Greetings and welcome to the Titan Machinery Fourth Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Mr. John Mills of ICR. Thank you. You may begin.

Thank you. Good morning, ladies and gentlemen. Welcome to the Titan Machinery fourth quarter fiscal 2021 earnings conference call. On the call today from the company are David Meyer, Chairman and CEO; Mark Kalvoda, Chief Financial Officer; and Bryan Knutson, Chief Operating Officer. By now everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2021, which went out this morning at approximately 6:45 AM Eastern Time. If you’ve not received the release, it is 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. We suggest you access the presentation now by going to Titan's website at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on slide two of the presentation our Safe Harbor statement. 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 current expectations of management and involve inherent risks and uncertainties including those identified in the Risk Factors section of Titan's most recently filed Annual Report on Form 10-K. 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, during today's call, we'll 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 in Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We've included a reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release. The call will last approximately 45 minutes. At the conclusion of the prepared remarks, we will open the call to take your questions. Now, I'd like to introduce the company's Chairman and CEO, Mr. David Meyer. Go ahead, David.

Thank you, John. Good morning, everyone. Welcome to our fourth quarter fiscal 2021 earnings conference call. On today's call, I will provide a summary of our results and then Bryan Knutson, our Chief Operating Officer, will give an overview for each of our business segments. Mark Kalvoda, our CFO, will then review financial results for the fourth quarter and full year of fiscal 2021 and conclude with some commentary around our fiscal 2022 modeling assumptions. If you turn to slide three, you will see an overview of our fourth quarter and full year financial results. We generated fourth quarter revenue of $436.7 million, which exceeded our expectations, increasing 24% versus the prior year due to the strong sales in our Agriculture and Construction segments. The stronger revenue combined with lower interest expense resulted in a $5.6 million increase in our adjusted pre-tax income to $6.8 million and a significant lift in our adjusted earnings per diluted share to $0.23 compared to just $0.02 last year. This strong finish in the fourth quarter made for an exceptional year in what is otherwise considered to be a challenging operating environment with the well-documented complexities associated with the COVID pandemic. We are extremely proud of our accomplishments and our financial results demonstrate our team's commitment to stay focused on our customers who are working in the fields and on job sites. We’ve generated full year revenue of $1.41 billion, which was up 8.1% compared to fiscal 2020. Our adjusted pretax income grew 52.5% to $38.1 million versus $25 million for the prior year, driving adjusted EPS of $1.26 compared to $0.84 last year. Before I turn the call over to Bryan, I want to thank all our customers and employees, who in the face of a pandemic and weather challenges, demonstrated the resilient nature, which is fundamental to the industries in which we operate. I will now turn the call over to Bryan to review our three segments in more detail.

