Titan Machinery Inc.: Form 10-K for the period ended Jan 31, 2024

Our Company

Titan Machinery Inc. and its subsidiaries (collectively, "Titan Machinery," the "Company," "we," or "our") own and operate a network of full service agricultural and construction equipment stores in the United States, Europe and Australia. We have been an authorized dealer of CNH Industrial N.V. or its U.S. subsidiaries (collectively referred to in this Form 10-K as "CNH Industrial") since our inception in 1980. CNH Industrial is a leading manufacturer and supplier of agricultural and construction equipment, which includes the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands. Based upon information provided to us by CNH Industrial, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the United States. In addition to the CNH Industrial brands, we sell and service equipment supplied by a variety of other manufacturers and distributors.

We operate our business in four reportable segments, Agriculture, Construction, Europe (formerly known as "International"), and Australia, within which we engage in four principal business activities:

• new and used equipment sales;
• parts sales;
• equipment repair and maintenance services; and
• equipment rental and other activities.

We offer our customers a one-stop solution by providing equipment and parts sales, equipment repair and maintenance services, and rental functions in each store. Our full service approach provides us with multiple points of customer contact and cross-selling opportunities. We believe our mix of principal business activities, as well as our broad geographic footprint, provide us with crop, weather and market diversification. This diversification helps to lower our overall exposure to adverse economic cycles that affect particular geographic markets or segments. We also believe our scale, customer service, centralized resources, and experienced management team provide us with a competitive advantage in many of our local markets.

Throughout our 43-year operating history, we have built an extensive network of 94 full service stores in the United States, 39 stores in Europe and 15 stores in Australia. Our Agriculture stores in the U.S. are located in Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming and include several highly productive farming regions, such as the Red River Valley in eastern North Dakota and northwestern Minnesota, portions of the corn belt in Iowa, eastern South Dakota and southern Minnesota, the I-80 corridor region in Nebraska, which sits on top of the Ogallala Aquifer, and the Snake River Valley in eastern Idaho. Our Construction stores are located in Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. Internationally, the Company's European stores are located in the countries of Bulgaria, Germany, Romania, and Ukraine, and our Australian stores are located in the states of New South Wales, South Australia, and Victoria in Southeastern Australia.

We have a history of growth through acquisitions. Those acquisitions vary from single dealerships to larger dealership groups with locations in multiple states. Since January 1, 2003, we have completed over 60 acquisitions located in 15 U.S. states, four European countries, and three Australian states, along with establishing a new network of dealership locations in Ukraine. We believe that there will continue to be opportunities for dealership consolidation in the future, and we expect that acquisitions will continue to be a component of our long-term growth strategy.

Products and Services

Within each of our segments, we have four principal sources of revenue: new and used equipment sales, parts sales, equipment repair and maintenance services, and equipment rental and other business activities.

New and Used Equipment Sales

We sell new agricultural and construction equipment manufactured under the CNH Industrial family of brands as well as equipment from a variety of other manufacturers. We also sell used equipment, which is primarily acquired through trade-ins from our customers. The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale commercial farming to home and garden purposes. The construction equipment we sell and service includes heavy construction machinery, light industrial machinery for commercial and residential construction, and road and highway construction machinery. Equipment sales generate cross-selling opportunities by populating our markets with equipment that will be in need of service and parts. Equipment revenue represented 77.8%, 77.5% and 75.4% of total revenue for the fiscal years ended January 31, 2024, 2023 and 2022.

Parts Sales

We maintain an extensive in-house parts inventory to provide timely parts and repair and maintenance support to our customers. Our parts sales provide a revenue stream that is less sensitive to economic cycles than our equipment sales. Parts revenue represented 14.9%, 14.8% and 15.6% of total revenue for the fiscal years ended January 31, 2024, 2023 and 2022.

Equipment Repair and Maintenance Services

We provide set-up and repair and maintenance services, including warranty repairs, for our customers' equipment. Our stores have service shops staffed by trained service technicians. In addition, our technicians are able to make off-site repairs at customer locations. We provide proactive and comprehensive customer service by maintaining service histories for each piece of equipment owned by our customers, maintaining 24/7 service hours in times of peak equipment usage, providing on-site repair services, scheduling off-season maintenance activities with customers, notifying customers of periodic service requirements and providing training programs to customers in order to educate them on standard maintenance requirements. Our aftermarket repair and maintenance services have historically provided a high-margin and stable source of revenue through changing economic cycles. Service revenue represented 5.7%, 5.9% and 6.8% of total revenue for the fiscal years ended January 31, 2024, 2023 and 2022.

Equipment Rental and Other Business Activities

We rent equipment to our customers, primarily in the Construction segment, for periods ranging from a few days to seasonal rentals. We manage the size, quality, age and composition of our rental fleet and closely monitor and analyze customer demand and rate trends. We service our rental fleet through our on-site parts and services team and market our rental equipment through our retail sales force. Our rental activities create cross-selling opportunities in equipment sales, including rent-to-own purchase options on our non-fleet rentals.

We provide ancillary equipment support activities such as equipment transportation, Global Positioning System ("GPS") signal subscriptions and other precision farming products, farm data management products, and CNH Industrial finance and insurance products.

Equipment rental and other revenue represented 1.6%, 1.8% and 2.2% of total revenue for the fiscal years ended January 31, 2024, 2023 and 2022.

Industry Overview

Agricultural Equipment Industry

Agricultural equipment is purchased primarily by farmers and commercial entities, such as cooperatives, that provide services to farmers for the production of crops used for food, fiber, feed grain and feedstock for renewable energy. Agricultural equipment is also purchased for "lifestyle farms", home and garden applications, and maintenance of commercial, residential and government properties. Deere & Company ("Deere"), CNH Industrial, AGCO Corporation ("AGCO"), and Kubota Corporation ("Kubota"), are the largest global manufacturers of agricultural equipment, and they each manufacture a full line of equipment and parts that supply the primary machinery requirements of farmers and other users of agricultural equipment. In addition to the major manufacturers, several short-line manufacturers produce specialized equipment that satisfies various niche requirements of end users. Agricultural equipment manufacturers typically grant dealers in the United States defined sales and marketing territories with designated store locations to distribute their products.

We believe there are many factors that influence demand for agricultural equipment, parts, and repair and maintenance services, including net farm income, commodity markets, production yields, tariffs and trade policies, interest rates, government policies, European Union subvention funds and individual European country subsidies, tax policies, local growing conditions, and general economic conditions. Any of these conditions can change materially in a short time period, creating volatility in demand for our products and services. U.S federal legislation, such as the 2018 Farm Bill and its subsequent extensions, attempts to stabilize the agriculture industry through various policies including (i) commodity programs consisting of direct, counter-cyclical and price support payments to farmers; (ii) conservation programs; (iii) crop insurance programs; and (iv) disaster relief programs. The Farm Management Deposit scheme is used by farmers in Australia to help deal with uneven income flows by making deposits during more profitable years and receiving repayments during years with lower profitability. We believe that these various federal policies reduce financial volatility in the agriculture industry and assist farmers in continuing to operate their farms during economic down cycles and through the adverse headwinds caused by trade policies and tariffs.

Construction Equipment Industry

Construction equipment is purchased primarily for use in commercial, residential and infrastructure construction, as well as for agriculture, demolition, energy production and forestry operations. Caterpillar, Inc., Deere, Komatsu Ltd., the Volvo Group, Terex Corporation, Doosan, and CNH Industrial are some of the largest global manufacturers of construction and industrial equipment. The market for construction equipment is segmented across multiple categories including earth moving, lifting, light industrial, asphalt and paving, and concrete and aggregate equipment. As with agricultural equipment, distribution of construction equipment in the United States is accomplished primarily through manufacturer authorized dealers.

CNH Industrial and industry reports show that demand for construction equipment in our markets is driven by several factors, including (i) public spending on roads, highways, sewer and water projects, and other public works projects; (ii) public and private expenditures for the energy, mining, and forestry industries; (iii) business conditions in the agriculture industry; and (iv) general economic and market conditions of the construction sector for residential and commercial buildings.

Business Strengths

We believe the following attributes are important factors in our ability to compete effectively and to achieve our long-term financial objectives:

Centralized Inventory Management

We believe our significant scale enables us to centrally manage our inventory, permitting us to more effectively manage inventory levels at each store while still providing a significant breadth of equipment and parts inventories to our customers throughout our footprint. Moreover, our floorplan financing capacity enables us to opportunistically purchase and carry inventory to satisfy market demands.

Superior Customer Service at the Local Level

Our centralization of numerous administrative functions better positions our employees in the field to focus on customer service. We believe that the following capabilities enable us to better service our customers:

• our ability to staff a large number of highly-trained service technicians across our network of stores, which makes it possible to schedule repair services on short notice without affecting our technician utilization rates;
• our ability to staff and leverage product and application specialists across our network of stores, which makes it possible to offer valuable pre-sale and aftermarket services, including equipment training, best practices education and precision farming technology support; and
• our ability to innovate and lead our industry through initiatives such as precision farming and farm data management products and services, which provide our customers with the latest advances in technology and operating practices.

We spend significant time and resources training our employees to effectively service our customers in each of our local markets. Our training program involves active participation in all manufacturer-sponsored training programs, the use of industry experts for customized training programs, and a centralized training team to assist in training programs and the integration of newly-acquired dealerships. We partner with many technical colleges to offer scholarships and sponsor students who we plan to eventually employ as service technicians. We also offer a federally regulated and approved service technician apprenticeship program that provides our employees with the opportunity to obtain a national, industry recognized credential through full-time on-the-job-training with us.

Ability to Act on Acquisition Opportunities

We believe that our experienced management team and access to capital enable us to be opportunistic in responding to accretive growth opportunities, primarily arising from the continued consolidation of the equipment dealer network.

Professional Centralized Marketing Systems

Our centralized shared resource group based in our corporate headquarters includes a professional marketing team that supports all aspects of brand and solution awareness, customer analytics and targeting, and lead generation through multichannel campaigns that typically incorporate digital marketing (email, website, search, display, social and syndication), direct mail, and regional and local advertising and sponsorships. Our marketing functions also drive increased customer engagement and loyalty by administering a consistent customer Net Promoter Score process and through participation in trade shows and industry events and communication and coordination for local store open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings.

Ability to Attract and Retain Superior Employees

We recognize that attracting and retaining talented employees is essential to achieving outstanding company performance. We strive to develop our employees through a structured training program and to invest in our employees’ development. In addition, we have robust compensation tools that allow us to react to rapidly changing market conditions and reward employees for high performance. We believe that our efforts in these areas will enable us to attract and retain superior employees necessary for us to be successful in our industry. See “Human Capital”.

Diverse and Stable Customer Base Reduces Market Risk

Our large geographic footprint covering thirteen U.S. states, four European countries and three Australian states provides a diversified customer base. We believe that this diverse customer base reduces the potential impact of risks associated with customer concentration and fluctuations in local market conditions. During fiscal 2024, none of our customers accounted for more than 1.0% of our total revenue. Revenue from customers located outside of the United States is primarily included in our Europe and Australia segments, which represented 13.8%, 13.5% and 18.6% of total consolidated revenue during fiscal 2024, 2023 and 2022, respectively.

Experienced Management Team

Our executive team is led by Bryan Knutson, our Chief Executive Officer who was appointed on February 1, 2024, and has over 20 years of industry experience at our Company ranging from equipment sales to executive positions. David Meyer, Chief Executive Officer up to February 1, 2024, has over 40 years of industry experience as a founder of our Company and will serves as the Company’s Executive Chairman during the 2025 fiscal year. Robert Larsen, Chief Financial Officer, has 15 years of industry and other finance leadership experience having worked at CNH Industrial, Raven Industries, and PricewaterhouseCoopers prior to joining the Company. Our other executive team members, managers in the field, and equipment sales consultants also have extensive knowledge and experience in our industry. We compensate, develop and review our managers and sales employees based on an approach that aligns their incentives with the goals and objectives of our Company, including achievement of revenue, profitability, market share and balance sheet objectives. We believe the strength of our management team assists in our success in the marketplace.

Growth Strategy

We pursue the following growth strategies:

Increasing Same-Store Sales and Market Share

Increasing same-store sales and market share are among our top priorities. This type of growth enhances our current period sales revenue and increases our potential future revenue given the potential for recurring parts and service business during the life of the sold equipment. We seek to generate growth in same-store sales and market share through the following:

• employing significant marketing and advertising programs, including targeted direct mailings, Titan website efforts, internet based marketing, advertising with targeted local media outlets, participation in and sponsorship of trade shows and industry events, regular direct mail advertising, and by hosting open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings.
• supporting and providing customers with training on evolving technologies, such as precision farming and farm data management, which can be difficult for small dealers to make available;
• maintaining state-of-the-art service facilities, mobile service trucks and trained service technicians to maximize our customers’ equipment uptime through preventative maintenance programs and seasonal 24/7 service support; and
• centrally managing our inventory to optimize the availability of equipment and parts for our customers.

Strategic Acquisitions

Since January 1, 2003, we have completed over 60 acquisitions located in 15 U.S. states, four European countries and three Australian states. In addition, we have added dealership locations in Ukraine through new start-up operations. The agricultural and construction equipment dealership industries are fragmented and consist of many relatively small, independent businesses serving discrete local markets. We believe a favorable climate for dealership consolidation will continue to exist in the future due to several factors, including the competitiveness of our industry, increased dealer capitalization requirements, increased sophistication and complexity of equipment and related technologies, increased expectations from our customers and our equipment suppliers, and the lack of succession alternatives for many current owners. We intend to pursue acquisitions with the objectives of consolidating distribution within our existing footprint, entering new markets, and strengthening our competitive position. We expect that strategic acquisitions will continue to be a component of our long-term growth strategy.

We regularly assess the acquisition landscape, evaluating potential acquisitions in terms of availability and alignment to our long-term growth strategy. Typically, in an acquisition, we have acquired only the working capital and fixed assets that we believe are necessary to run an efficient store, and we do not generally assume any indebtedness. On occasion, we have acquired all of the outstanding equity of a company. Acquisitions are typically financed with available cash balances, floorplan payable line of credit capacity, and long-term debt.

The consent of CNH Industrial is required to acquire any CNH Industrial dealership. Additionally, the consent of our lender group, consisting of a number of national and regional banks (the “Bank Syndicate”), is required for acquisitions over certain thresholds or other criteria as defined in our credit agreement.

Suppliers

CNH Industrial—Case IH Agriculture, Case Construction, New Holland Agriculture and New Holland Construction

CNH Industrial is a publicly-traded, global leader in the agricultural and construction equipment industries. In 2023, CNH Industrial generated $22.1 billion in revenue from its equipment operations. CNH Industrial is the world’s second largest manufacturer of agricultural equipment, manufacturing the Case IH Agriculture and New Holland Agriculture brands of equipment. Case IH Agriculture, recognized by the red color of its equipment, possesses over 170 years of farm equipment heritage. New Holland Agriculture, recognized by the blue color of its tractors and the yellow color of its harvesting and hay equipment, has over 120 years of farm equipment industry experience. The Case Construction and New Holland Construction brands are also owned and operated by CNH Industrial.

