MACHINERY INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s agriculture, construction and international customers. Therefore, operating results for the nine-months ended October 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 three months and nine months ended October 31, 2022 down 40.7% and 38.8%, respectively, from the prior year periods. 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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(in thousands, except per share data)
Numerator:
Net income	$	41,257	$	21,816	$	83,756	$	43,612
Allocation to participating securities	(563)		(309)		(1,039)		(655)
Net income attributable to Titan Machinery Inc. common stockholders	$	40,694	$	21,507	$	82,717	$	42,957
Denominator:
Basic weighted-average common shares outstanding	22,393		22,213		22,365		22,228
Plus: incremental shares from vesting of restricted stock units	6		9		7		10
Diluted weighted-average common shares outstanding	22,399		22,222		22,372		22,238

Earnings Per Share:
Basic	$	1.82	$	0.97	$	3.70	$	1.93
Diluted	$	1.82	$	0.97	$	3.70	$	1.93

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 October 31, 2022								Nine Months Ended October 31, 2022
	Agriculture		Construction		International		Total		Agriculture		Construction		International		Total
	(in thousands)								(in thousands)
Equipment	$	380,007	$	56,534	$	72,455	$	508,996	$	901,574	$	143,536	$	195,469	$	1,240,579
Parts	81,420		13,350		13,949		108,719		178,474		37,229		39,271		254,974
Service	29,831		6,807		2,322		38,960		76,514		18,932		6,401		101,847
Other	1,201		639		89		1,929		2,881		1,441		540		4,862
Revenue from contracts with customers	492,459		77,330		88,815		658,604		1,159,443		201,138		241,681		1,602,262
Rental	865		9,073		231		10,169		1,386		22,251		424		24,061
Total revenues	$	493,324	$	86,403	$	89,046	$	668,773	$	1,160,829	$	223,389	$	242,105	$	1,626,323


	Three Months Ended October 31, 2021								Nine Months Ended October 31, 2021
	Agriculture		Construction		International		Total		Agriculture		Construction		International		Total
	(in thousands)								(in thousands)
Equipment	$	205,230	$	49,679	$	74,905	$	329,814	$	530,895	$	148,511	$	199,122	$	878,528
Parts	52,090		13,413		15,018		80,521		132,515		37,449		38,500		208,464
Service	23,003		6,819		2,204		32,026		63,908		19,773		5,724		89,405
Other	824		622		132		1,578		2,301		1,477		413		4,191
Revenue from contracts with customers	281,147		70,533		92,259		443,939		729,619		207,210		243,759		1,180,588
Rental	359		9,202		475		10,036		803		22,076		844		23,723
Total revenues	$	281,506	$	79,735	$	92,734	$	453,975	$	730,422	$	229,286	$	244,603	$	1,204,311

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Unbilled Receivables and Deferred Revenue

Unbilled receivables from contracts with customers amounted to $26.8 million and $17.1 million as of October 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 $55.8 million and $132.2 million as of October 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 nine months ended October 31, 2022 and 2021, the Company recognized $126.3 million and $55.8 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 nine months ended October 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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	October 31, 2022		January 31, 2022
	(in thousands)
Trade and unbilled receivables from contracts with customers
Trade receivables due from customers	$	49,856	$	30,041
Unbilled receivables	26,830		17,129
Less allowance for expected credit losses	2,814		1,979
	73,872		45,191

Trade receivables due from finance companies	15,976		17,937

Trade and unbilled receivables from rental contracts
Trade receivables	4,175		3,055
Unbilled receivables	884		538
Less allowance for expected credit losses	300		469
	4,759		3,124
Other receivables
Due from manufacturers	16,736		22,979
Other	506		5,056
	17,242		28,035
Receivables, net of allowance for expected credit losses	$	111,849	$	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	47		74		1,036		1,157
Write-offs charged against allowance	41		147		148		336
Credit loss recoveries collected	24		9		—		33
Acquisition	94		—		—		94
Foreign exchange impact	—		—		(113)		(113)
Balance at October 31, 2022	$	368	$	129	$	2,317	$	2,814


	Agriculture		Construction		International		Total
	(in thousands)
Balance at January 31, 2021	$	228	$	1,074	$	1,690	$	2,992
Current expected credit loss provision (benefit)	109		144		(235)		18
Write-offs charged against allowance	135		177		65		377
Credit loss recoveries collected	9		8		—		17
Foreign exchange impact	—		—		(50)		(50)
Balance at October 31, 2021	$	211	$	1,049	$	1,340	$	2,600

The increase in the credit loss provision in the International segment, during the nine months ended October 31, 2022, was driven by a $0.8 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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)
Impairment losses (recoveries) on:
Receivables from sales contracts	$	197	$	20	$	1,196	$	340
Receivables from rental contracts	49		54		81		24
	$	246	$	74	$	1,277	$	364

NOTE 5 - INVENTORIES


	October 31, 2022		January 31, 2022
	(in thousands)
New equipment	$	345,689	$	195,775
Used equipment	128,521		128,047
Parts and attachments	150,308		95,890
Work in process	5,859		2,046
	$	630,377	$	421,758

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NOTE 6 - PROPERTY AND EQUIPMENT


	October 31, 2022		January 31, 2022
	(in thousands)
Rental fleet equipment	$	77,676	$	65,117
Machinery and equipment	26,221		22,819
Vehicles	74,568		58,650
Furniture and fixtures	52,864		50,228
Land, buildings, and leasehold improvements	139,688		123,323
	371,017		320,137
Less accumulated depreciation	155,063		141,894
	$	215,954	$	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 $2.6 million and $2.6 million for the three months ended October 31, 2022 and 2021, and $6.0 million and $6.4 million for the nine months ended October 31, 2022 and 2021, respectively. All other depreciation expense is included in Operating Expenses, which was $4.2 million and $2.9 million for the three months ended October 31, 2022 and 2021 and $11.3 million and $8.9 million for the nine months ended October 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 October 31, 2022, the Company identified one such asset group in the Construction 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 nine months ended October 31, 2022. The Company recognized impairment of long-lived assets of $0.4 million in its International segment for the nine months ended October 31, 2021.