Thank you, David, and good morning, everyone. I'm excited to cover our three business segments this morning, and will be available for Q&A after our formal presentation. On slide 4 is an overview of our domestic Agriculture segment. We are seeing much improved farmer sentiment due to the progressive strength in commodity prices through our fourth quarter and continuing to date. In addition to the stronger commodity prices, favorable yields in much of our ag footprint combined with USDA payments, led to improved net farm income for calendar year 2020. Additionally, fall harvest conditions were ideal for most of our farm and ranch customers to get their fields in great shape for the upcoming spring planting season. Our business is well positioned to support the aging fleet of equipment with our focused parts and service strategy. We continue to pursue consistent growth in parts and service revenue, which is supporting strong gross profit margins and a healthy pre-tax income contribution. In addition to the stronger net farm income and improved farmer sentiment, we continue to see replacement demand, precision technology, and connected machines as ongoing catalysts for new equipment purchases. As a result, we anticipate the momentum within our ag segment to continue throughout our fiscal 2022. Turning to slide 5, you will see an overview of our domestic construction segment. Although our construction equipment segment continues to feel the economic impact of COVID, we are seeing improving industry trends due to low interest rates, economic stabilization, net farm income growth, improved oil prices, and continued optimism for future infrastructure investment. The operational improvements that our team has implemented over the past couple of years produced improved fourth quarter pre-tax profits and full year adjusted pre-tax income. Late in the fiscal fourth quarter, we divested two of our CE stores in Phoenix and Tucson, Arizona. Not only will this be advantageous to our CE segment profitability, but also supports our strategy of operating and acquiring locations in core markets, where we can leverage logistics, similar equipment specifications, and customer synergies. Before we turn to slide 6, I want to share a couple of comments on the ERP implementation, which impacts our domestic ag and CE business. We have been successfully operating one pilot store in our new ERP platform since July 2020 with an expected full rollout in the next 12 months. With the calendar year 2020 COVID challenges, along with additional ERP development, we are experiencing an extension of our original timeline resulting in some additional fiscal 2022 expenses that will be incurred, which Mark will discuss later. Now moving to slide 6, we have an overview of our International segment, which represents our business within the countries of Bulgaria, Germany, Romania, Serbia, and Ukraine. In addition to COVID-related disruptions, our International segment is being impacted by extremely dry weather in Romania and parts of Bulgaria and Ukraine, which negatively affected summer and fall crop yields. The sentiment of the European farmer is improving due to improved global commodity prices and the winter crops receiving some much-needed moisture, creating a better outlook as our customers approach the 2021 growing season. We continue to focus on the parts and service areas of our International business as customers in these developing markets are looking for higher levels of product support, as equipment becomes more sophisticated and technologically advanced. As with our North American ag business, new equipment demand is being driven by precision technology and connected machines and the performance and reliability of modern farm machinery. Before I turn the call over to Mark, I'd like to thank all of our employees for a very successful fiscal 2021. In the face of adversity, our employees stepped up and outperformed at all levels of the organization, producing outstanding results while supporting our customers and their operations. With that, I will turn the call over to Mark to review our financial results in more detail.

