Titan Machinery Inc. Stock

Greetings. Welcome to Titan Machinery Inc. Second Quarter Fiscal 2027 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.

I will now turn the conference over to Jeff Sonnek with ICR. Thank you. You may begin.

Thank you. Welcome to the Titan Machinery Second Quarter Fiscal 2027 Earnings Conference Call. On the call today from the company are Bryan 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 second quarter ended July 31, 2026, which is also available on Titan's Investor Relations website at ir.titanmachinery.com. In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titan's Investor Relations website within the Events & 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. The statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call.

Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We have included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measure 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'd now like to introduce the company's President and CEO, Bryan Knutson. Please go ahead, Bryan.

Thank you, Jeff. I'll begin today's call with a review of our second quarter results and then provide an update on what we are seeing across each of our business segments before turning the call over to Bo for his financial review and updated outlook assumptions.

Overall, our second quarter results were largely in line with our expectations, and I am pleased with the continued progress our team is making on the operational priorities we established heading into FY 2027. The highlight of the quarter was the continued improvement in equipment margins across our agricultural business, which contributed to a 190 basis point increase in consolidated gross margin compared to the prior year period. This improvement reflects the work our team has done over the last 2 years to reduce aged inventory, improve inventory mix and strengthen inventory management processes across our organization. Importantly, these margin improvements are being driven by actions within our control, rather than any meaningful improvement in underlying industry demand. While the agricultural market remains challenged, our business is becoming healthier, more efficient and better positioned to perform through the cycle. I would like to thank and recognize our employees across the organization for their disciplined execution of our initiatives.

Turning to the broader agricultural environment. Customer profitability remains under pressure. Despite recent trends upward, commodity prices for key crops such as corn and soybeans continue to sit below levels that would support a meaningful rebound in equipment demand, while elevated input costs remain a headwind for many producers. As a result, customers continue to make equipment replacement decisions cautiously and remain highly focused on preserving cash.

While this environment remains difficult, we continue to believe the industry is working through the trough of this cycle in 2026. Dealer inventory levels across the market have improved significantly over the last 2 years, equipment fleets continue to age and the long-term fundamentals supporting agricultural production remain intact. We also continue to support initiatives that improve demand for corn and soybean products, including higher ethanol blends, renewable diesel and sustainable aviation fuel. Over time, stronger demand for those commodities should be supportive of healthier and sustainable farm income and equipment demand.

Despite the challenges facing the industry, parts and service continue to provide an important foundation within our business. This doesn't happen without a lot of hard work, especially because the current lack of grower profitability causes more of a [ fixed ] sale maintenance mentality, causing customers to delay discretionary maintenance and repairs where possible. This dynamic highlights the importance of our customer care strategy and the investments we continue to make in supporting our customers and earning their business.

Now turning to more specifics on each segment. In Domestic Ag, the environment for our grower customers remain very challenging due to the factors I discussed earlier.

As a reminder, our top line results through the first half of the fiscal year were higher than internal expectations due to earlier than anticipated shipments of presold equipment from the factories, which resulted in a pull forward of our deliveries to customers relative to prior expectations. This timing shift strengthened first half results, but is expected to contribute to some relative headwinds to year-on-year comparisons in the back half of the fiscal year. Yields generally look good across much of our footprint, though dry conditions in July and August will translate to yield reductions in some areas. This is something our team is monitoring closely as we anticipate what year-end buying will look like.

Our Construction segment performed well during the quarter. Activity related to infrastructure investment and data center projects remains healthy across much of our footprint, and is providing support for improved equipment demand. These end markets have helped offset softer activity from agricultural customers who also purchase construction equipment. Overall, we continue to view the underlying fundamentals for our Construction business as stable and reasonably healthy.

Within our Europe segment, results came in below our expectations. Part of the year-over-year decline was anticipated as we wind down our German operations and we anticipated some decline in Romania after last year's robust results. However, market conditions across the region have also become more challenging than we anticipated entering the year. Low commodity prices, elevated operating costs, broader geopolitical uncertainty, poor crop conditions in certain areas and weaker farmer sentiment have led many customers to delay equipment purchasing decisions. As a result of these factors, we are adjusting our expectations downward for Europe for the remainder of FY '27.

In Australia, equipment demand is being influenced by the same global dynamics pressuring our other ag markets, but with sharper increases in input costs, particularly diesel fuel and fertilizer, given the lack of in-country production. Helping offset this has been healthy rainfall and the resulting prospect for improved yields across much of our footprint, which is translating to improved customer sentiment and should help increase equipment demand as we progress through the second half of the year.

In closing, I'm extremely proud of the progress our team continues to make in the face of a challenging demand environment. However, inventory levels across the industry are getting healthier, and fundamentals are starting to suggest that 2026 could be the bottom of this ag cycle. As for Titan, we continue to execute in the areas that we can control. Inventory quality is improving, equipment margins are strengthening and our operating model continues to become more efficient. While we remain disciplined in our view of near-term demand, the actions we have taken over the past several years have positioned Titan Machinery to execute effectively and remain resilient through the remainder of this cycle and to capitalize on opportunities as industry conditions improve.

With that, I will turn the call over to Bo.

Thanks, Bryan, and good morning, everyone. Starting with our consolidated results for the FY '27 second quarter. Total revenue was $496.4 million compared to $546.4 million in the prior year period, reflecting a 6.2% decrease in same-store sales. Despite the sales headwinds in the second quarter, gross profit was essentially flat at $92.4 million, resulting in gross profit margin expansion of 150 basis points to 18.6%. This year-over-year improvement primarily reflects stronger equipment margins, which improved 190 basis points year-over-year to 8.5%, driven by the continued improvement in inventory health alongside a higher mix of parts and service revenue in our consolidated totals.

Operating expenses of $94.1 million were up modestly year-over-year. This is largely a function of higher variable expenses tied to our sales initiatives, including those in support of clearing aged inventory. However, the key message is that our head count and discretionary spending continue to be down year-over-year as a result of disciplined expense management, which speaks to our efforts to control what we can and position ourselves for the other side of this cycle. Floorplan and other interest expense decreased 30% to $8.1 million from last year's $11.5 million, reflecting the significant reduction in interest-bearing inventory levels over the past year.

In the second quarter of FY '27, net loss was $9.2 million or $0.40 per share. This compared to a net loss of $6 million or $0.26 per share in the prior year period, which included a $2.2 million tax benefit that didn't repeat this year, given the tax valuation allowance that we put on in Q4 of last year. Absent last year's tax benefit, net loss was very similar year-over-year despite the lower sales volume. Adjusted EBITDA was $4.6 million compared to $5.6 million last year.

Now turning to a brief overview of our segment results for the second quarter. Domestic Ag segment sales of $310.2 million reflected a same-store sales decrease of 8.4%, driven by softer equipment demand compared to the prior year. Equipment revenue in this segment came in modestly ahead of our expectations for the quarter and was down 13.5%, while parts and service revenues tracked closely to our expectations. Segment pretax loss improved by $9 million to $3.3 million versus the prior year period, reflecting the actions we have taken to accelerate inventory reductions and the resulting improvement in equipment margins that we have achieved.

In our Construction segment, same-store sales increased by 9.2% to $78.6 million, primarily due to higher equipment sales. Equipment margins remained strong relative to the prior year, reflecting healthier inventory and improved industry conditions across our Construction footprint. Pretax income improved to $0.4 million compared to a pretax loss of $1.2 million in the second quarter of the prior year.

In our Europe segment, sales declined to $66.1 million for the quarter, which included a $1.1 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue decreased approximately 34%. As we noted last quarter, the wind-down of our German operations is a meaningful portion of the year-over-year decline in this segment, and will continue to be through the balance of the year. Germany contributed approximately $11 million or about 1/3 of the year-over-year revenue decline in the second quarter, with the balance attributed to lower equipment demand in the current year period against a strong prior year comp, which benefited from the European Union's stainless programs in Romania. Pretax loss for the segment was $1.3 million compared to a pretax income of $5.1 million in the second quarter of last year.

In our Australian segment, sales increased 36% to $41.4 million and included a $3.9 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue increased $6.9 million or 22.5%, with the current period benefiting from contributions from our addition of the New Holland brand to 6 of our rooftops in the fall of last year. Pretax loss for the segment was $3.4 million compared to a pretax loss of $2.1 million in the second quarter of last year.

Now on to our balance sheet and inventory position. We had cash of approximately $30 million and an adjusted debt to tangible net worth ratio of 1.6x as of July 31, 2026, which is well below our bank covenant of 3.5x. Total inventory at quarter end was $931.5 million, a modest increase of $28 million compared to year-end. This increase was very much in line with our expectations and reflects the normal seasonal cadence of inventory flows. As Bryan noted, our focus in FY '27 remains on reducing aged inventory, mix optimization and increasing inventory turns, all of which we continue to expect to see improvement throughout the rest of the year.

Turning to our FY '27 modeling assumptions. We are reaffirming our overall profitability outlook for the year, while updating a number of our segment revenue assumptions to reflect our year-to-date performance and our current expectations for the balance of the year. We continue to expect our Domestic Agriculture segment to be down in the range of 15% to 20%, though at this point, we'd expect it to be closer to the 15% range.

In Construction, we are raising our outlook for growth in the range of up 5% to 10%, reflecting the momentum we're seeing from infrastructure, data center and otherwise generally improved demand in our footprint.

In Europe, we are revising our outlook to a decrease of 30% to 40% and widening the range to reflect the uncertainty we're seeing in the region. A meaningful portion of that decline, were about $44 million, continued to be driven by the wind down of our German operations, with the balance reflecting broader softness across the rest of the region.

In Australia, we are raising our outlook for growth to be in the range of about 15% to 20%, and we expect full year results to be closer to the high end of the range around that 20% growth mark. Reported results for Australia are benefiting from favorable foreign currency translation, and that alone is expected to provide 8% growth for the full year.

From a margin perspective, we expect consolidated full year equipment margin to be approximately 8.3%, which compares to 7.3% in FY '26. I'd note that through the first half of the year, we are at 8.2%, which speaks to the impact of our inventory initiatives and our confidence in delivering against this full year expectation across the balance of the year. Full year operating expenses will decrease year-over-year despite our continued investment in our customer care strategy, which is supporting stability in our parts and service businesses. We expect operating expenses to be approximately 17.5% to 18% of sales.

On floorplan interest expense, given the great progress on the health of our inventory, we now expect to achieve a year-over-year decline of approximately 30% for the full fiscal year. Bringing it all together, we are reaffirming our full year adjusted EBITDA range of $17 million to $29 million, and our adjusted diluted loss per share range of $1.25 to $1.75.

In summary, our second quarter results reflect the continued progress we're making on inventory health and our operational priorities as we progress through the bottom of this cycle. We remain focused on executing the initiatives within our control to position us well when industry conditions inflect. This concludes our prepared comments. Operator, we are now ready for the question-and-answer session of our call.

[Operator Instructions] Our first question is from Liam Burke with B. Riley Securities.

The headlines in the turmoil in the Black Sea with not only shipment, obviously, you've discussed the implications in Europe. Does that have a ripple effect on other of the markets that you're serving, particularly the U.S., either good or bad?

Yes, certainly, a lot of small green especially comes out of that area between Ukraine and Russia and both have been heavily impacted. And so we are certainly monitoring that closely with our Ukraine customers. They are having difficulty moving grain for sure. And so we're stocking appropriately manage inventories appropriately in Ukraine as we go forward here based on what we're anticipating for sales out of that region over the rest of the year and into next year due to the impact there.

But on the other hand, definitely a positive for U.S., a positive for us in our Australia footprint. We're anticipating, especially wheat and other small grain prices, to continue to be on the rise here, and that continues to be a positive for them.

Terrific. And we sort of look at a benchmark of corn pricing of $5, and starting to think that the Agriculture segment begins to benefit at corn at $5 and above. It's now in sort of the $5.50 area. How long does it have to stay there in order for the Agriculture segment to start being comfortable with loosening the purse strings?

Yes. Maybe first, just to clarify how the basis impacts that, Liam. Just in the Midwest or depending on an area's distance from major ports or shipping route, and so on that basis, will vary. In the Midwest here, we have a pretty large basis. So always important to differentiate the futures price versus the cash grain price. And that can be anywhere from like right now, $0.30 to $0.50 in some of our areas of Iowa and Nebraska, all the way up to almost $1 in Minnesota and about $0.80 to $0.90 in North Dakota, as an example right now. So that's that basis spread that essentially for cash grain price today, you'd have to subtract off of there.

But to your question, this definitely a run here lately in commodity prices. Yesterday was a really big day. We anticipate further increases here as a pro farmer tour continues. Certainly, they're seeing that the previously anticipated yields aren't there and that the drought conditions and some of the fertilizer impact has certainly impacted the crop along with other weather events all over the globe. So that's helping with the ending stocks and the stock-to-use ratio predictions as well as you've heard us talk a lot about other uses for the crops.

And so we're starting to see the fruits of some of that with the renewable fuels and more E15 adoption and purchasing as well as biodiesel and -- and the additional crushing plants have been coming online. You look at some other positives with now selling soybean meal over to Europe. It's a really big positive in the purchases recently from China here. And I think you're going to see more of that. Even though we're getting pretty well into the year here before the end of the year, I think you'll see a fair amount more opportunity for purchases from China, both soybeans and U.S. corn as well.

So there's some of those more structural fundamentals that we're really starting to see the positivity around it as we look at the renewable fuels standards for next year, as we -- and that also is going to bode well. So we'll continue to monitor the weather closely. That's what's driving it up here like yesterday and as the crop continues to come in and then see how weather patterns develop next year.

But basically, also to your question, these recent movements look very encouraging for getting our farmers into the black for 2026 here. And then when could we start to see the impact of that of '27 or a material impact to it, I should say. If these can sustain and they'll do forward contracting into '27 and put together a good crop and then anticipate that buying would really pick up then.

Our next question is from Steve Dryer with Craig-Hallum Capital Group.

This is Matthew Raab on for Steve. Maybe picking up where you left off there, Bryan. Maybe where we stand from a U.S. ag perspective and what your current thoughts are into next year? Deere commented last week that their EOPs are up in the mid-single-digit range. We'll see where that actually ends up, but at least moving in the right direction? Maybe Bryan or Bo give you the opportunity to comment on that, and whether you're hearing similar or different across your stores as we look into next year.

Yes. And generally, we're seeing the same as the OEMs on that front. And again, it's early. I know [ Deanna ] commented on that on Deere's call, too, that both -- all the OEMs tend to come out earlier with the seasonal spring equipment like the planters and sprayers and so those were a little further into, but still not done with those yet either. So we'll kind of see how that wraps up and then certainly, a little way to go here yet on the bulk of it which is the tractors and combines and -- but early indications are basically in line with what they're seeing. And then just as a reminder for us, we also have our inventory sales, too, which will be a big indicator as well. So hopefully, this rent continues in the commodity prices here, which was some of the Section 179 incentives out there and stuff could be a benefit for growers here if they get into a profitability scenario.

So yes, again, the -- there's a lot of structural fundamentals, though, out there that I want to reiterate and point to besides the -- just some of the recent gains we're seeing in commodity prices that are more so tied to the weather. But as we look at the -- again, as I mentioned, with biofuels and just really looking at the livestock markets right now and they've had -- our livestock producers have had good prices here for quite a while. So early in that run, if we go all the way back to last year, they're paying down debt and hesitant to spend some of that money, but that's been a good run now.

And then also just replacement demand. As we get in and look to 27, if we can, again, continue commodity prices up in some of these structural things that support commodity prices, there's also those structural benefits within our business that the fleet just continues to age here. We've been at really low industry volumes now for a long time. FY '27, we'll start out looking at roughly 25% below where we were like 10 years ago for industry volumes. And so that just continues to age the fleet and put more hours on and exacerbate the need to trade. And if they don't, it bodes well for our parts and service.