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NOTE 7 - INTANGIBLE ASSETS AND GOODWILL

Finite-Lived Intangible Assets

The Company's finite-lived intangible assets consist of customer relationships and covenants not to compete. The following is a summary of intangible assets with finite lives as of October 31, 2022 and January 31, 2022.


	October 31, 2022						January 31, 2022
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
	(in thousands)						(in thousands)
Customer relationships	$	5,338	$	(393)	$	4,945	$	497	$	(252)	$	245
Covenants not to compete	1,025		(168)		857		250		(79)		171
	$	6,363	$	(561)	$	5,802	$	747	$	(331)	$	416

The Company acquired intangible assets with finite lives, consisting of customer relationships totaling $5.0 million with a weighted-average amortization period of 5.0 years and covenants not to compete totaling $0.8 million with a weighted-average amortization period of 5.0 years, as part of the business combinations completed during the period ended October 31, 2022. The Company acquired intangible assets with finite lives, consisting of customer relationships totaling $0.2 million and covenants not to compete totaling $0.1 million for the year ended January 31, 2022.

Future amortization expense, as of October 31, 2022, is expected to be as follows:


Fiscal Year Ended January 31,	Amount
	(in thousands)
2023 (remainder)	$	321
2024	1,273
2025	1,248
2026	1,206
2027	1,180
Thereafter	574
	$	5,802

Indefinite-Lived Intangible Assets

The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of the changes in indefinite-lived intangible assets, by segment, for the nine months ended October 31, 2022:


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


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

Goodwill

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


	Agriculture		Total
	(in thousands)
January 31, 2022	$	8,952	$	8,952
Arising from business combinations	23,070		23,070


October 31, 2022	$	32,022	$	32,022

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NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT

On October 31, 2022, the Company entered into Amendment No. 2 to the Third Amended and Restated Credit Agreement ("the Bank Syndicate Agreement") to replace the reference rate from LIBOR to the secured overnight financing rate (SOFR) and to add the Heartland Companies as borrowers. The Company elects at the time of any advance to choose a Base Rate Loan or a SOFR Rate Loan. The SOFR Rate is based upon one-month, three-month, or six-month SOFR, as chosen by the Company, plus an applicable margin of 11.4 basis points for one-month, 26.2 basis points for three-month, and 42.8 basis points for six-month loans. In no event shall the SOFR Rate be less than zero. The Base Rate is the greater of (a) the prime rate of interest announced, from time to time, by Bank of America plus applicable margin; (b) the Federal Funds Rate plus 50.0 basis points plus applicable margin, or one-month SOFR plus 100.0 basis points plus applicable margin plus 11.4 basis points. The applicable margin for Base Rate loans remains unchanged from prior versions of the agreement and is based on excess availability under the Bank Syndicate Agreement and ranges from .5% to 1.0%.

As of October 31, 2022, the Company had floorplan lines of credit totaling $777.0 million, which is primarily comprised of three floorplan lines of credit: (i) a $500.0 million credit facility with CNH Industrial (amended as of August 1, 2022, to increase the total available domestic limit to $410 million and overall limit to $500 million), (ii) a $185.0 million line of credit under the Bank Syndicate Agreement, and (iii) a $50.0 million credit facility with DLL Finance LLC.

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


	October 31, 2022		January 31, 2022
	(in thousands)
CNH Industrial	$	161,837	$	94,054
Bank Syndicate Agreement Floorplan Loan	45,000		—
DLL Finance	9,629		8,558
Other outstanding balances with manufacturers and non-manufacturers	56,617		32,803
	$	273,083	$	135,415

As of October 31, 2022, the interest bearing U.S. floorplan payables were primarily on the Bank Syndicate Agreement Loan with a variable interest rate of 4.62%. As of January 31, 2022, generally all U.S. floorplan payables were non-interest bearing. As of October 31, 2022, foreign floorplan payables carried various interest rates primarily ranging from 2.09% to 4.15%, compared to a range of 1.40% to 6.11% as of January 31, 2022. The Company had non-interest bearing floorplan payables of $211.4 million and $106.8 million, on October 31, 2022 and January 31, 2022, respectively.