Thanks, Bryan. Turning to Slide 7. Our total revenue for the fiscal 2021 fourth quarter was $436.7 million, an increase of 24.4% compared to last year. Exceptional strength in our equipment business was the main driver of the strong revenue results in our fourth quarter, which increased 34.7%. While we experienced solid equipment growth in both our Agriculture and Construction segments, Agriculture was particularly strong, due to the improved end market conditions Bryan discussed earlier. As I mentioned on the call – on the last call, we had very difficult comps for our fourth quarter parts and service businesses, where parts and service were up 19.2% and 16.6% respectively, due to the very difficult harvest conditions. This past fall's harvest was quite different, as weather conditions allowed for a much quicker harvest with less stress on equipment. As a result, parts sales were down 4.7% and service was up 4.5% in our current year fourth quarter. Our rental and other revenue remained under pressure due to headwinds within our Construction segment and decreased 28.8% in the fourth quarter. As a result, we experienced a 260 basis point compression in our rental fleet dollar utilization from 25% in the fourth quarter last year to 22.4% in the current quarter. Rental revenue was also down due to a smaller fleet size where we ended the year at $77.5 million compared to $104.1 million in the prior period. On Slide 8, our gross profit for the quarter increased by 10.8% to $67.7 million, due to the significant increase in our revenue. But the mix of sales, which favored equipment, caused our gross profit margin to decrease by 190 basis points to 15.5%. Our operating expenses were essentially flat at $60.5 million for the fourth quarter of fiscal 2021. Flat expenses coupled with the strong revenue growth we experienced generated significant operating leverage during the quarter. Operating expenses as a percentage of sales improved 320 basis points to 13.9% for the fourth quarter of fiscal 2021, compared to 17.1% of revenue in the prior year period. Impairment costs were $400,000 for the fourth quarter of fiscal 2021, compared to $3.6 million in the prior year. Floorplan and other interest expense decreased $1 million to $1.5 million compared to the same period last year. The decrease was due to a lower interest rate environment, a lower interest rate spread under our new amended credit agreement that was finalized in April 2020, and lower borrowings on our line of credit. In the fourth quarter of fiscal 2021, we realized adjusted net income of $5.3 million compared to $600,000 for the prior year quarter. Our adjusted fourth quarter fiscal 2021 net income excludes a $3.3 million charge for Ukraine income tax valuation allowance adjustments, while the prior year figure excludes a $4.6 million benefit for domestic income tax valuation adjustments. Our adjusted earnings per diluted share was $0.23 for the fourth quarter of fiscal 2021, compared to $0.02 in the fourth quarter last year. For the fourth quarter of fiscal 2021, adjusted EBITDA increased 69.1% to $13.7 million, which compares to $8.1 million in the prior year. You can find a reconciliation of adjusted net income, adjusted income per diluted share and adjusted EBITDA to the most comparable GAAP amounts in the appendix to the slide presentation. On Slide 9, you will see an overview of our segment results for the fourth quarter. Agriculture segment sales increased 40.7% to $303.2 million, which drove a significant increase in our adjusted pre-tax income to $8 million in the fourth quarter, which is a $5.5 million improvement from the $2.5 million we generated last year. Strong equipment sales combined with lower floor plan interest expense drove the robust increase in adjusted pre-tax income. Turning to our Construction segment, revenue increased 1.9% to $88.9 million compared to the prior year period. Lower operating expenses combined with lower interest costs drove a $1.6 million improvement in segment adjusted pre-tax income to $600,000 compared to a pre-tax loss of $1 million in the same period last year. In the fourth quarter of fiscal 2021, our International segment revenue was $44.6 million. The decline of 7.5% compared to the prior year period was the result of lower equipment revenue caused by the industry conditions Bryan discussed earlier, partially offset by an increase in parts and service revenue. The overall lower revenues caused our adjusted pre-tax loss to increase $400,000 to $2.7 million compared to $2.3 million in the prior year. Turning to slide 10, you will see an overview of our full year revenue results. Fiscal 2021, total revenue increased 8.1%, compared to last year, driven by 10.8% growth in equipment revenue and was further supported by solid contributions from our parts and service businesses, which were both strong contributors through the first nine months of the year and finished up, 4.5% and 8.1% respectively, for the full year. Rental and other were down 20.8%, due to the smaller fleet and lower dollar utilization. On slide 11, our full year gross profit was $261.4 million, a 4.2% increase, compared to the prior year, while our gross profit margin decreased 70 basis points to 18.5%. Similar to the dynamics we realized in our fourth quarter, we also see the effects of the strong equipment revenue growth, driving gross profit dollars, but diluting overall margins due to mix. Operating expenses decreased by $4.9 million or 2.2% for the full year of fiscal 2021, compared to the prior year period. We were successful in decreasing our operating expenses during the year primarily due to expense reductions in our Construction segment as well as benefiting from lower operating costs caused by the pandemic. As a result of lower expenses and higher revenues, operating expenses as a percentage of revenue decreased 170 basis points to 15.6% in fiscal 2021. Impairment costs decreased $600,000 to $3.2 million, in the current full year period compared to $3.8 million in the prior year. Floor plan and other interest expense decreased $2.6 million or 26.8% due to a lower interest rate environment, a lower interest rate spread under our amended credit agreement and overall lower borrowing levels. For the full year fiscal 2021, our adjusted net income was $28.2 million, an increase of 51.5% from the prior year. Our adjusted earnings per diluted share was $1.26 for fiscal 2021, representing a 50% increase compared to $0.84 in the prior year. For fiscal 2021, adjusted EBITDA grew 24.6% to $65.4 million, compared to $52.5 million in fiscal 2020. Turning to slide 12, we provide our segment results for the full year fiscal 2021. Overall, our adjusted pre-tax income increased 52.5% to $38.1 million for the full year. This improvement was largely due to the strength of our Agriculture segment we discussed earlier. But we are also happy to see our Construction segment achieve profitability, despite lower revenues. Our Construction segment team continues to build off of focused initiatives, which we believe will enable us to achieve sustained future profitability in this segment. The Ag and Construction results were modestly offset by the