In fiscal 2024, CNH Industrial supplied approximately 75% of the new equipment sold in our Agriculture segment, 81% of the new equipment sold in our Construction segment, 51% of the new equipment sold in our Europe segment and 58% of the new equipment sold in our Australia segment. In addition, CNH Industrial provides financing and insurance products and services to our end-user customers through its affiliate CNH Industrial Capital America, LLC (“CNH Industrial Capital”).

Our relationship with CNH Industrial is more than a typical supply relationship; it is strategic for both our Company and CNH Industrial. In that regard, we believe that it is in each company’s interest to maintain and develop the longstanding strong relationship we share.

Dealership Agreements

We have separate dealership agreements with CNH Industrial to sell and service the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands (collectively the “CNH Industrial Dealer Agreements”). Separate CNH Industrial Dealer Agreements exist for each of our North American stores or store complexes, for each of the European countries in which we operate and for our Australian operations. The structure of the North American, European and Australian agreements are very similar. Except as noted, the following discussion describes each of the North American CNH Industrial Dealer Agreements.

Our Case IH commercial sprayer application distribution rights were granted to us in connection with our acquisition of Heartland Ag in fiscal year 2023. For our full-line distribution dealer locations, these distribution rights are granted through amendments to our full-line dealer agreements adding floaters and sprayers as authorized products permitted to be sold to commercial application customers. For our non-full-line dealer locations, our distribution rights are set forth in new Case IH dealer agreements granting us distribution rights to sell floaters and sprayers to commercial application customers. For purposes of this Form 10-K, the granted distribution rights for the commercial application sprayers and floaters in territories without full-line dealer locations are referred to as the “Non-Full-Line Footprint Commercial Application Distribution Rights”.

Each of the CNH Industrial Dealer Agreements assigns to us a geographically defined area of primary responsibility, providing us with distribution and product support rights within the identified territory for specific equipment products. Although the dealer appointment is non-exclusive, in each territory there is typically only one dealer responsible for retail sales to end-users and for after-sales product support of the equipment. If we sell certain CNH Industrial construction equipment outside of our designated sales and service areas, CNH Industrial has the right to require that we pay sales and service fees for purposes of compensating the dealer assigned to such territory. We are authorized to display and use CNH Industrial trademarks and trade names at our stores, with certain restrictions.

Under our CNH Industrial Dealer Agreements, we have both the right and obligation to sell CNH Industrial equipment and related parts and products and to provide customers with repair services. The CNH Industrial Dealer Agreements impose various dealer standards on us regarding the location and appearance of facilities, satisfactory levels of new equipment and parts inventories, the training of personnel, adequate business enterprise and information technology systems, adequate working capital, a maximum adjusted debt to tangible net worth ratio, development of annual sales and marketing goals, and furnishing of monthly and annual financial information to CNH Industrial. We must obtain the approval or consent of CNH Industrial in the event of proposed fundamental changes to our ownership, governance or business structure (defined as “change in control” events) including, among other things, (i) a merger, consolidation or reorganization, unless securities representing more than 50% of the total combined voting power of the successor corporation are immediately owned, directly or indirectly, by persons that owned our securities prior to the transaction; (ii) a sale of all or substantially all of our assets; (iii) any transaction or series of transactions resulting in a person or affiliated group acquiring 30% or more of the combined voting power of our securities or, in the case of a competitor of CNH Industrial, acquiring 20% or more of the combined voting power of our securities; (iv) a substantial disposition of shares of our common stock by certain named executives; (v) certain significant changes in the composition of our Board of Directors (the “Board”); and (vi) replacement of our Chief Executive Officer. The CNH Industrial Dealer Agreements do not establish mandatory minimum or maximum retail pricing for our equipment, parts, or service offerings.

The Case IH Agricultural dealership agreement and the Case Construction dealership agreement have fixed terms expiring on December 31, 2027, and renew automatically for successive 5-year terms unless either party notifies the other party of its intention not to renew or otherwise exercises its termination rights under the agreement. The New Holland dealership agreement is a 12-month agreement, with automatic 1-year renewals unless either party notifies the other party of its intention not to renew or otherwise exercises its termination rights under the agreement. The Non-Full-Line Commercial Application Distribution Rights expire on August 1, 2030, at which time these distribution rights are ceded back to Case IH, unless the term thereof is further extended by the parties.

If we sell a portion of our commercial sprayer application business related to the Non-Full-Line Commercial Application Distribution Rights prior to the expiration date of August 1, 2030 (or such later date as agreed to by the parties), then we are required to pay to CNH Industrial the sales consideration paid by such buyer for the applicable commercial application distribution rights; provided that Titan would receive sales consideration from the buyer in an amount not less than the fair value of the facilities, fixed assets, current assets, and other investments applicable to the location and market being sold. If we acquire a Case IH full-line dealer location within any of the territories for which we then possess the Non-Footprint Commercial Application Distribution Rights, as part of its approval process, Case IH may require Titan to pay an agreed upon amount for the inclusion of the commercial application sprayer distribution rights in the new dealer agreement for the acquired location.

CNH Industrial has the right to terminate its dealer agreements with us immediately in certain circumstances, including in the event of (i) our insolvency or bankruptcy, (ii) a material breach by us of the provisions of a CNH Industrial Dealer Agreement or (iii) our failure to secure the consent of CNH Industrial prior to the occurrence of a “change in control” event. The CNH Industrial Dealer Agreements governing Case Construction equipment grant CNH Industrial the right to terminate these CNH Industrial Dealer Agreements for any reason upon 120 days prior written notice. In addition, we have the right to terminate any of the CNH Industrial Dealer Agreements at any time, with or without cause, upon 60 days prior written notice. Subject to protections provided under state dealer protection laws, in the event that CNH Industrial offers a new dealer agreement or an amendment to the existing CNH Industrial Dealer Agreements to all authorized CNH Industrial dealers located in the state, CNH Industrial is permitted to terminate our existing CNH Industrial Dealer Agreements for stores located in that state upon at least 180 days prior written notice if we refuse or otherwise fail to enter into such new agreements or amendments. In addition, to the extent CNH Industrial determines that we are not meeting our obligations under the CNH Industrial Dealer Agreement with respect to a particular product, CNH Industrial may, upon 60 days prior written notice to us, remove such product from the authorized product list allowed to be sold or serviced by us. In the event of termination of any of the CNH Industrial Dealer Agreements, CNH Industrial is obligated to repurchase the inventory of the CNH Industrial brand applicable to the agreement being terminated. The CNH Industrial Dealer Agreements generally do not include non-compete provisions that apply during or after the term of such agreements or limit our operations apart from our designated CNH Industrial dealership store locations. Our CNH Industrial Dealer Agreements for Case Construction equipment, absent consent of CNH Industrial, restrict our ability to sell competing products (new equipment and parts) of other manufacturers at our Case dealership store locations during the term of such agreements. Our CNH Industrial Dealer Agreements require us to operate any material business activities not related to sales of CNH Industrial products or services to customers in agricultural, construction, industrial or similar markets separately from our CNH Industrial dealership business.

CNH Industrial and other equipment suppliers frequently provide to its dealers interest free financing on equipment purchases. The interest free periods are for varying terms but generally less than 6 months. Generally, payment for parts purchased from CNH Industrial entities is due within 30 days. CNH Industrial makes available to us any floorplan programs, parts return programs, sales or incentive programs or similar plans or programs it offers to its other dealers and provides us with promotional items and marketing materials.

The CNH Industrial Dealer Agreements for our international operations, with the exception of Ukraine and Australia, grant to us exclusive territories. In both Europe and Australia, we are restricted in our ability to sell competing products in our assigned territories. Our CNH Industrial Dealer Agreements for our European and Australian operations do not have a fixed term. CNH Industrial can terminate these agreements immediately in certain circumstances constituting cause, and for any reason upon 24 months’ prior written notice in Europe and consistent with franchise law notice requirements in Australia.

Other Suppliers

In addition to products supplied by CNH Industrial, we sell a variety of new equipment and parts supplied by other manufacturers. These products tend to address specialized niche markets and complement the CNH Industrial products we sell by filling gaps in the CNH Industrial line of products. We believe our offering of products for specialized niche markets supports our goal of being a one-stop solution for our customers’ equipment needs at each of our stores. Approximately 29% of our total new equipment sales in fiscal 2024 resulted from sales of products manufactured by companies other than CNH Industrial, with our single largest manufacturer other than CNH Industrial representing approximately 3% of our total new equipment sales during fiscal 2024. The terms of our arrangements with these other suppliers vary, but most of the dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period, which is typically 30 days. Payment and financing practices with these other suppliers are similar to those practices described above with respect to CNH Industrial.

Customers

Our North America agriculture customers vary from small, single machine owners to large farming operations to large commercial application operations, primarily in the states of Idaho, Iowa, Kansas, Missouri, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming. In fiscal 2024, no single agriculture customer accounted for more than 2.0% of our Agriculture revenue.

Our construction customers include a wide range of construction contractors, public utilities, forestry, energy companies, farmers, municipalities and maintenance contractors, primarily in the states of Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. They vary in size from small, single machine owners to large firms. In fiscal 2024, no single construction equipment customer accounted for more than 3.0% of our Construction revenue.

Our European customers vary from small, single machine owners to large farming operations, primarily in the countries of Bulgaria, Germany, Romania, and Ukraine. We also sell Case Construction equipment in Bulgaria and Romania. In fiscal 2024, no single European customer accounted for more than 1.0% of our Europe revenue.

Our Australian customers vary from small, single machine owners to large farming operations, primarily in the states of New South Wales, South Australia, and Victoria. In fiscal 2024, no single Australian customer accounted for more than 4.0% of our Australia revenue.

Floorplan Payable Financing

The cost of floorplan payable financing is an important factor affecting our financial results. CNH Industrial Capital offers floorplan payable financing to CNH Industrial dealers to finance the purchase of inventory from CNH Industrial and for used equipment inventory purchased on trade-ins from our customers. CNH Industrial Capital provides this financing in part to enable dealers to carry representative inventories of equipment and encourage the purchase of goods by dealers in advance of seasonal retail demand. CNH Industrial Capital charges variable market rates of interest based on the prime rate on balances outstanding after any interest-free periods and receives a security interest in inventory and other assets. Interest-free periods are generally four months in duration for both new and used agriculture and construction equipment. As of January 31, 2024, we had a $875.0 million floorplan credit facility with CNH Industrial Capital.

In addition to the CNH Industrial Capital floorplan line of credit, as of January 31, 2024, we also had a $275.0 million wholesale floorplan line of credit under the Bank Syndicate Agreement, and a $80.0 million credit facility with DLL Finance LLC that can be used to finance inventory purchases. In addition, we have other lines of credit offered by various financial institutions as well as floorplan payable financing programs offered by manufacturers and suppliers, or their third party lenders, from which we purchase equipment inventory.

Sales and Marketing

We currently market our products and services through:

• our sales employees, who operate out of our network of local stores and call on customers in the markets surrounding each store;
• our store parts managers and service managers, who provide our customers with comprehensive after-market support;
• our website, including a parts e-commerce website
• local and regional advertising efforts, including broadcast, cable, direct mail, print and web-based media, and social media channels; and
• alternative channels, such as auctions, for selling our aged equipment inventories.

Equipment Sales Consultants and Centralized Support

Our equipment sales employees (who we refer to as “equipment sales consultants”) perform a variety of functions, such as servicing customers at our stores, calling on existing customers, and soliciting new business at farming, construction and industrial sites. We develop customized marketing programs for our sales force by analyzing each customer group for profitability, buying behavior and product selection. All members of our sales force are expected to participate in internal and external manufacturer-sponsored training sessions to develop product and application knowledge, sales techniques and financial acumen. Our shared resources group provides centralized sales and marketing support for our field operations, and coordinates centralized media buys, strategic planning, sales support, training, and manages advertising reimbursement opportunities from our suppliers. In addition, we enable our regional and area managers and their sales teams to develop localized sales and marketing strategies.

Parts Sales Managers and Service Managers

Our parts sales managers and service managers at our stores are involved in our efforts to market our parts and service offerings, taking advantage of our seasonal marketing campaigns in parts and service sales. Much of our focus on aftermarket campaigns is promoting proactive equipment inspections designed to spot and address mechanical issues before they result in costly downtime. Other proactive aftermarket initiatives include offering extended warranty and equipment maintenance packages with the equipment we sell. We believe these efforts result in improved customer experience and reduced cost of ownership for our customers as well as securing a steady and reliable stream of aftermarket sales.

Website

Our website, www.titanmachinery.com (http://www.titanmachinery.com), is the central hub for all our marketing campaigns. We have built a large amount of content related to the equipment we sell and service, the technology used by our customers in conjunction with the equipment, and information about our Company and what we have to offer prospective employees. Used equipment inventories are one of the most highly trafficked sections of our website. Customers can search and view equipment based on type, manufacturer, price and/or store location. Pictures and descriptions of each piece of equipment are displayed, along with the equipment specifications, price and store location. Parts manufactured by the CNH Industrial brands and other suppliers are marketed and can be purchased directly through our website. Other sales and financing programs are also marketed through our website. Customers can view construction rental equipment rates and specifications on the website and submit rental requests by completing a simple form. All external job openings are listed as well as detailed information about our apprenticeship and internship programs, tech school sponsorships and other student programs. Finally, our website provides dealer locator search functions and contact information for the various departments at each of our stores.

Print, Broadcast and Web-Based Advertising Campaigns

Each year we initiate numerous targeted direct mail, print and broadcast advertising and marketing campaigns. CNH Industrial and other suppliers periodically provide us with advertising funds, which we primarily use to promote new and used equipment, parts, proactive service offerings including uptime inspections and preventative maintenance, and financing programs.

Channels for Selling Aged or Excess Equipment Inventory

In certain circumstances, we sell aged equipment inventories through the use of alternative channels such as onsite and online auctions.

Competition

The agricultural and construction equipment sales and distribution industries are highly competitive and fragmented. Our competitors range from multi-location, regional operators to single-location dealers and include dealers and distributors of competing equipment brands, including Deere, Caterpillar, Kubota, and the AGCO brands, as well as other dealers and distributors of the CNH Industrial family of brands. Competition among equipment dealers, whether they offer agricultural or construction products or both, is primarily based on the price, value, reputation, quality and design of the products, technology, customer service including repair and maintenance service provided by the dealer, the availability of equipment and parts, and the proximity of stores. While we believe we compete favorably on each of these competitive factors, our sales and margins may be impacted by (i) aggressive pricing competition by equipment manufacturers or their dealers, (ii) our ability to obtain higher service margins based on our service quality and reputation, and (iii) our ability to attract new and retain existing customers based on the availability and quality of the products we offer and our local relationships and reputation.

