Greetings, and welcome to Titan Machinery's Third Quarter Fiscal 2023 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. Jeff Sonneck of ICR. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen, and welcome to Titan Machinery's third quarter fiscal 2023 earnings conference call. On the call today from the Company are David Meyer, Chairman and Chief Executive Officer; Mark Kalvoda, Chief Financial Officer; and Bryan Knutson, President and Chief Operating Officer. Bo Larsen, who will be officially transitioning into the CFO seat tomorrow, is also on the call with us today. By now everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2022, which went out this morning at approximately 6:45 AM Eastern Time. If you've not received the release, it's available on the investor relations page 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; you may access the presentation now by going to Titan's website again at ir.titanmachinery.com. The presentation is available directly below the webcast information in the middle of the page. You'll see on Slide 2 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. These 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 factor section of Titan's most recently filed annual report on Form 10-K, and updated and subsequently filed quarterly reports on Form 10-Q. 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 maybe required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's press release or call. Please note that during today's call, we'll discuss non-GAAP financial measures, including results on an adjusted basis. I 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 reconciliations of the non-GAAP financial measures to their most directly comparable GAAP measures in today's release. The call will last approximately 45 minutes. At the conclusion of our 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. David, please go ahead.

Thank you, Jeff. Good morning, everyone. Welcome to our third quarter of fiscal 2023 earnings conference call. On today's call, I will provide a summary of our results and then Bryan Knutson, our President and Chief Operating Officer will give an overview of each of our business segments. Mark Kalvoda, our departing CFO will then review financial results for the third quarter of fiscal 2023 and provide an update to our full-year modeling assumptions. On that note, I'd like to take a moment and recognize Mark's contributions over his 15 years here at Titan Machinery. Mark has been a valued member of our executive team and was instrumental in establishing the solid financial position we enjoy to date. We appreciate all his help assisting Bo Larsen with his transition to the CFO post, which will become effective tomorrow, December 1st. Bo will bring substantial financial and technical leadership experience from his time with CNH Industrial, Raven, and PricewaterhouseCoopers, and we look forward to his future contributions. I'll turn the call over to Bo so he can introduce himself.

Thank you, David. I'm excited to join Titan Machinery. This is a great company that has been well-managed, as demonstrated by our strong balance sheet, expanding pre-tax margins, and important strategic acquisitions that position the business well for future growth. My transition has been going extremely smoothly with the benefit of Mark's guidance. I am looking forward to engaging with the investment community and working with our team to execute our strategic plan and deliver value to our shareholders.

Thank you, Bo, and welcome. With that, if you turn to Slide 3, you will see an overview of our third quarter financial results. We delivered another consecutive quarter of record financial results with third quarter adjusted earnings per share of $1.83. The ongoing strength of the Agriculture sector combined with our customer-centric focus drove consolidated revenue growth of 47% to $668.8 million. This performance is supported by strong contributions across each of our revenue streams: equipment, parts, and service. Our business continues to operate with greater efficiency, allowing us to drive significant operating leverage on the higher levels of revenue that we have achieved. This is demonstrated in our record consolidated pre-tax margin of 8.2% that we delivered in the fiscal third quarter, with each of our operating segments experiencing pre-tax margin expansion. At the segment level, our Agriculture segment continues to thrive in the current environment. While equipment revenue was a primary driver in terms of third quarter growth and dollar contribution, increasing 85%. We're especially pleased with our parts and service business that really shined in the quarter, increasing revenue by a combined 48%. Taking into account the higher margin profile of the parts and service business relative to that of equipment, the strong growth was a significant driver of our ability to achieve these record quarterly earnings results. Our Construction segment also performed well in the third quarter and delivered a 34% increase on the same-store sales basis. Due to the improved operating efficiency that we've been focused on driving over the last several years across our optimized footprint, we continue to realize a commensurate lift in our pre-tax margin as a result, which for the third quarter reached 7%. With respect to our International segment, we remain focused on driving higher segment pre-tax margins, which for the quarter reached 9.8%. We're very pleased with this result even though sales are down slightly in the third quarter. Our business continues to be quite resilient despite facing obstacles associated with the ongoing conflict in Ukraine and headwinds from the recent currency movements. The agricultural ministry in Ukraine has adapted to the food environment, and Titan is doing its part to help keep valuable equipment up and running. A majority of the cropland in our markets continues to be farmed. In summary, our results showcase the improvements we've made to our business over the past several years to drive higher levels of profitability through the cycle and demonstrate the value we've added through organic growth and accretive acquisitions. This has translated to results in excess of our guidance, which we are increasing again today to enable a new full-year EPS range of $4.55 to $4.85. With that, I will turn the call over to Bryan Knutson for his segment review.