NOTE 9 - LONG TERM DEBT

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


Description	Maturity Dates	Interest Rates	October 31, 2022		January 31, 2022
			(in thousands)
Mortgage loans, secured	Various through May 2039	2.1% to 5.1%	$	69,144	$	57,801
Sale-leaseback financing obligations	Various through December 2030	3.4% to 10.3%	11,541		12,382

Vehicle loans, secured	Various through September 2027	2.1% to 4.3%	12,674		10,465
Other	Various through July 2039	3.6%	4,591		—
Total debt			97,950		80,648
Less: current maturities			6,895		5,876
Long-term debt, net			$	91,055	$	74,772

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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 nine month periods ended October 31, 2022 and October 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 loss	(2,963)		—		(2,963)
Balance, July 31, 2022	$	(9,037)	$	2,711	$	(6,326)
Other comprehensive loss	(5,132)				(5,132)
Balance, October 31, 2022	$	(14,169)	$	2,711	$	(11,458)


	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
Other comprehensive loss	(744)		—		(744)
Balance, October 31, 2021	$	(3,397)	$	2,711	$	(686)

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.

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The components of lease expense were as follows:


		Three Months Ended October 31,				Nine Months Ended October 31,
	Classification	2022		2021		2022		2021
		(in thousands)				(in thousands)
Finance lease cost:
Amortization of leased assets	Operating expenses	$	231	$	227	$	645	$	915
Interest on lease liabilities	Other interest expense	48		49		137		201
Operating lease cost	Operating expenses and rental and other cost of revenue	3,424		3,632		10,062		11,132
Short-term lease cost	Operating expenses	—		66		71		198
Variable lease cost	Operating expenses	501		502		1,519		1,755
Sublease income	Interest and other income	(358)		(226)		(1,087)		(643)
		$	3,846	$	4,250	$	11,347	$	13,558

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


	Classification	October 31, 2022		January 31, 2022
		(in thousands)
Assets
Operating lease assets	Operating lease assets	$	52,091	$	56,150
Finance lease assets(a)	Property and equipment, net of accumulated depreciation	2,440		9,045
Total leased assets		$	54,531	$	65,195
Liabilities
Current
Operating	Current operating lease liabilities	$	9,671	$	9,601
Finance	Accrued expenses and other	623		7,466
Noncurrent
Operating	Operating lease liabilities	50,737		55,595
Finance	Other long-term liabilities	2,144		1,518
Total lease liabilities		$	63,175	$	74,180

(a)Finance lease assets are recorded net of accumulated amortization of $1.3 million as of October 31, 2022 and $1.7 million as of January 31, 2022.

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


	Operating		Finance
	Leases		Leases		Total
Fiscal Year Ended January 31,	(in thousands)
2023 (remainder)	$	3,285	$	214	$	3,499
2024	12,760		776		13,536
2025	12,393		727		13,120
2026	11,881		589		12,470
2027	11,220		458		11,678
2028	9,697		317		10,014
Thereafter	10,781		343		11,124
Total lease payments	72,017		3,424		75,441
Less: Interest	11,609		657		12,266
Present value of lease liabilities	$	60,408	$	2,767	$	63,175

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


	October 31, 2022
Weighted-average remaining lease term (years):
Operating leases	5.9
Financing leases	4.8
Weighted-average discount rate:
Operating leases	6.0	%
Financing leases	7.9	%

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As Lessor

The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, we may also provide short-term rentals of certain equipment inventory assets. Some rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.

All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force.

Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets, included in Property and equipment, net of accumulated depreciation in the condensed consolidated balance sheet, of our Construction segment as of October 31, 2022 and January 31, 2022:


	October 31, 2022		January 31, 2022
	(in thousands)
Rental fleet equipment	$	77,676	$	65,117
Less accumulated depreciation	26,791		23,501
	$	50,885	$	41,616

NOTE 12 - FAIR VALUE MEASUREMENTS

As of October 31, 2022 the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, which is an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement.

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 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 October 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:


	October 31, 2022		January 31, 2022
	(in thousands)
Carrying amount	$	80,182	$	63,237
Fair value	$	70,702	$	68,267

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NOTE 13 - INCOME TAXES

Our effective tax rate was 24.5% and 24.3% for the three months ended October 31, 2022 and 2021, respectively and was 24.8% and 25.0% for the nine months ended October 31, 2022 and 2021, respectively. In reviewing our foreign deferred tax assets as of October 31, 2022, it was concluded that based on recent income and sources of future income of our Bulgarian subsidiary, that the release of the remaining valuation allowance of our Bulgarian subsidiary was warranted. In the third quarter of fiscal 2023, the Company recorded a benefit of $0.3 million from the release of the valuation allowance related to the Company's Bulgarian subsidiary. The effective tax rate for the three and nine months ended October 31, 2022 and 2021 was also subject to various other factors such as the impact of certain discrete items, mainly the vesting of share-based compensation, and the mix of domestic and foreign income.

NOTE 14 - BUSINESS COMBINATIONS

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 $94.4 million in cash consideration. The Heartland Companies consist of 12 CaseIH commercial application agriculture locations, in the states of 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. These locations are included in the Company's Agriculture segment. In the most recent completed fiscal year, the Heartland Companies generated revenue of approximately $214 million. The results of operations from the acquisition from the August 1, 2022 closing date through October 31, 2022, represented approximately $51.2 million of revenue and $3.4 million of pre-tax income. The Company incurred $1.1 million in acquisition related expenses in connection with this acquisition, which are included in operating expenses in the condensed consolidated statement of operations.