We are one of the established regional-scale agricultural and construction equipment dealers in the United States. The number of other agricultural and construction equipment dealers operating on a regional scale is limited. Our primary regional-scale competitors include RDO Equipment Co., Butler Machinery Company, Ziegler Inc., Brandt Holdings Co., Wagner Equipment Co., 21st Century Equipment, LLC, AKRS Equipment Solutions, Inc., C & B Operations, LLC, and Van Wall Equipment, Inc.

Corporate Information

We were incorporated as a North Dakota corporation in 1980 and reincorporated in Delaware in December 2007 prior to our initial public offering. Our executive offices are located at 644 East Beaton Drive, West Fargo, ND 58078-2648. Our telephone number is (701) 356-0130. We maintain a website at www.titanmachinery.com (http://www.titanmachinery.com). We make available, free of charge, copies of our annual report on Form 10-K (the "Form 10-K"), quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on our website, www.titanmachinery.com (http://www.titanmachinery.com), as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the Securities and Exchange Commission ("SEC"). We are not including the information on our website as a part of, or incorporating it by reference into, this Form 10-K.Our SEC filings are also available at www.sec.gov (http://www.sec.gov).

Intellectual Property

We have registered trademarks for certain names and designs used in our business and have trademark applications pending for certain others. We operate our North American and European stores under the Titan Machinery name, and plan to convert our Australian stores to the Titan brand in the near future. Case IH, Case and New Holland are registered trademarks of CNH Industrial, which we are authorized to use pursuant to the terms of the CNH Industrial Dealer Agreements. We also license trademarks and trade names from other suppliers of equipment to us.

Product Warranties

Product warranties for new equipment and parts are provided by the original equipment manufacturer (“OEM”). The term and scope of these warranties vary greatly by OEM and by product. At the time equipment is purchased, we also offer customers the option of purchasing extended warranty protection provided by the OEM or through various third-party warranty providers. We are paid by the OEM for repairs we perform on equipment under warranty. We generally sell used equipment "as is" and without OEM warranty unless the original warranty period has not expired and is transferable. We also offer extended warranty programs on certain used equipment through various third-party warranty providers.

Seasonality & Weather

The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and our cash flow to fluctuate during the year. Our customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons. For farmers, the busy seasons are the planting and harvesting seasons. For construction customers, the busy season is typically the second and third quarters of our fiscal year for much of our footprint, subject to weather conditions. Our parts and service revenues are typically highest during our customers' busy seasons as well, due to the increased use of their equipment during this time, which generates the need for more parts and service work. Weather conditions impact the timing of our customers' busy times, which may cause our quarterly financial results to differ between fiscal years. In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

Seasonal weather trends, particularly severe wet or dry conditions, can have a significant impact on regional agricultural and construction market performance by affecting crop production yields and the ability to undertake construction projects. Weather conditions that adversely affect the agricultural or construction markets would have a negative effect on the demand for our products and services.

In addition, numerous external factors such as credit markets, government subsidies, commodity prices, production yields, input costs, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations.

Human Capital

We recognize that our success is highly dependent upon the talents and dedication of our employees, an inclusive and engaged workforce composed of individuals with diverse backgrounds and ideas, and the maintenance of a healthy and safe work environment.

Employee Recruitment and Inclusion

We strive to attract the best talent from a variety of sources to meet the current and future needs of our business. We have established relationships with many high schools, trade schools and colleges across our footprint, which we utilize as a source for entry-level talent. We also actively look to the armed forces for opportunities to hire hard-working, responsible veterans. Additionally, we believe it is incumbent upon all of our managers to continuously monitor their local markets for experienced individuals who might be successful additions to our organization. We seek a workforce that reflects the communities in which we operate, and strive to create diverse, equal and inclusive workplaces where our employees have the opportunity to achieve their full potential. Our Compensation Committee annually reviews our diversity and inclusion strategy which includes various initiatives across our footprint to recruit minorities, women, and veterans, as we attempt to diversify our workforce. We also strive to build a culture of inclusion that leverages the strengths of all of our employees. From new hire orientation to management and leadership training, we are focused on developing global mindsets, breaking unconscious biases and demonstrating the business case for diversity across the Company.

Compensation Programs and Employee Benefits

We conduct regular assessments of our pay and benefit practices. Our compensation programs are designed to attract, retain, motivate and reward employees who must operate in a highly competitive, fast-paced environment. In general, our compensation programs consist of competitive, market-based salaries or hourly rates, commissions for employees in front-line customer facing sales roles, cash performance bonuses, long-term equity-based incentives for eligible employees, health, dental, and vision insurance benefits, an employee wellness program to promote and reward healthy lifestyles, health savings and flexible spending accounts, a 401(k) plan, paid time off, family leave, an employee assistance program which provides mental health and wellness services, tuition assistance, and other benefit programs. Programs and benefits differ for our international operations for various reasons, such as national and local legal requirements, economic conditions, and market practices.

Training and Development

We devote significant resources to staff training and development, including tuition assistance for career-enhancing academic programs. Our training and development programs are designed to facilitate the development and advancement of talent from within our organization to ensure we continuously fill our ranks with qualified employees for critical positions in the organization. Employees are supported for growth within their current positions through technical and skill-specific training. They are also offered development programs that can assist employees with movement into leadership positions or transitioning to other positions within the Company. Members of our training and development team collaborate with employees from our various operations teams to identify our strategic training needs and prioritize the development of appropriate training content.

Employee Engagement and Retention

We conduct periodic comprehensive employee surveys designed to monitor overall employee engagement and identify actions that can be taken to improve our employees’ motivation and job satisfaction. Data collected in the periodic employee surveys is used to track progress against our internal goals and identify areas of interest and concern for our employees. Our performance review process also stresses employee engagement by providing employees and managers a format to discuss more intentionally how an employee fits into a particular role, a team, and the Company as a whole. Through these performance review discussions, employees can see the bigger picture of how their individual positions and teamwork tie together to impact the Company and ultimately our shareholders.

Management continually monitors employee turnover data, which is supplemented with additional data from exit surveys, to assist in determining the reasons for voluntary employee terminations. The turnover rate of our service technicians is also monitored closely by management, as the retention of skilled service technicians is critical to our success. Demand for service technicians across the country is very high, and turnover in this role is also traditionally high for all equipment dealers.

Health and Safety

Employee health and safety is of paramount importance to us. We strongly believe that a safe work environment will help us gain a competitive advantage, and that doing what is right, honest and ethical is essential to developing trust with our partners. Through proactive management, training, and employee accountability, we strive to embed safety into every level of our Company. This includes providing a safe place to work, safety training relevant to the employee's position, and following all safety and environmental regulations. Our tiered safety/risk management program promotes active employee engagement at all levels across our footprint. Our program is overseen by our Human Resources Department and managed at the enterprise level by our EHS Manager and assisting team who in turn directly collaborate with individual store coordinators to communicate new policies and directives, respond to questions and incidents, conduct mandatory monthly safety meetings, and provide on-site training. We ensure that safety performance data is tracked, aggregated, and reviewed on an ongoing basis across our organization. Our risk/management team collects data on recordable injury rates, serious injury rates, and near misses from each of our facilities, and engages in a root cause analysis and identifies corrective action to prevent future occurrences. The results are shared with employees at respective store locations, and the data is reviewed monthly by the executive leadership team and shared with the Board on a quarterly basis.

Performance Management

We have developed an employee performance management program that is consistently applied throughout our U.S. operations. The core goal of our performance management process is to develop and maintain a high-performing organization that is positioned to meet our business objectives. Our performance management program focuses on enabling staff employees and their managing supervisors to gain alignment through:

• structured, role specific goals that align with business objectives and our Company values giving our employees clear insight into how their position impacts their team, location and the Company
• clear, organization-wide expectations that managers and staff employees monitor progress of their performance and goals with regular coaching sessions, periodic evaluations; and
• semi-annual performance discussions that allow for employees and their supervisors to have effective conversations regarding contributions to their role, teamwork, customer experience and professional development opportunities.

Commitment to Core Values and Ethical Culture

Our employees are guided by our corporate core values of: “Our People”, “Integrity”, “Excellence”, and “Teamwork.” We promote these values from the top down. In every business decision and transaction, we expect our employees and business partners to do the right thing by conducting business with integrity, while complying with all laws, rules and standards of conduct that apply to our Company in the many countries where we do business. In addition, we promote a commitment to ethics and compliance through our Code of Ethics and Business Conduct that addresses issues such as protection and proper use of Company assets, compliance with applicable laws and regulations, accuracy and preservation of records, accounting and financial reporting, conflicts of interest, and insider trading. We regularly train our employees on these policies and expect their full compliance.

Community Engagement

We are committed to being a good neighbor and supporting the communities where we are located. We encourage our employees to share the same commitment, and we assist them in this mission by offering annual paid volunteer time to support charities and community service projects. We also offer annual paid time off for employees who are active volunteers in their local fire departments or first responder programs.

Employees

As of January 31, 2024, we employed 3,338 people on a full-time basis, 2,282 in the U.S., 721 in Europe and 335 in Australia, and an additional 266 part-time employees. We do not regularly use independent contractors in our business operations. To date, we have not experienced any work stoppages as a result of labor disputes, and we consider our relationship with our employees to be good. Our employees are not covered by a collective bargaining agreement.

Environmental and Other Governmental Regulation

We are subject to a wide range of environmental laws and regulations, including those governing discharges into water, air emissions, storage of petroleum substances and chemicals, handling and disposal of solid and hazardous wastes, remediation of various types of contamination, and otherwise relating to health, safety and protection of the environment.

Our business involves the generation, use, handling, and disposal of hazardous or toxic substances and wastes and the use of above ground and underground storage tanks (ASTs and USTs). Operations involving the management of wastes and the use of ASTs and USTs are subject to requirements of the Resource Conservation and Recovery Act, analogous state statutes, and their implementing regulations. Pursuant to these laws, federal and state environmental agencies have established approved methods for handling, storing, treating, transporting, and disposing of regulated substances and wastes with which we must comply.

We also are subject to laws and regulations governing responses to any releases of contamination at or from our facilities or at facilities that receive our hazardous wastes for treatment or disposal. The federal Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes, can impose strict and joint and several liability for cleanup costs on those that are considered to have contributed to the release of a "hazardous substance."

We also are subject to the federal Clean Water Act, analogous state statutes, and their implementing regulations which, among other things, prohibit discharges of pollutants into regulated waters without permits, require containment of potential discharges of oil or hazardous substances, and require preparation of spill contingency plans.

Global climate concerns related to greenhouse gas emissions have led to varying degrees of international and domestic legislative and regulatory responses. While the Australian government is further investigating the potential adoption of increased disclosures related to climate change and mitigation efforts, the European Union (EU) recently adopted the European Sustainability Reporting Standards (ESRS) and the Corporate Sustainability Reporting Directive (CSRD) that will require robust disclosure of certain social and environmental information and data. We expect to be subject to these disclosure requirements for our European entities starting in 2026 and must include our non-European operations starting in 2029. In addition, the SEC recently adopted enhanced disclosure requirements for public companies regarding climate change risks and we expect to be subject to these new SEC climate change disclosure rules starting in 2026.

We have incurred, and will continue to incur, costs and capital expenditures to comply with these environmental laws and regulations. We believe that our operations currently are conducted in substantial compliance with all applicable regulations. None of our dealerships has been subject to any material liabilities in the past, nor do we know of any fact or condition that would result in any material liabilities being incurred in the future.

In addition to the environmental regulations discussed above, we are subject to numerous federal, state, and local laws regulating the conduct of our business, including those relating to sales and marketing, taxation, employment practices, working conditions, data privacy, and corruption. The foreign countries and domestic states that we operate in, subject us to a significant number of regulatory jurisdictions. We believe that we are currently in material compliance with laws and regulations applicable to our business operations.

The following risks should be considered in conjunction with Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, including the risks and uncertainties described in the forward-looking statements, and our financial statements and the related notes appearing under Item 8, Financial Statements and Supplementary Data, of this Form 10-K. The following is a cautionary discussion of risks, uncertainties and assumptions that we believe are material to our business. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results. Some of these risks and uncertainties could affect particular revenue sources or segments, while others could affect our full business. Although risks are organized by headings, and each risk is discussed separately, many are interrelated. Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You should, however, consult any subsequent disclosures we make from time to time in materials filed with the SEC.

Risks Related to our Reliance on CNH Industrial

We are substantially dependent upon CNH Industrial, our primary supplier of equipment and parts inventory.

The substantial majority of our business involves the sale and distribution of new equipment and aftermarket parts supplied by CNH Industrial and the servicing of equipment manufactured by CNH Industrial. In fiscal 2024, CNH Industrial supplied approximately 75% of the new equipment sold in our Agriculture segment, 81% of the new equipment sold in our Construction segment, 51% of the new equipment sold in our Europe segment and 58% of the new equipment sold in our Australia segment, and supplied a significant portion of our parts inventory. The success of our stores, and our business as a whole, is dependent on CNH Industrial in several key respects.

First, we rely on CNH Industrial for new equipment and parts inventory. Our ability to maintain or grow market share is dependent on CNH Industrial’s ability to design, manufacture, allocate and deliver to our stores at the right time high quality and desirable products that compare favorably to those of our principal competitors in terms of price, quality, functionality, features, connected and digital solutions, and autonomy. Supply chain issues, labor disputes such as strikes, and labor shortages have in the past, and could in the future, diminish the manufacturing output of CNH Industrial's plants, resulting in our stores not receiving inventories in the expected or required quantities and timelines necessary to satisfy customer demand. Any failure of CNH Industrial to offer competitive products, or delays in bringing strategic new products to market or delivery of ordered products to our stores could have a material adverse effect on our business, results of operations and financial condition.

Second, CNH Industrial supports our business by providing inventory financing, financial assistance and marketing support including the following:

• Floorplan payable financing for the purchase of a substantial portion of our equipment inventory;
• Retail financing used by many of our customers to purchase CNH Industrial equipment from us;
• Incentive, financing, and discount programs offered from time to time that enable us to price our products more competitively; and
• Promotional and marketing activities on national, regional and local levels.

Our financial performance is dependent on CNH Industrial's continued commitment to these offerings, at a level that allows us to be competitive in our markets.

Third, CNH Industrial provides product warranties and, in some cases, extended warranties to our customers. Our stores perform warranty work for equipment under these product warranties, and we direct bill CNH Industrial as opposed to invoicing the customer. At any particular time, we have significant receivables from CNH Industrial for warranty work performed. CNH Industrial’s commitment to its product warranties is important to both our market share success and our warranty related parts and service revenue.

CNH Industrial may be adversely impacted by global economic conditions and economic downturns, industry declines, natural disasters, labor strikes or similar disruptions, changes in interest rates, energy prices, inflation, financial performance and liquidity concerns, supply shortages or rising raw materials costs, failed strategic initiatives, or other adverse events. Our business, results of operations, and financial condition could be materially adversely affected as a result of any event that has a materially adverse effect on CNH Industrial.