top and bottom line softness in our International segment. Turning to slide 13. Here we provide an overview of our balance sheet highlights at the end of the year. We had cash of $79 million as of January 31, 2021, which is higher than normal due to the very strong cash generation in fiscal year 2021 that I will discuss in a few minutes. Our equipment inventory at the end of fiscal 2021 was $338.1 million, a decrease of $177.8 million from January 31, 2020. This substantial decrease in both new and used equipment inventories was a result of strong end-of-year equipment sales combined with inventory that was sold in the divestiture of our Phoenix and Tucson Arizona locations, which also occurred in our fourth quarter of fiscal 2021. Strong sales combined with lower inventory levels accelerated our equipment inventory turns to 2.0 in fiscal 2021 from 1.5 in the prior year. I will provide a little more color on our inventory on the next slide. Our rental fleet assets at the end of the fourth quarter decreased to $77.5 million compared to $104.1 million at the end of fiscal 2020. In addition to the defleeting earlier in the year, we also sold rental fleet assets as part of our fourth quarter divestiture of the two Arizona construction stores. We anticipate our fleet size to increase slightly by the end of fiscal 2022 to around $80 million. As of January 31, 2021, we have $161.8 million of outstanding floor plan payables on $773 million of floor plan lines of credit, which leaves us with considerable capacity in our credit lines to handle our equipment financing needs. Our adjusted debt-to-tangible net worth ratio is a strong 1.0 compared to 1.3 in the prior year period and is well-below 3.5, which is the leverage covenant requirement of our two largest floor plan facilities outside our bank syndicate and credit agreement. Turning to slide 14. The amount of new and used equipment inventories are reflected in the size of the red and blue bars on the slide. As I mentioned, strong fourth quarter sales combined with the divestiture drove a $151.7 million decrease in new equipment and a $26.1 million decrease in used equipment as compared to January 31, 2020, generating the higher equipment turn of 2.0. Supply chain disruptions due to the pandemic and strong customer demand particularly in agriculture has created an overall tighter industry supply of equipment. Our equipment orders, level of presales and used equipment inventory have us well-positioned to meet our revenue targets for fiscal year 2022. Given the lower inventory starting point for the year and the strong end market in ag, we expect our inventory turn will continue to increase throughout fiscal 2022. The overall quality of our inventory remains very healthy. Our inventory under non-interest bearing terms, which can be seen by the gray bar on the slide ended the year at 29.2%, reflecting a higher mix of International inventory compared to that of the prior year. We have longer non-interest bearing terms available with domestic inventory purchases than we do with purchases in our International business. When procurement levels increase in fiscal 2022, we would expect to see this non-interest bearing percentage rise as well. Slide 15 provides an overview of our operating cash flows for fiscal years 2021 and 2020. The GAAP reported cash provided by operating activities for fiscal 2021 was $173 million, compared to $1 million last year. As part of our adjusted cash flow provided by operating activities, we include all our equipment inventory financing including non-manufacturer floor plan activity and adjust our cash flow to reflect the constant equity in our equipment inventory allowing us to evaluate operating cash flows exclusive of changes in equipment inventory financing decisions. After applying these adjustments, our adjusted cash provided by operating activities was a record $148.5 million for fiscal year 2021 compared to $17.8 million in the prior year. Solid bottom-line performance combined with good working capital management, including the reduction of equipment inventory, I just discussed drove this robust cash flow metric. This strong cash generation has allowed us to pay off all of our domestic interest-bearing credit lines and end fiscal year 2021 with cash on the balance sheet of $79 million. We have never generated this level of cash flow before and our balance sheet has never been stronger. On slide 16, we are introducing our fiscal 2022 full year modeling assumptions. Our business is performing well and we are bullish on our prospects this fiscal year given the improving macro backdrop particularly in ag. However, we believe areas of our business could continue to be impacted by the challenging global economy due to COVID creating a higher degree of uncertainty in these assumptions compared to a normal environment. For the Agriculture segment, our initial assumption is for revenue growth in the range of up 10% to 15%, which compares to our fiscal 2021 performance where we generated growth of 18.3%. The fiscal 2022 growth range, includes a full year revenue contribution from our HorizonWest acquisition that closed in May 2020. For the Construction segment, our initial assumption is for revenue to decrease in the range of flat to down 5%. Impacting this assumption is the divestment of our two construction equipment stores in Arizona at the end of fiscal 2021, which accounted for approximately $27 million of combined revenue. Excluding these revenues from the prior year base, our assumption results in a same-store sales range of up 3% to 8%. This divestiture reduces invested capital and will further strengthen the bottom-line results of our Construction segment. For the International segment, our initial assumption is for revenue growth in the range of up 12% to 17%. This segment is coming off a very challenged fiscal 2021 where the pandemic and weather weighed on revenues. Our assumption anticipates transitioning back to a more normal operating environment with some strength anticipated from higher global agriculture commodity prices. From a diluted earnings per share perspective, we are introducing a fiscal 2022 range of $1.25 to $1.45. This range now includes all ERP implementation expenses and in addition to normal variable expense increases on higher revenues anticipates expenses rising as we transition to a post-pandemic business environment and incur higher costs in areas like travel, fuel, and employee medical expenses. Considering these variables, we would not expect to see as much operating expense leverage on increased sales as we normally would, but still estimate our expenses as a percent of revenue will improve slightly relative to fiscal 2021. Regarding tax, we anticipate an effective tax rate for fiscal 2022 of approximately 29%. We still expect this rate will vary quarter-to-quarter as profit and loss mix fluctuates due to seasonality within our various international tax jurisdictions where corporate tax rates vary and valuation allowances exist. We will update you as necessary on our tax rate expectations as we progress through the year. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session of our call.