Thank you, David. On Slide 4, you'll see an overview of our domestic Agriculture segment where customer demand for new and used equipment continues to outpace supply, primarily due to continued elevated levels of net farm income. The majority of our customers experienced excellent harvest conditions with yields that were for the most part at or above pre-harvest expectations with minimal drying costs. Furthermore, today's new equipment technologies and the efficiencies those generate become even more critical in these times of higher input costs for producers and are another key factor driving new equipment demand. Additionally, the current aged and higher-houred fleet remains a catalyst for parts and service revenue growth, and our service departments have a full book of uptime inspections that we typically perform in the offseason. Transitioning to our Heartland Ag Systems acquisition, I've been intimately involved with the integration process, which is progressing well, and I'm continually impressed with the quality of the Heartland organization and leadership team. Overall, for our domestic Ag segment, we anticipate a strong finish to our fiscal year as we continue to receive presold equipment and deliver existing on-hand inventory. We have a positive outlook with a customer waiting list to purchase calendar year 2023 units as allocation becomes available. Turning to Slide 5, you'll see an overview of our domestic Construction segment. We are proud of our same-store sales increase of 34.2%, which was primarily due to increased equipment demand. I want to thank our teams for another quarter of pre-tax margin growth, which has grown to 7% and is a testament to our team's ability to execute on our multiyear operational improvement plan. Similar to our North American Ag segment, construction equipment demand outpaces supply and is also experiencing long lead times and allocation for new equipment. Although the residential market is slightly moderating, we are still seeing good residential housing activity along with robust commercial construction taking place in our footprint. Other key drivers for our construction equipment business continued to be energy-related construction activity in our oil and natural gas producing markets in the Colorado Front Range and Western North Dakota Bakken fields. Road construction and other infrastructure-related projects continued throughout our markets. Farmers and ranchers are purchasing equipment for land improvement, feedlots, and material handling. Furthermore, the strong overall industry backdrop also continued to drive demand for rental equipment, which produced another solid quarter for fleet utilization. On Slide 6, we have an overview of our International segment, which represents our business within the countries of Bulgaria, Germany, Romania, and Ukraine. Similar to North America, our European customers are also benefiting from the higher global commodity prices. But the availability of new cash is still tight in Europe. We are pleased with the continued strong performance of Romania and Bulgaria and are seeing improvement in our operations in Germany as we continue to execute on our operational improvement initiatives. Our Ukrainian customers continue to farm, and we're supporting them with parts and service and limited equipment sales. In addition to domestic use, Ukrainian farmers are currently able to move grain through cross-border routes and Black Sea shipping corridors, albeit at risk of interruptions and with increased transportation and logistics costs. Despite the adversity of the prolonged war and disproportionate increases in fuel and fertilizer costs, our Ukrainian customers remained resilient. It's great to see the continued pre-tax profit contribution from our International segment due to solid new and used equipment margins, and growth in the important parts and service product support business. Next, I will turn the call over to Mark to review our financial results in more detail, but before I do, I'd like to thank our employees who work tirelessly through the busy fall season, supporting our customers and their equipment. The technological advancements of our new machines are incredible, but nothing compares to the essential value our employees bring to our customers' operations. With a very promising Q4 ahead of us, I'm extremely proud of all three of our segments as each of them has persevered remarkably through the supply side challenges, driving to record earnings, and overall outstanding performance year-to-date. Now, I will turn the call over to Mark to review our financial results in more detail.