Very helpful. And then maybe from an equipment gross margin perspective, it was 100 bps higher in Q1, nearly 200 in Q2. But I'm curious how the Domestic Ag segment looks and how you think that trends through the second half? And then I know you don't have a guide out for fiscal year '28, but directionally, how should we think about that stepping off point from the second half into next year from a margin perspective?

Yes. So I've been really pleased specifically with our Domestic Ag margins for the first half of the year. Domestic Ag equipment margin of 6.7%. Last year was unusually compressed, that was down at like 3.1%, so we're up significantly at 360 basis points. But last year, right, we still had a lot of those factors that we were having to work through and make progress on from an inventory perspective. And then we saw that margin inflect in the second half of the year. So it's been really good to see that it's continued to go up.

Generally speaking, our guide, I mentioned first half was 6.7%, generally expecting about 6.9% for full year Domestic Ag equipment margin. So expecting a little bit more improvement, but not to the same extent as the first half of the year. Again, really pleased with where we're at from an inventory health perspective but still have some work to do. As a reminder, we generally would prescribe a range of Domestic Ag equipment margins in terms of a normal range between, call it, 8% and 11% or 12%. Those higher ends really in peak conditions and the lower end, really below mid-cycle. But just as a reminder, right, this year, we're 50% of the average of the last 25 years. So to get us inching closer to the 7% and on the way to 8%, when we're so far below average, that's been really pleasing.

As we continue to make progress, I would expect that margins slowly march upwards toward that 8%. But I think we do need a bit of a lift on those industry volumes. We don't need to get anywhere near mid-cycle, but we're half of it right now or half of the historical average, I should say. So as we make progress there, we'll get into the lower end of that range. And yes, we'll continue to see how expectations develop for demand heading into next year.

That's great. And then maybe if I can squeeze one more in here. How are you thinking about Q3 versus Q4, fairly even between the quarters? Or are there some differences that we should know?

Yes. And I appreciate the question there, too. And before I directly answer that, I just want to say we had some of the commentary in terms of timing of shipments from OEMs and the deliveries to customers, and that's partly because of the differences there. So Domestic Ag, in the first half of the year, equipment sales was down about 13.5%. Our guide is implying more that equipment sales in the back half of the year is down more like 20%, which would bring the full year at 17% and kind of right in the middle of the expected range from an industry volume perspective of down 15% to 20%, right? So that's partly why we were calling that out. We're definitely expecting that. We've been really expecting that kind of all year.

But yes, overall, from a consolidated perspective, across segments, across revenue streams, expecting Q4 to be a little stronger than Q3, but pretty balanced there. And yes, as we're looking at ag, which -- or Domestic Ag, which is about 70% of that business. There is a bit of a change there on the equipment sales side of things. And that's -- we want to call that out to make sure people understood what we were expecting to see.

Our next question is from Mig Dobre with Baird.

I want to talk about Australia a little bit. I know we don't spend a lot of time focusing here, but you've had good growth, and I understand some of that is FX, but even if we take FX out, you've had good growth. You're guiding for growth. And at the same time, we're looking at pretty soft pretax margins here. We're looking at a loss. So I guess I'm trying to understand really the moving pieces here in terms of what is causing this drag on margins? And what do you think needs to happen here in order to get this breakeven or better?

Yes. So from a full year perspective, for Australia, we're expecting a total pretax loss of low single digits. So extrapolating the Q2 results would kind of overemphasize what that would be. But really, this year, it's softer equipment margins for Australia. We've really been working on their aging profile. They -- each of the regions, obviously, has a little bit different timing. Generally speaking, Australia a little bit further behind. Equipment takes longer to get in the country. They caught up later, right? So then they sold through their backlog. So then their aging is a bit later, and they're just working through all of that.

Additionally, the first half of the year here, I would say, farmer sentiment was pretty weak and demand was really soft. We saw [ TIVs ] pulling back to multi-decade lows in some cases. That said, rainfall has been really good across our footprint. Generally speaking, we're expecting some really nice yields. We've started to see farmer sentiment pick up. That is baked into the expectations on the growth side. But to answer the question, the pullback in profitability, the equipment margin driven, it was us attacking aging. We like the progress we're making there. Still have some work to do there this year, but definitely expect that to work back up next year and then kind of see improved profitability profile without necessarily calling what demand is going to look like.

I'm sorry, I don't think I understand your comments here in terms of what improved the margins on a go-forward basis and...

It is simply working through the aged -- it's working through the aged inventory. Just like we saw on the U.S. side, I'd just say that their timing is behind the U.S.

And then I guess my follow-up, just conceptually here. You've expanded into Europe. You're obviously reworking the footprint there, what you're doing in Germany. You've expanded into Australia. Thus far, we haven't really seen any profits out of this Australian business flow through. I guess the bigger picture question that I'm wondering here is, do you view the geographic expansion as an asset for the company? And is there an argument to be made that refocusing towards expanding within Canada or the U.S. proper is actually more conducive to generating superior longer-term returns?

Yes. So I feel proud about -- we both feel proud about the work that we've done on the footprint and focusing down right and divesting of Germany. We've divested of some outlying locations on the U.S. side to really be focusing on the Upper Midwest. Within Australia, I think you'll see that focus as well. And you're recently getting dual-branded in 6 of the 15 locations. But yes, for sure, we're excited about the pipeline on the U.S. side in the Upper Midwest, really focusing on that density dollar for dollar when those opportunities present themselves, that's where we want it to be. At the same time, yes, we're happy with and absolutely considered Australia an asset.

The timing, obviously, wasn't favorable relative to us buying and then really demand conditions across the globe getting softer, right? But what we're measuring ourselves against right now is [ troughs ], multi-decade low industry demand, both on the U.S., well everywhere, right? So as that normalizes, that will improve. But I would say, for sure, considering that a strong asset for the future, that will generate returns for shareholders, but absolutely focused on the Upper Midwest and the United States and really want to continue to see M&A activity there. That is dollar for dollar, the most impactful, and it's going to leverage the synergies we have here and everything we're investing in from a customer care strategy perspective. We've talked about this at length, right, sharing part, sharing equipment, leaner balance sheets, all of that good stuff, the more that we continue to execute on that in the Upper Midwest here though, I think the stronger the profitability will look going forward.

[Operator Instructions] Our next question is from [ David Rasco ] with Evercore ISI.

Can you clarify a little bit, when you say earlier than anticipated shipments of presold equipment, can you just explain why and any quantification of how much that was and how much earlier than you did expect it to arrive? And then thinking about some of the comments about maybe some of the economics here to get some of your customers back into the black, when we think of bonus depreciation buying at year-end, how you're thinking of managing your inventory? Are you getting quote activity in a different way the last few weeks? Because obviously, that swing to profitability puts on [ lesson ] position to think about using bonus depreciation more. And I don't think I heard you comment about your own inventory management. Has anything changed with the recent improved economics out there for the farmer?

Yes. Thank you, David. I'll take just a couple of those high level and then let Bo follow up with some more details. Yes. So to your question on the farmer economics and recent activity picking up. We've definitely seen some of that, especially at this juncture on the used equipment this time of year is typically a little slower time as you look at farmers are just either finishing [indiscernible] harvest or about to start corn and soybean harvest, as an example. And so as we plan well out with them and often work with hand-in-hand with them, it's -- the goal is to try to have them ready to go by right now with what they have. So therefore, you don't typically see -- if it were going the other way, we wouldn't see a lot down either the other way at this time of year. So as we start to get through harvest and then that's where we'll see if this continues, some of the benefits of that.

As far as the timing of orders from the factories, there's obviously a lot of components that go into this very complex technology, advanced equipment, a lot of different suppliers that the OEMs are getting components from and so on. So with anything, when we do presales or when we order inventory and we work very closely with the factories and on the lead times, and of course, they are always their best predictions, but it's certainly not uncommon to have those fluctuate plus or minus a month depending on, again, how deliveries work through from their suppliers and how their build schedules are going and so forth. And so just from our suppliers, they essentially shipped us some of these a little earlier than requested and anticipated.

And then the growers, typically -- and the contractors want them as soon as possible. So it's just generally standard process that we get them in here and do what we do to them, which is a lot of predelivery and inspection and finishing some of the technology and so forth and then get them turned around and delivered to the customers. So that's what that was specifically.

Yes. And I would just say, like not trying to overstate that. So I mean just think about, again, the split. First half of the year, Domestic Ag revenue is down 13.5, second half we're seeing 20. It's not that we're saying demand is softening for the second half of the year. There are just some timing differences there. And thus, we were not down as much in the first half as we will be in the second.

But it's really been -- for Domestic Ag, there's been -- it's as anticipated, right? I don't think anybody has changed large ag expectation of down 15 to 20. It just, yes, seems to be exactly as advertised. And in some ways, in this environment, it's been comforting. Clearly, the improvement in commodity prices, does that pick up year-end buying, a lot of that, when it comes down to depreciation, they don't know what things look like until they get late November to December. That's when you would see who is in the black. And then is that driving some incremental behavior where they're showing up on the lot and looking at stuff they might want to buy.

And then generally, from an overall inventory perspective, I would say, as conditions are improving, it's not -- I wouldn't say it's necessarily changing how we're managing inventory. And first, just a couple of points as well. I'll take the opportunity since we're talking about it. We were expecting inventory generally flat. Pretty much is -- we certainly usually have some seasonal build here and heading into the fall, getting some combines to land on the balance sheet. We'll get those turned around to customers. But there's plenty of evidence that things are continuing to work in the right direction.

I definitely highlight from a year-to-date perspective, used equipment is down $40 million. That's a huge plus for us. A lot of that was focused on getting aging down. New equipment is up like $60 million. That speaks to the mix, right? We're getting that stuff landed and ready to deliver to customers ahead of harvest, for example. Total ag inventory, which Domestic Ag inventory, which, of course, we're talking about the softest market in several decades, that inventory is down actually $16 million this year. And then from a strength perspective, we've talked about Construction and demand conditions improving and the inventory there is up $30 million. So I think everything we're doing is working and things continue to trend in the right direction. We continue to see those decreases on the floor plan interest perspective.

We're convinced that we want to continue to drive higher presale rates, get our turns up closer and tighter around the 2.5x turns. And in order to do that, we are changing the way we've done some things in the past, and we're more aggressive on how we look at the aging profile for use and what we need to do to move that. We're looking more at how we leverage our footprint and not have to have the same stock inventory in every location, right, leveraging the fact that we can go down the road to the next dealership if somebody is wanting to get in the cab on something. So we're purposely building towards what we think is a leaner, meaner balance sheet that really helps de-risk some of the profitability volatility that we've seen in the last cycle and combine that with what we're doing from a customer care perspective.

We're getting really excited about what we think we can do here when demand inflects. And that's what we're working on a lot on the daily basis here. We're not necessarily talking a lot about it. Inventory tends to get to oxygen here as well as the current demand environment, but we're excited to show what we can do based on everything we're building towards and the moves we've made here over the last 2 years.

That was all very helpful. On my way out the door here, can we just ask about pricing a little bit? What are you seeing large ag versus small, and I think more domestic market on new and used?

Yes. On the new side, relatively flat, a little bit of list price increases, maybe generally offset by a little bit of programming. On the used side, I think you've heard all the OEMs comment lately about the divergence now coming to an end here from the new-to-use spread. In other words, use value stabilizing that -- almost catching a falling nice scenario we had going on in '24 and throughout most of '25 as well.

Again, the used market, kind of finding a bottom here and stabilizing. Yet to converge, though. So again, I think as we talk about farmer profitability and we look at the long-term fundamentals and commodity prices and so on, we'll need to get that for a while yet and sustain for a while yet in order to see the used prices come up a bit more. That -- again, there's a lot of healthy things in play there as we've been an early mover in reducing our inventories and reducing our aged inventory as Bo indicated, especially around the used side. Other dealers that have been a little behind have been working through that now in '26 and are on a really good pace and trajectory to, very plausibly by the end of the year, have that generally cleaned up. So as our peers and the rest of the industry gets that cleaned up, that also will bode well for used prices as well and as that market tightens in.

All that should start to bring used values up more, which is actually what we need to decrease or diminish some of that spread that we saw happen over the last few years here on the new-to-used trade differences. So again, that will also bode well for trading as we go into next year and industry volume potential.

There are no further questions at this time. I would like to turn the call back over to management for closing remarks.

Yes. Thank you to all of you for your interest in Titan Machinery. And again, thanks to all our employees for a tremendous execution on our controllables here. And thank you to all our contractors and farmers that we serve and what we believe to be the 2 most noble industries in the world and with some of the best building and feeding the world here as we go forward. Thanks again, everyone. We look forward to talking to you on our next call.

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Thank you. Incorporated's first quarter fiscal 2027 earnings call. At this time, I'll dispense our enlistment-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press Store 0 on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonick of ICR. Thank you.

Please go ahead.

Thank you. Welcome to Titan Machinery's first quarter fiscal 2027 earnings conference call. On the call today from the company are Brian Knudson, President and Chief Executive Officer, and Bo Larson, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal first quarter April 30th, 2026, which is also available on Titan's investor relations website at ir.titanmachinery.com. In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section. I'd also 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, under reliance should not be placed upon them. These forward looking statements are based on management's current expectations and involve inherent. risks and uncertainties, including those identified in the forward-looking statement section of today's earnings release and the company's filings with the SEC, including the risk factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q. 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 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 Titans ongoing financial performance, particularly when comparing underlying results from period to period. INCLUDED RECONCILIATIONS OF THESE NON-GAP FINANCIAL MEASURES TO THEIR MOST DIRECTLY COMPARABLE GAP FINANCIAL MEASURE IN TODAY'S RELEASE AND SUPPLEMENTAL PRESENTATION. conclusion of our prepared remarks. We'll open the call to take your questions. And with that, I'd now like to introduce the company's president and CEO, Brian Knudson. Brian, please go ahead.

Thank you, Jeff. I will start today with an overview of our first quarter performance and our continued progress on the operational priorities we set heading into fiscal 2027. I will then walk through what we are seeing across each of our segments before turning the call over to Beau for his financial review and comments on our fiscal 2027 modeling assumptions. Fiscal 27 first quarter results came in slightly ahead of our expectations. Equipment margin improvement arrived sooner than anticipated, and we view this as a direct result of the disciplined work our team has done over the past several quarters to clear age inventory and position the business for the next phase of the cycle. We are still well below the normal range for equipment margins, but it is good to see continued improvement which is reflective of the work we have done to improve inventory health. Overall, we had a relatively strong start to the year due to timing of deliveries, but the underlying demand environment for our customers remains challenged as their margins are under pressure from a combination of low commodity prices and higher input costs. As such, we are maintaining our full year guidance.

As we discussed last quarter, our focus has shifted from absolute inventory reduction to mix optimization. The disciplined work our team has executed over the past two years has strengthened our foundation and we believe has positioned the business well for the next phase of the cycle. Total inventory at the end of the first quarter was modestly higher than year-end, which was in line with our expectations and reflects the normal seasonal cadence. Most importantly, our age equipment inventory has continued to decline each month so far this year. This is a critical leading indicator of sustained equipment margin improvement. We still have work to do across certain use categories and select slower moving seasonal new equipment categories. But the overall health of our inventory continues to trend in the right direction, and we believe this focus has put Titan in an advantageous position relative to our dealer industry peers.

Our customer care initiative remains central to our operating strategy as we navigate what we expect as the bottom of the equipment cycle. Our parts and service businesses delivered another quarter of stability, which is a meaningful accomplishment in an environment where many growers have increasingly shifted to a fix-his-fail mentality. Holding the parts and service business steady at Trough Industry Volumes is a credit to the partnerships our team has built with our customers across our footprint. And we believe this engagement will continue to translate into share wallet gains as growers return to more normalized purchasing patterns. With that, I'll now turn to our segments. In domestic egg, the environment for our grower customers remains very challenging. Commodity prices continue to sit below break even for many producers and while we have seen some positive movement in corn prices over the past several weeks, grower profitability remains challenged.