Furthermore, our financial performance and future success are highly dependent on the overall reputation, brand and success of CNH Industrial in the agricultural and construction equipment manufacturing industries, including its ability to maintain a competitive position in product innovation, product quality, and product pricing.

The terms of our CNH Industrial dealer agreements subject us to restrictions that may adversely impact our business.

We have entered into CNH Industrial Dealer Agreements under which we sell CNH Industrial’s branded agricultural and construction equipment, along with aftermarket parts and repair services. Subject to applicable state statutes that may govern the dealer-manufacturer legal relationship, CNH Industrial may terminate our CNH Industrial Dealer Agreements immediately in certain circumstances, following written notice and cure periods for certain breaches of the agreement, and for any reason under our Case Construction agreement following 120 days' prior written notice. If CNH Industrial were to terminate all or any of its CNH Industrial Dealer Agreements with us, our business would be severely harmed.

Furthermore, CNH Industrial may unilaterally change its operating practices under the terms of the CNH Industrial Dealer Agreements to, among other things, change or authorize additional dealers in our sales and service areas, change its distribution system to the detriment of its dealers like us, limit our product offerings, and change pricing or delivery terms. If CNH Industrial were to change the terms of our CNH Industrial Dealer Agreements or its operating practices in a manner that adversely affects us, our business and results of operations would be harmed.

Our CNH Industrial Dealer Agreements impose significant obligations and restrictions on us.

Under our CNH Industrial Dealer Agreements, we are obligated to actively promote the sale of CNH Industrial equipment within our designated geographic areas of responsibility, fulfill the product warranty obligations of CNH Industrial (subject to CNH Industrial’s payment to us of the agreed upon reimbursement), maintain adequate facilities and workforce to service the needs of our customers, maintain equipment and parts inventories at the level deemed necessary by CNH Industrial to meet sales goals as stated in the annual business plan mutually agreed upon by us and CNH Industrial, maintain adequate working capital, and maintain stores only in authorized locations.

Consent of CNH Industrial is required for certain material changes in our ownership, governance or business structure, including the acquisition by any person or group of persons of 30% or more of our outstanding stock or 20% or more of our outstanding stock if the acquiring person or group is a competitor of CNH Industrial. This requirement may have the effect of discouraging a sale or other change in control of the Company, including transactions that may be in the best interests of our stockholders.

The acquisition of additional CNH Industrial geographic areas of responsibility and store locations in our Agriculture, Construction, Europe and Australia segments requires the consent of CNH Industrial under our CNH Industrial Dealer Agreements. CNH Industrial may decline, in its sole discretion, to consent to any acquisition of an additional CNH Industrial store location we may pursue. If CNH Industrial is unwilling to consent to any future proposed acquisition of additional dealerships, our ability to execute our acquisition strategy and grow our business may be impaired.

Our CNH Industrial Dealer Agreements require us to operate any material business activities not related to sales of CNH Industrial products or services to customers in agricultural, construction, industrial or similar markets separately from our CNH Industrial dealership business. In addition, our CNH Industrial Dealer Agreements for domestic Case Construction equipment and our CNH Industrial Dealer Agreements for international Case Construction equipment prohibit us from carrying other suppliers' products (new equipment and parts) at our domestic and international Case Construction stores that are competitive with CNH Industrial's products, unless consented to by CNH Industrial. These restrictions may discourage or prevent us from pursuing activities that we believe will grow our business.

Risks Related to Economic Conditions Affecting our Customers' Demand for our Products and Services

Our agriculture equipment sales are significantly affected by net farm income, which is influenced by factors over which we have no control.

Farmers' capital expenditures often follow a cyclical pattern, with increased equipment purchases typically occurring during boom cycles spurred by high net farm income and strong farmer balance sheets. Net farm income is influenced by factors such as:

• the price of agricultural commodities and the ability to competitively export agricultural commodities;
• the cost of farm inputs including value of land, seed, fertilizer, fuel, labor and other inputs;
• the demand for food products and other products made with farm commodities such as biofuels;
• the availability of stocks from previous harvests; and
• agricultural policies, including aid and subsidies to agricultural enterprises provided by governments, policies impacting commodity prices or limiting the export or import of commodities, and alternative fuel mandates.

In addition to macroeconomic drivers of net farm income, local growing conditions also influence farmers’ buying sentiment. Therefore, droughts, excess rain, hail, and other unfavorable climatic conditions affecting certain geographic regions will adversely impact the local farmers’ buying sentiment.

The nature of the agricultural industry is such that a downturn in equipment demand can occur suddenly, resulting in negative impacts on dealers in the form of declining revenues, reduced or negative profit margins, excess new and used equipment inventories, lower inventory turns, and increased floorplan interest expenses. These downturns may be prolonged, and during these periods, our revenues and profitability could be harmed, including severely.

Demand for our parts and repair services, although not as cyclical as equipment purchases, also can be negatively affected in agricultural industry downturns and in regions affected by adverse weather or growing conditions, which result in fewer acres planted or harvested.

Our construction equipment sales are affected by several market factors over which we have no control.

Our construction equipment customers primarily operate in the natural resource, construction, transportation, agriculture, manufacturing, industrial processing and utilities industries. The construction equipment market is influenced by factors such as:

• the amount and timing of public infrastructure spending;
• the level of new residential and non-residential construction; and
• the amount of capital spending in oil and gas, forestry, agriculture and mining.

The construction industry in many of our geographical areas has experienced periodic, and sometimes prolonged, economic down cycles. During these downturns, our revenues and profitability could be adversely impacted.

Inflationary increases to cost of equipment combined with higher interest rates may negatively impact our customers' equipment purchasing decisions.

Many of our customers finance their equipment purchases. The ability to obtain affordable financing is an important part of a customer's decision to purchase agricultural or construction equipment. Periods of elevated inflation and increased interest rates will increase financing costs and installment payment obligations of our customers, which may make equipment purchases less affordable for customers and impact or delay purchasing decisions and, as a result, our revenue and profitability may decrease.

Risks Related to the Competitive Conditions of the Equipment Distribution Industry

The equipment distribution market is subject to sudden supply-demand imbalances arising from factors over which we have no control, which can affect our equipment sales and margins.

Over-production of equipment by one or more manufacturers, or a sudden reduction in demand for equipment, can dramatically disrupt the equipment market, cause downward pressure on our equipment profit margins and increase our carrying costs of higher inventory levels. Customer leasing arrangements in the agriculture and construction equipment industries may also impact the level of industry-wide equipment inventory supplies. When leased equipment comes off lease, there may be an increase in the availability of late-model used equipment, which can create a used equipment inventory over-supply condition and put pressure on our used equipment sales and margins, and have an adverse effect on values of our used equipment inventory and rental fleet equipment. Similarly, rental house companies engage in regular sales of rental fleet units, which can further disrupt the supply-demand balance in the used equipment department. We have no control over or ability to significantly influence any of the foregoing factors affecting the equipment distribution markets.

Our industry is highly competitive.

The agricultural and construction equipment distribution (including parts and service) and rental industries are highly competitive and fragmented, with large numbers of companies operating on a regional or local basis. Historically, our competitors have competed aggressively on the basis of pricing or inventory availability, resulting in decreased margins on our sales to the extent we choose to match our competitors' pricing. To the extent we choose not to match or remain within a reasonable range of our competitors' pricing, we may lose sales and market share. In addition, to the extent CNH Industrial's equipment manufacturer competitors (such as Deere, Caterpillar, Komatsu, Volvo Group, and AGCO) provide their dealers with more innovative or higher quality products, lower cost products, better customer financing, or have more effective marketing programs, or the CNH Industrial reputation is tarnished in the marketplace or with our customers, our ability to compete and our results of operations could be adversely affected. In addition, e-commerce companies selling parts have negatively impacted dealers' parts sales and margins, and we expect that this competitive pressure will continue to increase in the future.

The recent agreements of equipment manufacturers, including CNH Industrial, to provide farmers and independent repair shops access to diagnostic tools, combined with an enactment of proposed right to repair legislation, could negatively impact our repair services business.

Proposed state and federal legislation has been introduced, including in states in our footprint, that generally would require the manufacturers of products to provide the purchaser and/or independent repair technicians with documents, diagnostic software, and other information that would allow the equipment to be repaired without having it returned to the dealer for repair. Separately, the American Farm Bureau Federation and CNH Industrial brands, Case IH and New Holland, signed a memorandum of understanding in March 2023 (the “Memorandum of Understanding”) that allows farmers and independent repair shops to access CNH Industrial's brand manuals, tools, product guides and information to self-diagnose and self-repair machines, as well as provides support from CNH Industrial brands for farmers and independent repair shops to directly purchase diagnostic tools. The Memorandum of Understanding follows a similar format as agreed to by Deere in January 2023 which, in turn, follows the auto industry format. It is difficult to predict the long-term impact that right to repair legislation, if enacted in any area of our footprint, or the Memorandum of Understanding, will have on our repair services business.

Risks Related to Supply Chain

Our business has been adversely impacted by supply chain distributions.

Our business has been adversely impacted by supply chain disruptions which has caused variability and unpredictability in lead times. Starting in calendar year 2020, our suppliers experienced significant disruptions in upstream supply chain production and shipping delays. This caused lead times from our suppliers to extend beyond normal time frames. Recently, these disruptions have largely been mitigated and lead times have condensed back down to normal levels. When lead times condense, our manufacturers may be able to produce and deliver more of our orders in a shorter period of time than originally anticipated, causing variability in our inventory balances from quarter to quarter or year over year.

Risks of International Operations

Our international operations expose us to risks and uncertainties.

We currently operate dealership locations in Bulgaria, Germany, Romania, Ukraine and Australia. In fiscal 2024, total Europe and Australia segment revenues were 13.8% of our consolidated total revenue. As of January 31, 2024, total Europe and Australia segment assets were 25.4% of our consolidated total assets.

Our operations in international markets subject us to risks and uncertainties arising from the differing legal, political, social and regulatory environments and economic conditions in the countries in which we operate. These risks include:

• difficulties in implementing our business model in foreign markets and operating our business across a significant number of different time zones;
• costs and diversion of domestic management attention related to oversight of international operations;
• unexpected adverse changes in export duties, currency or payment controls that impact our ability to repatriate funds from the country, quotas and tariffs and difficulties in obtaining import licenses;
• cyclicality of demand in European Union member states for agricultural equipment, based on availability of European Union government subsidy programs and tax incentives;
• unexpected adverse changes in foreign laws or regulatory requirements;
• compliance with a variety of tax regulations, foreign laws and regulations;
• compliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, and other U.S. laws that apply to the international operations of U.S. companies which may be difficult and costly to implement and monitor, can create competitive disadvantages if our competitors are not subject to such laws, and which, if violated, may result in substantial financial and reputational harm;
• fluctuations in foreign currency exchange rates to which we are exposed may adversely affect the results of our operations, the value of our foreign assets and liabilities and our cash flows;
• the laws of the European countries in which we operate, unlike U.S. states, do not include specific dealer protection laws and, therefore, we may be more susceptible to actions of suppliers that are adverse to our interests such as termination of our dealer agreements for any reason or installing additional dealers in our designated territories; and
• geopolitical or economic instability in the regions in which we operate, including the impact of the Russian invasion of Ukraine.

The Russian-Ukraine conflict has presented significant challenges and risks for our Ukraine operations.

The Russian military occupation of Ukraine has significantly disrupted our Ukrainian operations. While all of our Ukrainian stores are open, the outcome of the Russian military operation remains unclear, and we cannot predict the impact this conflict will have on our Ukrainian operations. In fiscal 2024, revenues of our Ukrainian subsidiary were 1% of the Company total Revenue and as of January 31, 2024, the assets of our Ukraine subsidiary were 2% of the Company’s total Net Assets. The military conflict and related political instability, if it intensifies, may make it impossible for us to effectively operate our Ukraine dealerships, which may result in our decision to cease operations in Ukraine. This would result in asset write-offs and a loss in revenues and profits. See additional information in Note 1 to the Consolidated Financial Statements at Item 8, Financial Statements and Supplementary Data, of this Form 10-K. Even if we continue operations, the military conflict has significantly impacted, and we expect that it will continue to impact, our customers' liquidity and purchasing decisions for our products and services. If no crops are planted or a growing season is negatively impacted, this occurrence will limit our Ukrainian subsidiary's ability to generate cash and repay outstanding debt, and as a result of imposed currency exchange controls and other restrictions, restrict our ability to manage our cash held in Ukraine and our investment in our Ukrainian business. The military intervention has disrupted our Ukrainian work force, with certain employees being called to active military duty and other employees leaving the country and working remotely. Additional risks related to our operations in Ukraine, likely made more acute by the impact of the military conflict, include further devaluation of the local currency, increased interest rates and increased inflation.

These factors, in addition to others, have negatively impacted our Ukrainian subsidiary's financial condition and results of operations in fiscal year 2024 and may continue to impact our business in Ukraine in future periods, including on a more acute basis.

Risks Related to Financial Matters

Our financial performance is dependent on our ability to effectively manage our inventory.

Our dealership network requires substantial inventories of equipment and parts to be maintained at each store and Company-wide to facilitate sales to customers on a timely basis. Our equipment inventory has traditionally represented a significant portion of our total assets. We need to maintain a proper balance of new and used equipment to assure satisfactory inventory turnover and to minimize floorplan financing costs.

Our orders for the purchase of new equipment and parts are based primarily on projected demand. If actual sales are materially less than our forecasts, for example because of a significant drop in net farm income, weather disruptions in our agricultural growing regions, or a construction industry recession, we would experience an over-supply of new equipment and parts inventory. An over-supply of new equipment inventory will generally cause downward pressure on our product sale prices and margins, decrease our inventory turns, and increase our floorplan financing expenses.

Our used equipment is generally acquired as trade-ins from customers in connection with equipment sales to those customers. Equipment inventories are stated at the lower of cost or net realizable value. Adjustments to market value of inventory are recognized as a cost of sales, negatively impacting earnings, in the periods in which they occur. Our estimates of net realizable value for our used equipment, as determined at the time of the trade-in or in connection with an acquisition of a new dealership, may prove to be inaccurate, given the potential for sudden changes in market conditions and other factors beyond our control. Moving from our normal retail marketing channel to more aggressive marketing channels for specific pieces or categories of equipment inventory, particularly as equipment inventory ages, will generally result in lower sales prices. Pricing and other terms of sale of used equipment can be significantly adversely affected by the limited market for certain types of used equipment.

Our level of indebtedness could limit our financial and operational flexibility.

As of January 31, 2024, our indebtedness included floorplan payable financing, real estate mortgage financing arrangements that are secured by real estate assets and other long-term debt. In addition, we have obligations under our lease agreements for many of our store locations and corporate headquarters. Our level of indebtedness could have important consequences. For example, it could:

• increase our vulnerability to adverse economic and industry conditions;
• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; and
• limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes.