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 October 31, 2022, the purchase price allocation for all business combinations completed in fiscal year 2023 are preliminary as we finalize the valuation of our intangible assets acquired. The purchase price allocation for all business combinations completed in fiscal year 2022 are complete. The following table presents the purchase price allocations for all acquisitions completed during the fiscal year ended January 31, 2022 and the period ended October 31, 2022:

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	August 1, 2022		April 1, 2022		December 1, 2021
	(in thousands)
	Heartland Companies		Mark's Machinery		Jaycox Implement
Assets acquired:
Cash	$	1,583	$	1	$	4
Receivables	9,007		478		1,197
Inventories	103,504		3,386		13,780
Prepaid expenses and other	602		66		47
Property and equipment	20,204		4,088		8,236
Operating lease assets	3,928		—		—
Intangible assets	5,700		917		4,121
Goodwill	22,487		583		7,519

	167,015		9,519		34,904

Liabilities assumed:
Accounts payable	18,547		—		—
Floorplan payable	31,699		—		—
Current operating lease liabilities	541		—		—
Deferred revenue	5,195		1,844		1,261
Accrued expenses and other	3,523		—		—
Long-term debt	4,591		—		—
Operating lease liabilities	3,387		—		—
Other long-term liabilities	5,152		—		—

	72,635		1,844		1,261
Net assets acquired	$	94,380	$	7,675	$	33,643

Goodwill recognized by segment:
Agriculture	$	22,487	$	583	$	7,519


Goodwill expected to be deductible for tax purposes	$	22,487	$	583	$	7,519

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 Heartland Companies acquisition, the Company recognized a non-competition intangible asset of $0.7 million and a customer relationship intangible asset of $5.0 million. For the Mark's Machinery acquisition the Company recognized a non-competition intangible asset of $0.8 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 and customer relationship assets will be amortized over five year periods. 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 $1.1 million for the period ended October 31, 2022, 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.

Pro Forma Information

The following summarized unaudited pro forma condensed statement of operations information for the three and nine months ended October 31, 2021 and 2022 assumes that the Heartland Companies acquisition occurred as of February 1, 2021. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed the acquisition as of February 1, 2021 or that will be attained in the future.

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	Three Months Ended October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)
Total Revenues	$	668,773	$	497,945	$	1,786,396	$	1,361,574
Net Income	$	41,707	$	23,106	$	92,590	$	51,041

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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Revenue
Agriculture	$	493,324	$	281,506	$	1,160,829	$	730,422
Construction	86,403		79,735		223,389		229,286
International	89,046		92,734		242,105		244,603
Total	$	668,773	$	453,975	$	1,626,323	$	1,204,311

Income (Loss) Before Income Taxes
Agriculture	$	42,044	$	19,618	$	83,387	$	42,910
Construction	6,065		3,564		13,197		6,518
International	8,488		6,260		18,683		9,498
Segment income before income taxes	56,597		29,442		115,267		58,926
Shared Resources	(1,919)		(619)		(3,855)		(793)
Total	$	54,678	$	28,823	$	111,412	$	58,133


	October 31, 2022		January 31, 2022
	(in thousands)
Total Assets
Agriculture	$	742,975	$	481,190
Construction	194,077		157,846
International	154,359		155,275
Segment assets	1,091,411		794,311
Shared Resources	33,359		152,356
Total	$	1,124,770	$	946,667

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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 September 2022 U.S. Department of Agriculture publications, the estimate of net farm income for calendar year 2022 indicated an approximate 5.2% increase as compared to calendar year 2021, and an approximate 48.5% increase in net farm income for calendar year 2021 as compared to calendar year 2020.

For the third quarter of fiscal 2023, our net income was $41.3 million, or $1.82 per diluted share, compared to a fiscal 2022 third quarter net income of $21.8 million, or $0.97 per diluted share. Our adjusted diluted earnings per share was $1.83 for the third quarter of fiscal 2023, compared to $0.96 for the third 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 third quarter of fiscal 2023 increased by 47.3% compared to the third quarter of fiscal 2022. The revenue increase was primarily driven by total Company same store sales increase of 34.0% compared to the prior year third quarter and the acquisition of the Heartland Companies, Mark's Machinery, and Jaycox Implement in August 2022, April 2022, and December 2021, respectively. Total equipment sales increased 54.3% and total parts sales increased 35.0%.

•Gross profit in the third quarter of fiscal 2023 increased 50.9% compared to the third quarter of fiscal 2022. The increase in gross profit was primarily the result of increased sales and strong gross profit margins particularly in equipment where margins increased to 14.3% in the third quarter of fiscal 2023 from 12.5% in the third quarter of fiscal 2022. Parts gross profit margins also increased to 33.6% in the third quarter of fiscal 2023 from 30.9% in the third 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 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

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to function but could be negatively impacted in the future. Some of Titan Machinery Ukraine's back office employees have been able to relocate outside of Ukraine and continue to work, while the customer support and sales teams have remained in Ukraine. For the nine months ended October 31, 2022, Titan Machinery Ukraine's revenues are down approximately 38.8% from the prior year period.

As of October 31, 2022, the Company had total assets of $28.7 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 in Ukraine is highly complex and continues to evolve. If the Company cannot provide efficient and uninterrupted services to its customers, 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 major breakdown or closure of utility services, any major threat to civilians in our footprint, disruption of commodity exports from Ukraine, 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 $94.4 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. The Heartland Companies are included in the Agriculture segment. 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 locations to the new ERP. We will continue our phased roll-out until all remaining domestic locations have been transitioned to the new ERP.