Government funds remain a critical near-term variable to provide support, and we continue to be active in Washington advocating for farmers. Year-round E15 adoption remains a top policy priority for our customers and we and we are also encouraged by ongoing momentum around biodiesel and sustainable aviation fuel. of which would help alleviate the structural oversupply of corn and soybeans. We expect the pre-sale order period, which begins this month, to be an important indicator for back half activity, and we will continue to monitor OEM programming and grower sentiment closely to identify where deals can be made. In construction, infrastructure and data center activity continues to provide a healthy baseline of demand across our footprint. And residential activity has tracked in line with our expectations. As a reminder, a meaningful portion of our construction segment sales go to farmers, and that portion of the business is where we are experiencing the same softness we are seeing in our domestic agriculture segment. Setting that aside, there are generally good market conditions for our construction segment.

In Europe, we completed the majority of our wind-down activities for our German operations during the first quarter, marking an important milestone in our footprint optimization efforts. We are pleased to have this work behind us, and our team remains focused on the markets where we believe we can deliver the strongest long-term returns. As expected, Romania will have challenging year-over-year comparables as we lap last year's European Union Subvention Program activity. while Bulgaria and Ukraine are expected to achieve modest growth for the full fiscal year. In Australia, our customers are facing disproportionate pressure from elevated input costs, particularly in diesel fuel and fertilizer, both of which have experienced pronounced cost increases in the country following the onset of the conflict in the Middle East. While substantial input inflation is top of mind for growers, increased rainfall across most of our footprint in Australia is setting up more favorable growing conditions relative to recent years. We continue to like our long-term position in this market, and our dual-brand strategy with Case H in New Holland continues to expand our reach. Before turning the call over to Beau, I want to thank our team for the continued discipline and execution they have demonstrated in the first quarter.

The strategic work we have been doing over the past several years to strengthen our business is becoming more visible in our operating results with each passing quarter, and I am convinced that this that our position today is setting us up for stronger performance as industry conditions improve. With that, I will turn the call over to Beau for his financial review. Thanks, Brian, and good morning, everyone.

Starting with our consolidated results for the fiscal 27 first quarter, total revenue was $522.4 million compared to $594.3 million in the prior year period. reflecting a 10.4% decrease in same-store sales driven by softer demand in our domestic ag, and Europe segments partially offset by growth in our Australia segment Despite the sales headwinds in the first quarter, gross profit was down only slightly at $89.3 million compared to $90.9 million in the prior year period. While gross profit margin expanded 180 basis points to 17.1%, compared to 15.3% in the prior year. This year-over-year improvement primarily reflects stronger equipment margins driven by the continued benefit from our aged inventory reduction efforts alongside a higher mix of parts and service revenue in our consolidated total. Equipment margins in the fiscal 27 first quarter increased approximately 100 basis points year-over-year to 7.8%. Operating expenses were $94.4 million for the first quarter of fiscal 27. from $96.4 million in the prior year period. Our headcount and discretionary spending continue to be down year-over-year as a result of disciplined expense management. partially offset by higher variable expenses tied to driving sales. Floor plan and other interest expense was $8.2 million. decrease of 26% from last year's $11.1 million, reflecting the significant reduction in interest-bearing inventory levels over the past year.

In the first quarter of fiscal 27, net loss was $12.6 million, with loss per diluted share of 55 cents. compared to a net loss of $13.2 million, with loss per diluted share of 58 cents in the prior year period. Adjusted EBITDA was $1 million compared to $2.6 million last year. Now, turning to a brief overview of our segment results for the first quarter. Our domestic Ag segment achieved sales of $344.2 million. a same-store sales decrease of 8.2%, driven by continued softness in equipment demand against the challenging industry backdrop. However, these results were stronger than our initial expectations and benefited from a pull forward of deliveries to customers relative to our expected quarterly cadence. As Brian alluded to, we are leaving our full-year revenue guidance intact as we think this balances out throughout the rest of the year. Segment pre-tax loss improved to $6.2 million compared to a pre-tax loss of $12.8 million in the first quarter of the prior year. reflecting the actions we have taken to accelerate inventory reductions and the resulting improvement in equipment margins that we have achieved.

In our construction segment, same-store sales decreased by 6.5%, to $67.5 million, driven primarily by the timing of equipment deliveries. We are leaving our full-year revenue guidance intact and expect modest year-over-year growth for the balance of the year. Pre-tax lasts narrowed to $0.6 million compared to a pre-tax last of $4.2 million in the first quarter of the prior year. In our Europe segment, sales declined to $60.4 million for the quarter. which included a $4.2 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue decreased approximately 40%, primarily reflecting the expected softening of demand in Romania following the prior year period, which had benefited from a strong response to European Union's Subvention Program activity. Additionally, I'd like to call out that our Germany divestiture had an immaterial impact in the segment revenue decline year over year. but it will have a larger year-over-year impact in future quarters. Pre-tax loss for the segment was $0.9 million compared pre-tax income of $4.7 million in the first quarter of last year.

In our Australia segment, sales increased 14% to $50.3 million. compared to $44 million in the first quarter of last year, which included a $5.1 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue increased $1.2 million, or 2.8%. with the current period benefiting from additional revenue related to Bellevue Machinery acquisition completed last fall. Pre-tax loss for the segment was $1.8 million compared to a pre-tax loss of $0.6 million in the first quarter of last year. Now on to our balance sheet and inventory position. We had cash of approximately $30 million and an adjusted debt to tangible net worth ratio of 1.6 times as of April 30, 2026, which is well below our bank covenant of 3.5 times. Total inventory at quarter end was $914.8 million, a modest increase of $12 million compared to year end. This increase was in line with our expectations and reflects the normal seasonal cadence.

As Brian noted, our focus in fiscal 27 is on mix optimization rather than inventory reduction. We expect total inventory to fluctuate seasonally throughout the year. Turning to our fiscal 27 modeling assumptions. We are reaffirming each of the modeling assumptions for fiscal 27 we introduced on last quarter's call. While our first quarter performance was modestly better than our expectations, the underlying demand environment remains consistent with our prior outlook. As a reminder, our segment revenue assumptions are for agriculture to be down 15 to 20 percent, construction flat to up 5 percent, Europe down 20 to 25 percent and Australia up 10 to 15 percent. From a margin perspective, we continue to expect consolidated full-year equipment margin to be approximately 8.4 percent. which compares to 7.3% in fiscal 2026.

This expected year-over-year improvement is a direct reflection of the work we have done to right-size our inventory and reduce aged equipment. and the progress we have demonstrated in the first quarter supports our confidence in delivering against this expectation across the balance of the year. Operating expenses are expected to decline year over year, although we intend to continue to invest in our customer care strategy. which is supporting stability in our parts and service businesses. We continue to expect operating expenses to be approximately 17% of sales. On floor plan interest expense, we have continued to see aged inventory and floor plan interest expense decline quarter over quarter on a sequential basis. And we reiterate our prior expectation of an approximately 25% year-over-year decline because the great work our team is doing to manage healthier levels of inventory and improved inventory turns. Bringing it all together, we are reaffirming our full year adjusted EBITDA range of $17 to $29 million and our adjusted diluted loss per share range of $1.25 to $1.25. In summary, the first quarter unfolded about as expected and the soft demand backdrop continues to suggest our expectations for the full year remain prudent.

We remain focused on executing our near-term initiatives while continuing to lean into our customer care strategy with exceptional discipline and operational excellence to accelerate our earnings power as market conditions improve. This concludes our prepared comments. Operator, we are now ready for the question and answer session of the call.

Thank you. We'll now be conducting the question and answer session. To ask a question at this time, you may press star 1 from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And the first question comes from the line of Liam Burke with B. Riley. Please proceed with your questions.

Thank you. Good morning, Brian. Good morning, Bob. Good morning. Brian, can you give us some sense on the competitive pricing environment out there? I mean, it looks like things are stable, but could you give us some color on that, please? Sure.

Yes, used equipment values is a big piece of that. As most of our customers, especially in North America, have a trade-in, so it's really about the trade difference and what boils down to their payment and ultimately the cost per acre on the ag side. Definitely within this year we've seen stability in the used equipment prices after about 18 months of almost going on two years of sequentially falling used equipment values. So that stability all throughout the year here has been good in the used side. Also, we had some large price increases post-COVID. and over the recent years and also that's stable now, you know, very low single digits. You're hearing C&H and deer and egg, while talking that, you know, one to 2% range, a couple of select categories, maybe being as high as 3%, but generally one to 2%. They're managing through the tariffs as well.

So ultimately, the pricing has stabilized, Liam. And it's really at this juncture about getting commodity prices up and inputs down and returning our farmers on the ag side to profitability here.

Sure. And then you discussed, I believe, in the parts and service section about how your customers are pushing hard on existing assets rather than rather than maintaining them. But I guess my question is, as those assets are being pushed harder, does that have a cyclical impact on new or,.

equipment purchases down the road? Yes, absolutely. So that bodes well for us as we go through the cycle here and as things start to turn the fleets getting older, the hours on the machines are getting higher. Also, as we mentioned, you know, in these tough of times, producers are... Having a bit of fix-is-fail mentality, which is a testament, as we said, to our parts and service businesses, where we have strength that we do there when, frankly, they're trying to spend as little money as possible. They're not doing some of those upgrades that they would typically do as well as certainly through the parts and service side as well as trading the machines. So that'll bode well both on a parts and service side for us and especially on the machine trade cycle as we go forward.

Great. Thank you, Brian. Thank you. Our next question is from the line of Mick Dobry with RW Baird. Please proceed.

use your questions. Hey, good morning, guys. It's Joe Grabowski on for MIG this morning. Hey, good morning. So I wanted to start with the delivery pull forward. Maybe could you tell us what drove that? And then you said that it kind of balances out the rest of the year, but would it be safe to assume that maybe if Q1 was down less than the full year goal, guidance, maybe Q2 would be down a little more than the full year guidance or your thoughts on the.

cadence for the rest of the year? Yes, so ultimately that came down to timing of when we received equipment and then we're able to turn around and deliver to customers. I think it kind of pulls through the rest of the year. And really as we play it out, I anticipate that most of that offset really comes in the back half of the year, a little bit in the second quarter. assuming we continue to receive and turn equipment around, you know, we'll essentially, the same sort of thing will happen in Q2, Q3, and then you'll get to Q4 at the end of the year there. So, you know, the messaging there was intentional, and obviously it wasn't massive, but we didn't want anybody to over-read into Q1X expectations and, of course, setting our full year expectations consistent with what we said at the beginning of the year. That's really what it came down to. We were able to get more of that equipment turned around in customers' hands sooner than we thought we would. Got it. Okay. That's helpful. And then my follow-up question, you mentioned equipment margin.

has been improving sooner than expected, but you kind of left your full year guidance on equipment margins the same as last quarter. I guess sort of what would the drivers be to maybe get the equipment margin, you know, into the high 8% versus the 8.4% guidance?.

Yes, for sure. So, you know, if we continue to make, you know, additional progress beyond what's anticipated from an aging profile perspective, as we already talked about, you know, absolute dollar value, we felt pretty good. Still a little work to do in some select new categories and on the used side. We are making progress quarter over quarter. We anticipate will continue to do so. At the same time, right, I think we prefaced that a little bit with the fact that we're in really a trough-type environment with the lowest TIVs in multiple decades, so not anticipating, you know, that we'd see a sharp inflection to start the beginning of the year, you know, we were thinking from a domestic ag perspective that margins would be more like five and a quarter, and this quarter it was six. We were expecting it to be more like five and a quarter first half of the year, and then closer to seven, seven and a half in the back of the year. I think what we're really seeing is kind of of a pull forward in a leveling in first quarter with 6% for domestic ag and we're expecting the rest of the year to be in that six and a half to upwards of 7% for the rest of the quarters.

So just a little bit more flat than we originally anticipated. Glad to see that improvement coming. But again, just comparing that to the backdrop and and what the demand has been and what we're expecting that to be the rest of the year, not getting out ahead of ourselves in where we think it'll go. That said, again, really good to see that progress, feeling good about where inventory is going, and definitely feel like we'll see a sharper inflection as we see demand normalize here.

Great. Okay, I appreciate it. Thanks for taking my questions. Thanks, Joe.

Thank you. At this time, I'll turn the call back to management for closing remarks.

Thank you, everybody, for joining us on our call today, and we look forward to updating you next quarter.

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

[Call has ended.]

Greetings, and welcome to the Titan Machinery, Inc. Fourth Quarter Fiscal 2026 Earnings Call. [Operator Instructions] It is now my pleasure to introduce your host, Jeff Sonnek of ICR. Thank you. You may begin.

Thank you. Welcome to the Titan Machinery Fourth Quarter Fiscal 2026 Earnings Conference Call. On the call today from the company are Bryan 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 fourth quarter and full year ended January 31, 2026. If you have not received the release, it's available on the Investor Relations tab of Titan's website at ir.titanmachinery.com.

This call is being webcast, and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks, which can be found on Titan's website at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page.

We'd 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. The statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risks and uncertainties, including those identified in today's earnings release and presentation and in the Risk Factors section and other portions of Titan's reports filed with the SEC. These risk factors contain a more detailed discussion of the factors that 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 when 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. [Operator Instructions] And with that, I'd now like to introduce the company's President and CEO, Mr. Bryan Knutson. Please go ahead, Bryan.

Thank you, Jeff, and good morning to everyone on the call. I'll start today with 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 2027 modeling assumptions.

Fiscal 2026 was a year where our team executed at a high level in a difficult environment. For the full fiscal year, we reduced total inventory by more than $200 million, surpassing our $100 million target that we announced at the beginning of our fiscal year and our updated $150 million target we revised last quarter. Our inventory peaked in the second quarter of fiscal 2025 due to the heavy influx of equipment shipments as supply chains normalize post pandemic. And since that time, we've reduced total inventory by $625 million over this 18-month period. I'm extremely proud of the disciplined work our team has done across all of our locations to make that happen in what continues to be a very challenging demand environment. This progress illustrates our intense focus on creating a more resilient enterprise and positions us well for strong results when market conditions improve.

Importantly, the quality of our inventory has improved meaningfully. It is leaner, it is fresher and it has a better mix of in-demand categories, but we are not done. We still have work to do across certain used equipment categories and some of our slower-moving seasonal new equipment categories. As we head into fiscal 2027, our focus shifts from inventory reduction toward product mix optimization as we look to continue to improve inventory turns through minimizing aged inventory and thus decreasing interest expense.

Our customer care initiative remains central to our operating strategy and continues to demonstrate its value while at the bottom of the equipment cycle. Our parts and service businesses are currently generating over half of our gross profit dollars, providing critical stability in these tough times our industry is currently facing. Our customer care initiative keeps us closely engaged with our customers, allowing us to add value to their operations and positioning us well for when equipment demand eventually recovers. With our hard work and dedication to superior customer service, we expect stability in our parts and service business in fiscal 2027 despite another expected decline in equipment industry volume in North America.

With that, I will turn to our segments. In domestic ag, the environment continues to be very challenging for our grower customers ahead of the upcoming planting season. Our OEM partners are calling this year the trough of the cycle and the guidance we are providing today reflects that. Commodity prices remain well below breakeven for most growers, which continues to be the fundamental issue facing the industry. When you add in persistently high interest expense, increased input costs and limited government support, we expect many growers to remain conservative in 2027 in terms of their equipment purchasing decisions.

With respect to potential government support, seeing E15 passed into law is currently our customers' biggest priority, followed by further adoption of biodiesel and sustainable aviation fuel, or SAF. Allowing E15 usage year-round would help alleviate the ongoing oversupply of corn and assist with energy independence. Furthermore, recent spikes in diesel prices highlight the need for increased production of domestic biodiesel.

In construction, infrastructure and data center work continues to provide a solid baseline of activity, but residential demand remains softer. Many of our customers are cautiously optimistic as they look at their schedules for the year ahead. Despite the mixed outlook in the end markets we serve, we remain optimistic about the long-term fundamentals of this business, which is underpinned by ongoing housing shortages, infrastructure spending and continued data center construction.