We expect to use cash flow from operations and borrowings under our credit facilities to fund our operations, debt service and capital expenditures. However, our cash flow and ability to borrow depends on our future performance, which will be affected by financial, business, economic and other factors, many of which may be beyond our control.

The credit agreements governing our indebtedness restrict our ability to engage in certain corporate and financial transactions, and require us to satisfy financial covenants.

The credit agreements governing our indebtedness contain covenants that, among other things, may limit or place conditions on our ability to:

• incur more debt;
• make investments;
• create liens;
• merge, consolidate, or make certain acquisitions;
• transfer and sell assets, or divest of dealership stores;
• pay dividends or repurchase stock; and
• issue equity instruments.

Our credit facilities with CNH Industrial Capital, DLL Finance, and certain of our real estate lenders require us to satisfy a net leverage ratio and fixed charge coverage ratio on an ongoing basis, measured at the end of each fiscal quarter. Under the Bank Syndicate Agreement, if our excess availability (i.e., borrowing base capacity less outstanding loan balance and certain reserves) falls below a certain threshold, we become subject to a minimum fixed charge coverage ratio. Our ability to borrow under these credit agreements depends upon compliance with these financial covenants.

Our failure to satisfy any covenant, absent a waiver or amendment, would cause us to be in default under our credit facilities and would enable our lenders to accelerate payment of the outstanding indebtedness. Each of our credit agreements include cross-default provisions which state that certain types of defaults under any other indebtedness agreement will also constitute a default under that credit agreement. If an event of default occurred, and the lender demanded accelerated payment, we may not be able to satisfy a pay-off request, whether through internal funds or new financing.

Our variable rate indebtedness exposes us to interest rate risk.

A substantial portion of our floorplan and working capital borrowings, including the credit facilities with CNH Industrial Capital, the Bank Syndicate, DLL Finance, and our international floorplan facilities are at variable rates of interest and expose us to interest rate risk. As such, our results of operations are sensitive to movements in interest rates. There are many economic factors outside our control that have in the past and may, in the future, impact rates of interest including publicly announced indices that underlie the interest obligations related to a certain portion of our debt. Factors that impact interest rates include governmental monetary policies, inflation, recession, changes in unemployment, the money supply, and international instability impacting domestic and foreign financial markets. Any increases in interest rates could have an adverse effect on our results of operations.

We are in the process of implementing a new enterprise resource planning (“ERP”) system, and problems with the design or implementation of this ERP system could interfere with our business and operations.

We are engaged in the implementation of a new ERP system. The ERP system is designed to accurately maintain our books and records and provide information to management important to the operation of our business. Our ERP transition has required, and will continue to require, the investment of significant human and financial resources. We have, and may continue to experience, challenges as we work toward the completion of the ERP conversion. Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company’s ability to operate successfully and efficiently, including our ability to prepare timely and accurate SEC filings. If we are unable to successfully implement the new ERP system as planned, our financial position, results of operations and cash flows could be negatively impacted.

Moreover, if the ERP system does not effectively collect, store, process, and report relevant data for the operation of our business (whether due to equipment malfunction or constraints, software deficiencies, cybersecurity attack, and/or human error), our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows and the timeliness with which we report our internal and external operating results.

The agricultural and construction equipment industries are highly seasonal, which can cause significant fluctuations in our results of operations and cash flow.

The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and cash flows to fluctuate during the year. Farmers generally purchase agricultural equipment and service work in preparation for, or in conjunction with, the planting and harvesting seasons. Construction equipment customers’ purchases of equipment and service work, as well as rental of equipment, are also seasonal in our stores located in colder climates where construction work slows significantly in the winter months. In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of farmers’ funds from completed harvests and construction customers' funds from completed projects. Also, numerous external factors such as credit markets, commodity prices, weather conditions, and other circumstances may disrupt normal purchasing practices and customers’ sentiment, further contributing to the seasonal fluctuations.

We are exposed to customer credit risks.

We extend credit to our customers for parts and service work, rental charges, and also for some equipment sales in our domestic and international operations. If we are unable to manage these credit risk issues adequately, or if a large number of customers experience financial difficulties at the same time, our credit losses could increase above historical levels and our operating results would be adversely affected. Delinquencies and credit losses generally would be expected to increase if there was a worsening of economic conditions in any of our reporting segments.

Our rental operations subject us to risks including increased maintenance costs as our rental fleet ages, increased costs of new replacement equipment we use in our fleet, and losses upon disposition of rental fleet units.

Our rental fleet margins are materially impacted by utilization of fleet assets, which is seasonal and can fluctuate materially due to weather and economic factors. If our rental equipment ages, the costs of maintaining that equipment, if not timely replaced, will likely increase. The cost of new equipment for use in our rental fleet could also increase due to increased material costs for our suppliers or other factors beyond our control. Furthermore, changes in customer demand could cause some of our existing equipment to become obsolete and require us to purchase new equipment at increased costs.

Upon the sale of a rental fleet unit, we include in operating income the difference between the sales price and the depreciated value of the equipment sold. The market value of any given piece of rental equipment could be less than its depreciated value at the time it is sold. The market value of used rental equipment depends on several factors, including:

• market prices for like equipment;
• hours and condition of the equipment;
• time of year that the equipment is sold;
• the supply of used equipment in the market; and
• general economic conditions.

Any significant decline in the selling prices for used rental equipment, or increased costs resulting from our rental operations, could have an adverse effect on our results of operations and cash flows.

Tax Rates and New Tax Legislation - Changes in tax rates or the adoption of new tax legislation may affect our results of operations, cash flows and financial condition.

The Company is subject to taxes in the U.S. and a number of foreign jurisdictions where it conducts business. The Company’s effective tax rate has been and may continue to be affected by changes in the mix of earnings in jurisdictions with differing statutory tax rates, changes in the valuation of deferred tax assets, and changes in tax laws or their interpretation, such as the 15% global minimum tax under the Organization for Economic Cooperation and Development ("OECD") Pillar Two, Global Anti-Base Erosion Rules. In addition, the U.S. government could adopt changes to international trade agreements, tariffs, taxes and other related regulations. If the Company’s effective tax rate were to increase, or if the ultimate determination of the Company’s taxes owed is for an amount in excess of amounts previously accrued, the Company’s results of operations, cash flows and financial condition could be adversely affected.

Climate and Weather Risks

Weather conditions may negatively impact the agricultural and construction equipment markets and affect our financial results.

Weather conditions, particularly severe floods and droughts, can have a significant adverse effect on growing conditions and on regional agricultural and construction markets. Adverse weather conditions may result in fewer acres being planted or harvested by farmers, reduced crop yields on those acres that are planted, and in delays or cancellations of construction projects. This in turn could result in lower demand for our agricultural and construction equipment and services and adversely affect our results of operation. Many scientific reports predict that severe weather events can be expected to become more frequent as a result of global climate change. Furthermore, the long-term impacts of climate change, whether involving physical risks (such as the extreme weather conditions discussed above) or transition risks (such as regulatory changes discussed below) are expected to be widespread and unpredictable. As severe weather events become increasingly common, our or our customers’ operations may be disrupted, which could result in increased operational costs or reduced demand for our products and services and extended periods of disruptions could have an adverse effect on our results of operations. In addition, climate change may also reduce the availability or increase the cost of insurance for weather-related events as well as impact the global economy, including as a result of disruptions to supply chains. We anticipate that climate change-related risks will increase over time.

New or more stringent greenhouse gas emission standards designed to address climate change could increase costs of the equipment we purchase from our suppliers and increase our customers’ costs of operations.

There is global scientific consensus that emissions of greenhouse gases (GHG) continue to alter the composition of Earth’s atmosphere in ways that are affecting and are expected to continue to affect the global climate. These considerations have led to certain regulatory responses, including but not limited to the EU Corporate Sustainability Reporting Directive ("CSRD") and the SEC recently finalized rules requiring public companies to make disclosures regarding climate risks and related matters. We expect to be subject to the CSRD and new SEC disclosure rules beginning in 2026. The associated compliance costs are currently uncertain, we expect that they will be substantial. Various stakeholders, including legislators and regulators, shareholders and non-governmental organizations, as well as companies in many business sectors are continuing to look for ways to reduce GHG emissions.

The regulation of GHG emissions from the equipment we sell could result in additional manufacturing costs to our suppliers who, in turn, will likely pass along those costs to us. We may not be successful in passing along the equipment price increases to our customers, which could impact our results of operation and margins. To the extent that we attempt to pass along price increases to our customers, the increased costs of equipment may negatively affect their purchasing decisions or result in their decision to purchase equipment from a different brand.

Moreover, the GHG regulations could increase other input costs for our customers, such as fuel and fertilizer, and impose indirect compliance-related costs on our customers. These economic impacts could negatively impact our customers’ purchasing decisions.

Because the impact of any future GHG legislative, regulatory or product standard requirements is dependent on the timing and design of mandates or standards, we are unable to predict with any specificity their potential impact at this time.

Risks of our Growth Strategy

If our acquisition plans are unsuccessful, we may not achieve our planned long-term revenue growth.

Our ability to grow through the acquisition of additional CNH Industrial geographic areas of responsibility and store locations or other businesses will be dependent upon the availability of suitable acquisition candidates at acceptable values, our ability to compete effectively for available acquisition candidates and the availability of capital to complete the acquisitions. We may not successfully identify suitable targets, or if we do, we may not be able to close the transactions, or if we close the transactions, they may not be profitable. In addition, CNH Industrial's consent is required for the acquisition of any CNH Industrial dealership, and the consent of our lenders may be required for certain acquisitions. CNH Industrial typically evaluates management, historical performance, and capitalization of a prospective acquirer in determining whether to consent to the sale of a CNH Industrial dealership. We may not obtain the consent of CNH Industrial or our lenders for certain acquisitions we may propose.

Our acquisitions may not be successful.

There are risks associated with acquisitions of new dealerships. These risks include incurring significantly higher than anticipated capital expenditures and operating expenses; unexpected liabilities; synergies, economies of scale and cost reductions not occurring as anticipated; failing to integrate the operations and personnel of the acquired dealerships; employee attrition at the acquired business; disrupting our ongoing business; diluting the effectiveness of our management; failing to maintain uniform standards, controls and policies; and impairing relationships with employees and customers as a result of changes in management. To the extent we do not successfully avoid or overcome the risks or problems related to acquisitions, our results of operations and financial condition could be adversely affected. Future acquisitions also may have a significant impact on our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations or result in a diversion of management's time and attention from our core business. Acquisitions could include significant intangible assets and goodwill. If the acquisitions giving rise to these intangible assets are unsuccessful, this may result in future impairment charges that would reduce our stated earnings.

Human Capital Risks

Our business success depends on attracting and retaining qualified personnel.

Our success in executing our operating and strategic plans depends on the efforts and abilities of our management team and key employees, including the managers of our field operations and our country managers in our international operations. The failure to attract and retain members of our management team and key employees will harm us.

In recent years, the equipment industry has experienced a shortage of qualified service technicians. If this trend worsens and we are not able to hire and retain qualified service technicians at acceptable levels, our ability to satisfy customers' service needs would be negatively impacted. Moreover, the technician shortage may increase our service technician compensation expense, and reduce our gross margins on service work.

In addition, in recent years it has been increasingly difficult to hire and retain employees, which we believe is primarily attributable to market conditions which in turn has created increased competition in labor markets. Difficulties in hiring and retaining employees and heightened competition for employees may impact our ability to serve customers, increase our costs, and impair our efficiency and effectiveness and our ability to pursue growth opportunities.

Labor organizing activities could negatively impact us.

Although none of our employees are covered by a collective bargaining agreement, there have been attempts to unionize our store personnel. The unionization of all or a substantial portion of our workforce could result in work slowdowns or stoppages, increased overall costs, reduced operating margins and reduced efficiency of our operations at the affected locations, and reduced flexibility in running our business competitively.

Liability Risks

Selling and renting agricultural and construction equipment, selling parts, and providing repair services subject us to liability risks that could adversely affect our financial condition and reputation.

Products sold, rented or serviced by us may expose us to potential liabilities for personal injury or property damage claims that arise from the use of those products. Our commercial liability insurance may not be adequate to cover significant product liability claims, or we may not be able to secure such insurance on economically reasonable terms. An uninsured or partially insured claim for which indemnification from the manufacturer is not available could have a material adverse effect on our financial condition or results of operations. Furthermore, if any significant claims are made against us or against CNH Industrial or any of our other suppliers, our business may be adversely affected by any related negative publicity or any adverse impact on the reputation or brand of any of our suppliers, including CNH Industrial.

Stock Price Volatility

Our common stock price has fluctuated significantly and may continue to do so in the future.

The price at which our common stock trades may be volatile and could be subject to significant fluctuations in response to our operating results and financial condition as set forth in our earnings releases, guidance estimates released by agricultural or construction equipment manufacturers that serve the markets in which we operate, announcements by our competitors, analyst recommendations, our ability to meet or exceed analysts’ or investors’ expectations, fluctuations in the price of crop commodities and natural resources, the condition of the financial markets, and other factors. Quarterly fluctuations resulting from the seasonality of our business may cause our results of operations and cash flows to underperform in relation to the expectations of financial analysts or investors, which may cause volatility or decreases in our stock price.

Data Security Risks

Security breaches and other disruptions could compromise our information systems and expose us to liability, which would cause our business and reputation to suffer.

The efficient operation of our business is dependent on our information technology systems. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, in the ordinary course of our business, we collect and store sensitive data, including proprietary business information of our customers and suppliers, as well as personally identifiable information of our customers and employees, in our data centers and on our networks. The secure operation of these information technology networks and the systems of the third parties with whom we do business and the processing and maintenance of information is critical to our operations. Despite the security measures and business continuity plans, put in place by us and our third party providers, our information technology and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions arising from power outages, telecommunication failures, terrorist acts, including state-sponsored cyberterrorism targeted at the U.S., natural disasters, or other catastrophic events. The occurrence of these events could compromise our networks or the networks of our third-party providers, and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, the rapid evolution and increased adoption of artificial intelligence technologies and the potential for abuse of these technologies by bad actors amplifies these concerns. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws that protect the privacy of personally identifiable information, disrupt our operations, and damage our reputation, which could adversely affect our business, results of operations, and financial condition. In particular, given our Europe segment operations, the European Union General Data Protection Regulation imposes stringent data protection requirements and provides significant penalties for noncompliance. In addition, as security threats continue to evolve and increase in frequency and sophistication, we may need to invest additional resources to protect the security of our systems.

We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems, and we cannot guarantee that applicable insurance will be available to us in the future on economically reasonable terms or at all. While we have experienced cybersecurity incidents in the past, to date, none have materially impacted the Company or our financial position, results of operations and/or cash flows.

Cybersecurity Risk Management and Strategy

We have implemented a cybersecurity governance program intended to assess, identify, and manage risks from threats to the security of our information, systems, and network. Our risk-based measures aim to proactively manage threats and prove the effectiveness of our internal controls.