Thanks, Bryan. Turning to Slide 8. Total revenue increased 47.3% to $668.8 million for the third quarter of fiscal 2023. Our equipment business increased 54.3% versus the prior year, driven primarily by strong same-store sales in our Agriculture and Construction segments and further supported by contributions from our Jaycox, Mark's Machinery, and Heartland acquisitions, which were not in the prior year's third quarter results. As David noted, growth in our parts and service business was also strong in the third quarter, increasing 35% and 21.7% respectively, reflecting our continued focus and efforts in this critical area of our business. Rental and other revenue increased 4.2% versus the prior year with dollar utilization of our Construction segment rental fleet increasing to 34.3% compared to 31.4% in the prior year quarter. This material improvement in utilization allowed us to grow revenues on a smaller fleet and expand rental margins compared to the prior year. On Slide 9, our gross profit for the quarter increased 50.9% to $140 million and gross profit margin increased by 50 basis points, driven primarily by stronger equipment and parts margins. Equipment margins were supported by a $2 million benefit recognized on the expected achievement of our annual manufacturer incentives, healthy inventories, and favorable end market conditions. The higher margins in these revenue categories were partially offset by a shift in sales mix toward equipment. Operating expenses increased $21.9 million versus the prior year to $84.9 million for the third quarter of fiscal 2023, primarily due to the inclusion of Heartland operating expenses starting in August 2022, as well as higher variable expenses on increased revenues and some remaining acquisition-related costs associated with the Heartland transaction. This increase was more than offset by revenue growth and led to 120 basis points of operating expense leverage compared to the prior year, reducing our operating expenses to 12.7% as a percentage of revenue. Given the strength in parts and service and our discipline on expenses, we continue to achieve higher absorption rates. A chart reflecting this annual progress can be found in the appendix to this slide presentation. Floor plan and other interest expense was $1.8 million compared to $1.3 million in the prior year period. The slightly higher interest expense was due to the utilization of our bank syndicate line in the short-term to help fund the Heartland acquisition. We expect to be fully out of the line by the end of our fourth quarter. In the third quarter of fiscal 2023, our adjusted net income nearly doubled to $41.5 million, which equated to adjusted earnings per diluted share for the quarter of $1.83 and compares to last year's $0.96 performance. Adjusted EBITDA increased 79.8% to $63.5 million compared to the third quarter of last year. You can find a reconciliation of adjusted net income, adjusted earnings per diluted share, and adjusted EBITDA to their most comparable GAAP amounts in the appendix to the slide presentation. On Slide 10, you will find an overview of our segment results for the third quarter of fiscal 2023. Agriculture segment sales increased 75.2% to $493.3 million, which once again helped drive nice operating leverage and resulted in segment pre-tax income increasing 114.3% to $42 million, representing a pre-tax income margin of 8.5%. Beyond the extensive improvements we've made to our operations since the last cycle, the third quarter's strong margin performance was also supported by the aforementioned recognition of the manufacturing incentives. Turning to our Construction segment, revenue increased 8.4% to $86.4 million compared to the prior year period. Growth was driven by a same-store sales increase of 34.2%, primarily due to the increased equipment demand, partially offset by lost sales contributions from divestitures. Pre-tax income grew 70.2% to $6.1 million versus the prior year period, representing a margin of 7%, which was a 250 basis point improvement versus the prior year quarter. We are proud of the continued improvement in this segment and look forward to further margin expansion as we continue to drive improvements in this segment of our business. Our International segment, revenue decreased by 4% to $89 million, which reflects a 14% currency headwind on a weakening euro as well as the ongoing disruption within our Ukraine footprint. Despite the revenue decline, our adjusted pre-tax income increased 42% to $8.7 million. This represents a robust adjusted pre-tax income margin of 9.8% and reflects improved margins across the equipment, parts, and service. Turning to Slide 11, you can see our first nine-month results. Total revenue increased 35% compared to the same period last year. Year-to-date, equipment sales increased 41.2%, parts increased 22.3%, service revenue increased 13.9%, and rental and other revenue increased 3.6%. The nine months dollar utilization of our dedicated rental fleet improved 490 basis points to 30.7%. Turning to Slide 12, our gross profit for the first nine months was $331 million, a 38.8% increase compared to the same period last year. Our gross profit margin increased 60 basis points to 20.4% for the first nine months of fiscal 2023. Our operating expenses increased by 23.5% for the first nine months of fiscal 2023 to $217.8 million, which was influenced by the integration of our Heartland acquisition and increased revenues. However, this increase was more than offset by revenue growth and led to 130 basis points of operating expense leverage compared to the prior year, reducing our operating expenses as a percentage of revenue to 13.4%. Adjusted diluted earnings per share increased 