In Australia, the market conditions have been similar to what we are seeing domestically, but exacerbated by elevated input costs for diesel fuel and urea. However, after 2 years of historically low industry volumes, we are starting to see some more encouraging signs. And recent rainfall has helped improve soil conditions and farmer sentiment after an extended period of dry weather. Overall, our expectations are for modest industry volume growth in fiscal 2027.

We continue to like our position in Australia. It is a major agricultural export market with strong fundamentals and our dual brand strategy with Case IH and New Holland, which is now available in 6 of our 15 rooftops, gives us more reach and more ways to serve our customers across our footprint.

In Europe, we are pleased to have the majority of our German divestiture behind us, with some remaining wind-down activities carrying into the first quarter. As we head into the spring planting season in our Eastern European markets, we are cautiously optimistic that we will see modest improvement in industry volumes coming off of trough levels, but expect them to remain well below historical averages in Romania and Bulgaria. The modest overall industry volume growth should partially offset an expected year-over-year decline given the normalization of our Romanian business, which had an exceptionally strong prior year, driven by the EU subvention programs.

In closing, I want to express my sincere appreciation to our entire team. We dramatically surpassed our inventory reduction goals and made meaningful improvements to our operations, and we did it while maintaining the exceptional customer service that differentiates us in the market. Our team's focus and dedication throughout this year is what made our successes possible. We are executing on our initiatives, managing what we can control and positioning the business to perform well as market conditions improve. With the actions we've taken thus far, we will emerge from this period a stronger company.

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

Thanks, Bryan, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 fourth quarter. Total revenue was $641.8 million compared to $759.9 million in the prior year period, reflecting a 14.6% decrease in same-store sales, driven by weaker demand in our domestic ag, construction and Europe segments, partially offset by growth in our Australia segment.

Gross profit for the fourth quarter was $87 million compared to $51 million in the prior year period, and gross profit margin was 13.5%, approximately double last year's rate. The year-over-year improvement primarily reflects the lapsing of inventory impairments and other inventory reduction efforts in the fourth quarter of the prior year that significantly compressed equipment margins.

Equipment margins in the fiscal 2026 fourth quarter continued to face pressure from softer retail demand and remaining aged inventory. However, margins have improved as inventory has returned toward healthier levels. This equipment margin improvement is expected to continue in fiscal 2027.

Operating expenses were $95.7 million for the fourth quarter of fiscal 2026, down slightly from the prior year period. Our headcount and discretionary spending continues to be down year-over-year as a result of disciplined expense management.

Floorplan and other interest expense was $9.6 million, representing a decrease of approximately 27% on a year-over-year basis and a decrease of 13% on a sequential basis. This progress reflects the significant reduction in interest-bearing inventory levels over the past year.

In the fourth quarter, net loss was $36.2 million with loss per diluted share of $1.59, which includes the recognition of a $0.78 noncash valuation allowance that resulted in an increase in income tax expense. Importantly, I'd note that this allowance was greater than our initial expectation, which called for a $0.35 to $0.45 headwind that was built into our adjusted EPS guidance on the third quarter call. Big picture, it is noncash and does not impact our operating performance or our cash flows. However, it is an important variable influencing our reported results versus the expectations we set. Hence, my emphasis to ensure the linkage is clear.

Adjusted net loss, which excludes charges related to our German divestiture and related wind-down activities, but includes recognition of the $17.8 million noncash valuation allowance I just mentioned, was $32.5 million or a loss of $1.43 per diluted share. This compares to last year's fourth quarter adjusted net loss of $44.9 million or $1.98 per diluted share.

To summarize, our underlying revenue and profitability was in line with what we had expected as evidenced by looking at our pretax loss, which, in addition to being consistent with our expectations, has improved significantly versus the prior year period.

Now turning to a brief overview of our segment results for the fourth quarter. Our domestic agriculture segment realized sales of $406.7 million, reflecting a same-store sales decline of 22.8%, driven by continued softening in equipment demand as a result of weak grower profitability. Segment pretax loss improved to $9.9 million compared to adjusted pretax loss of $56.3 million in the fourth quarter of the prior year, reflecting the actions we have taken to accelerate inventory reductions and the resulting improvement that we have achieved over the past 12 months.

In our construction segment, same-store sales decreased 4.6% to $90.2 million, driven by lower equipment sales. Our inventory reduction initiatives have weighed on equipment margins in this segment as well. Adjusted pretax loss was $1 million compared to $1.1 million loss in the fourth quarter of the prior year.

In our Europe segment, sales increased 5.2% to $68.8 million, which included a $4.3 million net benefit related to foreign currency fluctuations. On a constant currency basis, revenue was more or less flat year-over-year, reflecting the normalization of demand following the EU subvention fund-driven strength, which ended in the third quarter of this year.

Pretax income for the segment was $1.8 million compared to a pretax loss of $1.8 million in the fourth quarter of the prior year. Excluding restructuring and impairment charges associated with the Germany divestiture, adjusted pretax income was $5.4 million in this year's fourth quarter.

In our Australia segment, sales increased 16.7% to $76.1 million compared to $65.3 million in the fourth quarter last year, including a negligible foreign currency impact. Pretax income for the fourth quarter of fiscal 2026 was $2.5 million compared to $2.3 million last year.

Now briefly summarizing our full year fiscal 2026 results. Total revenue was $2.4 billion for fiscal 2026 compared to $2.7 billion for fiscal 2025. Adjusted net loss for fiscal 2026 was $50.6 million or $2.22 loss per diluted share, which includes the noncash valuation allowance, but excludes the charges related to the Germany divestiture I discussed earlier. This compares to an adjusted prior year net loss of $29.7 million or $1.31 loss per diluted share.

Now on to our balance sheet and inventory position. We had cash of $28 million and an adjusted debt to tangible net worth ratio of 1.7x as of January 31, 2026, which remains well below our bank covenant of 3.5x.

For the full fiscal year, total equipment inventory decreased by $201 million to $725 million. As Bryan described, this more than doubled our $100 million target for the year. It is a meaningful accomplishment in this environment, and it positions us well heading into fiscal 2027. Importantly, as part of that inventory reduction, we saw a significant improvement in the amount of aged equipment we have on our lots. Aged equipment, which we consider to be equipment that we have had for longer than 12 months, peaked in the second quarter of fiscal 2026 and declined by approximately 45% to $174 million in the second half of this fiscal year.

This improvement in the health of our inventories has started to show up in higher equipment margins in the back half of the fiscal year. But we still have work to do on reducing the amount of aged equipment we have, and we are confident we'll continue to make progress on that in fiscal 2027.

With that, I'll finish by sharing our initial outlook for fiscal 2027, starting with our top line modeling assumptions across our segments. For the domestic ag segment, we expect revenue to be down in the range of 15% to 20%, which is consistent with the depressed cash crop industry outlook we've discussed today. Looking ahead, we believe we are back in sync with broader industry dynamics following our aggressive inventory reduction activity over the last 1.5 years. Construction segment is expected to be in the range of flat to up 5%, which aligns to the more favorable industry fundamentals that are benefiting from infrastructure and other sector-specific tailwinds.

Our European segment is expected to be down in the range of 20% to 25%. This decline reflects our exit from Germany, which contributed approximately $50 million of revenue this past year and reflects the normalization of sales in Romania following the strong performance in fiscal 2025. As a reminder, this segment grew 45% in fiscal 2026. Excluding this difficult comparison, we expect modest improvements in industry volumes off cyclical lows, but the Eastern European market remains challenged by the same broader ag cycle dynamics as our domestic ag business.

For our Australia segment, we expect revenue to be up in the range of 10% to 15%. This growth includes activity from the acquisition we completed last fall and the modest improvement in industry volumes that Bryan previously mentioned.

From a margin perspective, our fiscal '27 assumptions consider consolidated full year equipment margin to be approximately 8.4%, which compares to fiscal '26's full year consolidated equipment margin of 7.3%. This margin assumption reflects improved inventory health, but still factors in the need to finish driving down aged inventory. And it also reflects broader industry expectations that North America industry volumes will be down 15% to 20%, which implies the lowest level since the 1970s.

Given that context, we are happy with how well we are positioned to manage through the trough and confident we'll return to normalized equipment margin levels as industry conditions improve.

Operating expense dollars are expected to decrease year-over-year, although we'll continue to invest in our customer care strategy, which is supporting stability in our parts and service businesses. And overall, operating expenses are expected to be approximately 17% of sales.

Floorplan interest expense is expected to decline by approximately 25% following the significant inventory reduction that we achieved last year. In absolute terms, interest expense will continue to decline as we further reduce aged inventory throughout the year.

Bringing it all together, we are introducing a fiscal '27 modeling assumption range of an adjusted loss of $1.25 to $1.75, which compares to the $2.22 adjusted loss we realized in fiscal '26. It is worth noting that given the U.S. tax valuation allowance that was booked this quarter, we will have a very low tax rate for fiscal 2027, with most of the tax expense and/or benefit being recognized in our international segments.

We also thought it would be helpful to provide some specific below-the-line expectations in our press release to help bridge to our adjusted EPS outlook. Further, we have also added adjusted EBITDA to our outlook to help provide a clear view of the operating performance we are achieving today and as we look into the future as the cycle unfolds. So we are also guiding to adjusted EBITDA in the range of $17 million to $29 million, which compares to the $13.9 million we generated in fiscal '26.

In summary, despite the expectation for historically low industry volumes for our domestic ag segment, we are positioned to benefit from the aggressive inventory reduction posture we have taken over the last couple of years. Thematically, this positions us to improve margins this fiscal year and begin building back our earnings power at an accelerated pace as the cycle eventually turns back in our favor. For the time being, we continue to set prudent expectations and look forward to demonstrating our execution in the quarters ahead.

This concludes our prepared comments. Operator, we are now ready for the question-and-answer session of our call.

[Operator Instructions] Our first question comes from the line of Liam Burke with B. Riley Securities.

We're looking -- I mean, we were looking at a best case in the corn pricing of about $5. It's inching up there. It's improving directionally, not at $5 yet, obviously. But is there any movement by the farmer community to start getting interested in loosening the purse strings? Or does it have to be a $5 and above where everybody gets comfortable on the equipment purchases?

Yes, there's definitely been some upside here in the last week or 2 in the market. So that's been positive to see. Like you said, for a lot of growers, we're still below breakeven at these levels and then you just take some of the uncertainty as well. So possibly somewhere between another $0.50 and $1 on corn here, which with certain fundamentals coming together. Looks like there is a possibility for at this point, so that too looks more optimistic than even a month ago. So we'll see where that tracks. And then just consistency as well. Just at this point with the long-term fundamentals that are in place, the current supply and demand and the oversupply we have of corn and soybeans directionally, they're looking at just a short-term spike doesn't give them a lot of confidence. But as things progress here and if the conflict continues on and we see increased stability there and again, prices uptick further, that definitely will help confidence, and that's something that we're monitoring closely.

We've also been to D.C. quite a bit in the last year, lobbying for our farmers and trying to do what we can for commodity prices. There's a -- we'll be there again next week, Friday, March 27 next week. There's a celebration of Agriculture Day at the White House that we're looking forward to. And as we get near the end of the month here, there should be some stuff coming out with the RVOs. And we've been really pushing for E15, passing that into law and greater adoption and all the benefits that could come with that for reducing prices at the pump as well as just energy independence and again, helping alleviate some of the ongoing oversupply of corn.

Great. And understanding that the timing of an up cycle is difficult to predict, but you're comfortable in some future up cycle that you're sized right to maximize leverage in how the business is run? Obviously, you've been managing for the down cycle, but you're in a position to maximize the upside leverage?

Yes, absolutely. I mean, as we stand here today, we're excited as we look forward. Just for a little bit of context in terms of the guidance for this year, North America industry volume down 15% to 20%, what does that really mean? Well, calendar year '25, the year that just ended, industry volume on the major categories that help drive our business was already 10% lower than the trough in calendar years '15 and '16. And so this year, if you assume that down 15% to 20%, we're talking about industry volume 25% lower than the prior trough. So as we stand here as well positioned as we are, obviously, we want the P&L to reflect more, but extremely confident in terms of how quickly that can turn around and really flexing our muscle on the upside as things improve even modestly in the right direction.

So for sure, everything we've been working towards the last 2 years isn't just about managing the downside, but it's about making sure that we're running things ready for when things do turn around. All of our efforts on customer care strategy, driving the parts and service business, how do we support customers well, how do we gain maximum share of wallet by delivering what they need. All of that stuff is coming along, and I can appreciate that it's not necessarily something that you or investors get to see every day. But we just get more and more confidence and more excitement about the team we have, the playbook that we've been executing and how well positioned we are to really kind of show our strength as ultimately growers get support in the right direction and they see improved profitability.

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

I got a few. I'm going to start with the bigger one and then some that are just more around the model. On the larger in terms of the guidance that you've set, I'm curious with regards to what's baked into it rather than just the OEM guidance itself. I mean, are you assuming that China comes in and honors its commitments to buy more beans as we roll through '27? And is there anything baked into it with regards to E15 or the aviation fuel? That's my first question.

Yes. Thanks, Ted. Yes. So generally speaking, what we do have baked in is that China essentially honors the commitments that have been put out there, not materially any more or less than that. Certainly if they did come to the table with more, that would help. And then nothing on E15. So certainly, that would be a shot in the arm and upside to what we've guided.

And then just another one kind of at a macro level. With the war we have with Iran, which is now we're in several weeks of it, have you noticed any perceived shift in terms of sentiment within your territories with regards to that? I mean all I get is stuff out of the paper and I live in a pretty [indiscernible] local paper environment. So most of what I get is pretty negative with regards to the farmer. But is the farmer feeling anything in terms of impact at this point with regards to higher fertilizer prices, diesel prices? I mean we're not even in the planting season. I mean has there been some kind of shift, some kind of additional concern? Just a little color there?

Yes. Certainly, a few moving pieces there and even differences from our U.S. farmers to our Australian farmers. So just looking at some of the routes through the Strait of Hormuz there and you look at like that's impacting fertilizer and fuel prices even more for our Australian customers, still able to get it, but certainly a delayed in elevated pricing, and then similar impacts to Europe and then the U.S. there. So those are some additional increases to input costs, which are already high. You look at over the years here, fertilizer has been the input that's generally gone up the most and has the most impact on their P&L. And so with that becoming harder to get here and increasing further is also a negative. But overall, actually, as the corn market and other commodities tick up here and kind of follow along with the price of crude, that has an opportunity to be a positive as that expands and maybe potentially here outpaces the increase in inputs, which is certainly a likely scenario. So there's definitely a number of things in play there, Ted, but a scenario where it actually is likely potentially more positive for our growers.

Would you think it would be neutral and maybe more positive, but it sounds like it seems like your view is at worst, it's a net-net.

Yes. I think it depends how long it lingers on and what happens with the commodity markets. There -- it does start to spread a bit. So as corn goes to -- if corn were to go to $6 and then it lingered down further and potentially to $7 as an example, it starts to pull away from what the increase in fertilizer prices has been, especially for a lot of our growers here in the U.S. and the Midwest. They prebuy a good chunk of their fertilizer, so it could end up being more of a '27 calendar year impact for them on that. So again, there's -- as weird as it sounds, there's some upside potential there depending on how this plays out for our growers.

Okay. And then just a couple of model questions, and I'll let other people take over. Bo, I was curious what the view was for CapEx for 2027? And then maybe a discussion about tax rate given all the kind of moving parts in there, either at a rate -- that percentage rate or something around dollar amount?

Yes. So first for CapEx, I mean, in this environment, as you would imagine, being pretty prudent there and pulling back. So excluding any investment in rental fleet, which kind of comes in and out, we're guiding to about $15 million of CapEx, really just pulling back in prudent levels there, a little bit on facility and some vehicles, for example, but smaller than I would say, would be typical.