Our cybersecurity governance program adopted the Center for Internet Security Critical Security Framework as the structure to help detect and mitigate threats through risk-based controls designed to protect Titan Machinery’s information, systems, and network.

We continuously review and seek to enhance our program as risks evolve and compliance requirements change. We use our internal security team and engage third-party cybersecurity companies. Together we conduct periodical assessments and ongoing enhancements to our cybersecurity posture and identify and remediate risks from cyber threats. The assessment includes reviewing third-party service providers periodically and before new engagements.

Security awareness training is provided to educate employees about cybersecurity threats and help them understand their responsibility in identifying, mitigating, and reporting security concerns or threats.

Along with other significant risks for the Company, we have sought to integrate cybersecurity into our enterprise risk management framework, by tracking key risk indicators, emerging risks and changes to the risk mitigation plan to achieve desired results.

Cybersecurity Governance

The Board is aware of the critical nature of managing risks associated with cybersecurity threats. The Audit Committee is responsible for board-level oversight of cybersecurity risk. The Audit Committee reports back to the full Board about cybersecurity and other areas within their responsibility.

Our cybersecurity governance program is led by our Vice President of Information Technology (“VP of IT”). The VP of IT is informed about and monitors the prevention, detection, mitigation, and remediation efforts through regular communication and reporting from professionals on the security team. Our VP of IT has been assessing and managing cybersecurity risk for the company since 2015. In total, our VP of IT has over 20 years of IT industry experience in various roles.

Team members who support our cybersecurity governance program have relevant education and industry experience. The team provides regular reports to senior management and other relevant teams on various cybersecurity threats, assessments, and findings.

Our VP of IT semi-annually and on an ad-hoc basis presents directly to the Audit Committee on cybersecurity initiatives, efforts, and security risks. The Audit Committee reports to the Board at minimum semi-annually the cybersecurity initiatives, efforts and security risks. In addition, we have an Incident Response Policy in place to inform senior management and the Board of material issues related to cybersecurity matters and to develop an appropriate response plan.

While we have experienced cybersecurity incidents in the past, to date, none have materially impacted the Company or our financial position, results of operations and/or cash flows. However, the risks from cybersecurity threats and incidents continue to increase, and the preventative actions we have taken and continue to take to reduce the risk of cybersecurity threats and incidents may not successfully protect against all such threats and incidents. We continue to invest in cybersecurity and the resiliency of our networks and to enhance our internal controls and processes, which are designed to help protect our systems and infrastructure, and the information they contain. For more information regarding the risks we face from cybersecurity threats, please see Item 1A, Risk Factors, under the heading “Security breaches and other disruptions could compromise our information systems and expose us to liability, which would cause our business and reputation to suffer.”

Equipment Stores

As of January 31, 2024, we operated 148 full service agricultural and construction equipment stores globally in the following locations:

Store Lease Arrangements

As of January 31, 2024, we leased 76 store facilities with lease arrangements expiring at various dates through April 30, 2042. Many of our lease agreements include fair market value purchase options, rights of first refusal, lease term extension options, or month-to-month or year-to-year automatic renewal provisions at the conclusion of the original lease period. A majority of the leases provide for fixed monthly rental payments and require us to pay the real estate taxes on the properties for the lease periods. We are generally responsible for utilities and maintenance of the leased premises. All of the leases require that we maintain public liability, property casualty, and personal property insurance on each of the leased premises. The leases generally require us to indemnify the lessor in connection with any claims arising from the leased premises during our occupation of the property.

We believe our owned and leased facilities are adequate to meet our current and anticipated needs.

In recent years, we have been strategically purchasing real estate of certain dealership locations, and have financed those purchases using long term debt. We currently own the store facilities for 68 U.S. dealership locations, six European dealership locations and one Australian dealership location. We have incurred debt financing and have been granted mortgages on most of those owned facilities in connection with incurring such debt financing. The remainder of our U.S. and international store locations are leased from third parties.

As part of our due diligence review prior to a dealership acquisition, we evaluate the adequacy, suitability and condition of the related real estate. Our evaluation typically includes a Phase I environmental study, and if deemed necessary, a Phase II environmental study of the real property to determine whether there are any environmental concerns. If any environmental concerns exist, we generally require that such concerns be addressed prior to acquisition of the dealership real estate.

Headquarters

We currently lease and occupy approximately 48,000 square feet in West Fargo, North Dakota for our headquarters and this lease expires on January 31, 2028. We continually review our location needs, including the adequacy of our headquarters space, to ensure our space is sufficient to support our operations. We believe there is ample opportunity for expansion in our West Fargo headquarters facility if necessary.

We are, from time to time, subject to claims and suits arising in the ordinary course of business. Such claims have, in the past, generally been covered by insurance. Management believes the resolution of other legal matters will not have a material effect on our financial condition, results of operation or cash flow, although the ultimate outcome of any such actions is not assured. Furthermore, our insurance may not be adequate to cover all liabilities that may arise out of claims brought against us.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes appearing under Item 8, Financial Statements and Supplementary Data, of this Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information with respect to our plans and strategy for our business and expected financial results, includes forward-looking statements that involve risks and uncertainties. You should review the "Information Regarding Forward-Looking Statements" in this Item 7 and "Risk Factors" presented under Item 1A for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis in this annual report.

A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2022 to fiscal year 2023 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2023, filed with the SEC on March 30, 2023.

BUSINESS DESCRIPTION

We own and operate a network of full service agricultural and construction equipment stores in the United States, Europe, and Australia. Based upon information provided to us by CNH Industrial N.V. or its U.S. subsidiary CNH Industrial America, LLC, collectively referred to in this Form 10-K as CNH Industrial, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the U.S. We operate our business through four reportable segments: Agriculture, Construction, Europe and Australia. Within each segment, we have four principal sources of revenue: new and used equipment sales, parts sales, service, and equipment rental and other activities.

The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale farming to home and garden use. The construction equipment we sell and service includes heavy construction machinery, light industrial machinery for commercial and residential construction, road and highway construction machinery, energy, and forestry operations equipment. We offer our customers a one-stop solution for their equipment needs through:

• new and used equipment sales;
• parts sales;
• equipment repair and maintenance services; and
• equipment rental and other activities.

The new equipment and parts we sell are supplied primarily by CNH Industrial. According to its public reports, CNH Industrial is a leading manufacturer and supplier of agricultural and construction equipment based on the number of units sold, primarily through the Case IH Agriculture, New Holland Agriculture, Case Construction and New Holland Construction brands. Sales of new CNH Industrial products accounted for approximately 71% of our new equipment revenue in fiscal 2024, with our single largest manufacturer other than CNH Industrial representing approximately 3% of our total new equipment revenue in fiscal 2024. We acquire used equipment for resale primarily through trade-ins from our customers and in some cases through selective purchases. We sell parts and provide in-store and on-site repair and maintenance services. We rent equipment and provide other ancillary services such as equipment transportation, GPS signal subscriptions, farm data management systems, precision farming equipment, and finance and insurance products.

Throughout our 43-year operating history, we have built an extensive, geographically contiguous network of 94 full service stores located in the United States, 39 in Europe and 15 in Australia. We have a history of growth through acquisitions, including over 60 acquisitions in 15 U.S. states, four European countries and three Australian states since January 1, 2003. We believe that there will continue to be opportunities for dealership consolidation in the future, and we expect that acquisitions will continue to be a component of our long-term growth strategy.

Certain External Factors Affecting our Business

We are subject to a number of factors that affect our business including those factors discussed in the sections in this Form 10-K entitled Item 1A, "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following:

Russia/Ukraine Geopolitical Conflict

Since the onset of the active conflict in February 2022, most of Titan Machinery Ukraine's customers have been able to continue their work, although at a reduced capacity and schedule. The Company's business systems in Ukraine have continued to function but have been, and could continue to be, negatively impacted in the future. To date, the impact of this conflict has not been and is not expected to be material to Titan Machinery’s consolidated business operations and financial performance. However, the full impact of the conflict remains uncertain and will depend on future developments, including the severity and duration of the conflicts and their impact on regional and global economic conditions. The Company will continue to monitor the ongoing conflict between Russia and Ukraine as it is highly complex and continues to evolve.

Macroeconomic and Industry Factors

Our Agriculture and International businesses are primarily driven by the demand for agricultural equipment for use in the production of food, fiber, feed grain and renewable energy. Agriculture industry factors such as changes in agricultural commodity prices and net farm income, have an effect on our customers' sentiment and their ability to secure financing for equipment purchases. Macroeconomic and industry factors that affect commodity prices and net farm income include changing worldwide demand for agriculture commodities, crop yields and supply disruptions caused by weather patterns and crop diseases, crop stock levels, production costs, and changing U.S. dollar foreign currency exchange rates. Based on U.S. Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2023 decreased 16% compared to calendar year 2022. The commodity prices of corn and soybeans, which are the predominant crops in our Agriculture store footprint, were at or near record prices in fiscal 2023 but decreased during fiscal 2024. Based on its February 2024 report, the USDA projected net farm income for calendar year 2024 to decrease 25.5%, as compared to calendar year 2023, but remain in line with the average inflation adjusted net farm income for the previous 20 years.

Our Construction business is primarily impacted by the demand for construction equipment for use in private and government commercial, residential, and infrastructure construction; demolition; maintenance; energy and forestry operations. Industry reports show that demand for construction equipment in our markets is driven by several factors, one of which is public infrastructure spending, including roads and highways, sewer and water. Any growth in federal allocations to public infrastructure spending over the next few years should positively impact our future results of operations. Likewise, any decline in federal allocations to public infrastructure spending over the next few years should negatively impact our future results of operations.

Seasonality & Weather

The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and our available cash flow to fluctuate during the year. Our customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons, which for farmers are the planting and harvesting seasons; and which for Construction customers are typically the second and third quarters of our fiscal year for much of our Construction footprint. Our parts and service revenues are typically highest during our customers' busy seasons as well, due to the increased use of their equipment during this time, which generates the need for more parts and service work. However, weather conditions impact the timing of our customers' busy times, which may cause greater than expected fluctuations in our quarterly financial results year over year. In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

Seasonal weather trends, particularly severe wet or dry conditions, can have a significant impact on regional agricultural and construction market performance by affecting crop production and the ability to undertake construction projects. Weather conditions that adversely affect the agricultural or construction markets decrease the demand for our products and services.

In addition, numerous external factors such as credit markets, government subsidies, commodity prices, production yields, input costs, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations.

Dependence on our Primary Supplier

The majority of our business involves the distribution and servicing of equipment manufactured by CNH Industrial. In fiscal 2024, CNH Industrial supplied approximately 71% of our new equipment revenue on a consolidated basis and 75%, 81%, 51%, and 58% in our Agriculture, Construction, Europe, and Australia segments, respectively, and represented a significant portion of our parts revenue. Thus, we believe the following factors have a significant impact on our operating results:

• CNH Industrial’s product offerings, reputation and market share;
• CNH Industrial’s product prices and incentive and discount programs;
• CNH Industrial's supply of inventory and ability to match demand levels and delivery timelines;
• CNH Industrial's offering of floorplan payable financing for the purchase of a substantial portion of our inventory; and
• CNH Industrial's offering of financing and leasing used by our customers to purchase CNH Industrial equipment from us.

Credit Market Changes

Changes in credit markets can affect our customers' ability and willingness to make capital expenditures, including purchasing our equipment. Tight credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets have the potential to adversely affect our business. Such disruptions in the overall economy and financial markets and the related reduction in consumer confidence in the economy, slow activity in the capital markets, negatively affect access to credit on commercially acceptable terms, and may adversely impact our customers' access to credit and the terms of any such credit. However, if retail interest rates continue to rise, our business may be negatively affected by customers who find financing purchases of our equipment less attractive due to higher borrowing costs.

Our business is also particularly dependent on our access to credit markets to manage inventory and finance acquisitions. We cannot predict what future changes will occur in credit markets or how these changes will impact our business.

Inflation

Inflationary pressures have led to rising inventory and supply costs as well as increased labor costs. To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset much of the increases and expect to continue to do so in the future.

Significant Items Impacting Our Financial Position and Results of Operations

J.J. O’Connor & Sons Pty. Ltd. Acquisition

On October 2, 2023, we acquired all of the outstanding equity interests of J.J. O’Connor & Sons Pty. Ltd. ("O’Connors"). The acquired business consisted of 15 CaseIH dealership locations and one parts center in the states of New South Wales, South Australia, and Victoria in Southeastern Australia. O'Connors has been a successful Case IH complex, and our acquisition of this entity provides the Company with the opportunity to expand our international presence into the large, well-established Australian agriculture market. Total cash consideration paid for O'Connors was $66.5 million, which was financed through available cash resources and line of credit availability. The 15 O’Connors store locations are included within our new Australia segment.

Heartland Acquisition

On August 1, 2022, we acquired all of the outstanding equity interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies"). The acquired business consisted of 12 CaseIH commercial application agriculture locations, in the states of Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, and Wisconsin. Our acquisition of these entities provides the Company with the opportunity for synergies due to overlap of our footprints, which allows us to package deals that include both commercial application equipment as well as other agricultural and construction equipment to commercial customers within our core footprint. Total cash consideration paid for the Heartland Companies was $94.4 million, which was financed through available cash resources and line of credit availability. The 12 Heartland Companies store locations are included within our Agriculture segment.

Key Financial Metrics

In addition to tracking our sales and expenses to evaluate our operational performance, we also monitor the following key financial metrics. The results of some of these metrics are discussed further throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K.

Inventory Turnover

Inventory turnover measures the rate at which inventory is sold during the year. We calculate it by dividing cost of sales on equipment for the last twelve months by the average of the month-end balances of our equipment and parts inventories for the same twelve-month period. We believe that inventory turnover is an important management metric in evaluating the efficiency at which we are managing and selling our inventories.

Same-Store Results

Same-store results for any period represent results of operations by stores that were part of our Company for the entire comparable period in the preceding fiscal year. We do not distinguish relocated or newly-expanded stores in this same-store analysis.

Absorption

Absorption is an industry term that refers to the percentage of an equipment dealer's operating expense covered by the combined gross profit from parts, service and rental fleet activity. We calculate absorption by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt. We believe that absorption is an important management metric because during economic down cycles our customers tend to postpone new and used equipment purchases while continuing to run, maintain and repair their existing equipment. Thus, operating at a high absorption rate enables us to operate profitably throughout economic down cycles.

Dollar Utilization

Dollar utilization is a measurement of asset performance and profitability used in the rental industry. We calculate the dollar utilization of our rental fleet equipment by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period. While our rental fleet has variable expenses related to repairs and maintenance, its primary expense for depreciation is fixed. Low dollar utilization of our rental fleet has a negative impact on gross profit margin and gross profit dollars due to the fixed depreciation component. However, high dollar utilization of our rental fleet has a positive impact on gross profit margin and gross profit dollars.

