Titan Machinery (TITN) Q3 2026 Earnings Transcript

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DATE

Tuesday, Nov. 25, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Bryan J. Knutson
• Chief Financial Officer — Bo Larsen

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RISKS

• Chief Executive Officer Knutson stated that "equipment demand is likely to remain at trough-type levels for the near term" due to continued pressure on farm profitability from depressed commodity prices, higher interest expense, and limited government support.
• Chief Financial Officer Larsen disclosed, "we are reaffirming our adjusted diluted loss per share guidance a range of a loss of $1.5 to $2," noting that improvements in equipment margin are being negated by a required non-cash valuation allowance that will temporarily increase tax expense by approximately $0.35 to $0.45 per share in the fourth quarter on an adjusted basis.
• Europe segment growth was driven by a temporary stimulus: Larsen said, "revenue increased 78%. Which was primarily driven by Romania as customers capitalized on EU subvention funds ahead of the September deadline," but "we anticipate some moderation in Europe following the September expiration of subvention fund availability in Romania."
• Knutson indicated the Australia segment continues to experience weak industry volumes: "industry volumes below prior trough levels." and third quarter revenue reflected both a challenging market and difficult year-over-year comparables.

TAKEAWAYS

• Total Revenue -- $644.5 million, down from $679.8 million; reflects a 4.8% decrease in same-store sales driven by weaker demand in domestic agriculture, construction, and Australia, partially offset by strong Europe segment performance.
• Gross Profit -- $111 million, essentially flat from $110.5 million; consolidated gross profit margin increased to 17.2% versus 16.3%.
• Equipment Margins -- Consolidated equipment margin rose to 8.1%; domestic agriculture equipment margin was 7%, up from 3.1% in the first half, citing improved inventory and favorable mix plus a $3.7 million manufacturer incentive accrual.
• Operating Expenses -- $100.5 million, up from $98.8 million, attributed to higher variable compensation and transaction expenses, offset by reductions in headcount and discretionary spending.
• Interest Expense -- $10.9 million, a significant decrease from $14.3 million, attributed to lower interest-bearing inventory balances.
• Net Income -- $1.2 million, or $0.05 per diluted share, down from $1.7 million or $0.07 per diluted share.
• Domestic Agriculture Segment -- Same-store sales declined 12.3% to $420.9 million; pretax income increased to $6.1 million from $1.8 million, driven by higher equipment margins and lower expenses.
• Construction Segment -- Same-store sales decreased 10.1% to $76.7 million, with a pretax loss of $1.7 million compared to $0.9 million loss.
• Europe Segment -- Same-store sales surged 88% to $117 million, including a $6.1 million positive currency impact; pretax income reached $3.5 million, rebounding from a $1.2 million pretax loss.
• Australia Segment -- Same-store sales dropped 40% to $29.9 million (1.3% negative currency impact); pretax loss was $3.8 million, worsening from a $0.3 million loss.
• Total Inventory -- Reduced by $98 million year to date to $1 billion, surpassing prior targets and prompting an increased full-year reduction goal of $150 million; $15 million of the reduction came from three domestic divestitures, with the majority from disciplined inventory management.
• Aged Inventory -- Reduced by $94 million over five months since peaking in May, with further reductions planned to support normalization of equipment margins.
• Balance Sheet Metrics -- Cash of $49 million and adjusted debt to tangible net worth ratio of 1.7x, well below the 3.5x bank covenant.
• Guidance: Construction Segment -- Anticipated revenue decline revised to 5%-10% from the previous 3%-8% decrease.
• Guidance: Europe Segment -- Expected revenue growth raised to 35%-40%, up from the prior range of 30%-40%.
• Consolidated Equipment Margins (Q4 Outlook) -- Expected to moderate to approximately 7% due to seasonally lower-margin deliveries, continued inventory optimization, and dissipating stimulus in Romania.
• Operating Expenses (Full Year Outlook) -- Expected to decrease absolutely and remain about 16% of sales.
• Tax Valuation Allowance -- Anticipated non-cash expense will increase reported tax expense by $0.35-$0.45 per share in Q4, with no adjustment planned in guidance calculations.
• Adjusted Diluted Loss Per Share Guidance -- Reaffirmed at an adjusted loss of $1.5 to $2 per share for the full year.
• Strategic Footprint Changes -- Recent divestiture of certain U.S. stores and progress toward divesting German dealership operations to concentrate resources on higher-performing markets.
• Multi-Brand Strategy -- Expanded dual-brand approach, now in about one-third of U.S. stores and six of fifteen rooftops in Australia, increasing access to both Case IH and New Holland product lines.
• Parts and Service Contribution -- Parts and service businesses now generate well over half the company's gross profit dollars, providing stability amid equipment demand weakness.
• Inventory Quality -- Management emphasized improvement, with inventory being "fresher and has an increased mix of more high-demand categories."