From a tax rate perspective, there could certainly -- I mean as a general statement, the tax rate in the U.S. is expected to be near 0. There will be a little bit of noise there with some deferred, but essentially, the valuation allowance is largely wiping that out. And given the significance of the U.S. to the rest of it, right, it really drags the whole thing down near 0. So on the release, we have guided to a range of 0 to $1 million of total tax expense. From an Australia perspective, no real noise there. You can think about their rate in that 30% range. And then from a Europe perspective, again, what their blended rate in the high teens, that's what I would expect balancing all out a lot of this stuff is netting down close to 0 would be our expectation for the year.

One more thing on that, too, I guess, just to make it clear, the need for a valuation allowance is kind of an established standard that's been out there in terms of a 3-year rolling loss. We went through the same thing in the last downturn, put on a valuation allowance and a couple of years later took it off. The cyclicality of our business and especially from a dealer P&L perspective, some could certainly argue that this 3-year rule isn't necessarily accomplishing what it's trying to. And long story short, all I'm trying to say is high degree of confidence that a couple of years later, we're going to take that back off and you're going to see a big positive, which, of course, we'll call out is releasing the valuation allowance.

[Operator Instructions] Our next question comes from the line of Ted Jackson with Northland Securities.

Well, let's talk about some sports stuff. Now a couple of other questions for you, Bo, just around the model. So again, depreciation and amortization and then the impairment charges, can you give some kind of color on what you see that rolling through in 2027? And then over on OpEx, when I think about OpEx, you're going to have OpEx down, you're going to have investments though and some other things. So I assume the down is on sales commissions given the volumes, but maybe talk a little bit about how as you think about sales, typically, I kind of thought about it as your sales portion of your OpEx, your selling commission being about 25% of equipment gross margin, with that kind of assumption still hold as we think about '26? Or given the weak volumes, are you going to have to kind of say, make up a little bit make sure those guys get a living wage? Those are my next 2 questions.

Yes. So recently -- I'll break those into pieces. You have to remind me if I forget one. I'll start on the commission side of things. Recently, our commissions has been north of that 25% mark in a healthy environment with normal margins, it's in that 25%. So I'd say we're coming down closer to the 25%. We've been elevated above that. But kind of normalizing here as our margins are coming up. So that's how I would think about that from a commission perspective.

Just broadly on OpEx, and again, this isn't just something that changes in a month. We've been at this now over the last couple of years as we looked at where the industry has been going and what we've needed to do. And largely speaking, the rest of our OpEx is people, and it's our people that are helping support our customers. So we've managed headcount down prudently. But back to the question that kind of started all are you guys positioned for when things turn around, and that's the balance that you have to strike.

We've got a great team that supports our customers well across our entire footprint in all of our geographies and just managing prudently down as much as we can, but without overdoing it. That's kind of the balance we've struck. So that drives a lot of the decline in OpEx there. So from a 17% perspective, in absolute dollar terms, I feel good about the work we've done. The 17% is more reflective of the pullback we're expecting here in North America ag. Remind me where we started here, you had 2 others.

Yes, I'd asked just about kind of just taking in 2027, how to think about depreciation and amortization as we're driving through towards our EBITDA numbers. And then, I mean, it's just been for the last several quarters, a lot of impairment charges rolling through. Are we going to continue to see that through '27? Or is that going [indiscernible]?

Yes, good question. So a good portion of the impairment charges were specifically related to the Germany divestiture and wind-down activities. There's a small amount of Germany activity left here this year. I don't expect -- it will be a negligible P&L impact. And then from other impairments, I would say, expecting that to be a little bit lower as well. I mean, south of $2 million in total is kind of the thought process there just as you're looking at your normal impairment analyses based on where you're at from an industry perspective. So yes, I guess, relief in that regard. And then -- sorry, there's one other one here. What did you say before that?

No, I just kind of asked since I had you, and it seems like it's my Q&A. I'll just kind of decided I'd ask what you thought depreciation and amortization might be?

Yes, yes. Yes. Sorry about that. So no, yes, depreciation and amortization has been kind of in the mid-30s, $35 million-ish, expecting it to come down slightly, really not changing drastically there.

Okay. And then the impairment, just to make sure I understand, when I think about '27, aggregate across the year, you see like a continued amount of small impairment charges of roughly $2 million across the whole year?

Yes. And that's really fairly similar to what this year was ex Germany activity as well. So not much there.

One thing just taking the opportunity for the broader audience and all the analysts covering us. Across our sales mix by geography, so ag down 15% to 20%, CE flat to up 5%, Europe down 20% to 25%, Australia up 10% to 15%. Blended average wise, midpoint of the guidance implies revenue down 14% to 15%. But I would say as we've thought about it, and it's certainly not a perfect science quarter-to-quarter, I'm thinking more Q1 down like 20-ish percent and Q2, Q3, Q4, somewhere in the down 12%, 13% range. That gets you to the full year. So in other words, Q1 comp down sharper and just wanted to call that out so people work that into their expectations.

If you think about just how the cadence of last year was, first half had about 47% of our revenue, whereas, historically, it's about 45%, right? And that was just the theme of last year and kind of softening as we went through the year. So normalizing that a bit, just wanted to put that out there.

That does bring up one kind of just a little tiny question. You typically do have a stronger fourth quarter. You did have one this year. I'd assume most of it this year was less about farmers coming in flush and buying and more about tightened -- trying to push off inventory in your efforts to take your working capital to where you want it to be. So one, am I correct with that? And then two, as I think about 2027, I mean, we are going to be at a point where I would imagine by the time we exit the year, recovery or not, your inventories are going to be aligned. The trough is well beyond a typical trough of a cycle. Do you see in the fourth quarter of this year -- and you're going to have more of an impact with regards to some of the things with the Big Beautiful Bill that you would see a little bit more of a flush from the farmer in the fourth quarter of '27? So those are my 2. Just kind of a little color maybe on '26 and how you think about '27. And then I will [indiscernible]?

Yes. As you pointed out, Ted, in Q4, again, I just give a tremendous compliments to our team and the disciplined execution that we did. When we came out at the beginning of the year with our $100 million inventory reduction target, that was an extremely lofty goal. And our team more than doubled that reduction. That was due to our efforts and really boots on the ground and creative marketing campaigns and pulling growers off the sidelines and getting rid of that excess inventory. So great execution. And like you said, that wasn't just farmers coming in, in Q4 and and looking to purchase.

So -- and then as we -- that does, again, position us tremendously well. I think you hear that confidence for how good we feel about where our business is positioned right now. We've got a little bit of cleanup yet to do in a few select used categories and some certain seasonal new equipment categories. We'll work through that here throughout this year, but that's really fine-tuning. Every dealer I've ever seen always has a mix of that in any economy. So we're just going beyond even what we normally would do. We're just getting into an extremely healthy state here. So we're positioned when this does uptick.

And we've done many of the things internally, very stringent cost controls and expense reductions, as Bo pointed out. And we'll stay lean here. And then as it recovers, which at some point it will, as we talked about the replacement demand just continues to grow here and just waiting for that uptick in profitability for our growers as it depends on the commodity prices and again, how that ties back to the supply and demand ratios.

And then our cattle producers, livestock producers are still sitting quite well, and we look forward to that continuing. The more years that they do well, the more they'll start to spend. So there's certainly potential there. And then the fundamentals in construction, there's a big data center that has been going on here for a while 2 hours south of our office or 1.5 hours here, another one going up right in Fargo that's starting here, a $3 billion data center and again, throughout our Midwest footprint. So -- and then just overall, some of the things with infrastructure. And at some point here, we've got to address the residential housing shortage. So that's also a good long-term fundamental for construction. So there's a lot of good fundamentals in play here. Again, we'll see what happens with the commodity prices. And with the RVOs here, especially potentially, as I mentioned, as soon as the end of March here.

E15 is a great opportunity for our country, and it's right there, and it would really help alleviate this oversupply. Then if we address some fertilizer constraint and pricing issues, which, again, through further research and development and some other things could help with. And then the table is really set. I mean, the American grower can raise a lot of corn if given the opportunity, and we can supply the world a lot of corn and beans and other commodities. And the way the equipment is advancing and how professional our growers are looking, the stage is set very well here. And as we go into '27, our company is never going to have been positioned better.

One more thing real quick, just from a Q4 perspective. Q4 is a big presale quarter, and it was last year as well. So a lot of equipment that was being delivered was deals that were being discussed in the summer and early fall. So I'd point to the same thing here. This summer and early fall will really set the stage for what the end of the year looks like. Obviously, there can be some incremental buying at the end of the year, and there always is, but that's a big one. We've set prudent expectations based on where the market is at today. Bryan mentioned several factors. We've talked about several factors today that could move it north of that. But we've set expectations based on what has materialized thus far. But as usual for every year here, as we really get into the summer and we see what that presale looks like, we work with OEMs to really see where the market is, that will set the stage more for what the back end of the year looks like.

And we have reached the end of the question-and-answer session. Therefore, I'll now turn the call back over to management for closing remarks.

Again, I just want to thank our team for their buying and tremendous execution and discipline to make the hard decisions and put forth all the effort they did to position us where we are today. And I thank everybody on the call for your participation and look forward to updating you next quarter on our results.

Thank you. And this concludes today's conference, and you may disconnect your line at this time. Thank you for your participation. Have a great day.

Greetings, and welcome to the Titan Machinery Third Quarter Fiscal 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonnek with ICR. Thank you. You may begin.

Thank you. Welcome to the Titan Machinery Third Quarter Fiscal 2026 Earnings Conference Call. On the call today from the company are Brian Knutson, President and Chief Executive Officer; and Bo 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're providing a supplemental presentation to accompany today's prepared remarks, along with the webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section. We would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions.

Statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them. Forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties and 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 recently filed annual report on Form 10-K and quarterly reports on Form 10-Q.

These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly comparing underlying results from period to period. We 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'd now like to introduce the company's President and CEO, Brian Knutson. Please go ahead, Brian.

Thank you, Jeff. And good morning to everyone on the call. I'll start by providing an update on our inventory optimization progress and operational focus areas and then discuss the current environment across our segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions.

Nine months into the fiscal 2026, we're making meaningful progress on our inventory optimization initiatives, which will position us to emerge from this cycle leaner and stronger. Our team did an excellent job executing in what remains a very challenging market environment. As we head into the final quarter of the year, our focus is on finishing strong and continuing to drive inventory optimization while maintaining the customer relationships and service excellence that differentiate us in the market.

We've made substantial progress through the first 9 months of the fiscal year, reducing total inventory by $98 million. As I just mentioned, I'm extremely proud of the disciplined work our teams have been doing all year to move equipment in a very difficult demand environment and we are confident 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's fresher and has an increased mix of more high-demand categories, but we're not stopping there. We still have excess inventory in certain seasonal new equipment categories as well as our overall used equipment level. Our focus remains on finishing this fiscal year in a healthier inventory position so that we can return to the more normalized equipment margins that we've historically achieved.

Regarding equipment margins, they beat expectations for the quarter driven largely by a more favorable sales mix and our improved inventory position. Paul will provide further details, but I do expect equipment margins to moderate somewhat in the fourth quarter, given less favorable sales mix and additional inventory optimization efforts as we finish the year.

The work we're doing now on inventory optimization is about setting ourselves up properly for next year over maximizing near-term margins. Our customer care initiative continues to demonstrate its strategic value and remains central to our operating strategy. While equipment demand remains under pressure at this phase of the cycle, our parts and service businesses are generating well over half of our gross profit dollars. The stabilizing force of our parts and service business is essential in times like these.

Keeping us closely engaged with our customers, allowing us to add value to their operations and position us well for when equipment demand eventually recovers. This relentless focus on our customers dovetails with our recent activity surrounding footprint optimization, both domestically and abroad.

As you may recall, we acquired Heartland Ag systems in 2022, and which allowed us to gain access to the full product line of case application equipment, including self-propelled sprayers and fertilizer applicators, along with incremental sales opportunities to the commercial applications 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 CNH dealers in their respective areas. This change will allow us to focus our resources on markets where we can best leverage our broader service network to provide best-in-class service and support to our customers and deliver improved shareholder returns. In that same vein, we have also taken an objective look at our international operations to ensure we are allocating capital to high-performing markets.

Our German operations have faced challenges that have historically weighed on returns within our year operating segment. And as such, we are in the process of divesting our dealership operations located in Germany, working in close coordination with 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 1/3 of our U.S. store network over the years.

For instance, in Australia, we recently gained access to the New Holland distribution rates in 6 of our 15 rooftops. While we're not adding new rooftops in country, we know 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 execute on M&A opportunities that align within our strategy that focuses on leveraging our service network to provide best-in-class customer service while driving scale and efficiencies to achieve higher levels of profitability.

With that, I'll now turn to our segments. In domestic egg, the quarter performed within our expected range. despite an environment that remains challenging for our farmer customers. While the harvest season is now largely complete and yields were generally solid across our footprint, farmers continue to face multiple headwinds.

These include depressed commodity prices, which is the fundamental issue pressuring farm profitability as well as the government shutdown, which slowed payments to farmers adding to current cash flow challenges along with higher interest expense. While we have seen some improvement in commodity prices recently, they generally remain below breakeven levels for our customers.

And while it's encouraging to see China committing to resume soybean purchases, it's unlikely that this will result in a sustainable inflection in commodity prices in the near term. Further, while the reinstatement of 100% bonus depreciation is a positive for those customers who find themselves in a taxable position, many simply don't have the income to take advantage of it this year.

The bottom line is that without a significant improvement in commodity prices or substantial additional government support, equipment demand is likely to remain at trough type levels for the near term. Now turning to our Construction segment, which continues to face some softness, reflecting the broader economic uncertainty. Equipment margins remain subdued, pressured by some of the same variables that are impacting our domestic ag segment.

Infrastructure and data center projects are providing a baseline level of activity. While the overall demand environment remains somewhat softer than the highs of recent years, but still at healthy levels. Europe had a strong third quarter as Romania continued to drive segment performance as customers capitalize on EU [indiscernible] of pension 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 continued to experience a similar backdrop as our 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've accomplished a great deal over the past year reducing total inventory by over $500 million from peak levels in Q2 of prior year. This has been a full team effort, and I want to express my appreciation for how our people have maintained exceptional customer service, while executing these initiatives by outperforming the market.

The agricultural equipment market remains challenging, and the industry is not expecting a near-term recovery. However, we are staying disciplined in our execution, managing what we can control and positioning the business to perform well when market conditions eventually improve.

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

Thanks, Brian, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 3rd 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 different strengths in our European segment, as Brian discussed earlier.

Despite the sales headwind in the third quarter, gross profit was essentially flat at $111 million. compared to $110.5 million in the prior year period, while gross profit margin expanded to 17.2% as compared to 16.3% in the prior year. This was largely driven by a 70 basis point improvement in our equipment margins for the third quarter versus the prior year comparative period.

Notably, equipment margins for our domestic ag segment were 7% in this year's third quarter, which is a significant improvement from the 3.1% that was achieved in the first half of this fiscal year. This improvement is largely driven by our improved inventory position and a favorable sales mix, but also benefited from a $3.7 million accrual for the manufacturer incentive plans for which nothing was accrued in the first half of the year.

Operating expenses were $100.5 million for the third quarter of fiscal 2026 compared to $98.8 million in the prior year period. Our headcount 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 the third quarter of fiscal 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%. And 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.

Pre-tax 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 tied up on a multiyear backlog of deliveries during fiscal 2025.

Pre-tax 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 adjusted debt to tangible net worth ratio of 1.7x as of October 31, 2025, which is well below our bank covenant of 3.5x. Regarding inventory, as Brian mentioned, we reduced our total inventory by $98 million through the first 9 months of the year to $1 billion.