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 October 31,						Nine Months Ended October 31,
	2022			2021			2022			2021
	(dollars in thousands)						(dollars in thousands)
Equipment
Revenue	$	508,996		$	329,814		$	1,240,579		$	878,528
Cost of revenue	436,156			288,576			1,070,378			772,584
Gross profit	$	72,840		$	41,238		$	170,201		$	105,944
Gross profit margin	14.3		%	12.5		%	13.7		%	12.1		%
Parts
Revenue	$	108,719		$	80,521		$	254,974		$	208,464
Cost of revenue	72,146			55,654			172,162			146,184
Gross profit	$	36,573		$	24,867		$	82,812		$	62,280
Gross profit margin	33.6		%	30.9		%	32.5		%	29.9		%
Service
Revenue	$	38,960		$	32,026		$	101,847		$	89,405
Cost of revenue	13,456			10,249			35,288			29,314
Gross profit	$	25,504		$	21,777		$	66,559		$	60,091
Gross profit margin	65.5		%	68.0		%	65.4		%	67.2		%
Rental and other
Revenue	$	12,098		$	11,614		$	28,923		$	27,914
Cost of revenue	7,435			7,016			17,522			17,754
Gross profit	$	4,663		$	4,598		$	11,401		$	10,160
Gross profit margin	38.5		%	39.6		%	39.4		%	36.4		%

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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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
Revenue
Equipment	76.1	%	72.6	%	76.2	%	73.0	%
Parts	16.3	%	17.7	%	15.7	%	17.3	%
Service	5.8	%	7.1	%	6.3	%	7.4	%
Rental and other	1.8	%	2.6	%	1.8	%	2.3	%
Total Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Total Cost of Revenue	79.1	%	79.6	%	79.6	%	80.2	%
Gross Profit Margin	20.9	%	20.4	%	20.4	%	19.8	%
Operating Expenses	12.7	%	13.9	%	13.4	%	14.7	%


Income from Operations	8.2	%	6.5	%	7.0	%	5.0	%
Other Expense	—	%	(0.2)	%	(0.1)	%	(0.2)	%
Income Before Income Taxes	8.2	%	6.3	%	6.9	%	4.8	%
Provision for Income Taxes	2.0	%	1.5	%	1.7	%	1.2	%
Net Income	6.2	%	4.8	%	5.2	%	3.6	%

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

Consolidated Results

Revenue


	Three Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Equipment	$	508,996	$	329,814	$	179,182	54.3	%
Parts	108,719		80,521		28,198		35.0	%
Service	38,960		32,026		6,934		21.7	%
Rental and other	12,098		11,614		484		4.2	%
Total Revenue	$	668,773	$	453,975	$	214,798	47.3	%

Total revenue for the third quarter of fiscal 2023 was 47.3% or $214.8 million higher than the third quarter of fiscal 2022 driven primarily by an increase in Company-wide same-store sales of 34.0% and our acquistions of Jaycox Implement, Mark's Machinery, and the Heartland Companies, completed in December 2021, April 2022, and August 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.

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	Three Months Ended October 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Gross Profit
Equipment	$	72,840		$	41,238		$	31,602		76.6	%
Parts	36,573			24,867			11,706			47.1	%
Service	25,504			21,777			3,727			17.1	%
Rental and other	4,663			4,598			65			1.4	%
Total Gross Profit	$	139,580		$	92,480		$	47,100		50.9	%
Gross Profit Margin
Equipment	14.3		%	12.5		%	1.8		%	14.4	%
Parts	33.6		%	30.9		%	2.7		%	8.7	%
Service	65.5		%	68.0		%	(2.5)		%	(3.7)	%
Rental and other	38.5		%	39.6		%	(1.1)		%	(2.8)	%
Total Gross Profit Margin	20.9		%	20.4		%	0.5		%	2.5	%
Gross Profit Mix
Equipment	52.2		%	44.6		%	7.6		%	17.0	%
Parts	26.2		%	26.9		%	(0.7)		%	(2.6)	%
Service	18.3		%	23.5		%	(5.2)		%	(22.1)	%
Rental and other	3.3		%	5.0		%	(1.7)		%	(34.0)	%
Total Gross Profit Mix	100.0		%	100.0		%

Gross profit for the third quarter of fiscal 2023 increased 50.9% or $47.1 million, as compared to the same period last year. Gross profit margin also improved to 20.9% in the current quarter from 20.4% 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 $2.0 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 — decreased to 95.9% for the third quarter of fiscal 2023 compared to 97.8% during the same period last year as the increase in gross profit from parts, rental fleet, and service in the third quarter of fiscal 2023 was more than offset by increased floorplan interest expenses and operating expenses less commission expense on equipment sales.

Operating Expenses


	Three Months Ended October 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Operating Expenses	$	84,861		$	62,943		$	21,918		34.8	%
Operating Expenses as a Percentage of Revenue	12.7		%	13.9		%	(1.2)		%	(8.6)	%

Our operating expenses in the third quarter of fiscal 2023 increased 34.8% as compared to the third quarter of fiscal 2022. The increase in operating expenses was primarily the result of an increase in variable expenses associated with increased sales as well as additional operating expenses due to acquistions that have taken place in the past year. Operating expenses as a percentage of revenue decreased to 12.7% in the third quarter of fiscal 2023 from 13.9% in the third quarter of fiscal 2022. The decrease in operating expenses as a percentage of revenue was due to the increase in total revenue in the third quarter of fiscal 2023, as compared to the third quarter of fiscal 2022, which positively affected our ability to leverage our fixed operating costs.