Key Financial Statement Components

Revenue

• Equipment: We derive equipment revenue from the sale of new and used agricultural and construction equipment.
• Parts: We derive parts revenue from the sale of parts for brands of equipment that we sell, other makes of equipment, and other types of equipment and related components. Our parts sales provide us with a relatively stable revenue stream that is less sensitive to the economic cycles that affect our equipment sales.
• Service: We derive service revenue from repair and maintenance services to our customers' equipment. Our repair and maintenance services provide a high-margin, relatively stable source of revenue through changing economic cycles.
• Rental and other: We derive other revenue from equipment rentals and ancillary equipment support activities such as equipment transportation, GPS signal subscriptions and reselling financial and insurance products.

Cost of Revenue

• Equipment: Cost of equipment revenue is the lower of the acquired cost or the net realizable value of the specific piece of equipment sold.
• Parts: Cost of parts revenue is the lower of the acquired cost or the market value of the parts sold, based on average costing.
• Service: Cost of service revenue represents costs attributable to services provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers.
• Rental and other: Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated with providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies.

Operating Expenses

Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and employee benefit costs, insurance expenses, professional fees, property rental and related costs, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental and trucking equipment).

Floorplan Interest

The cost of financing inventory is an important factor affecting our results of operations. Floorplan payable financing from CNH Industrial Capital, the Bank Syndicate Agreement, DLL Finance and various credit facilities related to our foreign subsidiaries represent the primary sources of financing for equipment inventories. CNH Industrial regularly offers interest-free periods as well as additional incentives and special offers. As of January 31, 2024, 47.9% of our floorplan payable financing was non-interest bearing.

Other Interest Expense

Interest expense represents the interest on our debt instruments, other than floorplan payable financing facilities. This includes long-term debt used to finance the purchase of real estate and vehicles.

Results of Operations

Comparative financial data for each of our four sources of revenue for fiscal 2024 and 2023 are presented below. The results include the acquisitions made during these periods. The year-to-year comparison included below is not necessarily indicative of future results. Information regarding segment revenue and income (loss) before income taxes is presented for each fiscal year following our discussion of the consolidated results of operations. Additional information regarding our segments is included in Note 21 of our consolidated financial statements.

(dollars in thousands)

The following table sets forth our statements of operations data expressed as a percentage of revenue for the fiscal years indicated.

34

Fiscal Year Ended January 31, 2024 Compared to Fiscal Year Ended January 31, 2023

Consolidated Results

Revenue

(dollars in thousands)

The increase in total revenue for fiscal 2024, as compared to fiscal 2023, was primarily the result of Company-wide same-store sales increase of 10.1% over the prior fiscal year and our acquisitions of the Heartland Companies, Pioneer Farm Equipment Co. (“Pioneer”), and O'Connors, completed in August 2022, February 2023, and October 2023, respectively. The same-store sales increase was primarily driven by equipment sales, which benefited from improved availability of inventory and the sustained high demand of both agriculture and construction equipment. In addition, parts and service same-store sales also grew in fiscal 2024 compared to fiscal 2023.

Gross Profit

(dollars in thousands)

Gross profit increased 20.8% or $91.5 million from fiscal 2023 to fiscal 2024, primarily due to higher revenue and gross profit from our equipment, parts, and service business. Gross profit margin decreased from 19.9% in fiscal 2023 to 19.3% in fiscal 2024. The decrease in gross profit margin is primarily the result of a partial normalization of equipment gross profit margin as the supply of many product categories has caught up with demand.

Our Company-wide absorption rate declined to 79.2% for fiscal 2024 as compared to 82.7% during fiscal 2023. The lower absorption rate in fiscal 2024 compared to fiscal 2023, was primarily impacted by a significant rise in floorplan interest expense in fiscal 2024, the fiscal 2023 absorption rate was also favorably impacted by a gain of $1.4 million recognized on the divestiture of our consumer products store in North Dakota in the first quarter of fiscal 2023.

Operating Expenses

(dollars in thousands)

Operating expenses for fiscal 2024 increased $61.0 million, as compared to fiscal 2023. The increase in operating expenses was primarily due to acquisitions that have occurred in the last eighteen months as well as variable expenses associated with increased sales. In fiscal 2024, operating expenses as a percentage of revenue decreased to 13.1% from 13.6% in fiscal 2023. The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in fiscal 2024 compared to fiscal 2023, which positively affected our ability to leverage our fixed operating costs.

Other Income (Expense)

(dollars in thousands)

The decrease in interest and other income (expense) compared to fiscal 2023 was primarily the result of changes in foreign currency fluctuations. The increase in floorplan interest expense for fiscal 2024, as compared to fiscal 2023, was primarily due to increased interest-bearing borrowings, resulting from higher inventory levels, as well as a higher interest rate environment. The increase in other interest expense in fiscal 2024 is the result of an increased amount of long term debt resulting from real estate purchased via acquisition or the buyout of previously leased facilities in fiscal 2023 and 2024.

Provision for Income Taxes

(dollars in thousands)

Our effective tax rate increased from 24.7% in fiscal 2023 to 25.6% in fiscal 2024. The effective tax rate for each of the years ended January 31, 2024 and 2023, is subject to variation primarily due to the impact of items related to the vesting of share-based compensation, limitation on the tax deductibility of officers' compensation and the mix of domestic and foreign income.

Segment Results

(dollars in thousands)

Agriculture

Agriculture segment revenue for fiscal 2024 increased 27.6%, or $442.5 million, compared to the same period last year. The higher revenue was driven primarily by the acquisitions of the Heartland Companies and Pioneer in August 2022 and February 2023, respectively, as well as an increase in same-store sales of 12.1%. The same-store sales increase was primarily driven by equipment sales, which benefited from improved availability of inventory and the sustained high demand for new and used equipment. In addition, same-store sales for parts and service also grew in fiscal 2024 compared to fiscal 2023.

Agriculture segment income before income taxes for fiscal 2024 improved by $18.3 million, or 17.9%, compared to fiscal 2023. The improvement in segment results was primarily the result of higher revenue partially offset by higher operating expenses due to variable expenses associated with increased sales.

Construction

Construction segment revenue for fiscal 2024 increased 7.8%, or $24.0 million, compared to fiscal 2023. When accounting for the divestitures of the North Dakota consumer products store in March 2022, same-store sales increased 8.3%. Construction activity in our footprint sustained at healthy levels, which was the primary factor in the same-store sales growth.

The Construction segment income before income taxes was $18.3 million for fiscal 2024 compared to income of $18.6 million for the prior year. The decline in segment results was primarily due to the $1.4 million gain on our consumer products store in the first quarter of fiscal 2023 which was mostly offset by an increase in same-store sales, in fiscal 2024. The dollar utilization of our rental fleet decreased from 30.2% in fiscal 2023 to 29.3% in fiscal 2024.

Europe

Europe segment revenue for fiscal 2024 increased 4.3%, or $12.8 million, compared to fiscal 2023. Revenue, net of the effect of foreign currency fluctuations, was up 2.1% or $6.2 million compared to fiscal 2023. The increase in revenue was primarily related to pricing increases in fiscal 2024 compared to fiscal 2023.

Our Europe segment income before income taxes was $16.5 million for fiscal 2024, compared to $20.2 million for fiscal 2023. The decrease in segment pre-tax income was primarily the result of increased operating expenses.

Australia

We entered into the Australian market in October 2023 with the O'Connor acquisition. Australia segment revenue for fiscal 2024 was $69.8 million. Our Australia segment income before income taxes was $4.1 million for fiscal 2024.

Shared Resources/Eliminations

We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur and cause a difference in reported shared resource expense. Shared Resource loss before income taxes was $9.0 million for fiscal 2024 compared to $6.3 million for fiscal 2023.

Liquidity and Capital Resources

Sources of Liquidity

Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan payable and other credit facilities. We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided, however, that our borrowing capacity under our credit agreements is dependent on compliance with various financial covenants as further described in Note 8, Floorplan Payable/Lines of Credit, of the Notes to our Consolidated Financial Statements included in this Form 10-K. We have worked in the past, and will continue to work in the future if necessary, with our lenders to implement satisfactory modifications to these financial covenants when appropriate for the business conditions confronted by us.

Equipment Inventory and Floorplan Payable Credit Facilities

Floorplan payable balances reflect the amount owed for new equipment inventory purchased from a manufacturer and used equipment inventory, which is primarily purchased through trade-in on equipment sales, net of unamortized debt issuance costs incurred for floorplan credit facilities. Certain manufacturers from which we purchase new equipment inventory offer financing on these purchases, either offered directly from the manufacturers or through the manufacturers’ captive finance affiliate. CNH Industrial's captive finance subsidiary, CNH Industrial Capital, also provides financing of used equipment inventory. We also have floorplan payable balances with non-manufacturer lenders for new and used equipment inventory. Borrowings and repayments on manufacturer floorplan facilities are reported as operating cash flows, while borrowings and repayments on non-manufacturer floorplan facilities are reported as financing cash flows in our consolidated statements of cash flows.

As of January 31, 2024, we had floorplan payable lines of credit for equipment purchases totaling $1.4 billion, which includes a $875.0 million credit facility with CNH Industrial Capital, a $275.0 million floorplan payable line under the Bank Syndicate Agreement, a $80.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries. Available borrowing capacity under these lines of credit are reduced by amounts outstanding under such facilities, borrowing base calculations and amount of standby letters of credit outstanding with respect to the Bank Syndicate Agreement, and certain acquisition-related financing arrangements with respect to the CNH Industrial Capital credit facility. As of January 31, 2024, the Company was in compliance with the financial covenants under its credit agreements. Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this Form 10-K.

As of January 31, 2024, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility. Please refer to Note 8, Floorplan Payable/Lines of Credit, of the Notes to our Consolidated Financial Statement included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K for further information regarding the Company's line of credit.

Our equipment inventory turnover decreased to 2.2 times for fiscal 2024 compared to 3.3 times for fiscal 2023. Our equipment inventory balance increased 104.4% from January 31, 2023 to January 31, 2024. The decrease in equipment turnover was primarily due to the increase in average equipment inventory in fiscal 2024 as compared to fiscal 2023 as we were coming off very low inventory levels in fiscal 2023, due to allocation restrictions implemented by our suppliers. Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 18.2% as of January 31, 2024, from 51.7% as of January 31, 2023. The decrease in our equity in equipment inventory is primarily due to the stocking of new equipment inventories as availability has improved, as well as drawing on our floorplan loan with the Bank Syndicate in conjunction with the O'Connors acquisition.

Long-Term Debt Facilities

As of January 31, 2024, we had a $75.0 million working capital line of credit under the Bank Syndicate Agreement (the "Revolver Loan"). The Revolver Loan is used to finance our working capital requirements and fund certain capital expenditures, as needed. As of January 31, 2024, the Company did not have a need to utilize any of the Revolver Loan, as such the outstanding balance was zero. The Company works with various lenders to finance the purchase of real estate we currently lease or are acquiring through an acquisition. The Company may also decide in the future to finance a portion of our rental fleet as well as our capital expenditures using long-term debt from various lenders.

Adequacy of Capital Resources

Our primary uses of cash have been to fund our operating activities, including the purchase of inventory and providing for other working capital needs; meeting our debt service requirements; making payments due under our various leasing arrangements; and funding capital expenditures, including the purchase of rental fleet assets. The primary factor affecting our ability to generate cash and to meet cash requirements, is our operating performance as impacted by (i) industry factors, (ii) competition, (iii) general economic conditions, (iv) the timing and extent of acquisitions, and (v) business and other factors including those identified in Item 1A, Risk Factors, and discussed in this Form 10-K.

Our ability to service our debt will depend upon our ability to generate necessary cash. This will in turn depend on our operating performance, general economic conditions, and financial, competitive, business and other factors, some of which are beyond our immediate control, and future acquisition activity. Based on our current operational performance, we believe our cash flow from operations, available cash, and available borrowings under our existing credit facilities will be adequate to meet our liquidity needs beyond the next 12 months.

In fiscal 2024, we used $10.8 million in cash for rental fleet purchases and $51.5 million in cash for property and equipment purchases and financed $17.9 million in property and equipment purchases with long-term debt and finance leases. The property and equipment purchases in fiscal 2024 primarily related to improvements to, or purchases of, real estate assets and the purchase of vehicles. In fiscal 2023, we used $10.0 million in cash for rental fleet purchases, $27.2 million in cash for property and equipment purchases, and financed $6.4 million in property and equipment purchases with long-term debt. The property and equipment purchases in fiscal 2023 primarily related to the purchase of vehicles, trucks and real estate. We expect our cash expenditures for property and equipment, exclusive of rental fleet purchases, for fiscal 2025 to be approximately $50.0 million and expect cash expenditures for our rental fleet for fiscal 2025 to be approximately $10.0 million. The actual amount of our fiscal 2025 capital expenditures will depend upon factors such as general economic conditions, growth prospects for our industry and our decisions regarding financing and leasing options. We currently expect to finance property and equipment purchases with borrowings under our existing credit facilities, financing with long-term debt, with available cash or with cash flow from operations. We may need to incur additional debt if we pursue any future acquisitions.

There can be no assurances, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available under the credit facilities with the Bank Syndicate, CNH Industrial Capital and DLL Finance in amounts sufficient to allow us to service our indebtedness and to meet our other commitments. If we are unable to generate sufficient cash flow from operations or to obtain sufficient future borrowings, we may be required to seek one or more alternatives such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. There can be no assurances that we will be able to succeed with one of these alternatives on commercially reasonable terms, if at all. In addition, if we pursue strategic acquisitions, we may require additional equity or debt financing to consummate the transactions, and we cannot give absolute assurance that we will succeed in obtaining this financing on favorable terms or at all. If we incur additional indebtedness to finance any of these transactions, this may place increased demands on our cash flow from operations to service the resulting increased debt. Our existing debt agreements contain restrictive covenants that may restrict our ability to adopt any of these alternatives. Any non-compliance by us under the terms of our debt agreements could result in an event of default which, if not cured, could result in the acceleration of our debt. We have met all financial covenants under these credit agreements as of January 31, 2024. If anticipated operating results create the likelihood of a future covenant violation, we would seek to work with our lenders on an appropriate modification or amendment to our financing arrangements.

We enter into contractual obligations in the ordinary course of business that may require future cash payments. Such obligations include, but are not limited to, debt arrangements, leasing arrangements, and costs related to Information Technology ("IT"), including ERP expenses. The Notes to the Consolidated Financial Statements provide additional information in regard to Long Term Debt (Note 10) and Leases (Note 13). Other purchase obligations consist primarily of IT related expenses with estimated cash payments of $4.1 million for fiscal 2025, as well as a combined $0.7 million for fiscal 2026, 2027, and 2028.

Cash Flow

Cash Flow (Used For) Provided By Operating Activities

Net cash used for operating activities in fiscal 2024 was $32.3 million compared to net cash provided by operating activities of $10.8 million in fiscal 2023. This decrease in operating cash flow was driven by an increase in inventories and partially offset by an increase in floorplan lines of credit from manufacturers, timing and collections of accounts receivable and higher net income for fiscal year 2024.