Thank you. Our first question comes from the line of Rick Nelson with Stephens Inc. Please proceed with your question.

Thanks, Mark. Good morning. I'd like to focus on inventory, the big reduction. We saw improved turns. You referenced some supply chain challenges. If you could speak to that and when you think inventories will normalize? And I guess the implications for margins right when supplies are tight, do you think that there's more pricing flexibility?

Sure. Thanks, Rick. This is Bryan. We do have as we mentioned a good inflow of presales coming in a nice amount of late-model used inventory on hand. Lease returns that will be coming back throughout the year as well as our current inventories and then our Q4 order book that opens soon here. So we're positioned well. We feel good. Obviously, there are some supply chain disruptions, as you mentioned a lot of them due to COVID, some of them due to the fairly rapid uptick in the commodity prices. But yes, that will potentially help margins as well. A lot of the growers are aware of the longer lead times. Of course, the manufacturers are ramping up production. And so again, we feel we're pretty well positioned there and looking to capitalize on that as we mentioned also the improved inventory turns that can come along with that.

Great. So equipment margins this quarter were relatively flat with last year. Is it possible to separate, or can you comment on what you're seeing on the new equipment side and the used equipment side?

Yes, I can address that, Rick. This is Mark. I believe this also applies to next year. With the increased revenue we are anticipating from new equipment, we notice that larger items like combines and four-wheel drives typically yield lower margins compared to smaller, lower-priced equipment, even in a more constrained market. This trend has contributed to our lower results for the quarter and affects our expectations for next year. Overall, I believe we can slightly enhance those equipment margins, but we will face some challenges due to the tighter market conditions you mentioned. However, we may be able to achieve better margins on used equipment. In terms of new equipment, our results may be somewhat limited by the fact that higher-ticket items make up a larger portion of our sales.

Okay. So your inventory turns two times. I believe your target has been two to three times. How do you see that playing out in fiscal '22? Will we potentially be at the upper end or even above your targets given the tight supply situation?

Yes. It's difficult to predict how everything will unfold with the timing of the inventory arrivals. However, considering the lower inventory levels at the beginning of the year and the robust end markets, particularly in agriculture, I can definitely see us reaching that 2.5 mark this year. Still, it will largely depend on when the equipment starts to arrive.

I guess just to follow up on that comment. What are you hearing in terms of the ability to source that equipment? What the timing as to when you think things would normalize?

Generally more towards Q4, most of it is baked through this point. Again, we've got a good level of presales through that point. And CNH and the other manufacturers have been ramping up quite a bit. So yes, generally into the Q4 time period.

Great. Thanks for the time and color and good luck as we push forward.

Thanks, Rick.

Thank you. Our next question comes from the line of Larry De Maria with William Blair. Please proceed with your question.