Of that $98 million reduction, approximately $15 million came from equipment sold through 3 domestic divestitures we completed. The vast majority of the reduction reflects the disciplined work our team has been doing to move equipment in a challenging demand environment. Our cumulative total inventory reduction from peak levels in Q2 of the prior year now stands at $517 million.

Beyond the headline inventory reduction number, we're also seeing a meaningful improvement in the quality of our inventory. We continue to focus on reducing aged inventory which we define as equipment that has been on our lots for more than 12 months. Aged equipment inventory peaked in May of this fiscal year and we have been able to reduce this by a total of $94 million over the last 5 months.

This aged inventory reduction is critical to returning to more normalized equipment margin levels. Given the progress we have made and the programs we have in place to continue to drive sales in the fourth quarter, we have confidence in making further progress on aged inventory and inventory levels overall. As such, as Brian mentioned previously, we are increasing our inventory reduction target to $150 million for the full fiscal year.

Turning to our fiscal 2026 modeling assumptions. We are refining our revenue expectations for both the construction and Europe segments based on our year-to-date performance, while keeping our assumptions for domestic ag and Australia intact. We are now expecting construction to be down 5% to 10% compared to our prior expectation of down 3% to 8%. And Europe is expected to be up 35% to 40%. And 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 Brian mentioned, our third quarter consolidated equipment margins of 8.1% benefited from our improved inventory position and favorable sales mix. Given a less favorable sales mix and additional inventory optimization efforts in the fourth quarter, we anticipate consolidated equipment margins to moderate back to approximately 7% for the fourth quarter.

This reflects 3 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 efforts.

And third, we anticipate some moderation in Europe following the September expiration of subvention fund availability in Romania. Consistent with our prior expectations, Operating expenses are expected to decrease year-over-year on an absolute basis. And I continue to expect them to be approximately 16% of sales for the full fiscal year. Lower plan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization, and we should see some of those benefits in the fourth quarter given the reduction in aged inventory we have seen in recent months.

As a preference to our earnings per share expectations, I want to call out the anticipated recognition of a noncash valuation allowance that is expected to be recognized in the fourth quarter and resulted in an increase in our reported tax expense by approximately $0.35 to $0.45 per share. Reflecting a variable that was not considered in our previous assumptions.

This is dictated by accounting guidance and is influenced by the degree to which our profitability is being impacted by the broader cycle. It's something that we had to recognize in the prior downturn as well and then subsequently reversed as the industry recovered from the prior trough. I expect a subsequent reversal at some point in the future this time as well.

However, this will result in an increase to tax expense for the time being. Based on guidance from regulators, we do not plan to adjust this incremental tax expense out of our presentation of full year adjusted earnings per share. So I mentioned 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 in a range of a loss of $1.50 to $2. In summary, we are pleased with the progress we have made in a challenging demand environment with industry volumes below prior trough levels. And we are poised to make further progress in the fourth quarter.

Our team's hard work advancing our inventory reduction and footprint optimization initiatives are positioning the business for improved financial performance as we move into fiscal 2027. This concludes our prepared comments.

Operator, we are now ready for the question-and-answer session of our call.

[Operator Instructions]

Our first question comes from the line of Liam Burke with B. Riley Securities.

We saw very nice results on parts and parts excuse me. Service was down 4%. Is that just normal quarter-to-quarter seasonality? Or is there something within that number on that down year-over-year number that's influenced it.

Yes. So there's some noise there from a quarter-to-quarter perspective. The way service is reflected does get impacted by how much new equipment we're delivering and how much of their labor is going towards PDI, which ultimately shows up its whole good versus service revenue.

Overall, in big picture, service, generally speaking, 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 and as we've talked about for a while now to be able to drive sustainable growth.

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

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

Yes. The first thing I would say, and I'm sure Bryan will add to it as well. Underneath that, for us, I'd say that there's some specific factors that aren't necessarily reflective of the market. Specifically, last year was a big year for us recovering and catching up on the delivery of wheel loaders. That extends back to the 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. Underneath that, we do see more stability ourselves and kind of reflective of what the overall market environment is like. I don't know if you wanted to add anything.

Yes. And just as it relates maybe to the overall infrastructure impact, we certainly don't play as much in that market as say Caterpillar Wood, but a good -- a better portion of our business is tied to ag in general with as Bo mentioned, wheel loaders and a lot of the material handling equipment.

As well as RES, which with the interest rates, where they are, has still been lagging. But we are certainly seeing some good stability in data center projects up here in the Midwest. And again, it's basically hanging in there, mainly what you're seeing in the comparables is what Bill mentioned, we just the year-over-year comparison to the change in the wheel loader backlog shipment that we had.

But we're expecting potentially hear rate cut in December, which could be positive news, and a lot of our contractors are I'd say, cautiously optimistic here as they start to look to at their 2026 schedules. And so we're looking at potential uplift for next year in that market.

Our next question comes from the line of Mig Dobre with Baird.

And congratulations on really good progress your team seems to be making here. So I guess my first question, I'd like to talk a little bit about Europe and appreciate the guidance raised here. But if I heard you correctly, the tailwind in Romania from those subsidies is going to dissipate went away in September.

What are you seeing in that region more broadly? And I guess really the answer to my question is, at this point, all of us really kind of focused on fiscal '27. The current fiscal year is pretty much done. What's the right way to think about this portion of the business for fiscal '27? Recognizing that the comparisons here are really difficult.

Yes. No, I appreciate the question. And for sure, Romania this year essentially doubled up year-over-year. And kuddos to the team for executing on that and capitalizing on all the opportunity that was there. First of all, just in terms of what we're seeing in the region, both for Romania and Bulgaria, I would say they haven't had the best weather conditions in both calendar 2024 and 2025.

So whereas more broadly in Europe, some of the yields were better, they weren't as well off there. So that's a bit of a headwind. Obviously, the funds kind of helped us mask some of that and overperform there. From a next year backdrop perspective, I would say, and again, this is directionally speaking, because we'll provide guidance when we get on our March call.

But for Romania, the pull back 30% to 40%, we'll sharpen our pencil on that, but that's not out of the range of reasonable given the backdrop that they have and the significant growth they had this year. For both Gary and Ukraine, I would say, more stable and opportunity for growth.

So ex Germany, of course, which we're talking about divesting of mix all that in, you're talking about something, again, directionally speaking, we'll sharpen the pencil, but some high teens, maybe 20% down year-over-year for Europe ex Germany.

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

So it does actually continue a bit. And again, we'll continue to sharpen our pencil but there are still funds in play even in Romania through 2027 for certain categories of equipment, they're pretty prescriptive. We feel like we're in a decent position to continue to take -- or to execute on those opportunities -- so we'll continue to sharpen our pencil and provide more clarity.

But again, I would say an amazing job by the team to double up the business year-over-year, some pullback expected will continue to sharpen. [indiscernible] funds are there. Maybe not as significant as we saw this year.

Sure. Reverting back to the U.S. business, it sounds like you guys are doing some work on the footprint, which you've done in prior downturns as well. I guess the commentary as I heard from BJ in the prepared remarks was pretty subdued as we think about fiscal '27.

And again, directionally, I'm sort of wondering a couple of things here. should we plan for another year of decline in fiscal '27 based on what you know today about your North American business? And if that's the case, what's the right way to think about margins? As you produce the inventory, are we to a point where we can see on the equipment side, more normalized margins even if we have to deal with another year of top line or volume compression.

And then I have one final follow-up

Yes. From a margin perspective, and then I'll turn it over to Bryan to talk more about -- just about footprint in general there. So yes, back half of the year, obviously, you saw a pretty significant inflection. So I'm talking domestic ag here setting aside the other segments, which haven't had as much volatility.

First half of the year, equipment margins were about 3.1%. And back half of the year, equipment margin is about 6.5%. If you set aside nature incentives, which were 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's an assumption that industry volume is down again and kind of setting a new historical low, at least for the past couple of decades.

That 5.25% as may be a decent proxy to start with for the first half of next year and then continue to see us driving improvement from there. I don't know if you want to add any on the industry in general?

Yes, Mig, I'll maybe just add a little bit on footprint and then secondly, on the industry next year. So with footprint, we work varied hand-in-hand with CNH. They don't get surprised by any acquisition we do nor do they with any divestiture that we do.

And so we've done a lot of work in recent years here, on our strategic plan, and we're just really continuing to work that plan. So if you look at some of the larger acquisitions that we've done and as we refine those now, such as some of the divestitures we've done related to our Heartland application business. We'll continue to refine that.

And again, we're working hand-in-hand with CNH and our fellow CNH dealers on that, and we believe that's a great solution for our customers in the end. And we're very pleased with that acquisition and again, as we continue to refine it. Secondly is just continuing to get ready for additional acquisitions that will be accretive and in line with our strategic plan.

And so we'll continue to refine our footprint and optimize in the areas where we perform the best and can really maximize our customer care strategy and then third, you'll see us doing a lot with the multi-brand strategy with CNH as you saw. We just added the contract at 5 or 6 of our rooftops in Australia where we didn't actually add any rooftops, but we added the new Holland contract to 6 of our 15 as well as we've got 1/3 of our North American footprint that's dual branded.

And there's a lot of value there that we can unlock for our shareholders and for our customers and give better customer service as we do that. So we're going to continue to execute on that strategy as well. And just with the overall demand make, I mean, I think, as you know, there's a lot of variables in play here.

We'll see what continues to happen with soybean sales and soybean consumption. So really on the demand side. And as we continue to look at stock-to-use ratios here also with rent fuel standards, as we get into January here, I think we'll see some further development on that. Things around E15 and biodiesel, especially. And then really, if you look at the government stimulus is going to be the big wild card here.

So with the shutdown, no assistance came. We'll see what comes yet in 2025. Of course, we're running out of time in the calendar year. And so in 2026, I think that's going to be the big question as at today's commodity prices, even though we've had a recent uptick, many of the farmers are still not as profitable levels here even with the good yields that we had.

So that's going to, I believe, be another big wildcard for next year here that we should get a lot more color on here, especially the February once the report comes out and is insurance rates get locked in at the end of February and so forth.

All right. And then my last question. From an inventory standpoint, maybe you can comment a little bit as to how you think about that. And I know I've asked this question before that you report dollar inventories, right? But I -- we got to sort of keep in mind that the price of the equipment that you have in inventory has gone up a lot over the years and 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 maybe relative to the prior cycle or really any way that you think shareholders might find it helpful.

Yes. And to start with, certainly, inventory being a big topic and think about the best ways to provide transparency without overcomplicating things there. And certainly super impactful to talk about the price increase over the last year, we had talked about the cost of a forward drive going up more than 80% since 2014. We've talked directionally speaking again in the last year. As we -- versus where we started the last downturn, we had about 1/3 as many used combines which is an indicator. An important indicator in terms of how much work there is to be done on the ease the equipment side of things.

So we'll keep working on the best ways to portray that info. But I mean it's pretty easy to quickly just think about it in terms of like half the number of units. And yes, we are much better positioned than we previously were in that's really shown in just what happened with our equipment margins in Q3, for example, versus the first half of the year.

Our stance has been to aggressively manage our inventory, including the value in which it sits on our balance sheet. That's pulled forward some of that P&L pain, and that's where we saw lower margins than we had seen historically. But then you saw that significant inflection here in the third quarter.

We feel really good about where things are priced the number of units we still have to move and exactly what we need to continue to accomplish this year to set ourselves up for success next year. We feel really good about where we're going to be to end the year. And then market where North America is potentially down a bit again from there.

That's going to be a continued focus on managing that aging profile, but we're just going to be in a lot better position to execute at the market instead of trying to be more aggressive out there. And so we should continue to see progress on those equipment margins and, of course, on that reduction in floor plan interest.

Yes. Mig, I would just add, a good point on your part, as you said, is we've had equipment prices per unit in some categories nearly double in less than 10 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 those are some of the key things for us is just as we go forward to manage our interest expense, mitigate that as much as possible maximize our manufacturer floor plan terms, et cetera. And ultimately, pre-sale 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 we'll continue to monitor turns and interest expense or a couple of big indicators there.

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

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

Yes, that's correct.

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

Well, there's a couple of -- through the end of the year, right, essentially, what I'm saying is the Australia acquisition that we did will largely offset those divestitures. Then the other wrinkle, I guess, we have is the Germany divestiture that will be helpful there as well. But yes, I mean, somewhere in the $130 million, $140 range. But again, there's some offsetting impacts.

The other thing that was against us from a dollars perspective is 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's not exactly units. But in the last down cycle, it took us 2 years to decrease inventory $348 million. It took us 3 years to decrease inventory, $543 million.

We're going to go past that in an 18-month period of time here. Again, it just speaks to the approach that we're taking and to manage this down faster to get positioned heading to the next year. So putting it into the context of when we were talking about inventories before units and everything, the 150 to 100 on a unit basis, I mean, even like if you will make it organically, you're taking up your view in terms of what you're going to be able to take your inventory numbers down, let's call it, on a unit basis regardless of the divestitures, it's indeed a change.

You see I'm saying it's not being driven by a change in your footprint that's being driven by a change in your view with regards to what you're going to be able to accomplish.

Oh yes, absolutely. And I mean, the biggest thing that's been reduced here to make sure that you're appreciating it is aged used equipment, which is the biggest risk in terms of valuation. So just -- I mean, couldn't be happier with the progress the team has made and excited about the additional progress we're going to be able to make. It reflects on the balance sheet in a given quarter.

The reality is but this is something that we've been at for more than 2 years now as we've seen how things have been evolving with lead times when we're getting stuff in from the OEMs, how we're digesting that. So really great progress, and we look to make more here in the next couple of months.

And then with regards to the change with your outlook for inventory, is it -- is there -- is that change by chance being done because you have a more pessimistic view of how both this goal looks to be? Or you understand I'm saying, I mean, is it -- like if your view is that the market forward is weaker than I expected.

So I don't need as much inventory, so I'm going to try to get rid of more inventory to stage with that. Is it a change in terms of how you kind of view the macro? Or do you still kind of feel like we do. I mean it hasn't been, let's call it, calendar '25, and we should have a stable market in 26 and that view that has been generally expressed across the ag market, the players for the last several quarters is still intact. Does that make sense?

Yes. Big picture-wise, I don't think that things have shifted drastically. I mean, the OEMs in the general space have been talking about North America potentially down somewhat next year. But not so much that it changes our trajectory of where we want to go. It's more a reflection of the work that we still feel like we have and can accomplish for the year.

I would say, though, but as we flip the calendar into next year, so we're 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, kind of refreshing some categories ahead of the selling season. So I wouldn't expect further reduction in the back half of next year.

But getting to a good spot at the end of this year, seasonal build in the first half of next year. And then depending on where we see the market shaping up, probably taking it back down a bit in the direction of kind of where we ended this year. That's kind of my base case scenario that I would lay out for you.

Yes. And Ted, I would just add, if we go back to the earlier discussion with Mig, there around for our growers next year, 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 prudent about how we're stocking our inventory accordingly. And then also, as we talked about the interest expense with interest rates as high as they are. It's important that we're mitigating the interest expense.

And then the third thing I would say for next year and going forward is just, again, a strategic change for us in our balance sheet management. And really, as we talk about our footprint optimization, one of the benefits of that as we continue to refine and get our tighter contiguous footprint, which allows us to leverage that footprint and leverage our scale and share inventory more freely amongst our stores and still be able to capture every sale.

That's still the ultimate goal and keep our customers up and running and satisfy their equipment needs and make them more efficient. So to never miss a sale, but to do that with leaner inventories. And so that's where we're headed.

Okay. And then my last question, it's maybe more just like actually for a little color. So I mean, a big thing with CNH is they really want to get their brands consolidated into under one roof. And you made a comment that in Australia, 6 of your 15 roofs now take both Case and New Holland equipment. I was kind of curious when -- if you could provide a similar kind of metric for the other regions?

And maybe talk about maybe it's too much. But like how many -- when you think about that, like, first of all, how much of your footprint at a region is that consolidation already taken place? And I don't know, maybe to the extent that you can, how you think you're positioned for further consolidation of rooftops for CNH because it's such an important longer-term strategy for them? That's my last question.