SUMMARY

Management increased the full-year inventory reduction target to $150 million, citing accelerated progress in aged inventory liquidation and improved inventory quality. The Europe segment's third-quarter surge was attributed to expiring stimulus in Romania, but future growth in that region is expected to moderate as these funds dissipate. The company completed strategic divestitures, including German dealership operations and select U.S. stores, to improve capital allocation and segment profitability. A non-cash tax valuation allowance, resulting from current industry cycle pressure, will raise Q4 tax expense but is anticipated to be temporary and not reversed until sector recovery. Revised guidance now projects deeper declines in construction segment revenue and higher gains in Europe, with domestic ag and Australia expectations unchanged.

• Chief Executive Officer Knutson explained that persistent pressure on farm economics from commodity prices and limited government aid limits equipment demand recovery until conditions improve.
• Parts and service stability mitigates earnings volatility, with the majority of gross profit now derived from these sources rather than equipment sales.
• Chief Financial Officer Larsen described the company as being "much better positioned than we previously were" regarding inventory levels, having reduced aged used equipment by half in units relative to prior cycles.
• The dual-brand strategy enhances scale and customer service, aligning with manufacturer and dealer partner objectives for improved coverage and efficiency.
• Further seasonal inventory build is expected in early fiscal 2027, but management aims for inventory levels in line with the current lean position for the remainder of the year.

INDUSTRY GLOSSARY

• Subvention Funds: Direct government grants or incentives designed to stimulate specific market segments, often linked to equipment purchases for agricultural investment, such as those cited in Romania.
• Dual-Brand Strategy: A dealership approach involving the offering of two major manufacturer brands (such as Case IH and New Holland) from a single location to increase market coverage and operational efficiency.
• Aged Inventory: Equipment held for longer than twelve months, considered higher risk for value impairment and targeted for accelerated liquidation to support normalized gross margins.

Full Conference Call Transcript

Jeff Sonnek: Welcome to the Titan Machinery third quarter fiscal 2026 Earnings Conference Call. On the call today from the company are Bryan J. Knutson, President and Chief Executive Officer, and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2025, which is also available on Titan's Investor Relations website at ir.titanmachinery.com. In addition, we are providing a supplemental presentation to accompany today's prepared remarks along with the webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section.

We would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Statements do not guarantee future performance and therefore undue reliance should not be placed upon them. Forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan's most filed annual report on Form 10-K and quarterly reports on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking statements.

Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly comparing underlying results from period to period. We have included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation. At the conclusion of our prepared remarks, we will open the call to take your questions.

And with that, I would now like to introduce the company's President and CEO, Bryan J. Knutson. Please go ahead, Bryan.

Bryan J. Knutson: Thank you, Jeff. And good morning to everyone on the call. I will start by providing an update on our inventory optimization progress and operational focus areas. And then discuss the current environment across our segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions. Nine months into the fiscal 2026, we are making meaningful progress on our inventory optimization initiatives which will position us to emerge from this cycle leaner and stronger. Our team did an excellent job executing in what remains a very challenging market environment.

As we head into the final quarter of the year, our focus is on finishing strong and continuing to drive inventory optimization while maintaining the customer relationships and service excellence that differentiate us in the market. We have made substantial progress through the first nine months of the fiscal year, reducing total inventory by $98 million. As I just mentioned, I am extremely proud of the disciplined work our teams have been doing all year to move equipment in a very difficult demand environment. And we are confident we will significantly exceed our $100 million full-year reduction target. As such, we are raising our inventory reduction target to $150 million. The quality of our inventory also continues to improve.

It is fresher and has an increased mix of more high-demand categories. But we are not stopping there. We still have excess inventory in certain seasonal new equipment categories as well as our overall used equipment level. Our focus remains on finishing this fiscal year in a healthier inventory position, so that we can return to the more normalized equipment margins that we have historically achieved. Regarding equipment margins, they beat expectations for the quarter driven largely by a more favorable sales mix and our improved inventory position.

Bo will provide further details but I do expect equipment margins to moderate somewhat in the fourth quarter given less favorable sales mix and additional inventory optimization efforts as we finish the year. The work we are doing now on inventory optimization is about setting ourselves up properly for next year over maximizing near-term margins. Our customer care initiative continues to demonstrate strategic value and remains central to our operating strategy. While equipment demand remains under pressure at this phase of the cycle, our parts and service businesses are generating well over half of our gross profit dollars. The stabilizing force of our parts and service business is essential in times like these.

Keeping us closely engaged with our customers allowing us to add value to their operations, and positioning us well for when equipment demand eventually recovers. This relentless focus on our customers optimization, both domestically and abroad, dovetails with our recent activity surrounding footprint. As you may recall, we acquired Heartland Ag Systems in 2022, which allowed us to gain access to the full product line of Case IH application equipment. Including self-propelled sprayers and fertilizer applicators, along with incremental sales opportunities to the commercial ag application segment of the market.