Cash Flow Used For Investing Activities

Net cash used for investing activities is primarily comprised of cash used for property and equipment purchases, including rental fleet purchases, and for business acquisitions.

Net cash used for investing activities was $163.4 million in fiscal 2024, compared to $134.1 million in fiscal 2023. The primarily driver was due to an increase of $25.2 million in cash used for purchases of property and equipment and increase of $7.1 million in acquisition activity compared to prior year.

Cash Flow Provided By Financing Activities

Net cash provided by financing activities was $188.6 million in fiscal 2024, compared to $22.0 million in fiscal 2023. the increase in net cash provided by financing activities was the result of increased non-manufacturer floorplan payables in fiscal 2024, as the Company drew on its Bank Syndicate Agreement floorplan loan in fiscal 2024, to finance higher inventory levels.

Critical Accounting Policies and Use of Estimates

In the preparation of financial statements prepared in conformity with U.S. generally accepted accounting principles, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the related disclosures. While we believe the estimates and judgments we use in preparing our financial statements are appropriate, they are subject to future events and uncertainties regarding their outcome and therefore actual results may materially differ from these estimates. We describe in Note 1, Business Activity and Significant Accounting Polices, of the Notes to our Consolidated Financial Statements the significant accounting policies used in preparing the consolidated financial statements. We consider the following items in our consolidated financial statements to require significant estimation or judgment.

Revenue Recognition

Equipment revenue transactions include the sale of agricultural and construction equipment and often include both cash and noncash consideration received from our customers, with noncash consideration in the form of used, trade-in, equipment assets. The amount of revenue recognized in the sale transaction is dependent on the value assigned to the trade-in asset. Significant judgment is required to estimate the value of trade-in assets. We assign value based on the estimated selling price for that piece of equipment in the applicable market, less a gross profit amount to be realized at the time the trade-in asset is sold and an estimate of any reconditioning work required to ready the asset for sale. We estimate future selling prices of trade-in assets using various external industry data and relevant internal information, and consider the impact of various factors including model year, hours of use, overall condition, and other equipment specifications. Our estimates of the value of trade-in assets are impacted by changing market values of used equipment and the availability of relevant and reliable third-party data. In instances in which relevant third-party information is not available, the value assigned to trade-in equipment is dependent on internal judgments.

Inventories

New and used equipment inventories are stated at the lower of cost or net realizable value, determined for each piece of equipment (specific identification). Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The majority of our used equipment inventory is acquired through trade-ins from our customers and is initially measured and recognized based on the estimated future selling price of the equipment, less a gross profit amount to be realized when the trade-in asset is sold and an estimate of any reconditioning work required to ready the asset for sale. Subsequent to the initial recognition, all new and used equipment inventories are subject to lower of cost or net realizable value assessments. We estimate net realizable value using internal information, management judgment and third-party data that considers various factors including age and condition of equipment, hours of use and market conditions. Generally, used equipment prices are more volatile to changes in market conditions than prices for new equipment due to incentive programs that may be offered by manufacturers to assist in the sale of new equipment. We review our equipment inventory values and adjust them whenever the carrying amount exceeds the estimated net realizable value.

Parts inventories are valued at the lower of average cost or net realizable value. We estimate net realizable value of our parts inventories based on various factors including aging and sales history of each type of parts inventory.

Impairment of Long-Lived Assets

Our long-lived assets consist primarily of property and equipment and operating lease assets. We review these assets for potential impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by comparing the estimated future undiscounted cash flows of such assets to their carrying values. If the estimated undiscounted cash flows exceed the carrying value, the carrying value is considered recoverable and no impairment recognition is required. However, if the sum of the undiscounted cash flows is less than the carrying value of the asset, the second step of the impairment analysis must be performed to measure the amount of the impairment, if any. The second step of the impairment analysis compares the estimated fair value of the long-lived asset to its carrying value and any amount by which the carrying value exceeds the fair value is recognized as an impairment charge.

When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Long-lived assets deployed and used by individual store locations are reviewed for impairment at the individual store level. Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.

During our 2024 fiscal year, we determined that events or circumstances were present that may indicate that the carrying amount of certain of our store long-lived assets might not be recoverable. The events or circumstances which indicated that certain of our store long-lived assets might not be recoverable included a current period operating loss combined with historical losses and anticipated future operating losses within certain of our stores, or an expectation that a long-lived asset (or asset group) will be disposed of before the end of its previously estimated useful life. In light of these circumstances, we performed step one of the impairment analysis for these assets, which have a combined carrying value of $11.0 million, to determine if the asset values are recoverable. In all cases, our analyses indicated that the carrying values are recoverable based on our estimates of future undiscounted cash flows under step one of the impairment analysis.

Our impairment analyses require significant judgment, including identification of the grouping of long-lived and other assets and liabilities for impairment testing, estimates of future cash flows arising from these groups of assets and liabilities, and estimates of the remaining useful lives of the long-lived assets being evaluated. Our estimates inherently include a degree of uncertainty and are impacted by macroeconomic and industry conditions, the competitive environment and other factors. Adverse changes in any of these factors in future periods could result in impairment charges in future periods which could materially impact our results of operations and financial position.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets of businesses acquired and is allocated to our reporting units at the time of the acquisition. We analyze goodwill on an annual basis and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount. We have the option of first analyzing qualitative factors to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. However, we may elect to perform a quantitative goodwill impairment test in lieu of the qualitative test. An entity must recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Subsequent reversal of goodwill impairment charges is not permitted.

When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.

We perform our annual goodwill impairment analysis as of December 31 and when an event occurs or circumstances change that may reduce the fair value of a reporting unit below its carrying amount.

In 2024, we elected to perform the qualitative test on all reporting units with the exception of our German reporting unit, which management decided to perform a quantitative assessment. Our test indicated that there is no goodwill impairment in any of our reporting units as of our annual assessment date.

We had goodwill of $64.1 million and $30.6 million at January 31, 2024 and 2023, respectively.

Income Taxes

In determining our provision for income taxes, we must make certain judgments and estimates, including an assessment of the realizability of our deferred tax assets. In evaluating our ability to realize the benefit of our deferred tax assets we consider all available positive and negative evidence, including our historical operating results and our expectation of future taxable income, the availability to implement prudent tax-planning strategies, and the carryforward periods over which the assets may be realized. These assumptions require significant judgment and estimation.

The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate. Our assessment of the need for, and magnitude of, valuation allowances for our deferred tax assets may be impacted by changes in tax laws, our assumptions regarding the ability to generate future taxable income and the availability of tax-planning strategies. Changes in any of these factors could lead to a change in the recognized valuation allowance which may impact our future results of operations and financial position.

New Accounting Pronouncements

Refer to Note 1, Business Activity and Significant Accounting Polices, of the Notes to our Consolidated Financial Statements for a description of new accounting pronouncements recently adopted or not yet adopted and the impact or anticipated impact of such pronouncements to our consolidated financial statements.

Information Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We include "forward-looking" information in this Form 10-K, including this Item 7, as well as in other materials filed or to be filed by us with the SEC (as well as information included in oral statements or other written statements made or to be made by us).

This Form 10-K contains forward-looking statements that involve risks and uncertainties. In some cases, you can identify forward-looking statements by the following words: "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "ongoing," "plan," "potential," "predict," "project," "should," "will," "would," or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information. Our forward-looking statements in this Form 10-K generally relate to the following:

• our beliefs and intentions with respect to our growth strategies, including growth through strategic acquisitions, the types of acquisition targets we intend to pursue, the availability of suitable acquisition targets, the industry climate for dealer consolidation, and our ability to implement our growth strategies;
• our beliefs with respect to factors that will affect demand and seasonality of purchasing in the agricultural and construction industries;
• our beliefs with respect to our primary supplier (CNH Industrial) of equipment and parts inventory;
• our beliefs with respect to the equipment market, our competitors and our competitive advantages;
• our beliefs with respect to the impact of U.S federal government policies on the agriculture economy;
• our beliefs with respect to the impact of commodity prices for crops, fossil fuels and other commodities on our operating results;
• our beliefs with respect to the impact of government regulations;
• our beliefs with respect to our business strengths and the diversity of our customer base;
• our plans and beliefs with respect to real property used in our business;
• our plans and beliefs regarding future sales, sales mix, and marketing activities;
• our beliefs and assumptions regarding the payment of dividends;
• our beliefs and assumptions regarding valuation reserves, equipment inventory balances, fixed operating expenses, and absorption rate;
• our beliefs and expectations regarding the impact of the Russia-Ukraine military conflict on our Ukrainian operations;
• our beliefs and assumptions with respect to our rental equipment operations;
• our beliefs with respect to our employee relations;
• our assumptions, beliefs and expectations with respect to past and future market conditions, including interest rates, and public infrastructure spending, new environmental standards, and the impact these conditions will have on our operating results;
• our beliefs with respect to the impact of our credit agreements, including future interest expense, limits on corporate transactions, financial covenant compliance, and ability to negotiate amendments or waivers, if needed;
• our beliefs with respect to the impact of increase or decrease in applicable foreign exchange rates;
• our plans and assumptions for future capital expenditures and rental fleet purchases;
• our cash needs, sources of liquidity, and the adequacy of our working capital.

While we believe that the forward-looking statements in this Form 10-K are reasonable, such statements are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results that differ materially from those contained in any forward-looking statement. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the SEC and public communications. You should evaluate all forward-looking statements made in this Form 10-K in the context of these risks and uncertainties. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

• the impact of the Russian-Ukraine military conflict on our operations in Ukraine;
• assumptions regarding our cash needs and the amount of inventory we need on hand;
• general economic conditions and construction activity in the markets where we operate;
• our dependence on CNH Industrial, our primary supplier of equipment and parts inventory, and our relationships with other equipment suppliers;
• the terms of the CNH Industrial dealer agreements that subject us to restrictions that may adversely impact our business and growth;
• the risks associated with our international operations;
• risks resulting from the implementation or design of our new ERP system;
• risks resulting from the impact of the enactment of "right to repair" legislation;
• the impact of security breaches and other disruptions to our information system;
• our level of indebtedness and ability to comply with the terms of agreements governing our indebtedness;
• the risks associated with the expansion of our business;
• the risks resulting from outbreaks or other public health crises;
• risks related to our ability to attract, train, and develop key employees necessary for our success;
• the potential inability to integrate any businesses we acquire;
• competitive pressures;
• significant fluctuations in the price of our common stock;
• risks related to our dependence on our information technology systems and the impact of potential breaches and other disruptions;
• compliance with laws and regulations; and
• other factors discussed under Item 1A, Risk Factors, or elsewhere in this Form 10-K.

You should read the risk factors and the other cautionary statements made in this Form 10-K as being applicable to all related forward-looking statements wherever they appear in this Form 10-K. We cannot assure you that the forward-looking statements in this Form 10-K will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, if at all. Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future.

We are exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices such as interest rates and foreign currency exchange rates.

Interest Rate Risk

Exposure to changes in interest rates results from borrowing activities used to fund operations. For fixed rate debt, interest rate changes affect the fair value of financial instruments but do not impact earnings or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. We have both fixed and floating rate financing. Some of our floating rate credit facilities contain minimum rates of interest to be charged. Based upon our interest-bearing balances and interest rates as of January 31, 2024, holding other variables constant, a one percentage point increase in interest rates for the next 12-month period would decrease pre-tax earnings and cash flow by approximately $3.9 million. Conversely, a one percentage point decrease in interest rates for the next 12-month period would result in an increase to pre-tax earnings and cash flow of approximately $3.9 million. At January 31, 2024, we had total floorplan payables outstanding of $893.8 million, of which $386.0 million was interest-bearing at variable interest rates and $507.7 million was non-interest bearing. In addition, at January 31, 2024, we had total long-term debt outstanding and finance lease liabilities of $122.1 million, primarily all of which is fixed rate debt.

Foreign Currency Exchange Rate Risk

Our foreign currency exposures arise as the result of our foreign operations. We are exposed to transactional foreign currency exchange rate risk through our foreign entities holding assets and liabilities denominated in currencies other than their functional currency. In addition, the Company is exposed to foreign currency transaction risk as a result of certain intercompany financing transactions. The Company attempts to manage its transactional foreign currency exchange rate risk through the use of derivative financial instruments, primarily foreign exchange forward contracts, or through natural hedging instruments. Based upon balances and exchange rates as of January 31, 2024, holding other variables constant, we believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates would not have a material impact on our results of operations or cash flows. As of January 31, 2024, our Ukrainian subsidiary had $1.0 million of net monetary liabilities denominated in Ukrainian hryvnia (UAH). We have attempted to minimize our net monetary asset position through reducing overall asset levels in Ukraine and through borrowing in UAH which serves as a natural hedging instrument offsetting our net UAH denominated assets. Many of the currency and payment controls the National Bank of Ukraine imposed in February 2022, have been relaxed, making it more practicable to manage our UAH exposure. However, the continuation of the Russia/Ukraine conflict could lead to more significant UAH devaluations, similar to the 24% devaluation that occurred in July 2022, or more stringent payment controls in the future. The inability to fully manage our net monetary asset position and continued UAH devaluations for an extended period of time, could have a significant adverse impact on our results of operations and cash flows.

In addition to transactional foreign currency exchange rate risk, we are also exposed to translational foreign currency exchange rate risk as we translate the results of operations and assets and liabilities of our foreign operations from their functional currency to the U.S. dollar. As a result, our results of operations, cash flows and net investment in our foreign operations may be adversely impacted by fluctuating foreign currency exchange rates. We believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates, holding all other variables constant, would not have a material impact on our results of operations or cash flows.

Evaluation of Disclosure Controls and Procedures. After evaluating the effectiveness of the Company's disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act as of the end of the period covered by this Form 10-K, our Chief Executive Officer and Chief Financial Officer, with the participation of the Company's management, have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are effective.

Management's Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on that evaluation, management has concluded that the Company’s disclosure controls and procedures were effective at January 31, 2024 to ensure that the information required to be disclosed by the Company in this annual report on Form 10-K is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Company’s management including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

As previously disclosed, we completed the acquisition of the O'Connors on October 2, 2023, and, as permitted by SEC guidance for newly acquired businesses, we have elected to exclude the acquired operation of the O'Connors from the scope of design and operation of our internal controls over financial reporting and procedures for the year ended January 31, 2024. O'Connors constitute 11.3% of total assets and 2.5% of total revenue of the consolidated financial statement amounts as of and for the year ended January 31, 2024. The Company is in the process of evaluating the existing controls and procedures of O'Connors and integrating O'Connors into its system of internal controls over financial reporting.

Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated financial statements included in this Form 10-K, has also audited our internal control over financial reporting as of January 31, 2024, as stated in their report included in Item 8, Financial Statements and Supplementary Data, of this Form 10-K.

Changes in Internal Control over Financial Reporting. There has not been any change in the Company's internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during its most recently completed fiscal quarter ended January 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.