87.9% to $3.72 for the first nine months of fiscal 2023 compared to $1.98 in the prior year period. Our nine-month adjusted EBITDA increased 70.3% to $133.9 million compared to $78.6 million in the prior year. On Slide 13, we provide our segment overview for the nine-month period. Overall, our adjusted pre-tax income increased 88.7% to $112 million for the first nine months of fiscal 2023, representing a margin of 6.9%, which is 200 basis points higher than the prior year period and demonstrates improvements across all segments of our business. On Slide 14, we provide an overview of our balance sheet highlights. We had cash of $46 million as of October 31, 2022. Our equipment inventory at the end of the third quarter was $474 million, an increase of $150 million from January 31, 2022, which was essentially driven entirely by an increase in new equipment inventories coming from both our supplier deliveries and current year acquisitions. Strong sales continue to drive high equipment inventory turns, which increased to 3.6 versus 3.1 in the prior period. I will provide a little more color on our inventory on the next slide. Parts inventory increased to $150 million at the end of the third quarter of fiscal 2023 from $96 million at the end of fiscal 2022. This higher level of parts inventory is the result of a concerted procurement effort to better ensure availability for our customers as well as parts acquired in the acquisitions of Mark's Machinery and Heartland Ag Systems, which also has a small manufacturing component to its business requiring additional parts and materials. Our rental fleet assets at the end of the third quarter increased to $78 million compared to $65 million at the end of fiscal 2022. We expect our fleet to remain relatively flat at this level for the balance of the year. With respect to our Ukraine business and related assets, total assets in the third quarter were $29 million, of which $24 million reflects our in-country assets and customer receivables. These amounts are down $10 million and $4 million, respectively, from the onset of this conflict. To date, we have had no material loss or damage to our inventories or dealership locations. I will update you on the top and bottom-line income statement expectations for Ukraine in a few minutes. Turning to Slide 15, the amount of new and used equipment inventories is reflected in the size of the blue and red bars on this slide. We continue to be pleased with the level of inventory shipments received from our suppliers. The receipt of these orders generated the higher sales performance and are reflected in the $150 million increase in new equipment inventory, which includes a high percentage of presold units awaiting pre-delivery setup from our service team, with deliveries to customers expected in the fourth quarter. At the end of the third quarter, inventory turns were 3.6 times. Given the favorable industry conditions, health of our inventory, and ongoing supply chain challenges, I continue to expect we will operate at higher turn levels throughout the balance of the year. Slide 16 shows our updated fiscal 2023 annual modeling assumptions, which we are raising today. For the Agriculture segment, we are increasing our revenue growth assumption to up 55% to 60% from up 50% to 55%. As you consider the growth rates versus prior year, please keep in mind that growth is benefiting from the full-year revenue contribution from our Jaycox acquisition, which closed in December 2021, and the partial-year revenue contributions from the Mark's Machinery and Heartland Acquisitions, which closed in April and August 2022, respectively. For the Construction segment, we increased our assumption for revenue to improve from a range of down 5% to 10% to our current assumption of flat to down 5%. Impacting this assumption is the divestment of our five construction equipment stores in Montana, Wyoming, and North Dakota in January and March of calendar 2022, which accounted for approximately $73 million of combined revenue. Excluding these revenues from the prior year base, our assumption equates to same-store sales growth of approximately 25%. For the International segment, we are reiterating our revenue growth assumption of down 0% to 5%. Considering the circumstances with the currency headwind and the Ukraine conflict, we are pleased with our year-to-date performance of down 1%, so I think this range continues to represent full-year expectations. Regarding Ukraine, we are now modeling revenues to be down approximately 40% versus 45% previously. On an EPS basis, we are expanding our expectations for a loss per share in Ukraine to be in the range of $0.05 to $0.10, as we have accounted for additional accounts receivable and inventory impairments associated with the ongoing conflict. Given our strong year-to-date performance and our expectation for a solid finish to the fiscal year, we are increasing our consolidated diluted earnings per share assumption by $0.85 at the mid-point to a new range of $4.55 to $4.85 for fiscal 2023. Finally, I wanted to quickly recognize my departure and Bo's arrival as CFO. It has been a great pleasure to work with the wonderful team here at Titan for the past 15 plus years. It is especially rewarding to see the robust expansion of our pre-tax margins across all segments of our business, following the years of hard work that are providing the foundation for the results we are generating today and the additional operating leverage that we expect in the future. Bo is a great addition to the team and I look forward to watching him and the rest of the Titan team continue these efforts for the years to come. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session of our call.