As a part of the integration process of that business, we have recently divested certain stores outside of our core footprint and sold them to local C and H dealers in the respective areas. This change will allow us to focus our resources on markets where we can best leverage our broader service network to provide best-in-class service and support to our customers and deliver improved shareholder returns. In that same vein, we have also taken an objective look at our international operations to ensure we are allocating capital to high-performing markets. Our German operations have faced challenges that have historically weighed on returns within our year operating segment.

And as such, are in the process of divesting our dealership operations located in Germany, working in close coordination with CNH and local New Holland dealers in the region. An additional part of our footprint optimization is continuing to build upon the dual-brand strategy that we previously implemented in approximately one-third of our US store network over the years. For instance, in Australia, we recently gained access to the New Holland distribution rights in six of our 15 rooftops. While we are not adding new rooftops in-country, we now have both Case IH and New Holland brands available in these markets, helping us provide better scale and customer service through improved coverage.

To drive increased market share while capturing synergies from both brands. We remain focused on organic growth through market share gains and focusing on our customer care strategy to drive higher parts and service revenues. At the same time, we are well-positioned to continue to on M and A opportunities that align within our strategy that focuses on leveraging our service network to provide best-in-class customer service while driving scale and efficiencies to achieve higher levels of profitability. With that, I will now turn to our segments. In domestic ag, the quarter performed within our expected range. Despite an environment that remains challenging for our farmer customers.

While the harvest season is now largely complete, and yields were generally solid across our footprint, farmers continued to face multiple headwinds. These include depressed commodity prices, which is the fundamental issue pressuring farm profitability, as well as the government shutdown, which slowed payments to farmers adding to current cash flow challenges, along with higher interest expense. While we have seen some improvement in commodity prices recently, they generally remain below breakeven levels for our customers. And while it is encouraging to see China committing to resume soybean purchases, it is unlikely that this will result in a sustainable inflection in commodity prices in the near term.

Further, while the reinstatement of 100% bonus depreciation is a positive for those customers who find themselves in a taxable position, many simply do not have the income to take advantage of it this year. The bottom line is that without a significant improvement in commodity prices, or substantial additional government support, equipment demand is likely to remain at trough-type levels for the near term. Now turning to our construction segment, which continues to face some softness reflecting the broader economic uncertainty. Equipment margins remain subdued, pressured by some of the same variables that are impacting our domestic ag segment.

Infrastructure and data center projects are providing a baseline level of activity, while the overall demand environment remains somewhat softer than the highs of recent years. But still at healthy levels. Europe had a strong third quarter, as Romania continued to drive segment performance as customers capitalized on EU subvention funds up to the September deadline. However, absent this temporary stimulus, the underlying demand in the region remains soft and is tied to the broader ag cycle. Australia continues to experience a similar backdrop as their domestic ag business with industry volumes below prior trough levels. However, the third quarter also reflected some difficult comparables relative to the prior year.

The market remains challenging, but the fourth quarter revenue should be closer to what we saw in the prior year. In closing, we have accomplished a great deal over the past year reducing total inventory by over $500 million from peak levels in Q2 of the prior year. This has been a full team effort, and why I want to express my appreciation for how our people have maintained exceptional customer service while executing these initiatives by outperforming the market. The agricultural equipment market remains challenging and the industry is not expecting a near-term recovery. However, we are staying disciplined in our execution managing what we can control, and positioning the business to perform well when market conditions eventually improve.

With that, I will turn the call over to Bo for his financial review.

Bo Larsen: Thanks, Bryan, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 third quarter. Total revenue was $644.5 million compared to $679.8 million in the prior year period. Reflecting a 4.8% decrease in same-store sales driven by weaker demand in our domestic ag, construction, and Australia segments, largely offset by stimulus-driven strength in our European segment as Bryan discussed earlier. Despite the sales headwind in the third quarter, gross profit was essentially flat at $111 million compared to $110.5 million in the prior year period. While gross profit margin expanded to 17.2% as compared to 16.3% in the prior year.

This was largely driven by a 70 basis point improvement in our equipment margins for the third quarter versus the prior year comparative period. Notably, equipment margins for our domestic ag segment were 7% in this year's third quarter. Which is a significant improvement from the 3.1% that was achieved in the first half of this fiscal year. This improvement is largely driven by our improved inventory position and a favorable sales mix. But also benefited from a $3.7 million accrual for manufacturer incentive plans for which nothing was accrued in the first half of the year. Operating expenses were $100.5 million for 2026. Compared to $98.8 million in the prior year period.

Our headcount and discretionary spending is down year over year as a result of disciplined expense management. However, the small increase in total operating expense was led by higher variable compensation and some transaction-related expenses. Lower plan and other interest expense was $10.9 million as compared to $14.3 million in the prior year period reflecting our continued efforts to reduce interest-bearing inventory over the past year. In 2026, net income was $1.2 million with earnings per diluted share of $0.05 compared to net income of $1.7 million or earnings per diluted share of $0.07 for the same period last year. Now turning to a brief overview of our segment results for the third quarter.