Thanks. Good morning, everyone. I wanted to start with a question about construction. I don't think anyone anticipates that fiscal year 2022 or calendar year 2021 will be exceptionally strong for construction, but it seems a bit conservative considering sectors like housing and agriculture, where you have a presence, appear to be performing better. What factors are contributing to this? Additionally, we have an easier comparison on the energy side which might improve performance. What is preventing stronger construction results at this time?

Yes, this is Dave. I believe we are aligning closely with what we're hearing from the industry. Our focus is on small to midsized construction equipment, which usually comes with slightly higher expectations, along with infrastructure projects. However, there are many uncertainties regarding the timing of these developments. Overall, we're optimistic about this segment, but the situation depends on both the pandemic and the recovery of the oil sector. There is still some caution in the market, and it's unclear how long that will continue or where the energy demand will ultimately go. Overall, I think we are in a good position and remain optimistic.

Okay. Thanks. And obviously, we expect to sell out a new ag equipment this year, more so than in a while. Can you talk about the conversations? I know you mentioned technology upgrades, but when growers are coming in to buy equipment, are they coming in more for the tech upgrades or more because they need to replace older equipment? And also, can you talk about take rates on these higher tech pieces of equipment this season versus maybe last season? How much more of that higher tech stuff are they taking this year?

Yes, thanks, Larry. This is Bryan. We're seeing a combination of tax purchasing and the upgrade of older equipment to more efficient options, along with advancements in technology. Technology is a significant factor driving sales. We're observing higher take rates, particularly with features like harvest command, which automatically adjusts the combine for optimal performance based on conditions. Our soil command is also quickly gaining traction, improving tillage for better seed preparation. Many precision planning components are experiencing high and growing take rates, along with steering and precision systems. Additionally, connected machines and telematics are steadily increasing. Overall, there are numerous technological drivers that we expect will continue throughout the year.

So with that in mind, that's really helpful. Two follow-up questions to that. First, if you're selling more larger, more expensive equipment that includes all this additional technology, shouldn't you be able to capture more margin, or is CNH capturing that? And with the telematics and connected machines, how will this impact your aftermarket capture rates? Will this have a positive effect on the mix over the next few years?

Yes. There are a couple of components to consider. First is the initial transactional price, which is currently driving purchases. Then there are ongoing revenues associated with it, such as annual subscription fees that farmers pay for data, along with the additional benefits that telematics provide for our parts and service business. This technology allows us to assist growers and contractors with their uptime, ensuring machines operate smoothly through preventive maintenance, and enables us to partner with them to enhance their profitability. There are multiple revenue streams from precision agriculture, parts, and services for us.

Okay. But it just seems like CNH is not sharing as much on this higher tech stuff, and keeping more than they're letting you guys do with selling it. I don't know, if that's right or not, but it seems like you should be capturing more margin upfront, if you guys are selling all these higher tech piece of equipment and software upgrades?

Yeah, yeah. I think an opportunity that we're really excited about is the ongoing incremental revenue opportunities, again, through subscriptions and through the additional revenue sources that it provides for us with parts and service will be a couple of examples of that.

Thank you. Our next question comes from the line of Mig Dobre with Robert W. Baird. Please proceed with your question.

Good morning to everyone. I want to continue with Larry's train of thought here. You're talking about this kind of life cycle opportunity that you have given precision technology and so on being added to the machine. But as you ran your own analysis on this, is there a way for us to understand, how much higher is the opportunity on service and maybe parts and maintenance on these upgraded machines versus equipment that was not smart for lack of a better term? I mean, is it 10% higher opportunity over the life of the machine? Is it 20? Is it 50? How would you describe it?

Hey, good morning, Mig. We've got the additional parts and service opportunity. And then as we go forward our Titan tech support teams will continue to offer the tech support services. So I don't have specific numbers for you at this time in terms of will that incrementally drive our parts business 10% per se or whatever. It is difficult to break down always with that parts purchase, or service purchase, specifically due to the technology or replacement or walk in et cetera. So at the point of sale, we don't specifically break down our purchase – our parts purchases as an example like that.