The first question is from Steve Dyer of Craig Hallum. Please go ahead.

Thanks. Good morning, guys. Nice quarter. Clearly, farm sentiment has improved pretty significantly from the spring just on the back of much better yields than people were expecting. What is sort of your visibility in the order book next year? I guess, I'm trying to figure out, is this a scenario where growers are making sort of multiyear decisions or if this is a you know, we made a bunch more money than we thought we would this year we need to sort of spend it?

Yes, thank you, Steve. What we're seeing is that we still have allocation, long lead times, and demand continues to outstrip supply. So, we continue our concerted effort; our teams are out on the ground communicating daily with growers where we're getting with those customers, booking pre-sells, and watching for any more allocation as it becomes available. There are drought-impacted areas in the country, so our teams are ready and also watching to see if dealers do not take any of their allocation, which would allow some allocation to free up due to that. And then likewise, with the rising interest rates and their impact on dealer balance sheets, we're also monitoring that. We're in a great position here with our strong balance sheet and our strong cash position as well as our professional team to make decisions quickly and react very quickly as anything becomes available. So right now, as you heard on the CNH call, they are keeping the order windows pretty tight, and we've got presold and locked in the allocations we have so far. It will be March at the earliest, maybe into that April, May time period before we start to get our final allocation for the end of the year.

Thanks, Bryan. I think it's safe to say that demand and your visibility into next year's order book from a demand perspective is much better than it typically is this time of the year?

Yes. It's really about managing the allocation and aligning the names with what we have, while staying close to our customers and being prepared to seize opportunities as they come up. We are very optimistic about the demand that exists; it's a good challenge to face.

As you look at inventory, it obviously looks a lot better than it was a couple of quarters ago. Are there any particular areas either sort of by product line or by geography where you wish you had a lot more?

Yes. Certainly, in the cash crop equipment where we really shine is up here in the upper Midwest; corn and soy territory, especially planters, high horsepower tractors, four-wheel drives, magnums, the sprayers, and floaters. So all the cash crop equipment is really tight. We would certainly take more of any of that.

Last one for me and then I'll pass it along. Just the M&A environment, whether it's other dealers, or more strategic acquisitions. What's your view on that at the moment?

Yes, Steve. This is Dave. We're currently talking to a number of owners. As you're aware, this continues to be a fragmented dealer network out there, with aging dealer principals. As you look at the growing sophistication of equipment and the needed support services to support this seasonal equipment today, the growing dealer capitalization requirements and lack of succession alternatives out there mean that there's still a long runway of acquisitions available. Another driver is the increasing complexity and regulations on the backside of the business, looking at HR, accounting, systems, and compliance. Our model leverages these backroom functions with dedicated professionals along with the stores to focus on the customer and employees, and this is appealing to the second and third-generation operators at these dealerships. We anticipate an orderly flow of quality acquisitions in the years ahead.

I guess I could sneak one more and you guys were very acquisitive kind of before the top of the last cycle. I guess, what did you learn or what would you do differently sort of as you look at the footprint and your appetite for acquisition with commodities at near all-time highs?

I think we're continuing to look at quality acquisitions. We'd like to see an upper Midwest footprint; we like these strong growing areas, areas where we got synergies in our equipment, and we'll continue to look at that. With this tightening of equipment, we're looking at how we can leverage these acquisitions with our current backroom staff already in place. I think you won't see any overhang of equipment on both the Ag and the Construction side. Continuing in this way will be really good for not only Titan but for the industry.

Thank you. The next question is coming from Daniel Imbro of Stephens Inc. Please go ahead.

Yes. Hey, good morning, guys. Congratulations to Bo on the new role and then to Mark for a great career. I want to start off with a question on the Heartland acquisition. It sounds like integration is going well. I'm curious to know how your customers are responding. Remember back at the time of the deal, you guys talked about potential revenue synergies. Just as we head into a seasonally higher time of the year, how are you feeling about that revenue capture target you initially laid out?