Our domestic ag segment realized a same-store sales decrease of 12.3% which took segment revenue to $420.9 million. Segment pretax income was $6.1 million compared to pretax income of $1.8 million in the third quarter of the prior year. Reflecting the positive equipment margin dynamics that I discussed earlier, as well as lower operating expenses, and lower floorplan interest expense as compared to the prior year. In our Construction segment, same-store sales decreased 10.1% to $76.7 million which was driven by lower equipment sales. Pretax loss was $1.7 million compared to a pretax loss of $0.9 million in the third quarter of the prior year.

In our Europe segment, same-store sales increased 88% to $117 million which includes a $6.1 million positive foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue increased 78%. Which was primarily driven by Romania as customers capitalized on EU subvention funds ahead of the September deadline. Pretax income for the segment increased to $3.5 million compared to a pretax loss of $1.2 million in the third quarter of last year. In our Australia segment, same-store sales decreased 40% to $29.9 million which included a 1.3% negative foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue decreased 39%.

This decrease reflects the continued normalization of sprayer deliveries in fiscal 2026 after having caught up on a multiyear backlog of deliveries during fiscal 2025. Pretax loss was $3.8 million compared to a pretax loss of $0.3 million in the third quarter of last year. Now on to our balance sheet and inventory position. We had cash of $49 million and an adjusted debt to tangible net worth ratio of 1.7 times as of October 31, 2025. Which is well below our bank covenant of 3.5 times. Regarding inventory, as Bryan mentioned, we reduced our total inventory by $98 million through the first nine months of the year to $1 billion.

Of that $98 million reduction, approximately $15 million came from equipment sold through three domestic divestitures we completed. The vast majority of the reduction reflects the disciplined work our team has been doing to move equipment in a challenging demand environment. Our cumulative total inventory reduction from peak levels in Q2 of the prior year now stands at $517 million. Beyond the headline inventory reduction number, we are also seeing a meaningful improvement in the quality of our inventory. We continue to focus on reducing aged inventory. Which we define as equipment that has been on our lots for more than twelve months.

Aged equipment inventory peaked in May fiscal year and we have been able to reduce this by a total of $94 million over the last five months. This aged inventory reduction is critical to returning more normalized equipment margin levels. Given the progress we have made and the programs we have in place to continue to drive sales in the fourth quarter, we have confidence in making further progress on aged inventory and inventory levels overall. As such, as Bryan mentioned previously, we are increasing our inventory reduction target to $150 million for the full fiscal year. Turning to our fiscal 2026 modeling assumptions.

We are refining our revenue expectations for both the Construction and Europe segments based on our year-to-date performance. While keeping our assumptions for domestic ag and Australia intact. We are now expecting construction to be down 5% to 10% compared to our prior expectation of down 3% to 8%. And Europe is expected to be up 35% to 40%, an improvement from our prior range of up 30% to 40%. Reflecting the strong performance in Romania during the third quarter. From an equipment margin perspective, I want to provide some additional context for the fourth quarter. As Bryan mentioned, our third quarter consolidated equipment margins of 8.1% benefited from our improved inventory position and favorable sales mix.

Given a less favorable sales mix, and additional inventory optimization efforts in the fourth quarter, we anticipate consolidated equipment margins to moderate back to approximately 7% for the fourth quarter. This reflects three primary factors. First, the fourth quarter is traditionally a big quarter of delivery of multiunit deals for larger ticket cash crop equipment and generally speaking, those tend to have moderately lower margins than other transactions. Second, we continue to work through aged inventory as part of our optimization effort. And third, we anticipate some moderation in Europe following the September expiration of subvention fund availability in Romania. Consistent with our prior expectations, operating expenses are expected to decrease year over year on an absolute basis.

And I continue to expect them to be approximately 16% of sales for the full fiscal year. Forward plan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization and we should see some of those benefits in the fourth quarter given the reduction in aged inventory we have seen in recent months. As a preface to our earnings per share expectations, I want to call out the anticipated recognition of a non-cash valuation allowance that is expected to be recognized in the fourth quarter and result in an increase in our reported tax expense by approximately $0.35 to $0.45 per share.

Reflecting a variable that was not considered in our previous assumptions. This is dictated by accounting guidance and is influenced by the degree to which our profitability is being impacted by the broader cycle. It is something that we had to recognize in the prior downturn as well, and then subsequently reversed as the industry recovered from the prior trough. I expect a subsequent reversal at some point in the future this time as well. However, this will result in an increase to tax expense for the time being. Based on guidance from regulators, we do not plan to adjust this incremental tax expense out of our presentation of full-year adjusted earnings per share.

So I mention it here so you can better appreciate the magnitude that the underlying equipment margin improvement is having on our results in the second half of the fiscal year. To be clear, our margin improvement is being negated by the valuation allowance and as a result, we are reaffirming our adjusted diluted loss per share guidance a range of a loss of $1.5 to $2. In summary, we are pleased with the progress we have made in a challenging demand environment, with industry volumes below prior trough levels. And we are poised to make further progress in the fourth quarter.