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	Three Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Interest and other income	$	1,805	$	616	$	1,189	n/m
Floorplan interest expense	(588)		(259)		329		127.0	%
Other interest expense	(1,258)		(1,071)		187		17.5	%

The increase in interest and other income compared to fiscal 2022 was primarily the result of a strengthening U.S. dollar relative to the Euro creating foreign currency gains in fiscal 2023. The increase in floorplan interest expense of 127.0% was due to drawing on our floorplan line to fund the acquisition of the Heartland Companies in the third quarter of fiscal 2023. The increase in other interest expense was primarily due to increased fixed rate, long term debt from real estate purchases throughout fiscal 2022.

Provision for Income Taxes


	Three Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Provision for Income Taxes	$	13,421	$	7,007	$	6,414	91.5	%

Our effective tax rate was 24.5% and 24.3% for the three months ended October 31, 2022 and October 31, 2021, respectively. In reviewing our foreign deferred tax assets as of October 31, 2022, it was concluded that based on recent income and sources of future income of our Bulgarian subsidiary, that the release of the remaining valuation allowance of our Bulgarian subsidiary was warranted. In the third quarter of fiscal 2023, the Company recorded a benefit of $0.3 million from the release of the valuation allowance related to the Company's Bulgarian subsidiary. The effective tax rate for the three months ended October 31, 2022 and 2021 were also subject to various other factors such as the impact of certain discrete items, mainly the vesting of share-based compensation and the mix of domestic and foreign income.

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Segment Results

Certain financial information for our Agriculture, Construction and International business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.


	Three Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Revenue
Agriculture	$	493,324	$	281,506	$	211,818	75.2	%
Construction	86,403		79,735		6,668		8.4	%
International	89,046		92,734		(3,688)		(4.0)	%
Total	$	668,773	$	453,975	$	214,798	47.3	%

Income Before Income Taxes
Agriculture	$	42,044	$	19,618	$	22,426	114.3	%
Construction	6,065		3,564		2,501		70.2	%
International	8,488		6,260		2,228		35.6	%
Segment Income Before Income Taxes	56,597		29,442		27,155		92.2	%
Shared Resources	(1,919)		(619)		(1,300)		n/m
Total	$	54,678	$	28,823	$	25,855	89.7	%

Agriculture

Agriculture segment revenue for the third quarter of fiscal 2023 increased 75.2% compared to the third quarter of fiscal 2022. The higher revenue was driven primarily by an increase in same-store sales of 46.4% as well as our acquistions of Jaycox Implement, Mark's Machinery, and the Heartland Companies, completed in December 2021, April 2022, and August 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 third quarter of fiscal 2023 was $42.0 million compared to $19.6 million for the third 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 $2.0 million benefit recognized on the expected achievement of annual manufacturer incentive programs.

Construction

Construction segment revenue for the third quarter of fiscal 2023 increased 8.4% compared to the third quarter of fiscal 2022. Same-store sales in our Construction segment increased 34.2% for the third quarter of fiscal 2023, as compared to the third quarter of fiscal 2022 which more than offset the divestitures 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. Construction activity in our footprint continued to be elevated, which was the primary factor in the same store sales growth.

Our Construction segment income before taxes was $6.1 million for the third quarter of fiscal 2023 compared to $3.6 million in the third 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 31.4% in the third quarter of fiscal 2022 to 34.3% in the third quarter of fiscal 2023.

International

International segment revenue was $89.0 million for the third quarter of fiscal 2023 compared to $92.7 million in the third quarter of fiscal 2022. The decrease in segment revenues was primarily due to a 40.7% decrease in total revenue from our Ukrainian subsidiary and a 14.4% devaluation from the prior year period of the Euro, the functional currency in much of our international footprint. On a constant currency basis, revenue was up $9.2 million or 9.9%

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Our International segment income before income taxes was $8.5 million for the third quarter of fiscal 2023 compared to segment income before income taxes of $6.3 million for the same period last year. The increase in segment pre-tax income was primarily the result of improved gross profit margin of the three main revenue streams, equipment, parts, and service.

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 $1.9 million for the third quarter of fiscal 2023 compared to a loss before income taxes of $0.6 million for the same period last year. The lower shared resources results were primarily driven by $0.6 million of acquisition related expenses incurred for the Heartland Companies acquisition.

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Nine Months Ended October 31, 2022 Compared to Nine Months Ended October 31, 2021

Consolidated Results

Revenue


	Nine Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Equipment	$	1,240,579	$	878,528	$	362,051	41.2	%
Parts	254,974		208,464		46,510		22.3	%
Service	101,847		89,405		12,442		13.9	%
Rental and other	28,923		27,914		1,009		3.6	%
Total Revenue	$	1,626,323	$	1,204,311	$	422,012	35.0	%

Total revenue for the first nine months of fiscal 2023 was up 35.0% or $422.0 million compared to the first nine months of fiscal 2022, driven primarily by an increase in Company-wide same-store sales of 29.7% and our acquistions of Jaycox Implement, Mark's Machinery, and the Heartland Companies, completed in December 2021, April 2022, and August 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