No, I mean, I understand that. But I would imagine, just like you say right, there's going to be a support revenue stream here associated with this equipment. It's more complex. It's perhaps less user-friendly without the proper support from the dealer. So I think we're all trying to understand as the industry is evolving here, what your part in this ecosystem is and how you're going to be profiting and benefiting from it. I think that all of us are really kind of asking the same question.

Yeah. And frankly, we're probably in the same boat with you there. But we're – we believe it definitely makes the customer stickier to us. We're adding resources to handle the tech support side of it to drive the sales of it. We are optimistic again to what it'll do for our parts and service. It just has been difficult to model out at this point exactly what impact it will have on parts and service as an example for us.

We have been managing ERP transition costs for the past two years and are nearing full implementation. As a result, we decided to include these costs in our regular operating expenses instead of adjusting them out. This year, we will incur additional costs related to internal resources for training and support, which we typically do not adjust out. Last year, the adjustments amounted to around $3 million, or $0.11 per share, and we expect this to increase slightly in the coming year, likely adding another $1 million to $1.5 million. Therefore, we are estimating approximately $4.5 million in incremental ERP costs compared to last year's adjusted figures.

Okay. All right. Then if I may I want to ask a question on construction. Maybe I missed this, but the two dealerships that you've divested, it was implied there that this is going to be margin positive with them being gone. Can you give us a sense for what these two dealerships, how much of a drag maybe they were to your fiscal 2021, or the benefit that we could get from margin from just these two being gone in 2022?

Yes. It gets a little tricky to answer that. I mean, we allocate out SRC or our corporate expenses here to those locations. With allocating those expenses out on those stores did lose like maybe $0.5 million something like that. But they did absorb some of the corporate costs. So taking that out it wouldn't be that much. But it was overall, like I said, with SRC allocation out there it was about $0.5 million.

Okay. It kind of begs the question on construction here. We're starting to see some growth. As somebody was pointing out earlier maybe your guidance is conservative in terms of how you're thinking about same-store sales for 2022. But look the margin in construction is still not probably where you want it to be. Can you remind us what the long-term vision is here? I mean, what are you guys working towards? I'm presuming that it's more than 0.3%. And how do we get there?

Our strategy is to significantly expand our parts and service business in conjunction with the construction sector. We have made notable progress in this area, while also concentrating on key products. The construction market is vast, encompassing aggregates, heavy mining equipment, and large road construction machinery, which are our primary targets. We are focusing on homebuilders, commercial construction, subcontractors, landscapers, and similar sectors. This targeted approach has yielded promising results. We have established a strong legacy with products like backhoes, mini-excavators, and mid-sized wheel loaders. Additionally, within our core footprint, we are addressing the needs of farmers and ranchers, particularly in areas like feedlots and chemicals. Equipment such as skid steer loaders and all-terrain forklifts are essential for land improvement. Many of our agricultural customers are also significant buyers of construction equipment, including crop input companies and ag processing plants. We see synergies within our workforce, particularly in regions like Des Moines, Omaha, Minneapolis, and St. Paul, which lie in our operational footprint. This collaboration with both our staff and ag-related businesses will bolster our growth. Concurrently, we aim to enhance our higher-margin product support services. In summary, this is our strategic approach.

Right. I mean, I appreciate that. It's just that we've been through a couple of cycles here with construction and we are yet to see actual margin momentum out of this business. And we're at the beginning of what probably is going to be a pretty good demand up cycle, right? So just as you've – David, as you're thinking strategically about this portion of the business, do you see this business getting to the point where it can be as profitable or close to as profitable as your ag business, or is there something in here that will still hold it back and we should keep our expectations in check?

No, we definitely have and there's been years where we've got some of our CE stores have actually been some of our top profitable stores as a percentage. So yes, I think it's definitely, if you look historically, there's been a lot of wealth created in the construction equipment distribution channel out there some creating multimillionaires. So yes, it's definitely a very viable segment. And like I say it is cyclical. There are some difference between the ag. But I think when we get into some of these common markets and stuff I think it works really well for us. So – but I can say, what we've done with some of our divestitures we're trying to really focus on in these markets and where we think it's a good environment to be profitable and it's in the right space. And I guess that's why we've made some of these divestitures to get ourselves in a better position.