Yes. Thank you. It is for sure. And so we're very much aligned with CNH and our fellow dealers in that strategy. And we think there's a lot of value for our customers and our shareholders again there. And we can -- it gives us 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're very focused on that. We have been for a long time. We like that we've seen that growing additional energy around that strategy, again, from other dealers in from CNH collectively. And we're going to continue to push on that. You asked how we're sitting now. So that's that 6 of 15 obviously brings us to just over 1/3 in Australia. We're going to keep pushing there. We are just about 1/3 in the U.S., and we'll keep doing the same there.

And then in Europe, again, you're seeing that in kind of the earlier stages. So working hand-in-hand with CNH in Germany. In that case, we ended up selling, and we'll look to again, in other areas be a buyer as things continue to move around here and we leverage that strategy.

So that's 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.

Our next question comes from the line of Steve Dyer with Craig-Hallum Capital Group.

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

So earlier in the year, they received some and then they received a little bit more in early summer. And then as we speak, they're receiving a little bit more, which is the final 15%, they received the 85% of some of the first assistants back in approximately June.

And now they're receiving the last of that However, there was up to nearly $10 billion discussed for soybean assistance. We have not seen that yet. There's a verbal agreement with China to -- that would potentially return them to about 25 million metric tons annually, which is about what they've historically produced or that's about in line with their 5-year average.

So we'll see if it looks like they're going to execute on those purchases then maybe we see prices come up and those funds don't need to come through and vice versa. So I think the government will continue to monitor that. Again, as we look at what's left here for 25 not optimistic about a lot more getting into our growers' hands other than what's already in motion.

But certainly, for '26, I think there's a lot to look at their -- when you look at the pricing levels where they're at today, especially with the current price of wheat and corn and soybeans as an example. But really, generally, most of the commodities are pressured right now. And again, it does come back to that supply and demand ratios.

Understood. 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 -- is that enough to move the needle as we think about next year? And what that could mean from a sales perspective?

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

Thank you. That concludes our question-and-answer session. I'll turn the floor back to management for any final comments.

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

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

Good morning, and welcome to the Titan Machinery 2026 Earnings Call. [Operator Instructions]

As a reminder, this cost is being recorded. It is now my pleasure to introduce your host, Jeff Sonnek with ICR. Thank you, sir. You may begin.

Thank you. Welcome to Titan Machinery's Second Quarter Fiscal 2026 Earnings Conference Call. On the call today from the company are Bryan Knutson, President and CEO; and Bo Larsen, CFO. By now, everyone should have access to the earnings release for the second quarter ended July 31, 2025, which is also available on Titan's Investor Relations website at ir.titanmachinery.com.

In addition, we're providing a supplemental presentation to accompany today's prepared remarks, along with webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section. We'd like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. Statements do not guarantee future performance, and therefore, undue reliance should not be placed upon them.

These forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties including those identified in the forward-looking Statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan's most recently filed annual report on Form 10-K and quarterly reports on Form 10-Q.

These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis.

We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly comparing underlying results from period to period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures into the release and supplemental presentation.

At the conclusion of our prepared remarks, we'll open the call to take your questions. With that, I'd now like to introduce the company's President and Chief Executive Officer, Brian Knutson. Brian, please go ahead.

Thank you, Jeff, and good morning to everyone on the call. I'll start today by covering our performance for the quarter, followed by an update on our operational initiatives and focus points for the remainder of the year. I'll then discuss the current market environment and its impact on each of our operating segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions.

Our second quarter results reflect the execution of our operational plan in what remains a challenging market environment. Six months into fiscal 2026, I'm pleased with the progress we've made. As we transition into the second half of the year, we're entering the next phase of our inventory reduction initiative with a heightened focus on optimizing our used equipment portfolio to ensure we're well positioned heading into next year.

Consistent with our previously communicated expectations, our equipment inventory levels have remained relatively flat through the first half of the year, albeit we experienced a modest increase in inventory during the second quarter. The quarterly increase was largely due to the timing of OEM shipments ahead of deliveries to our end customers in the second half of this fiscal year.

Not only do we remain confident that we will achieve our previously communicated inventory reduction target of $100 million for the full year, we are positioned to exceed it with the majority of that progress still expected toward the end of this fiscal year. As we continue down this path, we now expect our equipment margins to remain subdued through the rest of fiscal 2026, which is the primary variable that underpins the narrowed EPS guidance that we've updated today.

This disciplined approach is fundamental to our plan of emerging from this cycle stronger and better positioned for fiscal 2027. Although we've been spending a lot of our time with you over the past several quarters, talking about the cycle and its influences on inventory, I do not want to lose sight of our long-term effort to enhance the customer experience. Our customer care initiative continues to demonstrate its critical value during this equipment downturn.

We focused on how to best leverage our scale and service capacity across our footprint, which is helping us maintain strong customer engagement, even as equipment sales faced cyclical pressure. Notably, our parts and service businesses together are generating well over half of our gross profit dollars through the first half of the year, while representing about 1/4 of our revenue mix, providing valuable stability during the trough in this equipment cycle.

Turning to our segments. In our domestic agriculture, performance tracked within our expected range. Though farmer sentiment remains very cautious given the low commodity prices our customers are facing, exactly where net income comes in for the year remains heavily dependent on government support programs as the additional $20 billion to $30 billion in potential aid remains uncertain and will be important in determining the near-term trajectory of whole good equipment demand.

However, we've seen some encouraging developments with timely moisture across much of our footprint, which has improved crop health and yield outlook for the current growing season. Additionally, the reinstatement of 100% bonus depreciation is also a positive as it provides an offset opportunity for those growers who do find themselves in a taxable income position at the end of the year.

All of that said, without an additional catalyst, we continue to expect industry volumes for large ag equipment to be at levels slightly lower than the trough of the prior down cycle. However, we remain very engaged with our customers and are poised to capture opportunities that may arise as the year progresses.

Our Construction segment experienced weaker demand in the second quarter as customers took a more cautious approach to capital expenditures given the broader economic uncertainty. That said, infrastructure projects continue to provide a base level of demand that supports relative stability in this segment. Our European segment remains a bright spot with Romania continuing to drive strong performance as customers capitalize on EU stimulus programs before the September deadline.

Absent this catalyst, the underlying demand would be much weaker, albeit more stable than we are experiencing domestically. Our Australia segment continues to track similarly to our North American ag business with industry volumes somewhat below prior trough levels. However, the primary reason for our year-over-year decline in the second quarter was driven by the normalization of sprayer deliveries in fiscal 2026 after having caught up on a multiyear backlog of deliveries during fiscal 2025.

Positively, we've seen some encouraging developments brought about by rainfall across much of our footprint, which has improved crop health and yield outlook for the current growing season. In closing, we're making solid progress on our inventory optimization initiatives, which will put us in a significantly stronger position as we enter fiscal 2027.

I want to express my sincere gratitude to our entire team for their tremendous effort and disciplined execution over the past year, where we reduced inventory by approximately $365 million, which was no easy task. Their ability to maintain exceptional customer service, while executing our strategic and operational initiatives continues to be a key differentiator for us, and we remain confident in emerging from this cycle as a stronger company.

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

Thanks, Brian, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 second quarter. Total revenue was $546.4 million compared to $633.7 million in the prior year period, reflecting a 14% decrease in same-store sales driven by the factors that Brian discussed earlier.

Gross profit for the second quarter was $93.6 million compared to $112.4 million in the prior year period, and gross profit margin was 17.1% as compared to 17.7% in the prior year. These decreases were driven by lower equipment margins, particularly in our domestic ag segment, resulting from softer retail demand and our continued efforts to manage inventory to targeted levels.

Operating expenses were $92.7 million for the second quarter of fiscal 2026 compared to $95.2 million in the prior year period. The year-over-year decrease of 2.6% was led by lower variable expenses associated with the year-over-year decline in revenue as well as our expense reduction efforts. Floor plan and other interest expense was $11.5 million as compared to $13 million in the prior year period, reflecting our continued efforts to reduce interest-bearing inventory over the past year.

In the second quarter of fiscal 2026, net loss was $6 million, with loss per diluted share of $0.26 compared to adjusted net income of $4 million or adjusted diluted earnings per share of $0.17 for the same period last year. Now turning to a brief overview of our segment results for the second quarter. Our domestic Agriculture segment realized a same-store sales decrease of 18.7% to $345.8 million.

Segment pretax loss was $12.3 million compared to adjusted pretax income of $6.7 million in the second quarter of the prior year, reflecting softer margins due to weak retail demand while continuing our efforts to manage inventory to targeted levels. In our Construction segment, same-store sales decreased 10.2% to $72 million, which was driven by lower equipment sales.

Pretax loss was $1.2 million compared to adjusted pretax income of $0.2 million in the second quarter of the prior year. In our Europe segment, same-store sales increased 44% to $98.1 million, which includes a $4.1 million positive foreign currency impact. Net of the effects of these foreign currency fluctuations, revenue increased 38.1%, which was primarily driven by Romania, which was bolstered by EU stimulus programs.

Pretax income for the segment increased to $5.1 million compared to pretax loss of $2.3 million in the second quarter of last year. In our Australia segment, same-store sales decreased 50.1% to $30.6 million which included a 1.4% negative foreign currency impact. As Brian mentioned, this decrease was driven entirely by the normalization of sprayer deliveries in fiscal 2026.

Industry volumes were already at trough type levels in Australia last year. So in this segment, we are seeing generally flattish sales, excluding this normalization of spray deliveries. Pretax loss was $2.1 million compared to pretax income of $1.4 million in the second quarter of last year. Now on to our balance sheet and inventory position.

We had cash of $33 million in an adjusted debt to tangible net worth ratio of 1.8 as of July 31, 2025, which is well below our bank covenant of 3.5x. Regarding equipment inventory, as Brian mentioned, we experienced a modest increase during the second quarter to $954 million, bringing our 6-month inventory levels to essentially flat compared to fiscal 2025 year-end.

Our cumulative equipment inventory reduction from peak levels in Q2 of the prior year stands at $365 million. Given the progress we have made on our inventory initiatives, and the programs we have in place to continue to drive sales in the back half of the year, we have increased confidence in our ability to exceed the $100 million inventory reduction target we set at the beginning of the fiscal year.

I'm pleased with the full team effort we have had on this important initiative and what it should mean in terms of improved inventory profile, increased equip margins and lower floor plan interest expense next fiscal year. We are seeing that our proactive approach to optimizing inventory is helping drive equipment sales amid a weak demand backdrop.

That is giving us confidence in achieving our inventory reduction targets and is also reflected in our improved revenue outlook, which I'll cover by segment in a minute. However, further progress during this challenging environment requires the continuation of pricing concessions and we believe this will hold equipment margins at lower levels through the balance of the year.

As such, from a margin perspective, our 2026 assumptions for consolidated full year equipment margin are now approximately 6.6%, down about 100 basis points from our previous expectations.

Turning to the domestic Ag segment specifically, equipment margins for the first half of fiscal 2026 came in at 3.1% and we now expect full year domestic ag segment equipment margins to be approximately 3.8%. This implies less of an improvement in the back half of the year than previously expected but reflects our commitment to achieving our inventory optimization goals as we exit the year.

Taking a step back, historic domestic ag segment equipment margins have averaged nearly 10% with a normal range from approximately 8% on the low end to 12% on the high end, depending on where we are at in the cycle with equipment demand and where we and the industry are in terms of inventory health. Our goal is to work back toward that range as quickly as possible, and we like the progress we are making, which should put us in an improved position heading into next fiscal year.

Based on our year-to-date performance, we are refining our segment revenue expectations for the year. We are raising our assumptions for each of the domestic agriculture, construction and Europe segments, while keeping Australia consistent. So we are now expecting domestic agriculture to be down 15% to 20%, Construction down 3% to 8% and Europe to be up 30% to 40%.

While our expectation for Australia remained down 20% to 25%. And Consistent with our prior expectations, operating expenses are expected to decrease year-over-year on an absolute basis. And with the revised revenue guidance translates to approximately 16% of sales. Lower plan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization, building toward a more meaningful decrease in floor plan interest expense as we progress into fiscal 2027.

Factoring in the modified assumptions that I just walked through, we are narrowing our adjusted diluted loss per share guidance to a range of $1.50 to $2. Given the challenging agriculture industry backdrop, we are pleased with the progress we have made at the midway point of the year. We'll stay focused on our initiatives and look forward to providing another update on our progress in November.

This concludes our prepared remarks. Operator, we're now ready for the question-and-answer session of our call.

[Operator Instructions]

Our first press question comes from Ben Klieve with Lake Street Capital.

Congratulations on progress here in the quarter. First one for me, Bob, you alluded to the historic equipment margin range in the 8% to 12% range from sub-4% this fiscal year. I'm wondering if you can elaborate a bit on what conditions you think need to exist for that even the low end of that range to get hit. I mean, absent some kind of meaningful improvement in the grain complex export markets, any kind of macro condition having any material improvement. What do you think can happen to really drive gross margins up to that range in the foreseeable future?

Yes. I'll touch on those building blocks here in a minute. And first, just a little bit more perspective on that. As I look at the past decade plus, specifically, and we're talking about domestic ag equipment margins here, the only periods of time where we've seen that equipment margin below that 8% was FY '16 and FY '17, which was really the need of the prior cycle and then, of course, FY '25 and then the current fiscal year.

Outside of that, everything had kind of been in that range that we were describing. What needs to happen in order for us to get back up in that range really -- I mean, there are some key building blocks for our margin recovery. First and foremost, I'd start with mix optimization. That's really completing our $100 million inventory reduction really breaking the back on that aging profile and getting that mix correct.

That one, we do feel good about exceeding by the end of the year, as we mentioned in our prepared comments, pricing discipline. But that really means both for us and the industry. Again, as inventory levels get healthier, will kind of pull off of the gas in terms of that aggressive pricing posture back to kind of a more normal environment and really pricing to that environment. So that will come as inventory gets healthier.

Used stability and used equipment values -- there's been a significant decline in used equipment values over the last 18 months. Certainly, if you go back to the beginning of calendar 2025, where they were to where they are today with rapid declines throughout last fiscal year and more stability this year.

So we'd characterize while certainly lower than we'd want them to be used values are relatively stable as opposed to where they were. And so that's also helpful as you think about how we need to forecast where used values are going to be. So I'd say the stability there is going to start being helpful and should as long as it remains more stable, help us improve that margin profile.

Geographic optimization, what I'm talking about there within domestic ag, right, is we have 92 rooftops across our U.S. primarily Midwest footprint. And it's making sure that we're shifting around used comp, maybe we have too many used combines here, but we don't have any down there. So we've really done a better job, and we'll continue to really focus on spreading that equipment around so that the equipment is where the demand is going to be and there's not excess equipment in any given area.

So that's something that we feel real good about. OEM partnerships, working with our partners on targeted programs for specific categories again, to make sure that everybody across the channel is in a healthier position. And then our cost structure, not specific to margin, but clearly, as we improve the aging profile, lower floor plan interest is also going to provide a lot of meaningful P&L benefit.

So we have a lot of confidence, to your point, right, sub-4 equipment margins today. And what's implied in the back half of the year is kind of that 4% to 4.5% equipment margin across Q3 and Q4. I would expect significant improvement as we progress through FY '27.

We'd be getting ahead of ourselves if we'd be providing specific guidance for FY '27, but certainly working back up toward that, and I would say sequential improvement as we work through next year as well as long as we're achieving all those items I just laid out. And much of that, we do feel good about.

So again, not providing guidance on it, on what that equipment margin would be next year, but certainly expecting significant improvement versus where we're at today. I guess, just to make sure that it's clear, right? Part of what we've stressed -- part of what we're focusing on here and part of what is driving that equipment compression is to make sure we get the inventory in check such that we're in a position to operate in a more normalized environment next fiscal year.