Our team's hard work advancing our inventory reduction and footprint optimization initiatives are positioning the business for improved financial performance as we move into fiscal 2027. This concludes our prepared comments. Operator, we are now ready for the question and answer session of our call.

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

Liam Burke: Thank you. Good morning, Bryan. Good morning, Bo. Morning. Morning. We saw very nice results on parts and service, excuse me, service was down 4%. Is that just normal quarter-to-quarter seasonality, or is there something within that number on that down year-over-year number that influenced it?

Bo Larsen: Yeah. So there is some noise there from a quarter-to-quarter perspective. The way service is reflected does get impacted by how much new equipment we are delivering and how much of their labor is going towards PDI, which ultimately shows up as whole good versus service revenue. Overall and big picture, service generally speaking is flattish this year in a world where large ag new equipment is down about 30%. Pretty happy with that. Certainly driving initiatives and expecting over the long term, as we have talked about for a while now to be able to drive sustainable growth.

But, again, stability in this environment, we will take for now as we work on some underlying things such as driving higher take rates on extended warranties, preventative maintenance agreements, and the like. To really help us accomplish what we want and that is to see something more like mid-single-digit growth on average over a longer period of time. Still feeling good about all that.

Liam Burke: Great. And then on the construction, same-store sales just do not seem to be recovering. More in line with ag. We would think that there would be less decline, but it seems to be either the same or getting worse. When most of the larger infrastructure players and larger construction players are doing okay.

Bo Larsen: Yeah. The first thing I would say, and I am sure Bryan will add to it as well. Underneath that for us, I would say that there are some specific factors that are not necessarily reflective of the market. Specifically, last year was a big year for us recovering and catching up on the delivery of wheel loaders. That extends back to the production or COVID production supply chain constraints. So last year, we received a lot in, we delivered a lot of them. Q3 was a big quarter for that specifically. So that was less about the market conditions and more about catching up on that backlog.

You know, underneath that, we do see more stability ourselves and kind of reflective of what the overall market environment is like. I do not know if you wanted to add anything.

Bryan J. Knutson: Yeah. Just as it relates maybe to the overall infrastructure impact we certainly do not play as much in that market as, say, caterpillar would, but, you know, a good a better portion of our business is tied to ag in general. With, as Bo mentioned, wheel loaders and a lot of material handling equipment. As well as Razwitch with the interest rates where they are know, has still been lagging. But we are certainly seeing some good stability and data center projects up here in the Midwest.

And, again, it is basically hanging in there, mainly what you are seeing in the comparables is what Bo mentioned with just the year-over-year comparison to the change in the wheel loader backlog shipment that we had. But we are expecting, you know, potentially here rate cut in December, which could be positive news and a lot of our contractors are you know, I will say, cautiously optimistic here as they start to look to at their 2026 schedules. And so yeah, we are looking at potential uplift for next year in that market.

Liam Burke: Great. Thank you, Bryan. Thank you, Bo.

Bryan J. Knutson: Yep. Thank you.

Operator: Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question.

Mig Dobre: Good morning, and congratulations on really good progress your team seems to be making here. So I guess my first question, I would like to talk a little bit about Europe. And appreciate the guidance raised here, but if I heard you correctly, the tailwind in Romania from those subsidies is going to dissipate, went away in September. What are you seeing in that region more broadly? Is and I guess, really, the answer to my question is at this point, all of us really kinda focus on fiscal 2027, you know, the current fiscal year is pretty much done.

What is the right way to think about this portion of the business for fiscal 2027, recognizing that the comparisons here are really difficult.

Bo Larsen: Yeah. No. I appreciate the question. And for sure, Romania, you know, this year, essentially doubled up year over year. And kudos to the team for on that and capitalizing on all the opportunity that was there. You know, first of all, just in terms of what we are seeing in the region, both for Romania and Bulgaria, I would say they have not had the best weather conditions in both calendar 2024 and 2025. So whereas more broadly in Europe, some of the yields were better. They were not as well off there. So that is a bit of a headwind. Obviously, the funds kinda helped us mask some of that and overperform there.

From a next year backdrop perspective, I would say and, again, this is directionally speaking, we will provide guidance when we get on our March call. But for Romania, the pullback, you know, 30% to 40% we will sharpen our pencil on that, but that is not out of the range of reasonable given the backdrop that they have and the significant growth they had this year. For Bulgaria and Ukraine, I would say more stable and opportunity for growth.

So ex Germany, of course, which we are talking about divesting of, mix all that in, you are talking about something, again, directionally speaking, we will sharpen the pencil, some high teens, maybe 20% down year over year forge are up or for Europe ex Germany.