	Nine Months Ended October 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Gross Profit
Equipment	$	170,201		$	105,944		$	64,257		60.7	%
Parts	82,812			62,280			20,532			33.0	%
Service	66,559			60,091			6,468			10.8	%
Rental and other	11,401			10,160			1,241			12.2	%
Total Gross Profit	$	330,973		$	238,475		$	92,498		38.8	%
Gross Profit Margin
Equipment	13.7		%	12.1		%	1.6		%	13.2	%
Parts	32.5		%	29.9		%	2.6		%	8.7	%
Service	65.4		%	67.2		%	(1.8)		%	(2.7)	%
Rental and other	39.4		%	36.4		%	3.0		%	8.2	%
Total Gross Profit Margin	20.4		%	19.8		%	0.6		%	3.0	%
Gross Profit Mix
Equipment	51.5		%	44.4		%	7.1		%	16.0	%
Parts	25.0		%	26.1		%	(1.1)		%	(4.2)	%
Service	20.1		%	25.2		%	(5.1)		%	(20.2)	%
Rental and other	3.4		%	4.3		%	(0.9)		%	(20.9)	%
Total Gross Profit Mix	100.0		%	100.0		%

Gross profit increased 38.8% or $92.5 million for the first nine months of fiscal 2023, as compared to the same period last year. Gross profit margin also improved to 20.4% in the current quarter from 19.8%, in the prior year quarter. The increase in gross profit margin was primarily due to stronger equipment margins which was positively impacted by a healthy inventory, favorable end market conditions, and a $4.6 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 for the first nine months of fiscal 2023 increased to 89.6%, as compared to 86.7% during the same period last year, as the increase in gross profit from parts, rental, and service more than offset the increase in operating expenses during the nine month period compared to that of the prior year nine month period.

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Operating Expenses


	Nine Months Ended October 31,						Increase/			Percent
	2022			2021			(Decrease)			Change
	(dollars in thousands)
Operating Expenses	$	217,841		$	176,460		$	41,381		23.5	%
Operating Expenses as a Percentage of Revenue	13.4		%	14.7		%	(1.3)		%	(8.8)	%

Our operating expenses for the first nine months of fiscal 2023 increased $41.4 million as compared to the first nine months of fiscal 2022. The increase in operating expenses was a result of an increase in variable expenses associated with increased sales as well as acquistions that have occurred in the last twelve months. Operating expenses as a percentage of revenue decreased to 13.4% in the first nine months of fiscal 2023 from 14.7% in the first nine 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 nine months of fiscal 2023, as compared to the first nine months of fiscal 2022, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges


	Nine Months Ended October 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 nine months of fiscal 2023. In the first nine 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)


	Nine Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Interest and other income	$	3,170	$	1,936	$	1,234	63.7	%
Floorplan interest expense	(1,087)		(1,027)		60		5.8	%
Other interest expense	(3,803)		(3,292)		511		15.5	%

The increase in interest and other income compared to fiscal 2022 was primarily the result of a strengthening U.S. dollar relative to the Euro, creating foreign currency gains in fiscal 2023. Floorplan interest expense increased 5.8% for the first nine months of fiscal 2023, as compared to the same period last year, primarily due to increased interest bearing borrowings. The increase in other interest expense in the first nine months of fiscal 2023, as compared to the first nine months of fiscal 2022, is the result of increased fixed rate, long term debt on real estate purchased during fiscal 2022 and 2023.

Provision for Income Taxes


	Nine Months Ended October 31,				Increase/		Percent
	2022		2021		Decrease		Change
	(dollars in thousands)
Provision for Income Taxes	$	27,656	$	14,521	$	13,135	90.5	%

Our effective tax rate was 24.8% for the first nine months of fiscal 2023 and 25.0% for the same period last year. In reviewing our foreign deferred tax assets as of October 31, 2022, it was concluded that based on recent income and sources of future income of our Bulgarian subsidiary, that the release of the remaining valuation allowance of our Bulgarian subsidiary was warranted. In the third quarter of fiscal 2023, the Company recorded a benefit of $0.3 million from the release of the valuation allowance related to the Company's Bulgarian subsidiary. The effective tax rate for the nine months ended October 31, 2022 and 2021 is also subject to variation due to factors such as the impact of certain discrete items, mainly the vesting of share-based compensation and the mix of domestic and foreign income.

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Segment Results


	Nine Months Ended October 31,				Increase/		Percent
	2022		2021		(Decrease)		Change
	(dollars in thousands)
Revenue
Agriculture	$	1,160,829	$	730,422	$	430,407	58.9	%
Construction	223,389		229,286		(5,897)		(2.6)	%
International	242,105		244,603		(2,498)		(1.0)	%
Total	$	1,626,323	$	1,204,311	$	422,012	35.0	%

Income Before Income Taxes
Agriculture	$	83,387	$	42,910	$	40,477	94.3	%
Construction	13,197		6,518		6,679		102.5	%
International	18,683		9,498		9,185		96.7	%
Segment Income Before Income Taxes	115,267		58,926		56,341		95.6	%
Shared Resources	(3,855)		(793)		(3,062)		n/m
Total	$	111,412	$	58,133	$	53,279	91.7	%

Agriculture

Agriculture segment revenue for the first nine months of fiscal 2023 increased 58.9% compared to the same period last year. The higher revenue was driven primarily by an increase in same-store sales of 39.9% for the first nine months of fiscal 2023, as compared to the same period last year as well as the acquisitions of Jaycox Implement, Mark's Machinery, and the Heartland Companies in December 2021, April 2022, and August 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 $83.4 million for the first nine months of fiscal 2023 compared to $42.9 million over the first nine months of fiscal 2022. The improvement in segment results was primarily the result of higher equipment revenue along with higher gross profit margin on equipment driven by increased demand, healthy inventory, and a $4.6 million benefit recognized on the expected achievement of annual manufacturer incentive programs.