Yes. Hey, Daniel, this is Bryan. Yes, like you said, there's a lot of work to do. Even back to Steve's question, what we learned from the past replacement cycle and acquisitions is just how important integration is, right? A lot of time is going into that, but so far, it’s going really well, and we feel even more confident today about the potential synergies and all the shared opportunities that we had with the two great organizations. So, we're hearing from our customers; they're excited about all the additional service points, now available to them, all the additional parts points available to them, and the additional equipment available to them, leading to quicker reaction times from us and less downtime for them. We're really excited about that. If anything, there may be a little timing on those synergies just because we're struggling to get enough equipment to meet the demand for our legacy or historical customers, but we definitely reiterate and feel really strong about our synergy opportunities that we've laid out. Again, we just need to get the equipment to be able to do it.

That's helpful. And as I think about you mentioned the service and parts opportunity and to follow up on Steve's question. There's not enough supply demand, which continues to outpace it. That should be good, I would think, for service and parts into next year. But how are you feeling about parts supply? You've got a build-up in inventory. Should we expect, given this supply-demand backdrop, continued service and parts tailwinds into next year, maybe above historical trend growth rates just as we think about that part of the business?

Yes, you see supply chain, some signs of improvement here and there, and we feel some of that will pull-through earlier on the part side. But as Mark mentioned, primarily, we've really stepped up and have proactively ordered over parts. We're going to continue to do that through the supply chain, as it’s just part of our customer-centric strategy and it's helping drive increased part sales as well, and we continue with our parts initiatives. So, we definitely feel good about the parts opportunity next year. It won't be easy; the supply chain is still very disrupted on the part’s side as well. But again, another thing with our operating model is we have a dedicated team there as well, just like on the whole good side, and that’s all they do for a living. So, they really have the relationships and understand the systems well and are watching their screens every day for us. So, we feel good about that going into next year.

Last one for me. I wanted to ask about the Construction side. I think on Slide 5, you mentioned the residential construction is moderating. I mean, it makes sense given the backdrop. But could you frame up your exposure to the residential side? How much of construction is purely residential? And then within the guidance, are you assuming the residential construction continues to slow from here, given what's happened with rates? Or how's your outlook for the residential segments?

Yes. We are considering it to continue to slow a bit. Remember that throughout the year, we've had demand way outpacing supply. We've got a pent-up demand from our contractors, with a waiting backlog, and that's an aging fleet out there because of that. So, that'll also help on the parts and service side. You typically see on the horseshoe impacted more by this type of thing as well as on the opposite way on the positive side. The Midwest being a little more insulated, we're still seeing pretty good activity even with the slowdown in other parts of the country due to the rising rates. We still have a lot of activity and feel good about it; our exposure is also very diversified on the construction side. We do a lot with farmers and ranchers, as I mentioned for feedlots and land improvement, and so that end is still very strong, as well as with the infrastructure spending. We really work with a wide variety of contractors.

Thank you. The next question is coming from Larry De Maria of William Blair. Please go ahead.

First, can you maybe elaborate a little bit on the allocations? I mean, at this point, we expect to have significantly more availability next year, and with allocations, do you risk losing any sales at this point?

Larry, it's awfully far out to say for this point for next year yet. We really only have our allocations for the first part of the year at this point. It's hard to say on the OEM side; certainly, in my opinion, plant capacity is there. They're not free of the labor challenges that the rest of the U.S. is facing right now. And then, you also have some other labor impacts there and then the supply chain. As it continues to improve, it could open up right now. While looking at the business, we're not seeing any material changes or improvements. Given that demand is as strong as it is, to your question, we do miss some opportunities. On the flip side, that does elongate the cycle, which helps our parts and service business as well. So, there are some positives on that side, especially with the higher margin parts and service business.

So, if I hear you correctly, you might lose some sales or delay some sales, but you don't think you're risking losing to competitors that have maybe more availability or allocations differently? And is there any impact from the strike that you're seeing on availability?

At this point, we're seeing the supply challenges really impact everybody fairly equally, across all manufacturers and OEMs. So, it's more about timing and delays on the purchases for the customers rather than an overall share loss at this point.

Okay. And then secondly, can you talk about the average price increases you're seeing this year on new orders that you're taking in on the age, predominantly on the large ag?

Yes, it really depends on the piece and product category, but overall, it's in that high single digits on average as they come through. But again, it does really vary by product, even Larry.