Mig Dobre: That is really helpful. And, you know, you guys are not hearing of any other stimulus packages or anything of the sort that might be might be going on in region outside of Romania? And we can you know, Ukraine as well. Obviously, those guys have been put a lot.

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

Mig Dobre: Sure. Reverting back to The US business, it sounds like you guys are doing some more on the footprint which, you know, you have done in prior downturns. As well. I guess the commentary, as I heard it from Bryan in the prepared remarks, was pretty subdued as we think about fiscal 2027. And, again, directionally, I am sort of wondering a couple of things here. Should we plan for another year of decline in fiscal 2027 on what you know today about your North American business?

And if that is the case, what is the right way to think about margins as you have reduced the inventory, are we to the point where we can see on the equipment side, more normalized margins even if we have to deal with another year of top line or volume? And then I will have one final follow-up.

Bo Larsen: Yep. From a margin perspective, and then I will turn it over to Bryan to talk more about just about footprint in general there. So, yeah, back half of the year, obviously, you saw a pretty significant. So I am talking domestic ag here, setting aside the other stake. Segments, which have not had as much volatility. First half of the year, equipment margins were about 3.1%. Back half of the year, equipment margins about 6.5%. If you set aside manufacturer incentives, we are generally accruing and recognizing in the back half of the year as we gain certainty, but back half of the year margins would be more like 5.25.

So if we go into next year and there is an assumption that, you know, industry volume is down again and kind of setting a new historical low at least for the past couple of decades, that five and a quarter is maybe a decent proxy to start with for the first half of next year. And then continue to see us driving improvement from there. I do not know if you wanted to add any on the industry in general. Yeah. Mig, I will maybe just add a little bit on footprint and then and then secondly on the industry next year. So with footprint, we work very hand in hand with CNH.

They do not get surprised by any acquisition we do, nor do they with any divestiture that we do. And so we have done a lot of work in recent years here on our strategic plan and we are just really continuing to work that plan. So if you look at, some of the larger acquisitions that we have done and as we refine those now such as some of the divestitures we have done related to our Heartland application business, we will continue to refine that. And, again, we are working hand in hand with CNH in our fellow CNH dealers on that. And we believe that is a great solution for our customers in the end.

And we are very pleased with that acquisition, and, again, as we continue to refine it. Secondly is, you know, just continuing to get ready for additional acquisitions that are will be accretive and in line with our strategic plan. And so we will continue to refine our footprint and optimize in the areas where we perform the best. And can really maximize our customer care strategy. And then third, you will see us doing a lot with the multi-brand strategy with CNH as you saw. We just added the contract at five or six of our rooftops in Australia where we did not actually add any rooftops, but we added the New Holland contract to six of our 15.

As well as we have got a third of our North American footprint that is dual branded. And, there is a lot of value there that we can unlock for our shareholders and for our customers and give better customer services. We do that we are going to continue to execute on that strategy as well. And just with the overall demand, Mig, I mean, I think as you know, there are a lot of variables in play here. We and we will see what continues to happen with soybean sales and soybean consumption.

So really on the demand side and as we continue to look at stock to use ratios here, also with, Ren Fuel standards as we get into January here, think we will see some further development on that. Things around E15 and biodiesel especially. And then really, if you look at the government stimulus, it is going to be big wild card here. So with the shutdown, you know, no assistance came. We will see what comes yet in 2025. Of course, we are running out of time in the calendar year.

So 2026, I think that is going to be the big question as at today's commodity prices, even though we have had a recent uptick, many of the farmers are still not at profitable levels here even with the good yields that we had. So, that is going to, I believe, be another big wild card for next year here that we should, get a lot more color on here as especially the February WASDE report comes out and as insurance rates get locked in at the February and so forth.

Mig Dobre: Alright. And then my last question. From an inventory standpoint, maybe you can comment a little bit as to how you think about that I and I know I have asked this question before that you record dollar inventories. Right? But I we gotta sort of keep in mind that the price of the equipment that you have in inventory has gone up a lot over the years and, you know, your store count has increased as well.

Is there a way to maybe help us understand or maybe frame for us where you are in terms of unit count of inventories and you know, maybe relative to the prior cycle or really any way that you think shareholders might find it helpful? Thank you.

Bo Larsen: Yeah. And to start with, certainly, inventory being a big topic, trying to think about, you know, the best ways to provide transparency without overcomplicating things there. And so certainly super impactful to talk about the price increase. You know, over the last year, we had talked about the cost of a four drive going up more than 80% since 2014. We have talked directionally speaking again in the last year. As we versus where we started the last downturn, had about one third as many used combines which is, you know, an indicator an important indicator in terms of how much work there is to be done on the used equipment side of things.

So we will keep working on, you know, the best ways to portray that info. But I mean, it is pretty easy to quickly just think about it in terms of like half the number of units. And, yeah, we are much better positioned than we previously were. And that is really shown in just what happened with our equipment margins in Q3, for example, versus the first half of the year. Our stance has been to aggressively manage our inventory, including the value in which sits on our balance sheet, that is pulled forward some of that. P and l pain, and that is where we saw lower margins than we had seen historically.