Right. Well, final question for me. You spent a good amount of time talking about inventory and talking about tightness in the channel. I guess, what I'm wondering here is this. If demand is better than what you're anticipating right now in agriculture, so better than up 10% to 15%, do you think you have the ability to get inventory to satisfy that demand, or are things so tight now that you would simply have to sort of say 'Hey look I'm going to take the order but I might not be able to deliver the machine until fiscal 2023.' Can you help me understand that dynamic?

Yes, hey, Mig. We – as we go throughout the year here that could happen. There's a lot of growers that pre-sold crop last year and are just going to start recognizing these higher prices as we go throughout the year some of them maybe not until harvest time and so on. But if we got into that opportunity, again we do have a pretty good supply of late-model used. We've got presales that are coming in throughout the year. We've got some larger customers that we roll with that generate quite a bit of nice late-model used for us. So that also is another good opportunity for us. The lease returns that I mentioned earlier, we've got quite a few of those coming back, really nice supply of those. The new itself could get tight. So if you got into that situation you could see a bit of a change in mix of revenue for us from – to more used but – and then we do have the opportunity to pre-sell into next year as well, which is very common with the lead times that would – and a big uptick like that could end up potentially being captured for us next fiscal year when that equipment would ship in.

Okay. Just to clarify, because I think I heard you answer another question saying that, you're kind of expecting to be able to kind of catch up from an equipment availability and supply standpoint somewhere around the fourth quarter. But that's using current assumptions for growth and demand. If things are better than that then that's essentially the thing that kind of starts pushing things into fiscal 2023, right? Did I get that right?

Right.

Understood. Okay. Thank you so much.

Yes. Thanks, Mig.

Thank you. Our last question today comes from the line of Steve Dyer with Craig-Hallum Capital Group. Please proceed with your question.

Good morning, guys. It's Ryan on for Steve. I want to go at technology a little bit different direction than others have here. But we know there's increasing demand for greater technology in equipment that should boost parts and service accelerate through replacement cycle, et cetera for you guys. But what are you seeing as far as consumer desire for greater digitization of the retail and service experience and your guys' ability to buy, sell, service, do more online? And I guess, what are you guys doing from an investment standpoint? What are your customers pushing for there?

Yes, we continue to see a higher adoption rate of that all the time, especially with the younger generation farmers that are starting to come into play. These farms are starting to turnover more and more as we go forward. We've done a lot with our website to work on developing further our customer portal as well as our e-commerce site. So, giving our customers the ability to purchase parts online, schedule service online, we got a number of things built into our new ERP that will go with that when we do the full rollout as well. So we're making a lot of investments here on the technology side to continue to get more into better equipped, I should say for that with our customers.

Okay. So, first of all on the ag, there's been a little bit of a pause on that. I think the basic fundamentals out there. I think we're on the front edge of another round of consolidation, the aging dealer principals, the sophistication of the equipment, the capital requirements out there, lack of succession alternatives, things like that. So with COVID, to get this, it's been difficult to get totally engaged. The travel restrictions, people wear masks, a little awkward to go in and out of dealerships. And at the same time and most of the dealerships out there receive PPP loans, and they're in the whole forgiveness process right now. With that said, we've got a number of really quality, and I can say large acquisition targets that we're actually working through to the owners and the principals right now. So, I'm optimistic about that. And again, on Construction, again, we look at the market we don't really disclose exactly locations. But I guess we want that company to be profitable. And if it means investing in the right markets and investing when a lot of markets aren't working, we continue to look at that and do what we think is in the best interest for our shareholders on that. But definitely we're engaged. We've got the balance sheet to do some acquisitions out there, and we're really looking at doing some larger-quality acquisitions, and we're fully engaged with that. And we do think there's going to be a pretty good runway of consolidation, and we're right in the middle of that and we've got the balance sheet that will support it.

Great. Nicely put us guys. Nice results. I’ll turn it over.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Meyer for any final comments.

Thank you to everyone for participating in the call and your interest in Titan Machinery, and we look forward to updating you on our progress on our next call. So, have a good day, everybody.

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