Construction

Construction segment revenue for the first nine months of fiscal 2023 decreased 2.6% 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 24.9%. Higher same-store sales were driven by increased construction activity throughout the footprint.

Our Construction segment income before income taxes was $13.2 million for the first nine months of fiscal 2023 compared to $6.5 million for the first nine 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 25.8% in the first nine months of fiscal 2022 to 30.7% in the first nine months of fiscal 2023.

International

International segment revenue for the first nine months of fiscal 2023 decreased 1.0% compared to the same period last year. The decrease in revenue was primarily due to a 10.9% devaluation of the Euro, the functional currency in much of our international footprint, but was partially offset by high commodity prices which drove demand for equipment sales, in the first nine months of fiscal 2023. On a constant currency basis, revenue was up 9.9% or $24.2 million compared to the prior year period. The segment was also negatively impacted by a 38.8% decrease in revenues from our Ukrainian subsidiary due to the Russia-Ukraine conflict compared to the first nine months of fiscal 2022.

Our International segment income before income taxes was $18.7 million for the first nine months of fiscal 2023 compared to $9.5 million for the same period last year. The higher segment results were primarily the result of improved gross

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profit margin of the three main revenue streams, equipment, parts, and service. There were no fixed or intangible asset impairment charges recognized in the first nine months of fiscal 2023 while $1.5 million was recognized in the first nine 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 $3.9 million for the first nine months of fiscal 2023 compared to a loss before income taxes of $0.8 million for the same period last year. The lower shared resources results were driven by $1.1 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 October 31,				Nine Months Ended October 31,
	2022		2021		2022		2021
	(dollars in thousands, except per share data)
Adjusted Net Income
Net Income	$	41,257	$	21,816	$	83,756	$	43,612
Adjustments


Impairment charges	—		—		—		1,498
Ukraine remeasurement (gain) / loss (1)	234		(113)		549		(296)
Total Pre-Tax Adjustments	234		(113)		549		1,202



Adjusted Net Income	$	41,491	$	21,703	$	84,305	$	44,814

Adjusted Diluted EPS
Diluted EPS	$	1.82	$	0.97	$	3.70	$	1.93
Adjustments (2)


Impairment charges	—		—		—		0.07
Ukraine remeasurement (gain) / loss (1)	0.01		(0.01)		0.02		(0.02)
Total Pre-Tax Adjustments	0.01		(0.01)		0.02		0.05



Adjusted Diluted EPS	$	1.83	$	0.96	$	3.72	$	1.98

(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 October 31, 2022 and 2021 or the impairment charge for the period ended October 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 October 31, 2022, the Company had floorplan payable lines of credit for equipment purchases totaling $777.0 million, which is primarily comprised of a $500.0 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 3.1 times for the rolling 12 month period ended October 31, 2021 to 3.6 times for the rolling 12 month period ended October 31, 2022. The increase in equipment turnover was attributable to an increase in equipment sales over the rolling 12 month period ended October 31, 2022 as compared to the same period ended

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October 31, 2021. Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 42.4% as of October 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 conjunction with 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, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.

As of October 31, 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 October 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 $7.1 million for the first nine months of fiscal 2023, compared to net cash provided by operating activities of $72.3 million for the first nine 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 nine months of fiscal 2023.

Cash Flow Used for Investing Activities

Net cash used for investing activities was $124.0 million for the first nine months of fiscal 2023, compared to $29.0 million for the first nine months of fiscal 2022. The increase in cash used for investing activities was primarily the result of the business acquisitions of Mark's Machinery and the Heartland Companies in the first nine months of fiscal 2023.

Cash Flow Provided by (Used for) Financing Activities

Net cash provided by financing activities was $34.3 million for the first nine months of fiscal 2023 compared to cash used for financing activities of $31.3 million for the first nine 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 nine months of fiscal 2023, as the Company drew on its Bank Syndicate floorplan loan in fiscal 2023, to fund the Heartland Companies acquisition.

Information Concerning Off-Balance Sheet Arrangements

As of October 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, 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

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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 October 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 October 31, 2022, we had floorplan payables of $273.1 million, of which approximately $61.7 million was variable-rate floorplan payable and $211.4 million was non-interest bearing. In addition, at October 31, 2022, we had total long-term debt, including finance lease obligations, of $99.0 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 October 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 October 31, 2022, our Ukrainian subsidiary had $0.4 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. During the quarter ended October 31, 2022, we completed the acquisition of the Heartland Companies. As part of our ongoing integration activities associated with the Heartland Companies acquisition, we have augmented and will continue to review the internal controls and procedures of the Heartland Companies and continue to augment our company-wide controls to reflect the risks inherent in the acquisition. There were no other changes in our internal control over financial reporting that occurred during the quarter ended October 31, 2022, that have materially affected, or are reasonably likely to materially affect, our 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

10.1						Amendment No. 2 to Third Amended and Restated Credit Agreement dated October 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 October 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:	December 8, 2022
		TITAN MACHINERY INC.


		By	/s/ Robert Larsen
			Robert Larsen
			Chief Financial Officer
			(Principal Financial Officer)