But then you saw that significant inflection here in the third quarter. We feel really good about where things are priced the number of units we still have to move and exactly what we need to continue to accomplish this year to set ourselves up for success next year. We feel really good about where we are going to be to end the year.

And then in a, you know, a market where North America is potentially down a bit again from there, it is going to be a continued focus on managing that aging profile but we are just going to be in a lot better position, to execute at the market instead of trying to be more aggressive out there. And so we should continue to see progress on those equipment margins and, of course, on that reduction in floor plan interest.

Bryan J. Knutson: Yeah. Mig, I would just add, you know, good point on your part, as you said, as we have had equipment prices, per unit in some categories nearly double in less than ten years here, dollars is not in and of itself, a good way to look at it purely. And as you mentioned, also increasing our store count as well. So as you know, inventory turns is a really good way to look at that. And also interest expense in general. So you know, those are some of the key things in for us is just as we go forward to manage our interest, expense mitigate that as much as possible. Maximize our manufacturer floor plan terms, etcetera.

And ultimately, presale with customers. So the high dollar cash crop, high ticket equipment, is presold and not sitting on our balance sheet for any longer than possible and especially accruing interest expense. So you know, we will continue to monitor, turns and entered expense are a couple of big indicators there.

Mig Dobre: Alright. Very helpful. Thank you, guys.

Bryan J. Knutson: Thank you, Mig.

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

Ted Jackson: Thanks. Good morning.

Bryan J. Knutson: Good morning. Good morning, Ted.

Ted Jackson: So I wanted to start out and just kinda ask a few questions around inventory. Just to make sure, you know, I kinda understand everything and it will drive a few other things. So you commented. So your inventory year to date is down $98 million. But it would be down $75 million. You had not done the divestitures. Is that correct?

Bo Larsen: Yeah. That is correct.

Ted Jackson: Okay. So when I think about the and that is fabulous progress, by the way, so I wanted to make sure to say that. But when I think about the $150 million guidance that has been put out, if you had not done any divestitures, what would that guidance be?

Bo Larsen: Well, and there is a couple of through the end of the year. Right? Essentially, what I am saying is Australia acquisition that we did largely offset those divestitures. Then the other wrinkle, I guess, we have is the Germany divestiture. That will be helpful there as well. But yeah. I mean, somewhere in the $130 million, $140 million range. But, again, there are some offsetting impacts. The other thing that was against us from a dollars perspective was just the FX. On the Europe side, which added to inventory without actually adding units. And last thing I would say just to gauge the progress, and again, this is dollars, so it is not exactly units.

But in the last down cycle, it took us two years to decrease inventory $348 million. It took us three years to decrease inventory, $543 million. You know, we are going to go past that in an eighteen-month period of time here. Again, it just speaks to the approach that we are taking into managing this down faster. To get position heading into the next year.

Ted Jackson: So putting it into, like, context of, you know, when we were talking about inventories before and units and everything, the, the $150 million to a $100 million on a unit basis, you know what I mean? Even if, like, if you will make it look organically, you are taking up your view of terms of what you are going to be able to take your inventory numbers down. Let us call it on a unit basis. You know, at you know, regardless of the divestitures that, you know, you are you know, it is a it is indeed a change. You see what I am saying?

It is not it is not being driven by a change in your footprint. It is being driven by accomplish. Change in your view with regards to what you are going to be able to.

Bo Larsen: Oh, yeah. Absolutely. And, I mean, the biggest thing that has been reduced here to make sure that you are appreciating it is aged used equipment, which is you know, the biggest risk in turn of valuation. So just I mean, could not be happier with the progress the team has made. It about the additional progress we are going to be able to make. It reflects on the balance sheet in a given quarter. The reality is this is something that we have been at for more than two years now as we have seen how things have been evolving with lead times when we are getting stuff in from the OEMs, how we are digesting that.

So really great progress, we look to make more here in the next couple of months.

Ted Jackson: And then with regards to the change with your outlook for inventory. Is it by chance being done because you have a is there is there a is that change more pessimistic view of how you know, both this goal '26 looks to be? Or you understand what I am saying? I mean, is it you know, like, you know, if your view is that, you know, the market going forward is weaker than I expected so I do not need as much inventory. So I am going to get try to get rid of more inventory. Do struggle with that?

Is it a change in terms of know, how you kind of view the macro, or do you still kinda feel like we will move on? I mean, you often you know, been let us call it calendar '25, and we should have a more stable market in '26. And the that view that has been, you know, generally expressed across the ag market, the ag players for the last, you know, several quarters is still intact. Does that make sense for me? Yeah. Big picture wise, I do not think that things have shifted drastically. I mean, the and the OEMs in the general space have been talking about North America potentially down somewhat next year.