BJ, I would just add that besides your -- you alluded to the fact that besides the obvious of net farm income, but I want to stress that in addition to everything Bo said, that is the biggest driver. So in net farm income, just as a reminder, be a derivative of yield and price and a bit of government payment as well. So farmers, of course, don't like to be reliant government payments.

We'll see how those come in the rest of the year. Crop is looking pretty robust out there. So that looks good. But I'm continuing to employ everybody that -- we just got to continue to find more uses for our crop and really promote the benefits of ethanol and sustainable aviation fuel and biodiesel and just how much -- how efficient our growers have gotten and how that allows us to be very productive and how it's just better to grow stuff on the earth versus mining it out of the years.

The next question comes from Mircea Dobre with Baird.

I mean we're throwing some margin sort of commentary around a little bit. And I just want to make sure that I'm clear here, relative to your reported segments, right? So in your equipment segment, did I understand correctly that you expect 6.6%, 6.7% margin for the full year? .

Yes. I appreciate the opportunity to clarify. So we are talking about consolidated total equipment margin. So yes, directly with a total global equipment, that's the 6.6%. Separate from that, I drill down on specifically domestic ag equipment margins. And that's where I said in the first half of the year, it was 3.1% and for the full year, 3.8%. So that domestic ag is part of what makes up the total global consolidated 6.6.

All right. All right. Okay. Well, then if I'm sort of looking as to what the back half guide implies relative to what you've done in the first half, margins are not terribly different in your equipment reported segment. So if margins aren't really changing all that much, what exactly is it that's driving the increase in your revenue guidance?

Well, I mean, if you look at the first half of the year, revenue had been stronger than we had prescribed, and we're expecting that to continue. And it's largely focused on the used equipment side of the which is helping us ultimately then with the confidence in exceeding that $100 million target. So it's really just a continuation of what we've seen in the first half of the year.

Right. Because I guess my interpretation would have been just based on how I read your press release, that you're using printing as a tool to accelerate your inventory destocking, which translates into maybe better revenues than you innately forecasted, but that should have a negative effect on margin.

And I guess this is where my confusion lies that I'm not really seeing that embedded in your equipment margin outlook for the back half, unless, of course, you're expecting better margins than what you're currently guiding to.

No, no. So breaking it down a little bit. It's really, I think, just the mix that's a little bit more difficult for you, right? So from a total equipment margin perspective, we have pulled our expectation down about 100 basis points. domestic Ag specifically, we've actually pulled down more than that, right?

But you see our mix shifting as we're now suggesting that Europe is going to grow 30% to 40%. Europe having pretty strong equipment margins and not seeing nearly the compression that we're seeing particularly. So overall, equipment margins are going down 100 basis points. U.S. ag going down more than that, somewhat being masked by the strength in Europe and specifically Romania, right?

So we are -- again, it holds together there. We have pulled it down some. You got more revenue. We're ending in a similar EPS perspective, although we're tightening that range a bit in pulling out the quarter on the upside of everything.

I see. Okay. That's helpful. When you sort of think about your inventory reduction goals, and you are clear about the fact that you're confident that you'll be able to exceed that $100 million target. I guess I'd be curious by how much do you think you're going to be able to exceed it? Is it just modestly? Is it maybe more meaningful?

And then as you think about your fiscal '27, if indeed, your inventory is normalized to your target, what's the right way to think about your margin structure? And I guess this goes to the previous question that was asked in terms of the path to margin normalization. If we're done destocking, can we start thinking that your margins are going to be normalized gross margins on equipment?

Mig, this is Bryan. I'll tackle the first half and then turn it over to Bo for the second half. As far as how much we look to exceed the $100 million by -- of course, the $100 million is what we're maintaining publicly is our goal. Internally, I can tell you, Bo and myself and the team, our goals are a lot higher than that. But there's a lot of variables here for the rest of the year.

And so how those variables play out, will largely determine where that comes in. But at this point, that's essentially what I can say is internally, our goals are significantly higher than that.

Yes. And then from a follow-up on the margin question. Again, what we're trying to do is provide some historical context. And I guess I'll just kind of go back to that, right? What I'm essentially saying is in the 4 years in the last decade plus that we saw equipment margins, including this year, sub-8% were the years where we were doing the significant work on inventory.

Even if you look at like in FY '18, which was clearly not a mid-cycle type environment because we had gotten work done in '16 and '17, we had seen that equipment margin recover kind of those normal ranges. So I would expect that we're approaching that normal range, certainly as we work through next year.

And again, I logically [indiscernible] based on what we're seeing and still what we have ahead of us, I would say that it's going to kind of sequentially improve as we work through the year to do that toward that normalizing.

Understood. Last question for me. As we think about calendar year 2026, maybe your fiscal '27, the OEMs are dealing with cost pressures, right, tariffs and such. And I'm curious for model year 2026, what are you seeing from a pricing standpoint from the OEM?

And in terms of the orders that you're taking for calendar 2026, are you able to pass through those OEM price increases? Or is this something that you have to accommodate for with either discounts or essentially items that impact your margin as a dealer instead?

Yes. Mig, I know you were done at Farm Progress Show and visit with the OEMs. And generally speaking, I think they're talking about the 2% to 4% increase. And from a lot of our suppliers, we're seeing the same thing. But then many different incentive packages that can come together off of that to try to depending on the deal and to get something to work for the grower.

So we're working hand-in-hand with our suppliers on every deal, and it's a very targeted approach right now. I know as they commented to, we're very early on in some of the '26 presale programs. So it's quite early to tell with results.

Again, we'll see what happens with interest rates here with commodity prices, what happens with the crop if they get this big crop in, obviously, it's a big shot in the arm with bonus depreciation coming back. So we're very excited about that. And so yes, I think you do see reflected in our margins is largely the aggressiveness we're going on the inventory reduction and inventory optimization.

But it certainly can have some impact on our margins for sure and our ability to pass that all through or not and same with the OEMs, of course. And again, that's where we're really partnering together to take a very prescriptive approach on each one of these deals.

Yes. Maybe just really tangent to that and stating the obvious, with weak commodity prices where we're at today and pressuring farmer profitability, further cost increases are going to be really challenging and ultimately, probably lead to some level of demand destruction, right?

So what we're trying to do -- in terms of new deals, as we think about presales is maintained discipline in terms of what kind of margin we need to expect, so we can get back towards normalization. And if that means that there's not as much demand for equipment, then that's going to put pressure on the volume that's out there. And that's our stance, and that's kind of our view on things. So we're partnering with the OEMs and clearly going to need to work hard to see if we can shape up for the first half of next year.

The next question comes from Ted Jackson with Northland Securities.

Congratulations on the quarter. My first question is just jumping into inventories. Can you give a little color with regards to -- I mean it will be in the Q, but what was the mix on inventories between new and used equipment and then within the bucket of used equipment. Could you kind of give a discussion with regards to the mix there between newer-used equipment and older used equipment?

Yes. So one thing I would say about that and obviously inventory being pretty relevant and prudent, we have a couple of charts and specifically on Page 15 of the earnings deck. I kind of back out the new use, the turns -- it also shows noninterest-bearing, interest-bearing, equity and inventory.

A couple of interesting things there are that the amount of interest-bearing has really been flat the last couple of quarters. I've talked about for a couple of quarters now believe in a break the back in terms of absolute dollar value of total aged inventory, that kind of peaking plateauing in the third quarter, and then we really start to see that downward trajectory, which then reflects in lower floor plan interest expense.

Our used equipment did decrease about $50 million in the quarter. And then -- or sorry, that's for the first half of the year. Used has gone down about $50 million, news gone up about $75 million. And the new is a reflection of the timing of receiving equipment and, of course, and then some FX internationally. So we've seen the total value of used equipment go down.

We've seen sort of the flattish amount of interest-bearing inventory, which will start to go down I believe, as we progress through the next quarter and kind of finally see that absolute dollar value start to trend downward. So things are progressing as we've expected. The tone that we're that we described in the comments and then the color here is that we're getting increased confidence in exactly what we're going to achieve there.

But yes, for those interested, just trying to point out all of these things for you and represented there in that slide on the earnings deck.

One of the OEMs at the farm show made a comment that they were seeing, obviously, a more challenged environment on newer used equipment and more demand on older used equipment. So they are being 2 to 3 years old, and we're getting 8 years old.

And that they were putting incentives in place to their dealer network to incentivize people with the older equipment to trade in for the newer used equipment because it was easier for them to make that swap and they get rid of the older equipment. Is that something that you're seeing within your own world? Is that something that you guys are trying to do itself is that some part of what you're trying -- your programs are in place to maybe try to bring dawn that equipment.

So that's kind of where I was going through with that. And then I'll step back the question I want to ask it. I mean, we got a long and when you get to that first.

Sure, Ted. Yes. Absolutely, that's piece or an ingredient in our recipe that we use all the time as well. We've used that on the last couple of downturns as well. So it's certainly something we're doing. Every time there's a downturn the late model used is always the biggest problem area. It's always the blood. And so to work that stuff through and work it down is kind of historical lever that we and our fellow dealers have traditionally pulled.

So we've certainly had a focus on that and been having quite a bit of success in doing that.

And then I'll ask one more, and then I'll get in line. Going back into inventories and such as another comment that came out of those wins was that there were instances where dealers were actually not willing to do trade-ins because they didn't want to bring the used equipment into their yards. And that was leading to an opportunity to pick up market share by this particular OEMs channel being a little more aggressive.

And so I guess my question would be sort of on 2 fronts. I mean at one front is there ever instances where you guys actually don't take a sale because you don't want the used equipment -- and then if I think about that from another perspective, if you do take the sale, is there an opportunity for you to pick up market share, if you would, in your regions by taking these deals where dealers from continuingly and perhaps we're not willing to do the credits. So it's over a 2-part question there, and that's my last thing.

Yes. We've certainly seen a little bit of that, Ted, that has been happening. But there's a lot that comes into the decision for a grower to switch brands and in the full support package that comes with that. So they -- it has been something that we've seen a little bit, but also -- we highly encourage our sales team.

We quote everything. We never walk away from a deal. It's math. It's a numbers game. It's very important that you got to know your numbers. But every deal makes sense at some point. And so that the trade-in value might be a lot lower than the customer wishes. The trade difference might be a lot higher than the customer wishes or the annual payments might be a lot higher.

But there -- we have such a professional back-office team here on our evaluations and how they follow the used market. And so in the predictive analytics that we're using along with current data. And so that's really the most important thing is you got to get the amount of money right that it could take to recondition the trade properly to get it turned in a timely fashion, and you got to get it on market to where the market is going. And then beyond there, like you can make the deals make sense.

So the only time the deals don't work as if a dealer since we're all human screw one of those factors up every now and then or lose discipline and stray from what the numbers say it should be. So we've certainly picked up some of those deals. We've had -- we've seen some customers that have done some switching. But again, just I would put the asteric on it that there's a lot that growers consider when they make the switch and look at the support.

And with that, maybe another thing that didn't get talked about as much is, both us and dear dealers, I know, have been moving some of that late model use that we just talked about earlier to those growers instead of not doing anything. So that's been a good opportunity to move some late model used.

So part of that math that he's describing is, of course, factoring in how many months supply you have, right? So that's what goes into it, where is the market going, but also how many months supply do you have? What can you tying to achieve, the higher month supply, the lower that we're going to be able and willing to pay for a trade, you quote the deal and then it either works or it doesn't. And that's been our consistent approach.

The next question comes from Laura Mar with [indiscernible]

My question is just with different OEMs having varying exposure to tariffs based on their side chain. How is this affecting your floor planning arrangements and allocation strategy.

Well, so when I hear floor plan, I think about our plan interest expense, and that, I guess, long and short would be that, that hasn't really impacted it, right? Overall, even outside of tariffs, what we're trying to do as we continue to leverage our scale more and more is minimize our stock inventory and drive higher levels of pre resale. Now that happens to also fit when you're talking about increased costs, whether it's because of tariffs or otherwise.

But our objective, I guess, remains the same there, get lean and mean on stock levels of inventory that in itself helps your turns and lowers your floor plan interest expense, focus on those presales, making sure that we're doing everything we came via how we incentivize our team but also how we make presales the best deal for customers to drive more and more behavior in that direction so that there's less of that risk that sits on our balance sheet.

The next question comes from Steve Dyer with Craig Hallum.

This is Matthew Raab on for Steve. Maybe for Bo. What's the line of sight to OEM incentives in the second half? And then I guess with that, any sort of cadence you can give us on Q3 versus Q4 and how that might compare versus last year? .

Dan, I appreciate the opportunity to do that. First of all, when it comes to incentives relative to presale activity for the back half of the year. That stuff is really already all out there. I mean, clearly, we're all still working together to get deals done, but I would say pretty clear on what that looks like and reflected in our guidance.

Now to do some comparisons to the prior year, well, first, I'll start with Q3 to Q4. So overall, total revenue Q3 to Q4, we are assuming it's going to actually look pretty consistent. However, there is a mix change. And what I mean there is that last year, we saw parts and service in Q4 declined sequentially 30% versus Q3.

And we would expect something similar happening as well, right? So what I'm saying is if you think about that, then, Q3 is going to show more gross margin and profitability than Q4 because Q4, the time and attention from our shops is focused on getting a lot of presales delivered before year-end. So that directs a lot of our energy to delivering equipment, less of it on that parts and service side.

You see that mix change the profitability change. The other thing, the anomaly -- the other anomaly that I would point out this year, is Europe and specifically Romania with those pension funds kind of expiring at the end of September. So we saw significant growth in Europe in the second quarter.

Third quarter itself we're assuming we will see about a doubling about 100% year-over-year growth in Europe in the third quarter. And then actually, when you get to the fourth quarter and those funds going back, we're actually expecting like a 20% year-over-year pullback in Europe. So those are some underlying dynamics, albeit a segment. It's a smaller portion of our business. But then again, overall, Q3, Q4 total revenue is similar, pretty significant mix, just so you're going to see very different profitability outlooks in those periods.

Okay. That's great. And then just quick on parts and service, maybe I missed it, but are we still expecting relatively flat revenue there for the full year versus last year?

Yes. Yes, exactly. So part flattish, the changes that we have implied in the guidance are really reflective of what we're expecting from an equipment perspective.

The last question comes from Ted Jackson with Northland Securities.

I just wanted to ask with regards to the pending farm bill and that kind of farmer support. Just a little color on what you are hearing is going to be included in there? And just maybe just a little saying is a little painter picture a bit in terms of what looks like is going to happen with that that's going to come on the former.

Yes. There's a lot of debate around that right now, Ted. But certain -- the biggest thing that the growers are lobbying for is more permanent support in there. It's been a long time since we've had a new farm bill here. We keep getting the continuation of the old farm bill, and they've most recently here had put in a lot of elements of it put into the big beautiful bill, which, hey, there was a lot of positives in there.

So we certainly like that. But a permanent farm bill has been close to getting across the finish line here several times now. So that's what we're certainly lobbying for is just to see that done once and for all. And then just something lately that I've been talking about that I mentioned at the beginning of the call on a personal level with growers is really just that price support and coming more in the more organically, as I mentioned, just when you look at the stock-to-use ratios or supply and demand, and just continuing to find more uses for crops.

There was a recent study that just came out in Nebraska that showed on more recent vehicles, the mileage was almost the same with 1 mile per gallon less with E15 vehicles or usage. And actually, on the slightly older vehicles, it was 1 mile per gallon better. And so the state in Nebraska did a test with 100 of their own vehicles. And so we got to get that word out better. There's so much opportunity here for increased independence and diversity of our resources by leveraging ethanol better and by leveraging soybeans better and just so many more products out there that we can make with soybeans as is one example.

So funding for research in those areas also less talked about previously, but it's certainly an area that I can tell you we're pushing for on our end.

Thank you. At this time, I would like to turn the call back over to management for closing comments.

Thank you for your interest in Titan, and we look forward to updating you with our progress on our next call. Have a great day, everyone. .

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.