Okay. And last question, one more, sorry. You talked about M&A and a good runway. Are there some larger deals still out there? Are we kind of done with most of the larger deals, and now we're kind of looking at onesie-twosie in the footprint, or are there some meaty opportunities out there still?

No, I think there are both out there, Larry. As you're just looking at some of these larger deals, the capital increases you're starting to see, in this equipment versus that $5.5 million up to $1 million for a combine and heads, right? Take a dealer, maybe he's grown from three stores to eight stores, and now he's taking in trade-ins, and everyone, the cap on these exponentially increases. Yes, I definitely think there's still some larger groups that are motivated, but there are also some one, two-store tuck-in operations out there. I think there's going to be opportunities across all different sizes of acquisitions here.

Thank you. We're showing time for one final question today. Our final questioner is going to be Mig Dobre of Baird. Please go ahead.

Thank you for squeezing me in. Mark, congrats, all the best in your next step in your career, and Bo, welcome. I guess my question is, I'm trying to get a better sense for the updated guidance and the variance versus the prior one. What surprised you the most? Basically, what led to this guidance increase? Can you talk a little bit through that?

Sure. Thanks, Mig for the congrats there. Yes, I think the two biggest areas were on the equipment revenue side. This comes to the level of deliveries coming in, that it was better than what we had projected. And when it's coming in, they're going out fairly quickly. So from a revenue standpoint, mostly on the equipment side, there was growth across both Ag and Construction. From a margin standpoint, it would be on the equipment margins as well. We did pull that up and it even includes the manufacturer incentives. We talked about recognizing $2 million here in the quarter. The model assumes about another $2.5 million in the fourth quarter, so that's higher than what we expected. But overall, margins continued to trend higher and look better on the equipment side. Those two areas primarily drove the increases here for the fourth quarter and reflected what happened in the third quarter as well.

And in terms of your comment on equipment availability being better than you anticipated. As you talk to the OEM, was there some clarification as to what led to that and whether or not this is sustainable on a go-forward basis?

Yes, I think we should go back to the fourth quarter last year; we had some cancellations of orders and delays of orders that went into the first quarter this year. We anticipated some level of delays for the most part this year. Particularly, in the third quarter, that did not come to pass as much as we had initially projected. It's better than what we expected. What you're hearing from the OEMs out there as well is that it's moderately improving. This is showing up and helping some of that equipment show up in our yards here.

And maybe the final question since you talked about margin being better than you expect to; certainly better than I expected. As you think about the fourth quarter and your updated outlook, what sort of equipment margins do you guys have embedded in there? How should we think about those margins sequentially or year-over-year, however you want to frame it?

So year-to-date, we're right around that 13.7%, so a quarter was particularly high at over 14%, but 13.7% for the year. We do expect that in the modeling for the full year to be down a little bit to about 13.4% as we have projected. It's some of those typical fourth quarter items that impact mix, where we're expecting it to be down somewhat from what we've experienced; some of that mix would be less on the international side, fewer equipment revenues, and then just some of the bigger deals and higher price tag units going out more so in that fourth quarter that would bring it down. But for the full year, the model has it ending at about 13.4%.

And if I remember correctly, in the prior year, in the fourth quarter, you had a little over $6 million of manufacturer incentives, and now you're only factoring in $2.5 million for the fourth quarter. So that's a theoretical headwind relative to the model, correct?

Relative to fourth quarter last year, that's correct. Our fourth quarter last year was quite high, as you pointed out. It had some of those unusual items. Yes, it was about $6.4 million total of manufacturer incentives, some of which was on the international side, about $1.3 million was on the International side and $5.1 million on the Ag side. So yes, that compares to about $2.5 million this year in our fourth quarter. That's correct.

Then if I may, one final question. I'm wondering why manufacturing incentives would be lower this year than they were in the prior year, given the fact that the volumes are better and your business has obviously done quite well in '23?

Yes, and when you add, so we booked $2.6 million starting in our Q2 this year. The answer is we really started recognizing it earlier this year because of our confidence in achieving that incentive. So we've had a total of about $4.6 million booked so far, and with the additional $2.5 million, we'll be at about $7.1 million total compared to the $5.1 million booked on the Ag side last year. It is higher when you look at the whole year. It's just the timing of when we began booking it into our results.

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Great. Thank you for your interest in Titan Machinery, and for your time on the call today. We look forward to updating you on our progress in our next call. Have a great day.

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