But not so much that it changes, you know, our trajectory of where we want to go. It is more a reflection of the work that we still feel like we, have and can accomplish for the year. I would say, though, that as we flip the calendar into next year, so we are going to get to a pretty darn good spot ending this year, all things considered. We do absolutely expect some seasonal build in the spring. Kinda refreshing some categories ahead of the selling season. So I would not expect further reduction in the back half of next year.

But getting to a good spot at the end of this year, seasonal build in the first half of year. And then depending on where we see the market shaping up, probably, you know, taking it back down a bit in the direction of kinda where we ended this year. That is kind of my base case scenario that I would lay out for you. Yeah. And, Ted, I would just add, you if we go back to the earlier discussion with Mig there around you know, we for our growers next year, we unless we see a significant uptick here in commodity prices or, again, the wildcard with government assistance.

Next year, looks like it could be challenging again for our growers, so we want to be you know, prudent about how we are stocking our inventory accordingly. And then also as we talked about interest expense, you know, with interest rates, as high as they are, it is important that we are mitigating the interest expense. And then the third thing I would say for next year and going forward is just again, a strategic change for us. And in our balance sheet management.

And really, as we talk about our footprint optimization, one of the benefits of that is we to refine and get our tighter contiguous footprint, which allows us to leverage that footprint and leverage our scale and share inventory more freely amongst our stores and still be able to you know, capture every sale. That is still the ultimate goal. And keep our customers up and running and satisfy their equipment needs and make them more efficient. So to never miss a sale, but to do that with leaner inventories. And so that is where we are headed.

Ted Jackson: Okay. And then my last question, it is maybe more of just, like, actually for a little color. So, you know, I mean, a big thing with CNH is they really want to get, their, their brands consolidated into, you know, under one roof. And you made a comment that in Australia, six of your 15 roofs now take both, you know, case and New Holland equipment. I was kinda curious when if you could provide a similar kind of metric for the other regions and maybe talk about you know, well, maybe it is too much.

But, you know, area you know, like, many when you think about that, is there first of all, how much of your footprint at a region is you know, is that consolidation already taken place? And I do not know. Maybe to the extent that you can, how you think you are positioned for further consolidation of rooftops for CNH because it is such an important longer-term strategy for them. That is my last question. Yes.

Bryan J. Knutson: Thank you. It is for sure. And so we are very much aligned with CNA in our fellow dealers in that strategy. And we think there is a lot of value for our customers and our shareholders again there. And we can it gives us additional scale. It gives our customers most importantly, a lot of benefits as we do that and allowing us to give them quicker response times and less downtime ultimately. So we are very focused on that. We have been for a long time, we like that we have seen that growing, you know, additional energy around that.

Strategy, again, from other dealers and from CNH collectively, and we are going to continue to push on that. You asked how we are sitting now. So that is that six of 15 obviously brings us to just over a third in Australia. And we are going to keep pushing there. We are just about a third in The US, and we will keep doing the same there. And then in Europe, again, you are seeing that in kind of the earlier stages.

So working hand in hand with CNH, in Germany, in that case, we ended up selling, and we will look to again, in other areas be a buyer as continue to move around here, and we leverage that strategy. So that is also part of, again, our strategic plan as we get some dry powder ready here and look to continue to execute on that strategy in coming years.

Ted Jackson: Okay. Hey. Thank you very much for taking my questions.

Bryan J. Knutson: Thanks, Ted.

Operator: Thank you. Our next question comes from the line of Steve Dyer with Craig Hallum Capital Group.

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

Bryan J. Knutson: So earlier in the year, they received some and then they received a little bit more in early summer. And then as we speak, they are receiving a little bit more, which is the final 15%. They receive the 85% of some of the first assistance back in approximately June. And now they are receiving the last of that. However, you know, there was up to nearly $10 billion discussed for soybean assistance. We have not seen that yet. You know, there is a verbal agreement with China to that would potentially return them to about 25 million metric tons annually, which is about what they have historically produced, that is about in line with their five-year average.

So you know, we will see if, if it looks like they are going to execute on those purchases, then maybe we see, prices come up and those funds do not need to come through. And vice versa. So I think the government will continue to monitor that. Again, as we look at what is left here for 2025, not optimistic about a lot more getting into our growers' hands other than what is already in motion. But certainly for '26, I think there is a lot to look at there, when you look at the pricing levels of where they are at today, especially with the current price of wheat and corn and soybeans as an example.

But really, generally, most of the commodities are pressured right now. And, again, it does come back to that supply and demand ratios.

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

Bo Larsen: Yeah. So overall, for Germany, over the last several years, they have averaged roughly $40 million low forties million top line. And pretax loss of somewhere in the, you know, $4 to $6 million range. So beneficial to transition that off from a bottom line perspective. In the context of our total whole goods revenues you know, not a massive impact there.

Matthew Joseph Raab: That is great. Thank you very much.

Operator: Thank you. That concludes our question and answer session. I will turn the floor back to management for any final comments.

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

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

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